The fluid dairy category is in danger of getting scalded by a combination of high prices and factors related to them. Payouts for milk have come in around $20 per hundredweight, and retail prices have averaged between $3.70 and $3.80 a gallon, according to the U.S. Department of Agriculture. In some cities, the price has gone above $4.
This is great news for conventional dairy farmers, but bad news for organic operators. Industry experts say that, with conventional prices this high, fewer and fewer farmers want to undertake the onerous three-year conversion process required to get herds certified organic by the USDA. To many, it’s just not worth the headache.
“There’s nobody out there looking to transition,” said Ed Maltby, executive director of the Northeast Dairy Producers Alliance. “And there won’t be until the price goes up or, alternatively, the conventional price drops back to where it was a year ago.”
The problem is actually twofold, according to Maltby: Conventional prices are too high, and organic prices are too low. He estimates that organic milk payouts in the Northeast average $28 per hundredweight right now — several dollars short of what farmers need to keep up with input costs. For retailers, this could mean another round of shorting, where organic processors were forced to limit the size of deliveries.
Also hurting organic dairy farmers and many others is the high cost of feed, due mainly to the ethanol boom.
“To me, that’s the major obstacle that explains the lack of conversions for not only dairy, but meat as well,” said Joe Smillie, senior vice president of organic certifying firm Quality Assurance International.
To stay afloat, many farmers have had to run through lines of credit or dip into their savings to purchase supplies, said Maltby. They’ve also started working longer hours and are trying to grow their own forage to save costs. In the hopes of raising prices, Maltby and others have appealed to manufacturers like organic yogurt maker Stonyfield Farm. Companies have responded, though not to the extent that dairy farmers would like to see.
“Supplies are tightening and we’re starting to increase our pricing to better match supply and demand,” said Greg Engles, chief executive officer of Dean Foods, which owns organic dairy manufacturer Horizon, during a recent conference call.
A bit of relief could be on the way, however: The USDA has forecast milk production to increase by 3% this year. That should smooth, and perhaps decrease, conventional prices.