Facing sky-high crop prices, some in the organic food industry are borrowing an idea from their conventional counterparts.

CROPP Cooperative, best known for Organic Valley milk, seeks organic grain growers willing to sign three-year contracts to supply feed to the La Farge, Wis.-based co-op's livestock farms.

Such vertical integration is common in the conventional meat industry and parts of the organic business, but it runs counter to the independent spirit of many organic farmers. The tight supplies and soaring cost of organic corn and soybeans is forcing the Organic Valley cooperative to try to lock in feed supplies. The co-op has 1,200 farms that produce milk, meat and eggs.

We are hoping that we can develop a marketing model that begins to provide some stability" for farmers, said Lowell Rheinheimer, farm resources manager for the cooperative.

A leading organic grain trader, Lynn Clarkson, said organic grain farmers have long resisted contracting their crops, feeling they can make more money on the open market, and he's skeptical that will change. Instead, Clarkson, president of Clarkson Grain Co. of Cerro Gordo, Ill., said more outside investors will move into the industry, buy organic grain farms and make long-term supply contracts with livestock producers.

It's not just smaller producers that are being squeezed. Officials with dairy giant Dean Foods, producer of Horizon organic milk, said feed costs are "pressuring organic farm profitability."

Organic products are one of the fastest-growing segments of the food industry. Sales of organic food totaled almost $17 billion in 2006, or nearly 3 percent of overall food sales, according to the Organic Trade Association. But production of the grain and soybeans needed for organic livestock has failed to keep up with the demand for milk and meat.

Organic soybeans were selling for more than $25 a bushel on average in the upper Midwest in mid-March, about double the price of a year earlier, according to Department of Agriculture data. Organic corn prices were averaging just less than $10 a bushel, up from about $6.50 a year ago.

Soybeans in particular "are in extremely short supply," said Jerry Beachy, a farmer near Iowa City who needs soybean meal for his 7,000 laying hens. Meal that used to cost $400 a ton now runs $1,000 a ton, he said.

Beachy and his family also milk 30 cows but raise the feed they need on 87 ares of rented land. Increases in egg prices have helped cover the higher feed costs, Beachy said.

But the feed prices have discouraged other growers from getting into organic egg production, said Lyndon Hershberger, processing manager for Farmers Hen House, which buys eggs from farmers and distributes them to stores nationwide from nearby Kalona.

Full Story: http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=/20080405/BUSINESS/804050322/-1/politics