WEBVTT 00:00:11.720 --> 00:00:15.060 Breaking free from the chains of the past Where 00:00:15.060 --> 00:00:18.820 truth moves faster than a Holstein calf No law 00:00:18.820 --> 00:00:21.660 waiting on some printed page We're charting new 00:00:21.660 --> 00:00:25.300 ground in the digital age From genomic codes 00:00:25.300 --> 00:00:29.120 to robot facts We cut through the noise, no hold 00:00:29.280 --> 00:00:32.460 them back not your daddy's dairy news tonight 00:00:32.460 --> 00:01:03.619 we're sparking Welcome back to The Deep Dive, 00:01:03.619 --> 00:01:06.000 brought to you by The Bullvine Podcast. We're 00:01:06.000 --> 00:01:07.819 the show that, you know, tries to cut through 00:01:07.819 --> 00:01:09.459 all the industry noise and give you insights 00:01:09.459 --> 00:01:11.739 that actually help your bottom line. That's the 00:01:11.739 --> 00:01:13.859 goal. And look, you hear it constantly, right? 00:01:13.900 --> 00:01:16.299 It's almost become this default mantra in dairy. 00:01:16.959 --> 00:01:19.159 Get big or get out. Scale, scale, scale. Just 00:01:19.159 --> 00:01:23.060 everywhere. But today, we're digging deep into 00:01:23.060 --> 00:01:26.920 some really fascinating data that pretty much 00:01:26.920 --> 00:01:29.060 flips that whole narrative completely on its 00:01:29.060 --> 00:01:31.109 head. Yeah. And look, this data we're digging 00:01:31.109 --> 00:01:33.950 into, it's mainly from the Cornell 2023 Dairy 00:01:33.950 --> 00:01:36.849 Farm Business Summary, but also polls from other 00:01:36.849 --> 00:01:39.989 key regional benchmarks. And it really reveals 00:01:39.989 --> 00:01:42.469 something powerful. I think it should be like 00:01:42.469 --> 00:01:44.989 mandatory reading for every producer milking 00:01:44.989 --> 00:01:48.150 under, say, 200 cows. Okay. Because that conventional 00:01:48.150 --> 00:01:51.170 wisdom, it's just, well, it's looking wrong. 00:01:51.290 --> 00:01:53.370 The biggest financial hurdle for most smaller 00:01:53.370 --> 00:01:55.450 operations isn't really their size. It's their 00:01:55.450 --> 00:01:57.780 management. Well, hold on. Let's unpack that 00:01:57.780 --> 00:02:00.379 right away. The core idea here, the thing that 00:02:00.379 --> 00:02:03.659 really stopped me is this. The difference in 00:02:03.659 --> 00:02:06.579 profit between a well -run farm and a poorly 00:02:06.579 --> 00:02:09.400 run farm, even if they're the same size, that 00:02:09.400 --> 00:02:11.960 difference is actually bigger than the profit 00:02:11.960 --> 00:02:14.219 gap between a typical small farm and a typical 00:02:14.219 --> 00:02:17.120 large one. Exactly. I mean, that just flies in 00:02:17.120 --> 00:02:19.159 the face of almost every major trend we talk 00:02:19.159 --> 00:02:21.280 about. So we got to slow down here and really 00:02:21.280 --> 00:02:23.479 break this down. And what's really wild is the 00:02:23.479 --> 00:02:26.699 sheer financial impact. The analysis confirms 00:02:26.699 --> 00:02:30.120 it. A top -performing, really efficiently managed 00:02:30.120 --> 00:02:34.699 150 -cow dairy. Well, it can actually out -earn 00:02:34.699 --> 00:02:38.460 a struggling 500 -cow operation. 500 cows? Yeah, 00:02:38.500 --> 00:02:40.419 one that's just chasing volume, you know, without 00:02:40.419 --> 00:02:42.979 tight controls. The difference, over $100 ,000. 00:02:43.689 --> 00:02:45.969 annually. Stop right there. 100 grand. Yeah. 00:02:46.050 --> 00:02:49.270 More profit from 150 cows than 500. Think about 00:02:49.270 --> 00:02:52.189 it. That massive $100 ,000 advantage, it isn't 00:02:52.189 --> 00:02:54.930 found by adding 350 more cows and all the headaches 00:02:54.930 --> 00:02:56.669 that come with them. It's found by seriously 00:02:56.669 --> 00:02:59.110 tightening up your operational discipline, management. 00:02:59.389 --> 00:03:02.229 That's the hook then. That $100 ,000 figure, 00:03:02.349 --> 00:03:03.889 that's kind of the mission for this whole deep 00:03:03.889 --> 00:03:05.310 dive, isn't it? We're going to spend the next... 00:03:05.479 --> 00:03:08.099 what, 20 minutes or so figuring out why that 00:03:08.099 --> 00:03:10.259 happens, how that six -figure advantage gets 00:03:10.259 --> 00:03:13.259 created. And crucially, how you listening right 00:03:13.259 --> 00:03:15.120 now might be able to capture some of that on 00:03:15.120 --> 00:03:18.159 your own farm. Exactly. But first, we need a 00:03:18.159 --> 00:03:21.340 little context. Why is this conversation so critical, 00:03:21.520 --> 00:03:24.379 like right now? Well, it matters because if you 00:03:24.379 --> 00:03:27.020 only read the headlines, you'd think... The whole 00:03:27.020 --> 00:03:28.900 dairy sector is just collapsing into the hands 00:03:28.900 --> 00:03:31.479 of these huge mega -dairies. Yeah, the numbers 00:03:31.479 --> 00:03:34.219 are stark. They really are. We've seen just massive 00:03:34.219 --> 00:03:36.719 consolidation and fast. I mean, look at the stats. 00:03:36.819 --> 00:03:41.879 39 ,303 dairy operations back in 2017, down to 00:03:41.879 --> 00:03:47.659 just 24 ,082 in 2024. That kind of drop, it really 00:03:47.659 --> 00:03:50.960 paints a picture, suggests small farms are basically 00:03:50.960 --> 00:03:54.370 doomed. Okay. But I'm a bit skeptical of that 00:03:54.370 --> 00:03:56.550 simple narrative. We need to challenge that assumption, 00:03:56.729 --> 00:03:58.969 don't we? Is every single farm that closes really 00:03:58.969 --> 00:04:00.830 a business failure? We got to dig past those 00:04:00.830 --> 00:04:02.409 headlines and ask, you know, who is actually 00:04:02.409 --> 00:04:04.430 leaving and why are they leaving now? Right. 00:04:04.509 --> 00:04:06.930 Because if you actually look at the demos, the 00:04:06.930 --> 00:04:10.310 USDA data, the average dairy farmer today is 00:04:10.310 --> 00:04:14.259 58 years old. 58? Yeah. And Cornell surveys, 00:04:14.599 --> 00:04:17.860 they consistently show somewhere between 40, 00:04:18.040 --> 00:04:21.560 maybe 45 % of current operations. They don't 00:04:21.560 --> 00:04:24.000 have a confirmed successor lined up. That's not 00:04:24.000 --> 00:04:26.420 just some theory. That's the reality on the ground 00:04:26.420 --> 00:04:28.620 for almost half the farms. Okay, that completely 00:04:28.620 --> 00:04:30.459 reframes it then. We're not just talking about 00:04:30.459 --> 00:04:32.899 farms going broke. We're talking about retirements, 00:04:32.899 --> 00:04:35.420 generational shifts. Precisely. Think about it. 00:04:35.439 --> 00:04:37.779 You've got a 64 -year -old producer, maybe had 00:04:37.779 --> 00:04:40.139 a perfectly decent financial year, but his back's 00:04:40.139 --> 00:04:42.519 killing him. His kids have got good careers off 00:04:42.519 --> 00:04:45.000 the farm. He decides to sell out. Makes sense. 00:04:45.160 --> 00:04:47.699 That sale gets counted in the consolidation statistic, 00:04:47.939 --> 00:04:50.300 right? Yeah. But it wasn't really a failure of 00:04:50.300 --> 00:04:53.240 his 150 -cow model. It was a calculated strategic 00:04:53.240 --> 00:04:56.040 exit, a life decision. And you've also got the 00:04:56.040 --> 00:04:57.839 whole land value thing, which the source material 00:04:57.839 --> 00:05:00.339 brings up. That's a huge pressure point, especially 00:05:00.339 --> 00:05:02.860 in your growing areas. Oh, definitely. Imagine 00:05:02.860 --> 00:05:06.040 you've got a successful, say, 300 cow operation, 00:05:06.240 --> 00:05:09.800 but it's sitting on maybe 40 prime acres somewhere 00:05:09.800 --> 00:05:12.519 like California's Central Valley or, you know, 00:05:12.540 --> 00:05:16.180 outside Philly or Pittsburgh and PA. Right, where 00:05:16.180 --> 00:05:18.920 developers are circling. Exactly. If those developers 00:05:18.920 --> 00:05:21.680 come knocking with a massive offer for the land. 00:05:22.360 --> 00:05:25.100 taking that strategic exit might be the smartest 00:05:25.100 --> 00:05:27.100 financial move that owner could possibly make, 00:05:27.259 --> 00:05:29.579 completely separate from how well the dairy itself 00:05:29.579 --> 00:05:31.540 is running. It becomes more about cashing out 00:05:31.540 --> 00:05:34.300 that built -up equity versus the daily grind 00:05:34.300 --> 00:05:36.459 of commodity milk production. Totally. It's a 00:05:36.459 --> 00:05:38.839 different calculation. So, okay, let's bring 00:05:38.839 --> 00:05:40.939 it back to the listener. If you're running a 00:05:40.939 --> 00:05:45.139 smaller operation, maybe 100 to 200 cows, your 00:05:45.139 --> 00:05:47.079 main goal shouldn't necessarily be scrambling 00:05:47.079 --> 00:05:49.639 to add hundreds more cows just to chase those 00:05:49.639 --> 00:05:52.250 theoretical scale efficiencies. No, that's likely 00:05:52.250 --> 00:05:54.209 the wrong path. The real challenge is mastering 00:05:54.209 --> 00:05:56.750 efficiency at your current size. And the stakes 00:05:56.750 --> 00:05:58.730 here are pretty high, aren't they? You either 00:05:58.730 --> 00:06:00.850 figure out how to unlock that potential $100 00:06:00.850 --> 00:06:03.990 ,000 plus increase in annual income by focusing 00:06:03.990 --> 00:06:07.629 on management basics. Or you burn through your 00:06:07.629 --> 00:06:09.670 hard -earned equity trying to compete on volume, 00:06:09.850 --> 00:06:12.769 which frankly for that size operation is mathematically 00:06:12.769 --> 00:06:15.209 just the wrong game to be playing. It's the wrong 00:06:15.209 --> 00:06:17.680 game entirely. You're never going to out milk 00:06:17.680 --> 00:06:20.540 the 5 ,000 cow behemoth on pure volume or cost 00:06:20.540 --> 00:06:24.160 per gallon. Never. But you absolutely can outmanage 00:06:24.160 --> 00:06:26.339 them. And that brings us right to the core issue 00:06:26.339 --> 00:06:29.240 that pops up across all the big benchmarking 00:06:29.240 --> 00:06:33.160 data sets. This roughly $4 per hundred weight 00:06:33.160 --> 00:06:35.399 management gap. Okay. Let's define where this 00:06:35.399 --> 00:06:36.860 data is coming from. Just so people know, we're 00:06:36.860 --> 00:06:39.360 talking real numbers, audited numbers. We're 00:06:39.360 --> 00:06:42.000 pulling from Cornell's ProDairy System, Wisconsin 00:06:42.000 --> 00:06:45.040 Center for Dairy Profitability, and Minnesota's 00:06:45.040 --> 00:06:47.629 FNBI. Yeah. And for anyone listening who hasn't 00:06:47.629 --> 00:06:49.410 used these, they're basically comprehensive financial 00:06:49.410 --> 00:06:52.629 databases. They let producers anonymously benchmark 00:06:52.629 --> 00:06:54.949 their own farms performance metrics against the 00:06:54.949 --> 00:06:56.970 top, middle and bottom performers in the region. 00:06:57.149 --> 00:06:59.569 Crucial context. This isn't just guesswork. It's 00:06:59.569 --> 00:07:02.290 audited financial data. Right. And the pattern 00:07:02.290 --> 00:07:04.569 is remarkably consistent across all these different 00:07:04.569 --> 00:07:07.430 programs, different states. The critical difference, 00:07:07.589 --> 00:07:10.089 the thing that really separates the top quartile 00:07:10.089 --> 00:07:12.949 farms from the bottom quartile, it's operating 00:07:12.949 --> 00:07:15.800 costs per hundredweight. Per hundredweight. And 00:07:15.800 --> 00:07:18.220 the numbers are? Well, the top performers, the 00:07:18.220 --> 00:07:19.819 ones who are consistently making good money, 00:07:19.980 --> 00:07:23.759 they're running costs around, say, $17 .39 per 00:07:23.759 --> 00:07:26.920 hundredweight. Okay, $17 .39? And the bottom? 00:07:27.060 --> 00:07:29.420 The operations that are really struggling, the 00:07:29.420 --> 00:07:31.180 ones feeling that constant squeeze no matter 00:07:31.180 --> 00:07:33.759 what the milk price is doing, they're often up 00:07:33.759 --> 00:07:37.279 around $21 .71 per hundredweight. Sometimes even 00:07:37.279 --> 00:07:41.000 higher, you know, pushing $22, $23. Wow, okay, 00:07:41.079 --> 00:07:45.660 so that's what? $4 .32 difference per hundred 00:07:45.660 --> 00:07:47.180 weight. That sounds kind of incremental when 00:07:47.180 --> 00:07:48.639 you say it like that. It sounds incremental, 00:07:48.720 --> 00:07:50.720 but let's translate that. Let's put that into 00:07:50.720 --> 00:07:52.980 dollars and cents for the listener who's running 00:07:52.980 --> 00:07:55.319 that 150 cow herd we keep using as an example. 00:07:55.399 --> 00:07:57.079 Let's show the financial shock. Yeah, we got 00:07:57.079 --> 00:07:59.540 to slow down here. Let this sink in. Run the 00:07:59.540 --> 00:08:01.819 math for us again. Okay. So let's stick with 00:08:01.819 --> 00:08:03.899 that 150 cow herd. Let's say they're hitting 00:08:03.899 --> 00:08:06.639 a pretty achievable average, maybe 24 ,000 pounds 00:08:06.639 --> 00:08:09.300 per cow annually. That means the farm shifts 00:08:09.300 --> 00:08:12.620 about 3 .6 million pounds of milk a year. That's 00:08:12.620 --> 00:08:15.939 36 ,100 weight, right? 36 ,100 weight. Got it. 00:08:15.980 --> 00:08:19.300 Now multiply that volume, 36 ,100 weight, by 00:08:19.300 --> 00:08:22.699 that $4 .32 cost gap, the difference between 00:08:22.699 --> 00:08:28.399 $21 .71 and $17 .39. Okay. The difference in 00:08:28.399 --> 00:08:32.879 margin and profit left on the table is $155 ,520 00:08:32.879 --> 00:08:36.019 annually. Wait a minute. That's way over the 00:08:36.019 --> 00:08:38.240 $100 ,000 figure we started with. It is. And 00:08:38.240 --> 00:08:41.000 that money, that $155 ,000, is basically being 00:08:41.000 --> 00:08:43.879 burned. It's lost solely due to operational inefficiency. 00:08:44.200 --> 00:08:46.759 Things like poor labor scheduling, high repair 00:08:46.759 --> 00:08:49.039 bills from lack of maintenance, feed formulation 00:08:49.039 --> 00:08:51.580 screw -ups, just general poor cost control. Think 00:08:51.580 --> 00:08:54.019 about what a $150 ,000 swing means for a family 00:08:54.019 --> 00:08:55.500 farm like that. I mean, that's the difference 00:08:55.500 --> 00:08:57.240 between making your debt payments comfortably 00:08:57.240 --> 00:08:58.740 and feeling like you're constantly drowning. 00:08:58.960 --> 00:09:00.679 It's the difference between replacing that skid 00:09:00.679 --> 00:09:02.399 steer that's always breaking down and just running 00:09:02.399 --> 00:09:04.320 it into the ground, hoping it lasts another week. 00:09:04.440 --> 00:09:07.000 And here's the really profound point. The thing, 00:09:07.039 --> 00:09:10.240 the data just hammers home again and again. This 00:09:10.240 --> 00:09:15.559 huge difference, this $150K gap, it has almost 00:09:15.559 --> 00:09:17.799 nothing to do with the milk price roller coaster 00:09:17.799 --> 00:09:20.519 we're always on. Nothing. Or even the size of 00:09:20.519 --> 00:09:22.779 the operation, like we said. It's determined 00:09:22.779 --> 00:09:25.620 almost entirely by how efficiently that farm 00:09:25.620 --> 00:09:28.080 is managed. Exactly right. You could be out there 00:09:28.080 --> 00:09:30.879 struggling with 500 cows, running costs up at 00:09:30.879 --> 00:09:34.879 $22 per 100 W2, and your neighbor down the road 00:09:34.879 --> 00:09:38.740 milking 150 cows, but absolutely laser focused 00:09:38.740 --> 00:09:43.179 on efficiency, hitting that $17 .39. Well, they're 00:09:43.179 --> 00:09:44.980 going to walk away with six figures more profit 00:09:44.980 --> 00:09:47.559 than you at the end of the year. That's the definition 00:09:47.559 --> 00:09:49.909 of management beating scale right there. Couldn't 00:09:49.909 --> 00:09:52.090 say it better myself. Okay, so if that's the 00:09:52.090 --> 00:09:54.970 problem, that $4 plus gap, how do we fix it? 00:09:55.070 --> 00:09:57.009 Let's unpack phase one, what the source material 00:09:57.009 --> 00:09:59.269 calls fix your foundation. This is the goal for 00:09:59.269 --> 00:10:01.230 maybe the first zero to two years, right? Yep, 00:10:01.230 --> 00:10:03.529 zero to two years. And the potential here, just 00:10:03.529 --> 00:10:05.789 by fixing the basic operational flaws, is maybe 00:10:05.789 --> 00:10:08.190 $50 ,000 to $100 ,000 in annual improvement. 00:10:08.529 --> 00:10:10.789 So where do we even start? You start with the 00:10:10.789 --> 00:10:13.450 highest leverage fix, the one that usually requires 00:10:13.450 --> 00:10:16.610 the least amount of capital up front, labor efficiency. 00:10:17.149 --> 00:10:19.389 Makes sense. Labor is often the biggest cost 00:10:19.389 --> 00:10:21.850 after feed. It is. And the data here is just, 00:10:21.870 --> 00:10:24.809 well, it's unforgiving. The top operations, they 00:10:24.809 --> 00:10:27.610 are consistently getting 50 plus cows handled 00:10:27.610 --> 00:10:30.350 per full -time worker equivalent. Yeah. Consistently. 00:10:30.350 --> 00:10:33.409 50 plus. And the struggling farms. They're lagging 00:10:33.409 --> 00:10:36.210 way behind, often down around 35, maybe 40 cows 00:10:36.210 --> 00:10:38.809 per worker. Big difference. Now, this isn't just 00:10:38.809 --> 00:10:42.190 about, like, firing people, though, is it? It's 00:10:42.190 --> 00:10:44.820 more about structuring the work. The workflow 00:10:44.820 --> 00:10:48.220 so that one person can actually handle more responsibility 00:10:48.220 --> 00:10:50.980 efficiently without getting totally burned out. 00:10:51.240 --> 00:10:53.559 Absolutely. That's key. Often the problem on 00:10:53.559 --> 00:10:55.299 those lagging farms isn't necessarily that they 00:10:55.299 --> 00:10:57.360 have bad workers. It's that they have poorly 00:10:57.360 --> 00:10:59.879 designed workflows. Things just take longer than 00:10:59.879 --> 00:11:02.399 they should. And in dollar terms, what does that 00:11:02.399 --> 00:11:04.879 difference between, say, 35 and 50 cows per worker 00:11:04.879 --> 00:11:07.240 actually mean for the bottom line? Well, based 00:11:07.240 --> 00:11:09.700 on current national wage rates for good skilled 00:11:09.700 --> 00:11:13.100 farm labor. That difference alone can save or 00:11:13.100 --> 00:11:16.539 cost an operation somewhere around $75 ,000 a 00:11:16.539 --> 00:11:18.879 year just from optimizing how people spend their 00:11:18.879 --> 00:11:21.639 time. $75 ,000. Okay, let's drill into that Pennsylvania 00:11:21.639 --> 00:11:23.220 anecdote you mentioned, the one from the source 00:11:23.220 --> 00:11:24.840 material. It sounds like a fantastic example 00:11:24.840 --> 00:11:27.940 for listeners. How exactly did that producer 00:11:27.940 --> 00:11:31.190 make such a massive cut in labor needs? Right. 00:11:31.230 --> 00:11:34.090 This was a producer milking about 200 cows, and 00:11:34.090 --> 00:11:36.509 they had this long -standing routine, kind of 00:11:36.509 --> 00:11:38.330 just the way we've always done it, that involved 00:11:38.330 --> 00:11:41.429 4 .5 full -time equivalents. Okay. So they used 00:11:41.429 --> 00:11:43.370 the pro -dairy analysis tools. They actually 00:11:43.370 --> 00:11:45.789 timed their parlor routine, timed how long troughs 00:11:45.789 --> 00:11:48.870 took, and they found this major bottleneck just 00:11:48.870 --> 00:11:51.850 moving cows in and out of the holding area. It 00:11:51.850 --> 00:11:54.409 required one person to spend like 45 minutes, 00:11:54.470 --> 00:11:57.090 twice a day, every single day, just sorting and 00:11:57.090 --> 00:11:58.669 moving cows. Wow, that's a lot of wasted time. 00:11:58.919 --> 00:12:02.019 Huge amount. So what did they do? They installed 00:12:02.019 --> 00:12:05.460 some simple automatic sorting gates and tweaked 00:12:05.460 --> 00:12:08.000 the lane layout a bit to encourage better, more 00:12:08.000 --> 00:12:12.100 natural cow flow. That fix alone basically eliminated 00:12:12.100 --> 00:12:14.779 one full -time position's worth of work, just 00:12:14.779 --> 00:12:16.960 evaporated. So let me do this straight. They 00:12:16.960 --> 00:12:19.799 probably spent maybe, what, $15 ,000 on some 00:12:19.799 --> 00:12:22.139 gates and a bit of concrete work? Probably some 00:12:22.139 --> 00:12:25.179 blank gut, yeah. And they saved $75 ,000 in annual 00:12:25.179 --> 00:12:28.610 labor costs. Pure profit. That's an insane ROI. 00:12:28.950 --> 00:12:31.350 You just don't find that kind of return buying 00:12:31.350 --> 00:12:33.470 a new tractor or jumping straight to robots. 00:12:33.769 --> 00:12:36.110 Exactly. They went from 4 .5 people down to three, 00:12:36.269 --> 00:12:39.490 banked 75K and didn't buy a single major piece 00:12:39.490 --> 00:12:41.750 of new equipment. That's the phase one mindset 00:12:41.750 --> 00:12:44.649 perfectly. Fix the process first before you throw 00:12:44.649 --> 00:12:47.049 money at new equipment. Love it. Okay, so labor 00:12:47.049 --> 00:12:49.669 efficiency is number one. What's the next big 00:12:49.669 --> 00:12:51.830 foundational fix that's contributing to that 00:12:51.830 --> 00:12:55.120 for, tolerate, take gap? The next big one, predictably, 00:12:55.220 --> 00:12:57.740 is feed efficiency. Right. Now, a lot of farmers 00:12:57.740 --> 00:12:59.679 listening probably assume the top farms must 00:12:59.679 --> 00:13:02.200 just be spending less on feed, right? Chasing 00:13:02.200 --> 00:13:04.080 cheaper ingredients, cutting corners, maybe. 00:13:04.100 --> 00:13:06.200 That's a common assumption, yeah. But the source 00:13:06.200 --> 00:13:08.919 material tells a much more nuanced story here. 00:13:09.360 --> 00:13:11.960 I'm kind of skeptical that just buying cheaper 00:13:11.960 --> 00:13:14.720 feed is the answer to closing a forcer letter 00:13:14.720 --> 00:13:17.779 T gap. And you should be skeptical because the 00:13:17.779 --> 00:13:19.980 data actually confirms that the top farms often 00:13:19.980 --> 00:13:22.720 spend about the same amount on feed per hundredweight, 00:13:22.919 --> 00:13:26.500 usually around $9 .60, give or take. Okay, so 00:13:26.500 --> 00:13:29.120 they're not feeding cheaper. No. But what they 00:13:29.120 --> 00:13:32.179 do have is much higher income over feed cost. 00:13:32.419 --> 00:13:34.720 The key difference isn't the cost of the inputs. 00:13:35.039 --> 00:13:37.500 It's that they are feeding smarter. They're getting 00:13:37.500 --> 00:13:40.200 significantly more milk out for every pound of 00:13:40.200 --> 00:13:42.200 dry matter consumed. All right, so let's define 00:13:42.200 --> 00:13:44.610 smarter. for the listener, because this goes 00:13:44.610 --> 00:13:46.769 way beyond just what the nutritionist punches 00:13:46.769 --> 00:13:48.669 into the computer, right? This is about daily 00:13:48.669 --> 00:13:51.049 execution on the farm, ground level stuff. Oh, 00:13:51.049 --> 00:13:53.529 absolutely. It is all about quality control and 00:13:53.529 --> 00:13:56.850 consistency day in, day out. It starts way back 00:13:56.850 --> 00:13:59.250 with making better forage quality, hitting that 00:13:59.250 --> 00:14:01.950 optimal harvest timing perfectly, because every 00:14:01.950 --> 00:14:04.570 day you wait past peak, you're losing digestibility, 00:14:04.769 --> 00:14:07.070 losing potential milk. Okay, so forage quality 00:14:07.070 --> 00:14:10.169 first. Then it moves into really precise ration 00:14:10.169 --> 00:14:14.250 formulation, but based on actual consistent feed 00:14:14.250 --> 00:14:16.350 testing, not just book values. And that means 00:14:16.350 --> 00:14:18.950 doing regular TMR audits to make sure the mixer 00:14:18.950 --> 00:14:21.429 wagon is actually mixing properly, not sorting 00:14:21.429 --> 00:14:23.529 ingredients. Things like weekly dry matter testing 00:14:23.529 --> 00:14:25.950 on silages, adjusting the ration for weather 00:14:25.950 --> 00:14:28.429 changes. Exactly. Particle size scoring to make 00:14:28.429 --> 00:14:30.909 sure the cows can actually chew and utilize the 00:14:30.909 --> 00:14:33.090 fiber correctly. These aren't glamorous jobs, 00:14:33.269 --> 00:14:35.250 but they're critical. I'd argue that skipping 00:14:35.250 --> 00:14:38.169 those small, consistent checks, the TMR audit, 00:14:38.289 --> 00:14:41.120 the dry matter test, Probably the single biggest 00:14:41.120 --> 00:14:43.100 driver of that four -cellar -only inefficiency 00:14:43.100 --> 00:14:46.480 on many farms. You lose, you know, 50 cents per 00:14:46.480 --> 00:14:48.580 hundred lot here in feed refusal, another 75 00:14:48.580 --> 00:14:51.159 cents there in undigested starch passing through. 00:14:51.360 --> 00:14:54.100 It adds up incredibly fast. It does. And critically, 00:14:54.240 --> 00:14:56.240 like you said, it's about that consistent daily 00:14:56.240 --> 00:14:58.879 execution. Walking the feed bunks twice a day, 00:14:58.940 --> 00:15:01.500 minimum. Pulling out any spoiled or moldy feed 00:15:01.500 --> 00:15:03.779 immediately. Keeping those water troughs absolutely 00:15:03.779 --> 00:15:07.259 spotless water intake drives feed intake. And 00:15:07.259 --> 00:15:09.000 catching that fresh cow that's just a little 00:15:09.000 --> 00:15:10.700 bit off before she crashes and drags down the 00:15:10.700 --> 00:15:12.679 whole herd average for the next two months. That 00:15:12.679 --> 00:15:15.940 daily diligence, that attention to detail, that's 00:15:15.940 --> 00:15:18.639 what drives the higher income over feed cost. 00:15:18.779 --> 00:15:21.080 Even when the feed cost per coterie is similar, 00:15:21.259 --> 00:15:23.960 it's extracting maximum value. Okay, so phase 00:15:23.960 --> 00:15:27.019 one boils down to discipline and data, really. 00:15:27.240 --> 00:15:30.340 Getting those operating costs under 1870, pushing 00:15:30.340 --> 00:15:33.139 labor efficiency north of 50 cows per worker, 00:15:33.259 --> 00:15:36.090 and building up your working capital. maybe aiming 00:15:36.090 --> 00:15:38.850 for 40 % of your annual expenses as a cushion. 00:15:39.029 --> 00:15:41.149 That's the foundation. Once that foundation is 00:15:41.149 --> 00:15:43.409 solid, maybe you've captured that first $50K 00:15:43.409 --> 00:15:47.529 to $100K improvement. Where do we go next? What's 00:15:47.529 --> 00:15:49.429 phase two? Then, yeah, then we move into phase 00:15:49.429 --> 00:15:52.070 two, which the material calls capture easy wins. 00:15:52.169 --> 00:15:53.889 This is really the goal for years two through 00:15:53.889 --> 00:15:56.730 four, roughly. And this phase, done right, could 00:15:56.730 --> 00:16:00.029 be worth another, say, $35 ,000 or $65 ,000 annually. 00:16:00.450 --> 00:16:02.710 And the focus here is on strategies that are 00:16:02.710 --> 00:16:04.990 generally low capital but offer high returns, 00:16:05.190 --> 00:16:07.830 but they really only work effectively after you've 00:16:07.830 --> 00:16:09.990 stabilized things in phase one. Right. You can't 00:16:09.990 --> 00:16:12.110 really optimize components if your cows aren't 00:16:12.110 --> 00:16:14.009 healthy or your feed efficiency is all over the 00:16:14.009 --> 00:16:16.049 place. Exactly. You need that solid base first. 00:16:16.519 --> 00:16:18.220 So this is where it gets really interesting for 00:16:18.220 --> 00:16:20.179 me, because now we're talking about component 00:16:20.179 --> 00:16:22.840 premiums. And I think this is probably the single 00:16:22.840 --> 00:16:26.299 most accessible high value opportunity for almost 00:16:26.299 --> 00:16:28.759 any dairy in the country, regardless of who they 00:16:28.759 --> 00:16:31.279 ship their milk to. I completely agree. Component 00:16:31.279 --> 00:16:34.440 optimization is probably the most realistic high 00:16:34.440 --> 00:16:37.179 value target for the majority of farms. This 00:16:37.179 --> 00:16:39.360 is where that management precision you built 00:16:39.360 --> 00:16:42.419 in phase one translates directly into more dollars 00:16:42.419 --> 00:16:44.100 on the milk check. So how much are we talking? 00:16:44.340 --> 00:16:47.179 Well, think. about moving from maybe a standard 00:16:47.179 --> 00:16:51.600 3 .0 % protein level up to say 3 .3%, just that 00:16:51.600 --> 00:16:54.500 0 .3 % jump. If you achieve that through focused 00:16:54.500 --> 00:16:57.299 genetics and really dialed in nutrition management, 00:16:57.500 --> 00:17:01.460 that alone can yield a verifiable $20 ,000 to 00:17:01.460 --> 00:17:05.400 $30 ,000 extra annually for that 150 cow herd 00:17:05.400 --> 00:17:08.299 we keep talking about. $20 ,000 to $30 ,000 just 00:17:08.299 --> 00:17:11.160 for 0 .3 % protein. Yeah. We need to explain 00:17:11.160 --> 00:17:13.359 the mechanics of that. How does such a small 00:17:13.359 --> 00:17:15.900 percentage change generate that kind of return? 00:17:16.119 --> 00:17:18.380 It sounds almost too good to be true. It sounds 00:17:18.380 --> 00:17:21.680 huge, but it's real because you're leveraging 00:17:21.680 --> 00:17:24.940 the way most milk pricing structures work. Your 00:17:24.940 --> 00:17:27.619 processor pays a blend price, right? But that 00:17:27.619 --> 00:17:30.000 blend heavily weights the value of butterfat 00:17:30.000 --> 00:17:33.140 and protein. Okay. So that 0 .3 % increase in 00:17:33.140 --> 00:17:35.559 protein often means your milk suddenly qualifies 00:17:35.559 --> 00:17:38.980 for a higher tier. It jumps from maybe the standard 00:17:38.980 --> 00:17:41.920 pool into the high value pool for cheese yield 00:17:41.920 --> 00:17:44.950 or fluid processing. And when that happens, you 00:17:44.950 --> 00:17:47.369 often trigger a premium payment on every single 00:17:47.369 --> 00:17:49.910 hundred weight you ship. Ah, so it's not just 00:17:49.910 --> 00:17:52.210 getting paid a tiny bit more for the extra protein 00:17:52.210 --> 00:17:55.230 itself. It's triggering a bonus on the whole 00:17:55.230 --> 00:17:57.950 volume. Exactly. It's often an exponential return, 00:17:58.049 --> 00:18:00.529 not just a linear one based on the extra component 00:18:00.529 --> 00:18:02.970 solids. And we have some real world numbers on 00:18:02.970 --> 00:18:05.690 this, right? Using recent premium rates, what 00:18:05.690 --> 00:18:08.390 are processors actually willing to pay for this 00:18:08.390 --> 00:18:10.980 kind of specialized quality? Yeah, the data from 00:18:10.980 --> 00:18:13.680 October 2025 shows major processors are putting 00:18:13.680 --> 00:18:15.799 serious money on the table for high components 00:18:15.799 --> 00:18:19.059 and quality. We saw rates like Chobani offering 00:18:19.059 --> 00:18:22.380 an extra $1 .75 to maybe $1 .25 per hundred rate 00:18:22.380 --> 00:18:25.339 if you consistently hit 3 .3 % protein or higher. 00:18:25.440 --> 00:18:28.980 $0 .75 to $1 .25 on every hundred weight? Yep. 00:18:29.279 --> 00:18:32.059 DFA was offering somewhere between $0 .50 and 00:18:32.059 --> 00:18:35.079 $1 per hundred already for hitting 3 .25 % protein 00:18:35.079 --> 00:18:37.640 consistently. This isn't just pocket change. 00:18:37.740 --> 00:18:39.940 For many farms, capturing these premiums is the 00:18:39.940 --> 00:18:42.420 difference between barely surviving and actually 00:18:42.420 --> 00:18:44.819 thriving. And we can't forget the other easy 00:18:44.819 --> 00:18:47.289 win in Phase 2. quality premiums, especially 00:18:47.289 --> 00:18:50.089 somatic cell count or SEC. Right. Another direct 00:18:50.089 --> 00:18:52.130 reflection of good management from Phase 1 paying 00:18:52.130 --> 00:18:54.470 off. For instance, Upstate Niagara Cooperative, 00:18:54.589 --> 00:18:57.549 they were offering an extra $1 .40 to maybe it's 00:18:57.549 --> 00:19:00.529 $0 .80 per hundred for farms consistently keeping 00:19:00.529 --> 00:19:03.529 their SEC under $100 ,000. Wow. Those quality 00:19:03.529 --> 00:19:06.130 premiums, just based on SEC, which reflects herd 00:19:06.130 --> 00:19:08.210 health and melting procedure management, can 00:19:08.210 --> 00:19:11.049 easily be worth another $15 ,000 to $25 ,000 00:19:11.049 --> 00:19:14.529 a year for our 150 cow example. And again, these 00:19:14.529 --> 00:19:17.130 are revenues that, primarily require management 00:19:17.130 --> 00:19:19.089 discipline, the stuff you fixed in phase one, 00:19:19.210 --> 00:19:22.049 but very little new capital investment here in 00:19:22.049 --> 00:19:24.390 phase two? Minimal capital, yeah. It's about 00:19:24.390 --> 00:19:26.829 leveraging the fundamentals. And phase two also 00:19:26.829 --> 00:19:29.109 mentions integrating beef on dairy genetics, 00:19:29.250 --> 00:19:32.150 where it makes sense. Maybe not a massive windfall, 00:19:32.269 --> 00:19:35.549 but it helps diversify income streams away from 00:19:35.549 --> 00:19:38.230 just the milk check. Absolutely. It adds another 00:19:38.230 --> 00:19:41.430 revenue source from the calf crop, reduces reliance. 00:19:41.900 --> 00:19:45.380 purely on commodity milk prices. The whole goal 00:19:45.380 --> 00:19:47.819 of phase two is basically finding that accessible 00:19:47.819 --> 00:19:50.500 money, finding management levers you can pull 00:19:50.500 --> 00:19:52.720 now that return tens of thousands of dollars 00:19:52.720 --> 00:19:54.799 before you start thinking about spending hundreds 00:19:54.799 --> 00:19:56.720 of thousands on major infrastructure changes. 00:19:57.059 --> 00:19:59.859 Which brings us perfectly to phase three, strategic 00:19:59.859 --> 00:20:02.000 transformation. This is the stuff everyone seems 00:20:02.000 --> 00:20:03.519 to want to talk about first, right? Yeah. Go 00:20:03.519 --> 00:20:06.819 organic, bottle your own milk, sell direct, presented 00:20:06.819 --> 00:20:08.480 like there's some kind of silver bullet solution. 00:20:08.720 --> 00:20:10.940 Yeah, the sexy stuff. But the source material, 00:20:11.480 --> 00:20:15.710 is really clear. This is phase three for a very 00:20:15.710 --> 00:20:18.549 good reason. It absolutely requires the financial 00:20:18.549 --> 00:20:21.890 stability and that strong working capital cushion 00:20:21.890 --> 00:20:23.589 that you should have built in phases one and 00:20:23.589 --> 00:20:25.930 two. It is absolutely not a fix for a farm with 00:20:25.930 --> 00:20:27.690 broken fundamentals. I mean, the farms that tend 00:20:27.690 --> 00:20:29.329 to fail are the ones that try to skip phases 00:20:29.329 --> 00:20:32.049 one and two. They try to use a huge, expensive 00:20:32.049 --> 00:20:34.990 transformation like going organic to try and 00:20:34.990 --> 00:20:37.289 save an operation that's already bleeding cash 00:20:37.289 --> 00:20:40.009 because of a broken management model, that 14 00:20:40.009 --> 00:20:42.309 -letter inefficiency we talked about. Okay, let's 00:20:42.309 --> 00:20:44.650 look at the organic. transition first. It's not 00:20:44.650 --> 00:20:46.410 a quick switch, right? It's a three -year process. 00:20:46.650 --> 00:20:48.970 At least three years, yeah. You've got to convert 00:20:48.970 --> 00:20:51.190 your land and manage your herd under organic 00:20:51.190 --> 00:20:53.009 standards for that whole time before you can 00:20:53.009 --> 00:20:55.470 actually sell certified organic milk. And that 00:20:55.470 --> 00:20:58.930 three -year transition period, that's where the 00:20:58.930 --> 00:21:00.930 financial pain really hits, isn't it? Oh, it's 00:21:00.930 --> 00:21:03.309 brutal. Because for those three years, you're 00:21:03.309 --> 00:21:05.970 paying significantly higher prices for certified 00:21:05.970 --> 00:21:10.009 organic feed. USDA data shows maybe 30 % to 50 00:21:10.009 --> 00:21:13.079 % higher feed costs. 50 % higher feed costs. 00:21:13.339 --> 00:21:16.240 But you're still only receiving the conventional 00:21:16.240 --> 00:21:19.220 milk price for all the milk you ship during that 00:21:19.220 --> 00:21:22.140 entire three -year period. Ouch. That sounds 00:21:22.140 --> 00:21:24.039 like a guaranteed way to burn through your equity 00:21:24.039 --> 00:21:26.400 fast if you're not prepared. It is. Extension 00:21:26.400 --> 00:21:29.200 studies out of places like Cornell and Penn State, 00:21:29.359 --> 00:21:31.980 they suggest you need somewhere between $150 00:21:31.980 --> 00:21:35.460 ,000 and $300 ,000 in extra working capital just 00:21:35.460 --> 00:21:37.880 sitting there, just to survive that transition 00:21:37.880 --> 00:21:41.269 period financially. $150 ,000 to $300 ,000. Yeah. 00:21:41.329 --> 00:21:43.930 Just to bridge the gap. Yeah. So if you didn't 00:21:43.930 --> 00:21:46.210 successfully build up that 40 percent working 00:21:46.210 --> 00:21:49.750 capital cushion back in phase one. Attempting 00:21:49.750 --> 00:21:51.849 an organic transition is likely going to bankrupt 00:21:51.849 --> 00:21:54.049 you before you ever get certified. And even once 00:21:54.049 --> 00:21:56.410 you are certified, there's no guarantee you'll 00:21:56.410 --> 00:21:58.289 immediately get the full premium price on all 00:21:58.289 --> 00:21:59.910 your mill, right? That's kind of the hidden reality 00:21:59.910 --> 00:22:02.430 check. Yeah, that's exactly right. Many major 00:22:02.430 --> 00:22:05.190 organic processors, they often operate with regional 00:22:05.190 --> 00:22:08.369 quotas or supply management programs. And producer 00:22:08.369 --> 00:22:11.230 surveys show that a lot of newly certified organic 00:22:11.230 --> 00:22:14.069 farms, initially, they might only receive the 00:22:14.069 --> 00:22:15.890 premium price on a portion of their production. 00:22:16.319 --> 00:22:19.180 Maybe only 60 or 70 percent gets the premium 00:22:19.180 --> 00:22:21.660 until they establish a track record or until 00:22:21.660 --> 00:22:24.059 regional demand grows and capacity opens up. 00:22:24.099 --> 00:22:27.119 It's a long, highly capitalized and somewhat 00:22:27.119 --> 00:22:30.160 uncertain path. OK, same logic probably applies 00:22:30.160 --> 00:22:32.900 to the other big phase three idea, direct sales 00:22:32.900 --> 00:22:35.940 infrastructure. Bottling your own milk. Selling 00:22:35.940 --> 00:22:38.420 retail. Everyone loves the idea of capturing 00:22:38.420 --> 00:22:40.660 that full retail price. Sure, the romance of 00:22:40.660 --> 00:22:42.640 it is appealing. But that infrastructure comes 00:22:42.640 --> 00:22:44.900 with a seriously hefty price tag, doesn't it? 00:22:44.960 --> 00:22:47.700 And massive regulatory hurdles, too. Yeah, you 00:22:47.700 --> 00:22:49.480 mentioned the regulatory side, and that's absolutely 00:22:49.480 --> 00:22:51.359 critical context for understanding the costs 00:22:51.359 --> 00:22:54.240 involved. Penn State and Cornell expansion programs, 00:22:54.500 --> 00:22:56.720 they estimate you need minimum somewhere between 00:22:56.720 --> 00:23:00.519 $150 ,000 and $300 ,000 just for the basic compliant 00:23:00.519 --> 00:23:03.000 facilities. Minimum. And compliant means what 00:23:03.000 --> 00:23:06.099 exactly? Compliant means meeting strict USDA 00:23:06.099 --> 00:23:09.220 food safety standards. So that usually includes 00:23:09.220 --> 00:23:11.839 buying commercial pasteurization equipment, bottling 00:23:11.839 --> 00:23:14.619 lines, dedicated cold storage rooms, stainless 00:23:14.619 --> 00:23:17.599 steel everything, and critically, developing 00:23:17.599 --> 00:23:21.019 and implementing your HACCP safety plans. Okay, 00:23:21.059 --> 00:23:24.519 let's quickly define HACCP for anyone listening 00:23:24.519 --> 00:23:27.990 who isn't familiar. Right. HACCP stands for Hazard 00:23:27.990 --> 00:23:30.690 Analysis Critical Control Point. It's basically 00:23:30.690 --> 00:23:33.210 a systematic, documented approach to preventing 00:23:33.210 --> 00:23:35.970 food safety hazards. Implementing it properly 00:23:35.970 --> 00:23:37.910 requires intensive training for you and your 00:23:37.910 --> 00:23:41.190 staff, meticulous record keeping, and often specific 00:23:41.190 --> 00:23:43.730 design elements built into your processing facility 00:23:43.730 --> 00:23:46.710 to prevent any potential contamination. It's 00:23:46.710 --> 00:23:49.230 complex, it's time consuming, and it's expensive 00:23:49.230 --> 00:23:51.569 to set up and maintain, especially for a small 00:23:51.569 --> 00:23:53.569 farm that's used to just shipping a commodity 00:23:53.569 --> 00:23:55.569 milk off the farm. And all that That cost is 00:23:55.569 --> 00:23:57.150 before you even start thinking about the cost 00:23:57.150 --> 00:23:58.950 of actually distributing the milk, marketing 00:23:58.950 --> 00:24:01.230 it, building a brand. Exactly. Building volume 00:24:01.230 --> 00:24:04.089 takes time, lots of time. And the anecdotal evidence 00:24:04.089 --> 00:24:06.369 from farms that have done it really backs this 00:24:06.369 --> 00:24:09.430 up. Yeah. What's the typical timeline? Most operations 00:24:09.430 --> 00:24:11.529 that make the jump report, it takes somewhere 00:24:11.529 --> 00:24:14.269 between three to five years to really achieve 00:24:14.269 --> 00:24:16.990 meaningful sales volume and build a loyal customer 00:24:16.990 --> 00:24:19.589 base. We looked at that one producer in New York. 00:24:19.670 --> 00:24:21.809 Oh, yeah. He started out selling maybe 50 gallons 00:24:21.809 --> 00:24:24.230 a week in his first year, said he was questioning 00:24:24.230 --> 00:24:26.910 his sanity every single day. But by year five, 00:24:27.009 --> 00:24:30.069 he was up to around 500 gallons a week. And finally. 00:24:30.759 --> 00:24:32.740 profitable enough that he could hire dedicated 00:24:32.740 --> 00:24:35.460 staff just for the bottling and delivery. It's 00:24:35.460 --> 00:24:39.779 a long, slow, dedicated commitment. It's something 00:24:39.779 --> 00:24:42.000 you can really only tackle once your core farm 00:24:42.000 --> 00:24:44.279 business from phases one and two is throwing 00:24:44.279 --> 00:24:46.880 off reliable, positive cash flow. Okay, let's 00:24:46.880 --> 00:24:49.279 shift gears slightly within phase three and talk 00:24:49.279 --> 00:24:51.720 about another massive capital investment, robotics. 00:24:53.259 --> 00:24:56.079 Robotic milking systems. The capital outlay here 00:24:56.079 --> 00:24:57.839 is just immense, isn't it? We need to have a 00:24:57.839 --> 00:24:59.880 really honest conversation about the actual financial 00:24:59.880 --> 00:25:02.039 return on investment, because frankly, I'm pretty 00:25:02.039 --> 00:25:03.680 skeptical that the straight financial numbers 00:25:03.680 --> 00:25:06.319 pencil out for most smaller operations. And you 00:25:06.319 --> 00:25:08.980 know what? You should be skeptical if you're 00:25:08.980 --> 00:25:10.980 only looking at the conventional financial modeling. 00:25:11.900 --> 00:25:14.059 Based on extension analyses from places like 00:25:14.059 --> 00:25:16.940 Wisconsin and Minnesota, for a sort of typical 00:25:16.940 --> 00:25:20.099 200 cow operation needing maybe three robotic 00:25:20.099 --> 00:25:23.680 units, the total up -rent capital cost is getting 00:25:23.680 --> 00:25:25.880 close to a million dollars. You're looking at 00:25:25.880 --> 00:25:30.119 maybe $250 ,000 to $300 ,000 per unit, plus usually 00:25:30.119 --> 00:25:33.339 some significant barn modifications to make the 00:25:33.339 --> 00:25:35.759 cow flow work properly. A million bucks. And 00:25:35.759 --> 00:25:37.519 the costs don't stop there, right? There are 00:25:37.519 --> 00:25:40.319 ongoing operating costs, too. Oh, yeah. Significant 00:25:40.319 --> 00:25:42.140 ones. You're probably looking at $40 ,000 to 00:25:42.140 --> 00:25:45.140 $60 ,000 annually just for things like specialized 00:25:45.140 --> 00:25:47.339 maintenance contracts, electricity consumption, 00:25:47.539 --> 00:25:49.460 which is higher, and those inevitable specialized 00:25:49.460 --> 00:25:51.720 repairs that you can't do yourself. So if the 00:25:51.720 --> 00:25:54.039 justification, the payback calculation, is based 00:25:54.039 --> 00:25:57.670 purely on saving labor costs. The numbers look 00:25:57.670 --> 00:25:59.289 pretty terrible, don't they? Honestly, they look 00:25:59.289 --> 00:26:01.769 marginal at best. When you run realistic payback 00:26:01.769 --> 00:26:04.049 calculations based only on labor savings versus 00:26:04.049 --> 00:26:06.390 that huge upfront cost and ongoing operating 00:26:06.390 --> 00:26:09.089 expense, the payback period often stretches out 00:26:09.089 --> 00:26:11.930 to 20 years, 25 years, sometimes even 30 years 00:26:11.930 --> 00:26:14.890 on paper. Okay. So if your decision is purely 00:26:14.890 --> 00:26:18.289 about... short term cash flow optimization or 00:26:18.289 --> 00:26:21.829 servicing existing debt, investing a million 00:26:21.829 --> 00:26:23.970 dollars in robots when you might still have that 00:26:23.970 --> 00:26:26.150 underlying fortality app management problem we 00:26:26.150 --> 00:26:28.029 talked about. Yeah, that could be fiscal suicide. 00:26:28.170 --> 00:26:30.769 Well, OK, if the straight financial payback is 00:26:30.769 --> 00:26:33.710 so poor, why are we seeing successful cash flow 00:26:33.710 --> 00:26:36.740 positive? farms installing them. It's happening. 00:26:36.900 --> 00:26:38.920 Are you saying farmers should basically sacrifice 00:26:38.920 --> 00:26:41.779 current cash flow just for some vague hope of 00:26:41.779 --> 00:26:44.579 succession down the road? No, not exactly sacrifice. 00:26:44.799 --> 00:26:48.140 But I am saying the real value, the primary driver 00:26:48.140 --> 00:26:50.779 for many farms making that investment is often 00:26:50.779 --> 00:26:53.119 something far less tangible than what shows up 00:26:53.119 --> 00:26:55.500 on a simple balance sheet calculation. It's about 00:26:55.500 --> 00:26:58.079 the succession ROI and frankly, quality of life. 00:26:58.319 --> 00:27:00.859 Succession ROI. Explain that. Well, look at the 00:27:00.859 --> 00:27:03.220 research. Statistics Canada varies university 00:27:03.220 --> 00:27:06.299 studies. They consistently show that farms using 00:27:06.299 --> 00:27:08.700 automated milking systems are significantly more 00:27:08.700 --> 00:27:10.660 likely to have younger family members actually 00:27:10.660 --> 00:27:12.559 interested in taking over the farm someday. Why 00:27:12.559 --> 00:27:15.730 is that? They see a future with less physical 00:27:15.730 --> 00:27:19.089 drudgery, right? Less being tied to rigid milking 00:27:19.089 --> 00:27:22.210 schedules twice or three times a day. They see 00:27:22.210 --> 00:27:25.390 a more data driven, potentially more manageable 00:27:25.390 --> 00:27:28.829 lifestyle. It makes farming look less like grueling 00:27:28.829 --> 00:27:31.470 labor and more like managing a tech enabled business. 00:27:31.809 --> 00:27:33.869 OK, that definitely shifts the value proposition. 00:27:34.029 --> 00:27:36.730 It's not just about optimizing the profit margin 00:27:36.730 --> 00:27:39.509 today. It's about. investing in a way that might 00:27:39.509 --> 00:27:42.250 ensure the farm even exists tomorrow by making 00:27:42.250 --> 00:27:44.529 it more appealing to the next generation. Exactly. 00:27:44.549 --> 00:27:47.269 What's that worth? What's the value of keeping 00:27:47.269 --> 00:27:49.549 the farm in the family name versus having to 00:27:49.549 --> 00:27:51.970 sell out entirely when you retire? It's hard 00:27:51.970 --> 00:27:53.789 to put a dollar figure on that, but it's real. 00:27:53.950 --> 00:27:55.829 And there's the quality of life aspect for the 00:27:55.829 --> 00:27:58.730 current generation too, right? Huge. Also consider 00:27:58.730 --> 00:28:01.390 the older farmer. The source materials are full 00:28:01.390 --> 00:28:03.589 of these anecdotes. We heard about one Wisconsin 00:28:03.589 --> 00:28:05.970 producer. He was basically ready to quit farming 00:28:05.970 --> 00:28:09.000 entirely at age 55. His knees were shot after 00:28:09.000 --> 00:28:11.180 decades working in the Portland pit. Yeah, that's 00:28:11.180 --> 00:28:13.559 common. He decided to bite the bullet and install 00:28:13.559 --> 00:28:17.119 robots. Now, he's 62, his knees feel better, 00:28:17.220 --> 00:28:19.160 and he's planning to keep farming until he's 00:28:19.160 --> 00:28:22.160 70. Robotics drastically reduce the physical 00:28:22.160 --> 00:28:25.349 demands. So what's the value there? Gaining an 00:28:25.349 --> 00:28:27.769 extra decade or more of active farming life, 00:28:27.950 --> 00:28:30.630 keeping your equity working for you longer. It's 00:28:30.630 --> 00:28:32.849 almost like a life extension plan for the farmer 00:28:32.849 --> 00:28:35.230 disguised as a technology purchase. Interesting 00:28:35.230 --> 00:28:37.849 way to frame it. OK, moving on to another non 00:28:37.849 --> 00:28:40.670 -capital, maybe phase three strategy, community 00:28:40.670 --> 00:28:43.670 engagement. We often kind of overlook how those 00:28:43.670 --> 00:28:45.529 local connections can actually feed the bottom 00:28:45.529 --> 00:28:47.589 line. But the research suggests it generates 00:28:47.589 --> 00:28:50.210 real measurable financial returns. Is that right? 00:28:50.390 --> 00:28:52.289 Yeah, the source material is pretty compelling. 00:28:52.559 --> 00:28:54.940 this. USDA research work out of Colorado State. 00:28:55.299 --> 00:28:57.500 They've documented that money spent at local 00:28:57.500 --> 00:29:00.319 food businesses, including farms, tends to generate 00:29:00.319 --> 00:29:03.660 something like 1 .8 to 2 .6 times its original 00:29:03.660 --> 00:29:06.019 value in additional local economic activity. 00:29:06.220 --> 00:29:09.019 That creates a lot of goodwill. Okay, goodwill 00:29:09.019 --> 00:29:11.859 is nice, but how does being involved in the community 00:29:11.859 --> 00:29:15.319 translate directly into, say, a better risk assessment 00:29:15.319 --> 00:29:18.519 from my banker or lower borrowing costs? That's 00:29:18.519 --> 00:29:20.200 what I want to know. That's the bottom line connection. 00:29:20.650 --> 00:29:24.170 It really comes down to trust and perceived stability. 00:29:24.630 --> 00:29:26.990 The data shows that farms with really strong 00:29:26.990 --> 00:29:29.349 community ties, you know, the owners are involved 00:29:29.349 --> 00:29:31.670 in 4 -H, they serve on local school boards, they 00:29:31.670 --> 00:29:34.890 help organize the county fair. These farms report 00:29:34.890 --> 00:29:37.829 significantly better operational metrics that 00:29:37.829 --> 00:29:40.549 banks notice. Like what? Like they report an 00:29:40.549 --> 00:29:42.450 average employee retention rate of nearly four 00:29:42.450 --> 00:29:45.410 years, 3 .8 years. Compare that to the industry 00:29:45.410 --> 00:29:48.150 average, which is often around 11 months. That 00:29:48.150 --> 00:29:50.230 signals stability. Okay, lower turnover is good. 00:29:50.490 --> 00:29:52.589 What else? And critically, they report, on average, 00:29:52.750 --> 00:29:55.829 23 % lower borrowing costs from their local banks. 00:29:55.890 --> 00:29:59.250 23 % lower. Why? Because those local banks see 00:29:59.250 --> 00:30:02.210 them not just as a farm business, but as a stable, 00:30:02.269 --> 00:30:04.890 reliable fixture rooted deeply in the community. 00:30:05.269 --> 00:30:07.609 They're seen as less of a flight risk if times 00:30:07.609 --> 00:30:11.089 get tough. They have local support. That reduces 00:30:11.089 --> 00:30:13.730 the bank's perceived risk. And then there was 00:30:13.730 --> 00:30:17.180 that anecdote about the Midwest producer. The 00:30:17.180 --> 00:30:19.539 manure storage permit. Oh, yeah. Perfect example 00:30:19.539 --> 00:30:22.400 of soft power. This producer needed a permit 00:30:22.400 --> 00:30:24.599 for a new manure storage facility, something 00:30:24.599 --> 00:30:27.119 that can often get bogged down in local opposition 00:30:27.119 --> 00:30:30.319 or bureaucratic delays, right? But because this 00:30:30.319 --> 00:30:32.740 farmer and his family had been involved in local 00:30:32.740 --> 00:30:36.059 4 -H, sponsored Little League teams, just generally 00:30:36.059 --> 00:30:39.740 been good community members for years, their 00:30:39.740 --> 00:30:41.940 permit application apparently sailed through 00:30:41.940 --> 00:30:45.079 with minimal fuss. His neighbors supported him. 00:30:45.369 --> 00:30:47.710 Whereas an operation that keeps to itself may 00:30:47.710 --> 00:30:50.529 be seen as purely industrial, might face compliance 00:30:50.529 --> 00:30:54.349 notices, delays, public hearings. Exactly. That 00:30:54.349 --> 00:30:56.529 community connection acts almost like a long 00:30:56.529 --> 00:30:58.829 -term business strategy, an insurance policy 00:30:58.829 --> 00:31:00.609 against some of those bureaucratic and market 00:31:00.609 --> 00:31:03.109 pressures. It can earn you regulatory goodwill, 00:31:03.269 --> 00:31:05.190 lower interest rates, and even help you find 00:31:05.190 --> 00:31:07.710 and keep better employees who live locally. Okay. 00:31:07.789 --> 00:31:10.970 But let's finish this deep dive with maybe the 00:31:10.970 --> 00:31:12.950 ultimate contrarian take. The ultimate act of 00:31:12.950 --> 00:31:16.069 management beating scale could actually be the 00:31:16.069 --> 00:31:18.230 strategic exit. We spent all this time talking 00:31:18.230 --> 00:31:20.329 about how to achieve that $100 ,000 management 00:31:20.329 --> 00:31:23.089 advantage. Yeah. But the reality is not everyone 00:31:23.089 --> 00:31:25.829 can make it work or maybe wants to. And we need 00:31:25.829 --> 00:31:28.309 to be really clear. Knowing when it's time to 00:31:28.309 --> 00:31:31.359 fold your hand is not a failure. Absolutely not. 00:31:31.440 --> 00:31:33.140 And if we connect this right back to the very 00:31:33.140 --> 00:31:36.099 beginning talking about consolidation, knowing 00:31:36.099 --> 00:31:39.940 when to strategically cash out your equity. before 00:31:39.940 --> 00:31:42.839 you burn through it trying to save a broken model, 00:31:43.019 --> 00:31:45.500 that might actually be the smartest business 00:31:45.500 --> 00:31:47.900 decision you can make. If you're just consistently 00:31:47.900 --> 00:31:50.259 unable to cover your costs year after year, if 00:31:50.259 --> 00:31:51.759 you don't have a successor lined up and you're 00:31:51.759 --> 00:31:53.819 getting older, if your health is failing or the 00:31:53.819 --> 00:31:56.279 stress is just becoming overwhelming, selling 00:31:56.279 --> 00:31:59.220 the farm while you still have significant equity 00:31:59.220 --> 00:32:02.099 intact, that is the absolute highest form of 00:32:02.099 --> 00:32:04.480 management discipline. It's preserving your capital. 00:32:04.809 --> 00:32:07.190 Man, I've seen too many farmers just crying themselves 00:32:07.190 --> 00:32:09.210 down, burned through the last of their savings 00:32:09.210 --> 00:32:12.269 in equity, driven by pride or maybe just inertia, 00:32:12.609 --> 00:32:15.269 trying to save something that fundamentally isn't 00:32:15.269 --> 00:32:17.069 working anymore. They probably should have sold 00:32:17.069 --> 00:32:19.190 five years earlier and saved themselves a lot 00:32:19.190 --> 00:32:21.769 of heartache. That pride, it doesn't pay the 00:32:21.769 --> 00:32:24.109 bills, does it? We heard from that respected 00:32:24.109 --> 00:32:27.839 Wisconsin producer. He sold out at age 62. He 00:32:27.839 --> 00:32:30.119 finally admitted to himself his costs were just 00:32:30.119 --> 00:32:32.740 perpetually too high for a system. His kids weren't 00:32:32.740 --> 00:32:35.660 interested. He said, you know, at first it felt 00:32:35.660 --> 00:32:38.240 like giving up, like failure. I can imagine. 00:32:38.460 --> 00:32:41.460 But now a few years later, he realizes that selling 00:32:41.460 --> 00:32:44.440 the farm. paying off all his debts and actually 00:32:44.440 --> 00:32:47.019 securing his retirement, that was probably the 00:32:47.019 --> 00:32:49.380 single smartest business decision he made in 00:32:49.380 --> 00:32:52.079 40 years of farming. The industry consolidation 00:32:52.079 --> 00:32:55.539 we see, it is sorting farms. And those who make 00:32:55.539 --> 00:32:57.640 a strategic exit before they're forced to, before 00:32:57.640 --> 00:32:59.839 they burn all their equity, they're making a 00:32:59.839 --> 00:33:02.500 really sound financial choice. Okay. So let's 00:33:02.500 --> 00:33:04.099 bring this all together. You, the farmer, you 00:33:04.099 --> 00:33:05.759 just finished morning milking. Maybe you're driving 00:33:05.759 --> 00:33:08.059 the feed truck and you listen to all this. What 00:33:08.059 --> 00:33:12.759 are the three absolute non -negotiable actionable 00:33:12.759 --> 00:33:15.559 takeaways. Based on this whole phased approach 00:33:15.559 --> 00:33:18.220 we've discussed, what are the immediate, medium, 00:33:18.279 --> 00:33:20.359 and long -term priorities if you want to capture 00:33:20.359 --> 00:33:22.220 some of that $100 ,000 management advantage? 00:33:22.539 --> 00:33:23.839 Right. We got to structure this by timeline, 00:33:24.000 --> 00:33:25.759 starting with what you can literally go analyze 00:33:25.759 --> 00:33:29.160 right now or this week. Agreed. So immediate 00:33:29.160 --> 00:33:30.960 action like this week or the next few months. 00:33:31.279 --> 00:33:35.059 Audit phase one. Yes. You absolutely need to 00:33:35.059 --> 00:33:37.119 confirm your foundation is solid or identify 00:33:37.119 --> 00:33:39.420 where it's weak. Stop thinking about anything 00:33:39.420 --> 00:33:41.779 else for a minute and benchmark two critical 00:33:41.779 --> 00:33:45.279 metrics. First, your cows per full -time worker 00:33:45.279 --> 00:33:47.819 equivalent. Are you hitting 50 plus? Be honest. 00:33:48.079 --> 00:33:51.500 And second. Second, calculate your current actual 00:33:51.500 --> 00:33:54.619 operating cost per hundred weight. If you don't 00:33:54.619 --> 00:33:56.799 know this number precisely, down to the penny, 00:33:56.900 --> 00:33:59.500 you're driving completely blind. You have to 00:33:59.500 --> 00:34:01.799 know your cost of production. And this data, 00:34:01.880 --> 00:34:04.039 knowing these two numbers, that has to come before 00:34:04.039 --> 00:34:06.279 any big capital decision, right? Absolutely. 00:34:06.640 --> 00:34:09.460 If you find out you're struggling up at $21 or 00:34:09.460 --> 00:34:13.300 $22 per 100 OT, that inefficiency must be fixed 00:34:13.300 --> 00:34:15.400 first. Because if you don't fix that, you're 00:34:15.400 --> 00:34:17.400 likely going to fail eventually, regardless of 00:34:17.400 --> 00:34:19.440 what shiny new equipment you buy. Fix the leaks 00:34:19.440 --> 00:34:22.900 first. Okay, makes sense. Then medium -term strategy, 00:34:22.960 --> 00:34:25.940 say the next three to six months. Maximize components. 00:34:26.300 --> 00:34:28.719 Yeah. Once you know your costs are under control 00:34:28.719 --> 00:34:32.179 or you have a clear plan to get them there, focus 00:34:32.179 --> 00:34:34.840 your nutrition program and maybe your short -term 00:34:34.840 --> 00:34:37.960 genetics or breeding strategy solely on hitting 00:34:37.960 --> 00:34:40.099 those component premiums your processor offers. 00:34:40.300 --> 00:34:43.239 Target that 3 .3 % protein or whatever the key 00:34:43.239 --> 00:34:45.500 threshold is for your milk check. Exactly. Target 00:34:45.500 --> 00:34:48.150 that level needed to capture the immediate. maybe 00:34:48.150 --> 00:34:50.590 $20 ,000 to $30 ,000 annual return we talked 00:34:50.590 --> 00:34:53.510 about. It requires better management, yes. Consistent 00:34:53.510 --> 00:34:55.530 feed testing, maybe tweaking rations, working 00:34:55.530 --> 00:34:58.050 closely with your nutritionist. But it doesn't 00:34:58.050 --> 00:35:00.050 require massive capital investment compared to 00:35:00.050 --> 00:35:01.849 the other stuff, and it pays off relatively quickly. 00:35:02.030 --> 00:35:04.349 And that extra cash flow is what fuels the next 00:35:04.349 --> 00:35:07.380 steps. Precisely. It's the fastest way to generate 00:35:07.380 --> 00:35:09.920 the cash you might need for any subsequent moves 00:35:09.920 --> 00:35:12.380 or just to build that working capital cushion. 00:35:12.539 --> 00:35:14.940 All right. And finally, long -term positioning 00:35:14.940 --> 00:35:18.099 looking out over the next one to two years. Strategic 00:35:18.099 --> 00:35:21.599 sequencing. This is about discipline. Lock in 00:35:21.599 --> 00:35:24.429 the strategy we've outlined. Do not pursue those 00:35:24.429 --> 00:35:27.090 major phase three transformations like robots 00:35:27.090 --> 00:35:29.829 or starting an organic transition or building 00:35:29.829 --> 00:35:32.409 a bottling plant until your phase one and phase 00:35:32.409 --> 00:35:35.349 two benchmarks are consistently being met. You 00:35:35.349 --> 00:35:37.730 need that solid foundation and those component 00:35:37.730 --> 00:35:40.650 premiums rolling in first. Because the farms 00:35:40.650 --> 00:35:42.550 that get into trouble are the ones that skip 00:35:42.550 --> 00:35:44.460 the foundational steps. They're the ones that 00:35:44.460 --> 00:35:47.340 skip phases. Exactly. They try to use a million 00:35:47.340 --> 00:35:49.619 dollar transformation project to somehow magically 00:35:49.619 --> 00:35:51.980 save an operation that's fundamentally broken 00:35:51.980 --> 00:35:54.460 because of that $4 dollar to eat management problem. 00:35:54.599 --> 00:35:56.219 You've got to use the cash flow generated from 00:35:56.219 --> 00:35:59.739 efficiency to fund growth, not just pile on more 00:35:59.739 --> 00:36:03.099 debt onto a shaky base. That really is the essential 00:36:03.099 --> 00:36:05.829 lesson here, isn't it? Good management at any 00:36:05.829 --> 00:36:07.670 size will beat poor management at every size. 00:36:07.829 --> 00:36:10.590 If your operation is under 200 cows, maybe even 00:36:10.590 --> 00:36:13.650 300, your primary fight isn't against scale. 00:36:13.829 --> 00:36:16.250 Your fight is against inefficiency in your own 00:36:16.250 --> 00:36:18.750 operation. My final thought to synthesize all 00:36:18.750 --> 00:36:21.489 this. The absolute key is recognizing that your 00:36:21.489 --> 00:36:25.170 150 cow dairy or your 200 cow dairy, you simply 00:36:25.170 --> 00:36:27.489 cannot win by trying to compete head to head 00:36:27.489 --> 00:36:30.269 against a 5 ,000 cow operation purely on commodity 00:36:30.269 --> 00:36:32.929 production costs. You just can't. Your win comes 00:36:32.929 --> 00:36:35.210 from leveraging your advantages, potentially 00:36:35.210 --> 00:36:37.769 higher quality, more flexibility, the ability 00:36:37.769 --> 00:36:39.530 to produce specialized products that command 00:36:39.530 --> 00:36:42.019 a premium. And above all, superior management 00:36:42.019 --> 00:36:44.519 quality and attention to detail. That $100 ,000 00:36:44.519 --> 00:36:46.699 plus advantage is waiting there for you. But 00:36:46.699 --> 00:36:48.340 you have to look inward at your own operation 00:36:48.340 --> 00:36:50.940 first, not just outward at getting bigger. That's 00:36:50.940 --> 00:36:53.519 a really powerful statement to end on. Excellent 00:36:53.519 --> 00:36:55.219 stuff. Well, this has been another deep dive 00:36:55.219 --> 00:36:57.539 from the Bullvine podcast. If this kind of no 00:36:57.539 --> 00:37:00.340 BS analysis helps your operation, make sure you 00:37:00.340 --> 00:37:04.119 head over to www .thebullvine .com. There are 00:37:04.119 --> 00:37:06.079 tons more articles there that really tell you 00:37:06.079 --> 00:37:07.679 what's happening behind the headlines in dairy. 00:37:08.059 --> 00:37:10.440 And seriously, folks, subscribe to the podcast 00:37:10.440 --> 00:37:12.500 wherever you're listening right now. We're actually 00:37:12.500 --> 00:37:15.119 releasing episodes twice a week these days. And 00:37:15.119 --> 00:37:17.579 trust me, based on what's coming up, you really 00:37:17.579 --> 00:37:19.280 don't want to miss what we've got planned for 00:37:19.280 --> 00:37:21.460 next week. Oh, yeah. What's the tease? We're 00:37:21.460 --> 00:37:23.219 going to dive into something we're calling the 00:37:23.219 --> 00:37:25.940 10 Commandments of Dairy Farming, expert tips 00:37:25.940 --> 00:37:28.599 for sustainable success. It's going to focus 00:37:28.599 --> 00:37:31.260 specifically on building that tactical framework, 00:37:31.380 --> 00:37:33.679 that checklist for mastering all those phase 00:37:33.679 --> 00:37:36.139 one fundamentals we talked about today, really 00:37:36.139 --> 00:37:38.860 drilling down on on how you achieve that target 00:37:38.860 --> 00:37:42.980 of, say, $17 .39 per 100 red operating cost. 00:37:43.079 --> 00:37:44.639 Nice. All right, let's go to that one.