In a time of falling grain prices, the grass seemed greener for organic farmers like Jon Kvaalen who for the past couple of years sold his wheat for more than double the price his neighbors were getting.
But a tough economy is catching up with one of Montana’s fastest-growing niche industries. Flour mills that once had an insatiable demand for organic grain are now full, which is driving down payments to farmers like Kvaalen, of Lambert.
“We work real closely with one flour mill. I just talked to the buyer the other day and he said hard red spring wheat is moving slowly,” said Kvaalen, who grows a half-dozen organic commodities. “At one point he told me the price down there was $10 a bushel, which would be $8 on the farm” after deducting shipping costs, he said.
Kvaalen was hoping for $12 a bushel, which would be more in line with what organic grain farmers have come to expect. On average, organic grain payments have been 130 percent more than the going rate for conventional wheat of a similar quality. In 2005, Montana’s 125,000-plus acres of organic cropland ranked third among states, according to the U.S. Economic Research Service.
Organic farmers receive a premium price to cover the headaches related to battling weeds without herbicide and producing healthy crops without conventional fertilizer. They spend more on labor and seed and deal with fees and paperwork that not every farmer will tolerate. The number of bushels they harvest from every acre can be 20 percent less than a conventional farm crop, though some do much better.
The price difference currently is about 30 percent. Last week the U.S. Agricultural Marketing Service listed high-quality hard red organic spring wheat at $8.82 a bushel. Organic durum is going for about $10. Not long ago, all organic grain was fetching double figures. Farmers who were waiting for the good prices to return might have waited too long, said Andre Giles, of Montana Flour and Grains, a small mill in Fort Benton.
“I’ve been doing this for 18 years and most of that time 30 percent was the norm,” Giles said. “The 100 to 130 percent, that was just the last couple years from ’04 to ’08, some of ’09. It’s just that people are pulling in the reins now and shopping at Walmart and not Whole Foods.”
Bakeries and bread mix companies, people selling retail-sized packages of whole grain, have no fear of running out of flour right now, Giles said. Farmers with high-quality grain won’t get the price they’re used to, but they should be able to find a mill to take their wheat. Farmers without low protein, low-quality organics are probably going to have to sell their crop for even lower prices on the conventional grain market.
“It’s a little soft right now,” said Sam Schmidt, purchasing manager for Montana Milling. There seems to be quite a few farmers with organic wheat to sell, more than enough to meet the needs of baking companies contracting with the Great Falls mill.
Retail sales of organic bread and flour are beginning to slow nationally, according to SPINS, a market research and consulting firm for the natural products industry. The biggest sector for organic wheat, flour sales, crashed back to earth in 2009 with negative growth of minus 0.2 percent, after growing nearly 10 percent the previous year.
Overall, shoppers bought 4.5 percent fewer organic baking mixes in 2009 than in 2008 and at natural food stores the slide was worse, minus 12.6 percent.
What didn’t go down was pricing for organic grain products. In 2009, consumers spent $4 million more for flour, baking mixes and packaged grains despite putting fewer of those items in their shopping baskets. And SPINS data validates Giles’ suspicion that health food shoppers were returning to the supermarket, where the percentage of baking mixes and packaged grains sold increased 5 to 13 percent.
Conversely, prices for conventional flour fell 4.5 percent in 2009, according to the U.S. Consumer Price Index.
Grocery analysts spent 2009 waiting for cash-strapped consumers to turn away from more expensive food items like organics, and while wheat slid, other foods didn’t.
Consumer analyst Mintel reported in December that shoppers reporting they completely stopped buying organics represented 3 percent of those surveyed. Nearly 40 percent said they were buying as many organic items as ever. However, consumers did indicate they were looking for lower-priced items.
Mintel predicts a slow rebound for organic products over the next two years.