The Expected Impact of Increased Non-Organic Corn Price On Organic Corn Price And Organic Dairy Profitability In Wisconsin In 2007

Tom Kriegl, UW Center for Dairy Profitability

March 22, 2007 

            With ethanol production and other factors pushing corn prices upward, I’ve been asked if that will have much impact on the price of organic corn and therefore on the profitability of organic dairy farms in Wisconsin.

            As I will explain below, I don’t think the current non-organic corn prices will have a big impact on the profitability of most organic dairy farms in Wisconsin.  Here’s why.

1.  Wisconsin organic dairy producers tend to raise all of their feed except minerals.

2.  Because organic corn is normally limited in supply, organic corn has typically sold for about twice the price of non-organic corn in Wisconsin.  Therefore, the price of organic corn has typically been higher than the recent and current higher price of non-organic corn.  While I’m not predicting that the organic corn price will always maintain the two to one price ratio, I expect the organic corn price to remain higher than the non-organic corn price even with the ethanol and other current influences.

3.  Ethanol could put some upward pressure on the price of organic corn in the longer run.  I say this because cash corn producers who may have considered organic corn production when the alternative was non-organic corn at pre-ethanol influenced price will be less tempted to make the effort to convert to organic.

4.  In 2007, there could be other upward pressure on organic corn prices.  Organic milk production in Wisconsin is witnessing its biggest absolute increase ever. This is because several producers have hurried to get their dairy cows certified before more restrictive certification rules are implemented.  Farmers completing the transition to organic milk production prior to June 2007 are able to feed 80 percent organic feed and 20 percent conventional feed in the year before they become certified organic. Those that started the transition process after June 2006 have to use 100 percent organic feed in the final transition year, increasing their transition costs. Many farmers jumped into organic transition before June 2006 to take advantage of the "80/20 rule". There is an expected 70 percent increase in organic milk as the newly certified farms come on line.

Although, Wisconsin organic dairy producers tend to raise most of their feed, the increase in the number of dairy farms could increase the demand for organic corn. This is especially true because several of the herds newly certified in Wisconsin organic in 2007, will have their cows certified before their land is certified. This could put more upward pressure on organic corn prices than ethanol will, especially in the next two years.

5.  Producers of cash organic corn have little incentive to abandon organic corn for non-organic corn unless the price of non-organic corn exceeded the price of organic corn or yields could be increased substantially by abandoning organic practices (this would have to be a long run expectation).

6.  Producers can’t switch into organic production as easily as they can shift from corn to soybeans and to my knowledge, there aren’t very many producers growing large acreages of organic corn in Wisconsin or elsewhere.  The number and size of organic corn producers is dwarfed in comparison to non-organic corn production.

7.  Looking ahead to the new crop, the yet unknown weather is always a factor in the production and price level of grain in the near future.

In summary, the organic market is not the typical commodity market (at least not yet). There could be a bit of upward pressure on organic corn price in the state because of increased demand more so than because of decreased supply.  The price of organic milk has been on a steady increase for the last several years.  This will at least partly offset this possible slight increase in organic corn price even though the organic milk price increase in 2007 is less than in 2006.  All things considered, I don’t expect grain prices to make a big difference in the profitability of most previously certified organic dairy farms in Wisconsin in 2007. The story could be different in New England and for individual transitioning Wisconsin organic farms for which other factors also make the transition difficult to deal with.