Although market indicators in the 1990s pointed to organic dairy as the next fad, those farmers today are determining how to stay afloat in the midst of an oversupply.
Processors are asking organic dairy farms to limit their production until the demand rises again, forcing farmers to cut back on upgrades to their farms.
“It is always tricky predicting supply and demand,” Jay Gordon, Policy Director for the Washington State Dairy Federation (WSDF), told Lens. “It’s really a supply and demand imbalance. A few years ago, the market signals were telling everybody the organic market is growing and we need more farms.”
Organic dairy farms began emerging in the late 1990s and experienced steady growth since the early-to-mid 2000s. Now, there are approximately 52 organic dairies in Washington. Most are in Skagit and Whatcom Counties and hold around 150 cows per site.
Most producers ship through Wisconsin-based co-op Organic Valley. Processors such as Organic Valley prefer to make sure there will be enough demand before taking on a new farm, said Gordon, so they don’t have to turn around six months later to say the milk isn’t needed.
For the past two years running, the market has offered too much supply with too little demand.
“Now the processors are telling farmers to cut back and if you produce more milk, we will pay you less for it.”
Processors are incentivizing farmers to produce less organic milk by selling any excess into the conventional market.
Organic milk sells for around $23 per 100 pounds, while conventional goes for $14. Processors will tell the farmers they can only sell through the conventional market, so that’s the rate than can afford to pay.
Another challenge for organic farmers is organic feed production. Many farmers are scrambling to find good quality feed and enough of it, added Gordon.
It’s riskier to grow organic feed than conventional. “You don’t have traditional weed control and the variety of seed you can use is more limited….it means you forgo using antibiotics, pesticides and herbicides.”
Gordon is a crop farmer and says when evaluating his options, he knows the organic price is more, but there is a question as to whether the risk is worth the reward.
For now, lack of demand means organic dairy farmers have to think more conservatively when it comes to their purchases. They might replace parts of a truck instead of buying a new one or put off re-roofing a barn until prices improve.
“The first thing that stops are the capital purchases,” said Gordon. “It’s a pain to run old equipment, but all of the sudden you start running equipment and shop because you can’t afford to replace them new.”
This is the first fluctuation for the organic diary market, he added. Gordon gives credit to Organic Valley both for not overproducing for the market and for its forecasting.
Luckily, it doesn’t take much to get the product back in balance after an oversupply.
“A dairy farmer can look at their herd and take out 10 percent of the cows out of the herd, so the rest of the cows have more feed and more space, and then everything will get back in balance.
“Hopefully the demand keeps growing. More growth and a little change in supply will bring everything back in balance…the price will come up for those paying the bills.”
Dean Wesen is another Washington farmer who is hopeful for the future but is weathering the market until it improves.
“Two years ago was probably the best dairy had ever been for organic. We knew that the good times weren’t going to last forever.
“At that time, we purchased some tractors we thought we might need in the future and things like that. Now, we’ve cut back on any extra expense at all.”
Wesen and his four brothers run two Skagit County-based farms, Wesen Organic Dairy and Wesen Farms.
Wesen said one reason for the market changes is the increased popularity of butter. Part of the growth is from studies showing butter is healthier than people once thought, which is great for dairy in the long run. In the short run, however, it has caused an oversupply of nonfat dry milk.
Butter is made by taking cream out of milk, leaving excess nonfat dry milk.
“Even though butter went up, the price of nonfat dry milk has dropped drastically.
“It’s great that everyone wants butter again, but we have to figure out what to do with the milk that is left when you take the butter out. We are looking at new products…and new and innovative ways to use that product to have some value.”
Like many other farmers, Wesen and his brothers have to consider how to cut costs while their profit margins shrink.
This week, he attended a pasture meeting to discuss the most efficient ways to get more grass growth from their farm pastures.
“The most efficient way to get milk out of cows is through pasturing, so we are placing more emphasis on that,” he said.
He added that the business won’t cut back on grain too much, as it can interrupt the production cycle of a dairy cow.
Wesen said prices should improve over the next two years.
“For 30 years, Organic Valley has been made up of leaders in the industry, and I’m sure they will be able to figure things out to help the farmers out with these prices. It’s just going to take a little time.”