Are Organic Dairy Farms Profitable and Viable?
Profitability is always a topic of discussion in the organic dairy industry. However, the organic industry is growing and consumer demand is very high. In some regards, organic dairy processors do not have enough milk to meet the consumer demand. Therefore, all organic processors are looking for organic milk, and recently, there have been price wars to acquire organic milk from farmers.
The year of 2014 was a very, very good year to be dairy farming. Conventional milk prices were at record highs. Our own conventional dairy herd had milk prices approaching $30/cwt. However, we all know that what goes up must come down. Now we are looking at $17/cwt. milk and it looks like prices will average that for the upcoming few months. It may be a great time for some of you to think about transitioning to organic milk production. Currently, our milk price is $34.50/cwt.
Many producers may be concerned about the profitability of organic dairying. Well, let’s take a look at some economic data from Minnesota organic dairies. I used FinBin financial information from the Minnesota Department of Agriculture and the University of Minnesota Center for Farm Financial Management. They have collected financial data from organic dairy farms for the past few years, and I looked at a 5-year period from 2010 to 2014.
So what does the financial performance of organic dairy farms in Minnesota look like? The table below shows the performance data of organic dairy farms in Minnesota during 2014 and an average from 2010 to 2014. Also, the data for the 5 years is broken down by average herd size.
For Minnesota, organic dairy herds were profitable in 2014 with an average net income per cow of $485. The greatest expenses on organic dairy farms is purchased feed. Organic alfalfa ($447/cow), protein supplements ($295/cow), and organic corn ($268/cow) were the greatest expenses for organic dairies in 2014. Average net farm income in 2014 was high. If you subtract off-farm income and depreciation, the net farm income was $49,829, which is similar to the US median income ($50,000) and similar to a 150-cow conventional dairy based on similar FinBin data from 2014 (http://z.umn.edu/1169).
For differing herd sizes of organic dairies, all have high net income per cow and have a great return on assets. However, the data does show that for the 50 cows or less herds, non-farm income plays an important role in keeping these farms viable. The key to keeping the small organic dairy herds profitable is reducing feed costs and increasing dry matter intake from pasture to reduce those feed costs. There is room for all herd sizes in the organic dairy industry. They all create economic activity and supply milk for a growing consumer demand of organic dairy products. All organic dairy producers should understand their costs of production to improve the viability, efficiency, and ultimately, the profitability of their operation.
For those looking for information on transitioning to organic production, University of Minnesota researchers have investigated the economics of transitioning to organic dairy production. Ten farms that have transitioned are featured in a publication that addresses organic transition strategies and challenges which can be found at http://eorganic.info/toolsfortransition/reports.
So, “Are Organic Dairy Farms Profitable and Viable?” The answer is Yes, and it should be included as an option for producers to help grow the dairy industry in Minnesota.
|Table: Performance of organic dairy herds in Minnesota during 2014|
|Minnesota Organic Dairies||Herd Size|
|2014||5-year period (2010-2014)||Up to 50||50 to 100||100 to 200|
|Cows per herd||93||89||33||73||137|
|Total crop acres||297||243||119||217||352|
|Milk Price ($/cwt)||31.52||38.57||27.73||28.97||28.44|
|Milk Production (lbs)||13,791||12,991||12,309||12,228||13,052|
|Feed cost ($/cow/day)||5.30||4.39||3.67||4.34||4.39|
|Net Income ($/cow)||485||339||489||268||255|
|Average net farm income ($)||88,295||71,216||33,476||56,911||111,124|
|Return on assets ($)||6.3||6.4||5.0||5.0||7.7|