long term profitability of northeast organic dairy farms presented at the 2009 national extension...
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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???