Dean Foods and other dairy processors to milk the Gold Organic Milk Rush

Now tell me that wasn’t the most ridiculous headline you ever read? However after reading Reuter’s headline this morning of ‘Organic milk seen flooding market, I couldn’t resist. America’s fascination with Organic foods is extreme when the same parents that cram everything organic down their kids throats once drank from the hose and ate Moon Pies like potato chips without second thought. Times have changed, even certain types of bottled water aren’t considered "good" and now that American’s are obsessed with organic foods – corporations are cashing in.

Reuter’s says – The dairy industry is expecting organic milk supply to surge by at least 40% this year from a previous annual growth rate of 20%, creating an excess of 25 million gallons, according to some estimates. Consumer demand for organic milk will continue to grow at 25% annually, leading some industry experts to predict that a retail promotion war is imminent. Dairy processors and distributors like Dean Foods (NYSE:DF), Stonyfield Farm and Organic Valley, a dairy farmers’ cooperative that sells to retail grocery chain Whole Foods Market (NasdaqGS:WFMI) and others, are welcoming the news because it provides an opportunity to expand the market and offer more organic milk-based products.

So what does all the milk talk mean? In the short run, there is an over supply, but in the years to come, organic milk is going to make companies like Dean Foods and Whole Foods some big money. Dean Foods, the No. 1 U.S. dairy processor and distributor, added 64 organic farmers in 2006, taking the total to 350 with another 167 farmers in transition. Not convinced that today’s Moms are buying organic milk? Just go hang out at Chuck E. Cheese for about 15 minutes, you will overhear more conversations about what Mom’s are feeding their kids and their kids’ growth percentiles than you could ever imagine. Its just not organic milk – its the organic yogurts, cheese, ice cream and everything else made from milk, these Mom’s have to have this stuff.

If you don’t shop for Organic milk, you’ll be alarmed at what people pay for it. Take PlanetOrganics.com, they’ll deliver it to you house for a few dimes more than you pay for it in stores but the prices are relevant, so let’s review:

Let me remind you America this is milk we are talking about here? There’s nothing magical about it, it still tastes like milk, you don’t get one free after you buy 5 of them – it’s just milk. Now I haven’t even shown you the prices on the cheeses and yogurts but you get the idea, the stuff is spendy.

Dean Foods and Whole Foods Market are trading near their 52-week lows, DF at $31 a share and WFMI at $39 a share. There’s plenty of time to get in on these stocks but just be aware that as more parents and people obsess over what they eat, organic milk and milk by-products are going to get more expensive like the price of gas. It’s ridiculous I know, but when is the last time you drank from the hose, I dare you to try it? No, I double-dog-dare you.

Frank Lara Jr.

Frank Lara Jr. can be reached at [email protected]; he does not own securities in the companies he covers.