The author is a farm financial analyst emeritus, UW-Extension Center for Dairy Profitability

Substantial reductions in conventional milk prices and shrinking profit margins have raised dairy farmer interest in converting to organic dairy production.

Research has shown that the organic system can be economically competitive. However, converting to organic dairy farming is not a guarantee of financial success.

Too many producers apparently think that converting to organic production is just a simple matter of obtaining a higher milk price without much else changing. The reality is that it typically takes producers up to three years to fully convert their land and herd to organic production. During this time, farmers may need to change a variety of production practices.

Generally speaking, the cost of production per hundredweight is typically higher in an organic system compared to a similar farm operated in a conventional manner. For the average organic producer, these higher costs have been less than the price difference between organic and non-organic milk.

Also, in 16 years of comparing summarized Wisconsin dairy farm data, the pounds of milk sold per cow by organic herds and non-organic grazing herds were 65 percent and 70 percent less than for conventional confinement herds. Consequently, part of the advantage in milk price is used up by an increased cost of production and by fewer pounds of milk sold per cow.

This economic reality has been demonstrated in most years, as organic dairy producers better able to produce most of their organic feed usually have an economic advantage over organic producers who purchase a high percentage of their organic feed.

While the market price for organic milk and for organic feed tend to move up and down as the price for conventional commodities move up and down, these feed prices don’t necessarily move at the same time or by as much.

For example, the organic milk price fell slightly in 2009, while the conventional price declined 40 to 50 percent. As a result, many organic producers that had a stable organic market had desirable financial performance in 2009 in contrast to conventional counterparts on dairy farms.

That leads up to this conclusion . . . while the organic system can offer an attractive economic alternative for those producers who are committed to the system for the long run, the organic system does not present a quick economic fix.

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(c) Hoard's Dairyman Intel 2016
September 26, 2016
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