October 24, 2016

USDA Releases First Organic, Federal Order Mailbox Prices

 |  By: Fran Howard

Demand for organic milk is strong at the same time organic milk supplies are tightening, but seasonal tightness in the organic milk market is nothing new. Demand for organic milk often outstrips supply and it can take three years for a conventional operation to switch to organic production.

“Rising demand and periods of short supply have helped the organic milk market stave off some of the weakness that has plagued conventional milk prices over the past year,” notes Sarina Sharp, agricultural economist with the Daily Dairy Report.

USDA recently published its first-ever Federal Order mailbox milk prices for organic dairy producers that show just how much of a premium organic producers are getting. For example, Upper Midwest organic milk producers received $33.45/cwt. for their milk in June, a dime more than in June 2015. In contrast, conventional dairy producers in the region saw their June mailbox milk price drop $3.16 from June 2015 to $13.46/cwt.

In the Northeast and Pacific Northwest, however, organic milk checks fell $1.33 and $1.35, respectively, between June 2015 and June 2016, but conventional producers reported even greater declines of $2.08 in the Northeast and $1.54 in the Pacific Northwest. Overall, June mailbox prices for organic producers in both regions were more than double conventional prices at $32.16 in the Northeast and $34.54/cwt. in the Pacific Northwest. In the Southwest, organic milk prices climbed $1.53 in the 12 months ending June 2016, whereas they slumped $2.53 for conventional producers.

“The higher mailbox prices organic producers receive might not be enough to cover the steep cost of organic milk production,” Sharp says. “Many organic dairy producers contract with processors to lock in prices for longer periods, which can provide stability, but it is troublesome when the cost of production rises or organic feed supplies are in short supply.”

Due to the premium prices that organic milk commands at retail, manufacturers are often wary of passing on all of the added costs of production, which can cut into organic milk producers’ margins when feed prices are even higher than usual.

“American consumers have proven quite willing to pay a premium for organic dairy products at current price levels,” says Sharp. “Sales of organic milk in the first eight months of the year are up 5.5% compared to a year ago. Over the same period, sales of conventional milk fell 0.9%. Still, the organic market represented less than 5% of total fluid milk sales in 2015.”

The organic industry faces the same seasonal challenges that conventional producers face. “Organic producers must make enough fresh milk to meet demand year round, but then they are flooded with surplus during spring flush before output typically trails off,” Sharp says.

And while demand for organic cheese, butter, and yogurt is growing, there are fewer opportunities for organic producers to market milk powder, casein, and lactose at organic prices, she adds.