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 28 Farms for 2007 (no Maine farms yet) 41 Farms for farms for farms in 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 /cow14,06012,61913,45513,152 Herd size Milk/farm689,000740,100852,800886,627 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… 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 % Change Feed$7.41$8.6316% Repairs$3.48$3.542% Labor$2.44$2.40-2% Interest$1.10$1.5844% Custom$0.58$1.1496% Utilities$1.13$1.12-1% Fuel$0.86$0.9513%

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… % change Feed$936$1172$ % Repairs$400$457$46115% Labor$332$371$298-10% Interest$124$179$19456% Utilities$126 $14313% Fuel$104$122 17%

How about Feed Grain Prices? 12%16%18% 2005$310$330$ $350$380$ $360$393$ $490$565$ $540$585$620 % Change 2005 to 08 58%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 OrganicConventional Milk price$29.35$20.20 Cows per farm66 Milk per cow13,15219,609 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 $114 vs $92 per cow basis $155 vs $ $160 vs $ $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!!!!!