It wasn’t that long ago that U.S. dairy farmers couldn’t keep up with the booming demand for organic milk. While everyone from hipsters to housewives is drinking more of the stuff than ever — and paying twice as much as for conventional milk — the days of shortages are long gone.
Production has surged so fast in the past two years that some of the surplus is being sold at a lower price without an organic label. A few dairies are just dumping what they can’t sell. The wave of new supplies reflects an expansion of cow herds by farmers seeking the hefty premiums and growing market share for organic products at a time when most Americans are drinking less milk.
Organic milk remains a niche in the $40 billion dairy industry, but it has become a staple in most U.S. supermarkets. Sales have more than doubled in a decade, prompting companies including processor Dean Foods Co. and yogurt maker Danone to add organic products. To keep up with demand, the number of cows certified to supply organic milk has increased about 20 percent in the past two years, an industry group estimates.
“You’re seeing larger-scale organic farms, and more developed transportation routes and efficiencies of scale,” said Ben Laine, senior economist at CoBank in Greenwood Village, Colo. “It’s really evolved.”
Organic products represented 5.2 percent of milk sales last year, more than double their 1.9 percent share a decade earlier, according to the U.S. Department of Agriculture. Demand is increasing even as milk sales are expected to drop for the seventh straight year, reaching the lowest in more than two decades, as Americans eat fewer bowls of cereal and favor other drinks with their meals, said Darren Seifer, a food and beverage analyst for NPD Group in New York.
That’s helped push up the price of organic milk. Certified producers received about $36.25 per 100 pounds in the 12 months through November, $19 more than what they’d get for conventional milk, USDA data show.
Organic costs more because it can take as long as three years to convert a farm to meet certification rules. Producers are required to provide cows with organic feed, forgo antibiotics and graze the animals on pastures for at least 120 days a year. The process is more expensive, and organic cows produce only about 13,000 pounds of milk in a year, compared with at least 18,000 at conventional dairies, said Ed Maltby, executive director of the Deerfield, Mass.-based Northeast Organic Dairy Producers Alliance, which represents about 750 farmers.
A growing number of farmers have figured it was worth the investment to switch, especially to a market where demand is improving. That’s led to a lot more output.
The organic surplus may reach 50 million gallons this year, according to Richard Mathews, executive director of the Western Organic Dairy Producers Alliance.
In January, the USDA reported a “backlog” of new organic producers trying to secure processing contracts. Some farmers also are now subject to quotas, receiving a conventional price for any excess over a specified volume, the agency said in a March 10 report.
“Great uncertainty remains as to how long organic milk producers will be dealing with a buyer’s market,” the department said in an April 21 report.
The timing is lousy for U.S. dairies. National milk output is expected to climb 2.3 percent this year to a record 217.3 billion pounds, the USDA estimates. Farmers are in the midst of the annual “spring flush” period, when cows produce their highest volumes of the year, and processors use the excess supply to expand inventories of cheese, butter and milk powder.
Class III milk futures have tumbled 13 percent this year on the Chicago Mercantile Exchange.
Compounding the glut is a budding trade dispute with Canada that’s halted U.S. sales north of the border. At the same time, Mexico, the biggest importer of American dairy products, is buying more from Europe and has been exploring talks with dairy powerhouse New Zealand.
Regulatory changes also played a role. The USDA in 2015 signaled that it would tighten restrictions on sourcing organic livestock, spurring farmers to add cows before the previous rules expired, according to Matthews. The proposed changes have yet to go into effect, he said.
The U.S. had 228,000 certified organic milk cows at the end of 2014, government data show. By the end of last year, that number probably increased by 40,000, said Sean Mallett, a farmer in Twin Falls, Idaho, who is also president of the western alliance. Over that period, he expanded his herd by 10 percent to 1,500 milking cows. At the request of the processor he sells to, Mallet says he is now curtailing output.
Prices are dropping in some areas. The national average price for a half gallon of organic milk was advertised at $3.99 in the week beginning April 21, down 3.4 percent from the same week a year earlier, USDA data show. That’s still well above the nonorganic varieties at $2.47.
La Farge, Wis.-based Organic Valley, the largest farmer-owned organic cooperative in the U.S., instituted a quota for its farmer members at the start of March and stopped signing up new producers, said Eric Newman, vice president of sales.
Still, Organic Valley’s milk output will increase about 5 percent this year to 1.6 billion pounds, with another 5 percent set to be added in 2018, when more new farmers complete the certified conversion, Newman said. The cooperative is retrofitting a butter and milk-powder plant in Oregon, and has joined with Dean Foods to add processing and distribution capacity.
Other producers also are expanding. Boulder, Colo.-based Aurora Organic Dairy is building a processing plant in Columbia, Mo. Danone recently acquired WhiteWave Foods Co., owner of the Horizon Organic dairy brand.
“Milk may be long right now, but it’s only a matter of time before demand catches up,” said Nate Lewis, senior crop and livestock specialist for the Washington-based Organic Trade Association.
Source: Arkansas Online