Long Term Profitability of Northeast Organic Dairy Farms Presented at the 2009 National Extension...
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Transcript of Long Term Profitability of Northeast Organic Dairy Farms Presented at the 2009 National Extension...
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???