cows in field

Pay & Feed Prices Nov/Dec 2019

By Ed Maltby, NODPA Executive Director

There’s no good news on retail sales of organic milk in the latest data from USDA. The Agricultural Marketing Service (AMS) reported estimated US sales of total fluid organic milk products decreased from a year earlier. August 2019 sales were 208 million pounds, down 6.6 percent from August 2018 and down 3.8 percent compared to January-August 2018. Organic whole milk retail sales for August 2019, 90 million pounds, were up 0.1 percent compared to a year earlier and up 2.1 percent compared with the year-to-date in 2018. Reduced fat milk (2%) sales were steady with the previous year, but declined 3.8 percent year-to-date.

Organic buyers are allowing some producers to expand their output and are looking for additional small quantities of milk in specific areas. While there is no increase on the horizon for organic pay price, the outlook for conventional dairy is more positive. The USDA’s latest forecast shows Class III prices rising to near $18 per cwt in the fourth quarter though some industry experts believe we could see $19 per cwt. The all-milk price for the fourth quarter is expected to be near $19.60. The all-milk price for the entire year is forecast at $18.40, a big improvement over last year’s $16.26. The strength of the conventional market may allow organic buyers to lift some restrictions as they find it easier to balance any over-production.

With a lot of talk about supply management, Agri-Mark has taken the plunge to better handle its own marketing and balancing of their supply. Agri-Mark, which represents more than 850 dairy farms throughout New England and New York, will charge members a five dollar per hundredweight penalty for overproducing, beginning in January. Officials say the policy is meant to slow down production in the region to more manageable levels. In a letter to farmers, Agri-Mark says increasing milk production is financially straining the co-op because regional demand has slowed. Members producing two million pounds or less annually are exempt from the rules. Nearly half of Agri-Mark’s members milk 60 cows or fewer and this action is a clear attempt to protect its member owners. Hopefully, the benefit will be shown in the “13th milk check” and shared with coop members rather than with management and infrastructure improvements; a lesson here for the organic sector.

Trickling Springs Creamery, in Chambersburg, PA ceased production of its products on Friday September 27, 2019. Trickling Springs opened in June 2001, with its founders hoping to capitalize on regional demand for high quality milk and dairy products. The founders established strict guidelines for the farms producing their milk- including requiring grass-fed, heritage breed cows and no use of synthetic hormones - and paid farms above-average prices to maintain these standards because of the regional focus. The pool of milk from their farmers was used to produce its milk, butter, cream, cheese, ice cream and other dairy products. The company was certified organic by 2002, and its products were sold throughout the Mid-Atlantic by restaurants, farm stores, food delivery services and some Wegmans supermarkets. They also had their own store and two markets in Washington DC. Since 2017, the creamery’s 22 organic dairy farms have been a reserve pool of CROPP Cooperative, shipping their milk to Trickling Springs for processing but being paid by the co-op. CROPP Cooperative is continuing its relationship with the Trickling Springs farms but is sending the milk to other plants. When the marketing arrangement was started two years ago, the creamery had decided not to use direct-shipping from organic farmers anymore, and Organic Valley was hoping to help the processor stay in business without the cost of balancing organic milk. Those farms in the reserve pool are looking for their status to be upgraded to full membership with a pay price that reflects their status. Two farms that were still directly supplying the creamery with milk for its non-GMO line have been picked up by the Lanco-Pennland Cooperative.

In November 2018, Pennsylvania’s Department of Banking and Securities proposed thousands of dollars in fines for the creamery and its owners. The agency alleged that the company had defaulted on promissory notes it had issued, and that the creamery had not given investors key details about its shaky financial health. From February 2015 to October 2017, the creamery sold 175 promissory notes totaling $7.8 million, to at least 110 investors, according to the agency. The owners, Philip Riehl, Gerald Byers, Elvin Martin and Dale Martin, face 370 counts of violating the Pennsylvania Securities Act. If found in violation, they could be ordered to return investors’ payments, be barred from selling securities in Pennsylvania, and be forced to pay the cost of the investigation plus up to $100,000 per violation. The agency held an administrative hearing on the case in July but has not yet reached a judgment, spokeswoman Dulcey Antonucci said.

The Government Accountability Office has released a report reviewing the impact of cooperative consolidation to dairy farmers. Not surprisingly the report finds dairy co-op consolidation can affect farmer’s control and earnings, lead to competing interests, and create power imbalances. The report says from 1997 to 2017, the number of dairy farms decreased by more than half while the number of cows more than doubled. Since the mid-1960s, the number of dairy co-ops has declined by 90 percent. The top four dairy co-ops, which include Dairy Farmers of America, California Dairies, Land O’Lakes, and FarmFirst Dairy Co-op, marketed more than 40 percent of the milk produced in the U.S. in 2017, mostly unchanged since 2002. If we look at the impact of CROPP Cooperative and Dairy Marketing Services (owned by DFA) on the purchasing, handling and marketing of organic milk it’s not surprising that the only time there is significant improvement in pay price is when we have new entrants, like HP Hood, or new marketing edge as with Grass Fed, that diversified the utilization of a limited supply. There is no doubt that the limited number of buyers gives organic dairy producers no leverage in determining pay price.

Wet spring weather conditions wreaked havoc on not only traditional corn and soybean acres, but their organic counterparts as well. Mercaris, a data and trading platform for organic and non-GMO markets, is tracking a significant drop in overall organic corn and soybean production. Compared to 2018, Mercaris forecasts a 12% decline in organic corn production and a 14% decline in organic soybean production related to spring weather challenges. “The production outlook for many key organic crops is expected to be down for 2019/20 following challenging growing conditions,” said Ryan Koory, Mercaris director of economics, in a recent press release. “The industry appears set to see imports escalate over the coming year as organic grain purchases look to offset reduced domestic production.” In September, Mercaris released their 2019 Organic & Non-GMO Acreage Report which estimated that farmers will harvest 3.1 million acres of U.S. land certified for organic field crop production, an increase of 7 percent over 2018.

When we do see an increase in imports, I’m hoping that the bi-partisan bill now wending its way through Congress, The Protecting America’s Food & Agricultural Act of 2019, will become law in time to increase the monitoring of organic grain imports. The bill authorizes hiring 240 agricultural specialists per year until the shortage is filled, and 200 agricultural technicians per year for administrative and support functions.

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