Long Term Profitability of Northeast Organic Dairy

Farms

Presented at the 2009 National Extension Risk Management Education ConferenceReno, NV March 31-April 1, 2009

Bob Parsons , Glenn Rogers, Dennis Kauppila University of Vermont ExtensionLisa McCrory, NOFA-Vermont

Rick Kersbergen, University of Maine

Organic Dairy in New England

• Vermont and Maine – Greatest concentration of organic dairy farms

• Maine – 65 organic dairy farms– -About 350 total

• Vermont – 210 organic dairy farms– About 1068 total

Study: To Examine and Estimate the Profitability of Organic Dairy

Farms in Vermont & Maine

• 28 Farms for 2007 (no Maine farms yet)

• 41 Farms for 2006

• 44 farms for 2005

• 30 farms in 2004

• 7 farms in 1999

What Did We Find?2004

(n=30)

2005

(n=44)

2006 (n=41)

2007 (n=28)

Milk price $22.97 $24.94 $28.84 $29.35

Milk /cow 14,060 12,619 13,455 13,152

Herd size 49 56 63 66

Milk/farm 689,000 740,100 852,800 886,627

Net revenue $28,122 $33,409 $63,970 $53,522

Key Points from 4 Years…

• Farms gradually getting bigger

• Milk per cow holding steady

• Milk price big jump for 2006

• Net revenue up with milk price in 2006

• Net revenue lower in 2007 despite higher price!!!

Expense Side of the Story?Per cwt. 2004

(n=30)

2005

(n=44)

2006 (n=41)

2007 (n=28)

Milk price $22.97 $24.94 $28.84 $29.35

Total Rev $26.15 $28.75 $34.41 $34.78

Cash Ex $19.05 $21.55 $23.70 $24.34

Accrual Ex $2.89 $3.02 $3.16 $4.30

Total Ex $22.13 $24.58 $26.85 $28.63

Net Fm Rev $4.22 $4.19 $7.56 $6.15

Fam Living $6.29 $6.64 $5.39 $5.77

What is this Showing?

• Expenses catching up to milk prices

• Net revenue declining in 2007

• Jump in Expenses– Cash expenses up 12.9% from 2005 – Accrual expenses up 42.4% since 2005

• Need to look at major expenses

Major Expense Categories

• Feed, Repairs and Supplies, Labor, Interest, Custom hire, utilities and fuel

• Major jumps in feed and fuel

• Purchased feed is 93% grain

• Above account for 80% of expenses

Now the Expenses…2005 2006 2007

Feed $7.41 $8.58 $8.63

Repairs $3.48 $3.71 $3.54

Labor $2.44 $2.74 $2.40

Interest $1.10 $1.41 $1.58

Custom $0.58 $0.98 $1.14

Utilities $1.13 $0.96 $1.12

Fuel $0.86 $0.90 $0.95

Percent Change Since 2005

2005 2007 % Change

Feed $7.41 $8.63 16%

Repairs $3.48 $3.54 2%

Labor $2.44 $2.40 -2%

Interest $1.10 $1.58 44%

Custom $0.58 $1.14 96%

Utilities $1.13 $1.12 -1%

Fuel $0.86 $0.95 13%

What are We Seeing?

• Net farm Revenue down in 2007

• Feed, Fuel up significantly

• Other expenses up as well– Custom, Interest

On a Per Cows Basis…2005 2006 2007 % change

Feed $936 $1172 $1157 23.6%

Repairs $400 $457 $461 15%

Labor $332 $371 $298 -10%

Interest $124 $179 $194 56%

Utilities $126 $126 $143 13%

Fuel $104 $122 $122 17%

How about Feed Grain Prices?

12% 16% 18%

2005 $310 $330 $349

2006 $350 $380 $395

2007 $360 $393 $412

2008 $490 $565 $598

2009 $540 $585 $620

% Change

2005 to 08

58% 71% 71%

Source: Green Mt. Feeds

For 2008…What about Feed?

• If feed is up 70%, but feed expenses up only 23% from 2005, what’s going on?

• Farmers feeding less grain per cow

• Farmers feeding lower protein mix

• Making better use of forages

• Very nervous about feed costs

• Milk prices need to go up?

What More Can Farmers Do?

• Avoiding purchased grains

• Trying to harvest better forage?

• Raising more own grain?

• Costs must be kept in line if you want profits.

• Commodity Survival: Lowest Cost Producer

Compare to Conventional Dairy?

• 2004 – Conventional more profitable

• 2005 – about the same

• 2006 – Definitely organic!

• Depends on the conventional milk price

2007 Comparison

Organic Conventional

Milk price $29.35 $20.20

Cows per farm 66 66

Milk per cow 13,152 19,609

Revenue per cow $4571 $4708

Feed per cow $1157 $960

Expenses per cow $3711 $3662

Net farm revenue $860 $1046

Aspect of Fuel Expenses: Conventional vs Organic

• Same size organic dairy farms• Cropping instead of all Grazing• 2004 - $114 vs $92 per cow basis• 2005 - $155 vs $104• 2006 - $160 vs $122• 2007 - $188 vs $122• 24, 49, 31, 54% less fuel expenses per cow

Transition Costs Based on 2007

• Assume a $16 net milk price

• Same organic expenses and production

• Net farm earnings of -$29,985– -4.5% Return on Equity

• Net cash income of -6,278 (no deprec)

• Can be done but will be costly!

Organic Demographics

• Organic farmers, younger, more educated

• Greater use of grazing

• All but 1 do not raise grain– New England Characterization

• 93% Satisfied on organic decision

• 89% plan on milking 10 yr or more

• 85% organic more profitable in long run

Current Organic Dairy Market

• Demand continues to grow (or did)– USDA reports organic sales up 19-23% in 08

• Current crisis – are people still buying

• In 2009, Hood dropping some contracts– Possibly dropping amount from other farms

• Bonus prices dropping

• Challenge of seasonal imbalance

What is Future of Organic

• Depends on economy?

• Depends on profits?

• Depends on organic milk price?

• Not Sure???

Any Questions??????

Thank You for your Coming!!!!!