Long Term Profitability of
Northeast Organic Dairy
Farms
Presented at the 2009 National Extension Risk
Management Education Conference
Reno, NV March 31-April 1, 2009
Bob Parsons , Glenn Rogers, Dennis Kauppila
University of Vermont Extension
Lisa 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
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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?
2005
(n=44)
$24.94
2006
(n=41)
2007
(n=28)
Milk price
2004
(n=30)
$22.97
$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…
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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?
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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?
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2004 – Conventional more profitable
2005 – about the same
2006 – Definitely organic!
Depends on the conventional milk price
2007 Comparison
Milk price
Cows per farm
Milk per cow
Revenue per cow
Feed per cow
Expenses per cow
Net farm revenue
Organic
$29.35
66
13,152
$4571
$1157
$3711
$860
Conventional
$20.20
66
19,609
$4708
$960
$3662
$1046
Aspect of Fuel Expenses:
Conventional vs Organic
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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
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Depends on economy?
Depends on profits?
Depends on organic milk price?
Not Sure???
Any Questions??????
Thank You for your Coming!!!!!