California: Organic? market? update

Annie AcMoody, Director of Economic Analysis Western United Dairymen

There is a lot going on with organic milk in California and despite the high interest for information, there is not a lot of data on organic producer pay prices. Still, USDA’s Dairy Market News provided some market information in its commodity report, reporting data from the annual meeting of a large national organic cooperative. A sign of tough times in the market, the organic coop announced its first loss in the past 20 years in 2017. Factors cited behind the loss include: “delay in lowering pay prices to organic producer members; increased inventories of organic nonfat dry milk; and slower sales than expected. The coop reports a 12 month 2018 average pay price of $30.96, with an April pay price of $29.24. This is noted to be for total solids of 12.9 percent Midwest based pricing.” According to CDFA data, gross milk receipts averaged $30.85/cwt for the fourth quarter of 2017 in California. This is based on a sample of 13 organic dairies in California. While the average seems in line with that aforementioned national average, there is a lot of variation for dairies in the sample, with the lowest gross milk receipts at $25.09/ cwt and the highest at $44.25/cwt. It is important to mention both those dairies had the lowest and the highest fat percentage in the sample, at 3.39% and 5.25% respectively (the average is 4%).

 

The wide price variations in California are not unique to the Golden State. Some producers in Wisconsin are facing similar issues, in particular as some of the organic milk there is being replaced by milk being trucked from very large organic farms in Texas. Somehow those farms manage to produce the organic milk and ship it for less than contracted prices to Wisconsin producers. USDA reports the estimated trucking costs from Texas to Wisconsin are upward of $5/cwt. To give an idea of the difference between dairies’ sizes in Texas and Wisconsin, a NASS survey showed there was 76 times more organic dairies in Wisconsin than Texas, yet Texas produced 1.3 times more milk. Put another way, the average dairy’s production in Texas was 80 million pounds, while the average dairy in Wisconsin produced 810,000 pounds.

 

Outside of the U.S, organic milk production is also growing. Germany for example grew its organic milk supply by a third in January 2018 compared to January 2017. Prices in Europe however may be a good reason behind the increase, as they remain significantly higher than the U.S. USDA reports in the Netherlands a large processor of organic milk announced a price decline in April, but this brought the price to $58.96/cwt, hardly a place to complain compared to where U.S. prices stand. This is for milk with a fat content of 4.4%

Link: http://files.constantcontact.com/7233ce19301/c52b4616-e729-41f6-8d33-527118143d3c.pdf