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 --> 00:01:03.880 we're sparking Welcome back to the Bullvine Podcast, 00:01:04.359 --> 00:01:06.579 where we cut through dairy industry noise to 00:01:06.579 --> 00:01:08.859 get you the insights that actually matter for 00:01:08.859 --> 00:01:11.900 your operation. And today we're diving deep into 00:01:11.900 --> 00:01:14.500 a feature piece that's been generating some serious 00:01:14.500 --> 00:01:18.260 buzz. This one's got layers and some structural 00:01:18.260 --> 00:01:20.519 surprises that are going to make you, the farmer, 00:01:20.700 --> 00:01:23.200 rethink how you've been approaching profitability 00:01:23.200 --> 00:01:26.340 and critically value capture. Okay, let's unpack 00:01:26.340 --> 00:01:28.980 this core paradox. Yeah. Because it really is 00:01:28.980 --> 00:01:30.840 something. We are looking at two beverages sitting 00:01:30.840 --> 00:01:32.579 right next to each other in the same grocery 00:01:32.579 --> 00:01:35.579 store cooler. One is basically sugar water, right? 00:01:35.900 --> 00:01:37.980 fortified with carbonation and flavoring. The 00:01:37.980 --> 00:01:40.219 other is complete nutrient -dense milk protein, 00:01:40.420 --> 00:01:42.799 calcium, essential vitamins, real nutrition. 00:01:43.500 --> 00:01:46.939 Yet the core question is staggering. How is Coca 00:01:46.939 --> 00:01:50.159 -Cola's product capturing 60 to 70 cents of every 00:01:50.159 --> 00:01:53.579 retail dollar spent? Yeah. While milk, our arguably 00:01:53.579 --> 00:01:55.799 superior product, is struggling to capture maybe 00:01:55.799 --> 00:02:00.379 30 to 49 cents. That gap, that 70 -30 split you 00:02:00.379 --> 00:02:02.260 mentioned, isn't just an economic curiosity. 00:02:02.280 --> 00:02:05.459 It is... the entire game right now. It really 00:02:05.459 --> 00:02:09.060 is. We need to understand this fundamental structural 00:02:09.060 --> 00:02:13.000 and, you know, business model difference to even 00:02:13.000 --> 00:02:15.319 begin to fix our side of the equation. Because 00:02:15.319 --> 00:02:17.419 right now we are looking at a system built for 00:02:17.419 --> 00:02:20.439 commodities that's dairy competing directly against 00:02:20.439 --> 00:02:23.520 systems built for global, unshakable, proprietary 00:02:23.520 --> 00:02:25.840 brands cope. It's an asymmetric fight, really. 00:02:26.020 --> 00:02:28.620 This deep dives matters right now because that 00:02:28.620 --> 00:02:31.539 widening gap, it reflects these deep structural 00:02:31.539 --> 00:02:34.759 advantages that Frankly, dairy has to counter 00:02:34.759 --> 00:02:37.599 before the cost of inaction becomes, well, fatal. 00:02:37.800 --> 00:02:40.080 We can't just sit around and wait for the commodity 00:02:40.080 --> 00:02:42.240 price cycle to spin back up. Those cycles are 00:02:42.240 --> 00:02:44.680 becoming shorter, less predictable. We have to 00:02:44.680 --> 00:02:46.780 build permanent resilience. We are dissecting 00:02:46.780 --> 00:02:49.060 a system that rewards complexity in production, 00:02:49.340 --> 00:02:51.840 which, let's face it, is what dairy excels at. 00:02:51.879 --> 00:02:53.939 We're good at making milk. But rewards simplicity 00:02:53.939 --> 00:02:56.520 and singular brand loyalty in retail, which is 00:02:56.520 --> 00:02:58.879 what we fundamentally lack as an industry. And 00:02:58.879 --> 00:03:01.259 if you're asking what's truly at stake for your 00:03:01.259 --> 00:03:04.530 operation, it's survival. Plain and simple. The 00:03:04.530 --> 00:03:06.949 source material suggests a very harsh, but I 00:03:06.949 --> 00:03:09.770 think essential metric. If your farm's percentage 00:03:09.770 --> 00:03:14.370 of retail value capture is below 35%, you are 00:03:14.370 --> 00:03:16.669 statistically stuck in the commodity trap. You 00:03:16.669 --> 00:03:19.129 are a price taker, not a price maker. End of 00:03:19.129 --> 00:03:22.610 story. That 35 % marker is... critical. It really 00:03:22.610 --> 00:03:25.389 is. That difference moving from 35 percent to 00:03:25.389 --> 00:03:28.150 even, say, 45 percent. That's the difference 00:03:28.150 --> 00:03:30.449 between making those critical long term investments, 00:03:30.550 --> 00:03:33.389 facility upgrades, new genetics, maybe technology 00:03:33.389 --> 00:03:37.870 versus just treading water. Yeah. You know, managing 00:03:37.870 --> 00:03:40.180 debt. Trying to keep the lights on. It's the 00:03:40.180 --> 00:03:41.819 difference between planning for the next generation 00:03:41.819 --> 00:03:43.699 and just worrying about the next quarter's milk 00:03:43.699 --> 00:03:46.060 check. Exactly. But here's where we pivot, because 00:03:46.060 --> 00:03:48.300 it's not all existential dread. It can't be. 00:03:48.379 --> 00:03:50.939 The focus of this research is on specific, proven 00:03:50.939 --> 00:03:52.819 strategies things people are doing right now, 00:03:52.939 --> 00:03:55.300 from genetics management to innovative processor 00:03:55.300 --> 00:03:57.919 arrangements that are already delivering Coke 00:03:57.919 --> 00:04:00.580 -like stability and margins to successful dairy 00:04:00.580 --> 00:04:03.319 operations. Yeah. It is possible. Absolutely. 00:04:03.400 --> 00:04:06.069 And we are going to dive into one strategy. beef 00:04:06.069 --> 00:04:09.729 on dairy that is currently promising $70 ,000 00:04:09.729 --> 00:04:13.090 or more. $70 ,000. In extra annual revenue for 00:04:13.090 --> 00:04:15.969 minimal capital outlay, we're talking maybe $2 00:04:15.969 --> 00:04:19.329 ,000 in additional semen costs. Yeah, the ROI 00:04:19.329 --> 00:04:21.509 is huge there. That's a return on investment 00:04:21.509 --> 00:04:23.889 that transforms cash flow almost immediately. 00:04:24.189 --> 00:04:26.170 And before we get too deep into the solutions, 00:04:26.209 --> 00:04:29.310 we absolutely must talk about the ticking clock. 00:04:29.490 --> 00:04:32.540 There is a looming technology threat. precision 00:04:32.540 --> 00:04:35.800 fermentation that the sources peg as having roughly 00:04:35.800 --> 00:04:38.680 an 18 -month countdown window. 18 months? That's 00:04:38.680 --> 00:04:41.420 not long. No, it's not. This is the period during 00:04:41.420 --> 00:04:44.459 which we must make decisive structural moves 00:04:44.459 --> 00:04:47.199 before the underlying equity in our current commodity 00:04:47.199 --> 00:04:49.839 models just evaporates completely. The time for 00:04:49.839 --> 00:04:52.399 just thinking about it is over. Okay. Let's get 00:04:52.399 --> 00:04:54.379 into it then. Yeah. So let's start by defining 00:04:54.379 --> 00:04:56.920 this chasm using the specific data points that 00:04:56.920 --> 00:04:58.759 jumped out of the research. Right. We have this 00:04:58.759 --> 00:05:01.439 profound paradox. Coke sells a product that is 00:05:01.439 --> 00:05:04.500 87 % cheap ingredients, water and flavoring, 00:05:04.500 --> 00:05:07.339 basically. Water and sugar, mostly. Dairy sells 00:05:07.339 --> 00:05:11.459 complete nutrition. Yet. Coca -Cola is capturing 00:05:11.459 --> 00:05:13.939 consistently between 60 and 70 percent of the 00:05:13.939 --> 00:05:17.199 retail dollar. 60 to 70. And if we look at the 00:05:17.199 --> 00:05:20.500 USDA data cited, specifically that March 2025 00:05:20.500 --> 00:05:24.019 analysis, dairy is only securing between 30 and 00:05:24.019 --> 00:05:27.129 49 percent of that retail dollar. Even at the 00:05:27.129 --> 00:05:30.310 absolute high end, 49%, we are substantially 00:05:30.310 --> 00:05:33.089 behind Coke's low end. It's not just a slight 00:05:33.089 --> 00:05:35.189 difference. It's a structural misalignment. It's 00:05:35.189 --> 00:05:37.610 massive. Absolutely. Let's quantify this for 00:05:37.610 --> 00:05:39.430 the listener. Put some real numbers on it. Yeah. 00:05:39.509 --> 00:05:43.050 When consumers are paying, say, $4 .48 for a 00:05:43.050 --> 00:05:45.470 typical gallon of milk at the store. Okay. The 00:05:45.470 --> 00:05:48.610 producer, the farmer, is receiving about $1 .97. 00:05:48.930 --> 00:05:51.269 Right. If you do that quick math, we are sitting 00:05:51.269 --> 00:05:55.470 at roughly 44 % capture. Now. 44 % sounds respectable 00:05:55.470 --> 00:05:57.470 compared to the 30 % low at. Yeah, it sounds 00:05:57.470 --> 00:06:00.329 okay on its own. But this calculation only addresses 00:06:00.329 --> 00:06:03.089 the producer's share of the final price. It completely 00:06:03.089 --> 00:06:05.209 glosses over the radically different operating 00:06:05.209 --> 00:06:08.189 cost structure for the processors upstream. Ah, 00:06:08.250 --> 00:06:10.689 yes, the processor peak. Which is the immediate 00:06:10.689 --> 00:06:12.750 market for the raw product you're selling. This 00:06:12.750 --> 00:06:14.769 is where the farmer perspective comes in. And 00:06:14.769 --> 00:06:16.790 you have to stop and say, wait a minute, their 00:06:16.790 --> 00:06:18.910 cost structure must be fundamentally inverted 00:06:18.910 --> 00:06:22.670 from ours. It has to be. The research from the 00:06:22.670 --> 00:06:25.230 Cornell Program on Dairy Markets and Policy is 00:06:25.230 --> 00:06:28.069 stunning here. Really lays it out. Think about 00:06:28.069 --> 00:06:31.430 Coca -Cola. Their raw materials, the syrup concentrate, 00:06:31.730 --> 00:06:34.910 the sugar, the flavorings, represent just 5 % 00:06:34.910 --> 00:06:37.730 of their total revenue. 5 %? Just 5 cents on 00:06:37.730 --> 00:06:40.069 the dollar? 5%. The rest is marketing, distribution, 00:06:40.470 --> 00:06:43.230 overhead, and profit. Lots of profit. Okay, so 00:06:43.230 --> 00:06:46.629 5 % for Coke's inputs. Now, for the dairy processors 00:06:46.629 --> 00:06:49.529 who are buying our raw milk, what does that input 00:06:49.529 --> 00:06:52.529 cost look like for them? Raw milk purchases for 00:06:52.529 --> 00:06:55.709 the typical processor eat up about 50%. 50 half. 00:06:55.870 --> 00:06:58.949 50%, half of their total operating costs. Let 00:06:58.949 --> 00:07:01.389 that sink in. Wow. The dairy processor starts 00:07:01.389 --> 00:07:03.949 the race with a 50 % cost burden right out of 00:07:03.949 --> 00:07:06.910 the gate compared to Coke's 5%. This tenfold 00:07:06.910 --> 00:07:09.430 difference is massive, and it defines the profitability 00:07:09.430 --> 00:07:11.930 ceiling for the entire supply chain. It just 00:07:11.930 --> 00:07:14.189 does. So the processors have almost no wiggle 00:07:14.189 --> 00:07:17.360 room. Exactly. We're talking maybe... 2 % to 00:07:17.360 --> 00:07:20.240 3 % margin difference for them, how can they 00:07:20.240 --> 00:07:22.360 possibly increase the amount they pay producers 00:07:22.360 --> 00:07:24.439 significantly while still maintaining their own 00:07:24.439 --> 00:07:26.879 profitability in this cutthroat commodity market? 00:07:27.000 --> 00:07:30.000 They can't. That 5 % versus 50 % comparison, 00:07:30.379 --> 00:07:32.819 I think that's the single most important metric 00:07:32.819 --> 00:07:35.379 in this entire deep dive. It really frames the 00:07:35.379 --> 00:07:37.620 whole problem. It shows why the commodity market 00:07:37.620 --> 00:07:41.060 is inherently punitive for dairy. If the processor 00:07:41.060 --> 00:07:43.000 is already paying half their revenue for input, 00:07:43.449 --> 00:07:46.329 They cannot afford the massive unified marketing 00:07:46.329 --> 00:07:49.389 budget that Coke can. Nope. They cannot afford 00:07:49.389 --> 00:07:51.850 the risk of long -term capital investments that 00:07:51.850 --> 00:07:54.410 don't pay off immediately. The risk is too high. 00:07:54.860 --> 00:07:56.839 And this structural difference means the commodity 00:07:56.839 --> 00:07:59.459 market relentlessly punishes any operation that 00:07:59.459 --> 00:08:01.540 lacks differentiation or scale. Who does that 00:08:01.540 --> 00:08:03.399 hit hardest? I would argue it's the mid -sized 00:08:03.399 --> 00:08:05.980 dairies, you know, the ones running 100 to 500 00:08:05.980 --> 00:08:07.680 cows. Yeah, the ones caught in the middle. They 00:08:07.680 --> 00:08:10.019 don't have the sheer scale of the massive Western 00:08:10.019 --> 00:08:13.459 operations to achieve those crucial $14 to $16 00:08:13.459 --> 00:08:16.019 per hundred weight cost efficiencies that allow 00:08:16.019 --> 00:08:19.019 path one, the go big path, to survive. Right. 00:08:19.449 --> 00:08:21.750 And they often lack the proximity or maybe the 00:08:21.750 --> 00:08:24.990 infrastructure or just the flexibility to immediately 00:08:24.990 --> 00:08:29.050 jump into those high value local premium markets 00:08:29.050 --> 00:08:31.709 that the smaller farms are carving out. Exactly. 00:08:31.709 --> 00:08:33.409 They're caught in the middle, still dependent 00:08:33.409 --> 00:08:35.710 on the volatile commodity price, and they're 00:08:35.710 --> 00:08:38.169 the ones forced to confront this crossroads most 00:08:38.169 --> 00:08:40.980 urgently. The status quo is just economically 00:08:40.980 --> 00:08:43.340 unsustainable for that group. Something has to 00:08:43.340 --> 00:08:45.919 change. OK, let's pivot to the why. Why does 00:08:45.919 --> 00:08:48.860 Koch enjoy this, you know, dominant position? 00:08:49.639 --> 00:08:52.080 We need to challenge the conventional wisdom 00:08:52.080 --> 00:08:54.919 that says we can ever truly compete head to head 00:08:54.919 --> 00:08:57.419 on the national stage when these structural realities 00:08:57.419 --> 00:09:01.200 exist. It might not be possible. First, logistics. 00:09:02.029 --> 00:09:04.389 This is honestly the genius of their business 00:09:04.389 --> 00:09:06.549 model. It really is. They ship concentrated syrup. 00:09:06.629 --> 00:09:08.590 They call it the concentration secret. And it 00:09:08.590 --> 00:09:10.870 is a secret weapon. Shipping the concentrate 00:09:10.870 --> 00:09:13.830 eliminates 87 % of the product weight from their 00:09:13.830 --> 00:09:16.570 shipping and storage costs. 87%. That's almost 00:09:16.570 --> 00:09:19.529 everything. Think about that. They make the syrup 00:09:19.529 --> 00:09:22.230 concentrate in a centralized location, send it 00:09:22.230 --> 00:09:24.909 out, and the bottlers simply add the two cheapest 00:09:24.909 --> 00:09:27.529 components, water and carbonation, at the destination. 00:09:27.850 --> 00:09:30.330 Right near the consumer. It's radical simplification, 00:09:30.490 --> 00:09:33.149 and it completely bypasses the most expensive 00:09:33.149 --> 00:09:35.549 parts of the dairy supply chain. And the brutal 00:09:35.549 --> 00:09:38.990 truth for dairy, milk is 87 % water too, but 00:09:38.990 --> 00:09:41.870 we can't ship it concentrated. Not easily, anyway. 00:09:42.070 --> 00:09:45.580 Nope. It is heavy, it's perishable, and it requires 00:09:45.580 --> 00:09:48.860 continuous, extremely expensive refrigeration. 00:09:49.080 --> 00:09:52.940 The cold chain. That cold chain cost is the silent 00:09:52.940 --> 00:09:55.360 margin killer. It just eats away at profit. The 00:09:55.360 --> 00:09:57.440 University of Wisconsin Center for Dairy Research 00:09:57.440 --> 00:10:00.580 quantified this. We're talking 10 to 15 cents 00:10:00.580 --> 00:10:03.870 per gallon. Per gallon. Daily. just for continuous 00:10:03.870 --> 00:10:06.769 storage and cooling daily if milk sits in a distribution 00:10:06.769 --> 00:10:09.029 center or on a truck for just a week waiting 00:10:09.029 --> 00:10:11.470 for turnover that's already shamed off over a 00:10:11.470 --> 00:10:13.909 dollar per gallon in added expense that coca 00:10:13.909 --> 00:10:16.169 -cola simply doesn't have to bear for the vast 00:10:16.169 --> 00:10:18.309 majority of its supply chain that adds up incredibly 00:10:18.309 --> 00:10:20.549 quickly and shaves off value capture right in 00:10:20.549 --> 00:10:22.909 the middle long before the producer sees a check 00:10:22.909 --> 00:10:26.389 it's gone logistics is one huge thing but then 00:10:26.389 --> 00:10:28.529 there's the marketing and brand power oh yeah 00:10:28.830 --> 00:10:31.870 The brand. When one singular brand rules the 00:10:31.870 --> 00:10:34.250 global market, you get the power of concentrated 00:10:34.250 --> 00:10:37.850 spending. MediaRadar tracked Coca -Cola's marketing 00:10:37.850 --> 00:10:42.769 spend for 2023 at $4 .24 billion annually. Billion. 00:10:42.769 --> 00:10:45.830 With the B. That's unified marketing for one 00:10:45.830 --> 00:10:49.190 brand family, pushing one clear emotional message 00:10:49.190 --> 00:10:53.620 globally. Happiness. Nostalgia. Okay, now compare 00:10:53.620 --> 00:10:57.100 that to the, was it $420 million collected by 00:10:57.100 --> 00:10:59.799 the mandatory checkoff program last year? $420 00:10:59.799 --> 00:11:02.299 million. Wait, so... Coke is spending 10 times 00:11:02.299 --> 00:11:04.279 what the entire U .S. dairy industry is collecting 00:11:04.279 --> 00:11:07.039 for promotion. 10 times. Exactly. And that $420 00:11:07.039 --> 00:11:09.659 million isn't unified, which is the other critical 00:11:09.659 --> 00:11:11.539 point. Right. That's key, too. It's spread across 00:11:11.539 --> 00:11:14.200 competing fluid milk promotions, regional cheese 00:11:14.200 --> 00:11:17.440 campaigns, butter, yogurt, often with different 00:11:17.440 --> 00:11:19.360 regions vying for different messaging, sometimes 00:11:19.360 --> 00:11:22.019 even competing against each other. So we're fighting 00:11:22.019 --> 00:11:25.080 a coordinated global $4 billion marketing army 00:11:25.080 --> 00:11:28.259 with scattered platoons totaling $420 million. 00:11:28.659 --> 00:11:31.600 Yeah. The fight is. structurally uneven before 00:11:31.600 --> 00:11:34.980 it even starts. And the final piece of the structural 00:11:34.980 --> 00:11:37.639 advantage is the proprietary formula scarcity. 00:11:38.159 --> 00:11:41.419 Ah, the secret formula. Coca -Cola keeps incredibly 00:11:41.419 --> 00:11:44.720 tight control over its concentrate formula. Nobody 00:11:44.720 --> 00:11:47.080 else can make exactly what they make. That's 00:11:47.080 --> 00:11:49.840 a barrier to entry, a huge one. Milk is the opposite. 00:11:49.940 --> 00:11:52.789 There is no proprietary formula. Milk from a 00:11:52.789 --> 00:11:56.730 Holstein in Idaho is functionally, chemically, 00:11:56.789 --> 00:11:59.250 the same as milk from a Holstein in New York. 00:11:59.389 --> 00:12:01.889 It's fungible. We are all producing the same 00:12:01.889 --> 00:12:05.370 basic fungible commodity. There's no secret ingredient. 00:12:05.649 --> 00:12:08.529 This brings us to the bull vines analytical core, 00:12:08.690 --> 00:12:10.909 right, where we look at the philosophical underpinning 00:12:10.909 --> 00:12:13.759 of the difference. Dr. Andrew Novakovich planted 00:12:13.759 --> 00:12:17.059 perfectly when he said Coca -Cola created scarcity 00:12:17.059 --> 00:12:19.720 around abundance. Scarcity around abundance. 00:12:19.779 --> 00:12:21.659 I like that. They took common ingredients you 00:12:21.659 --> 00:12:24.730 can find anywhere. Sugar, water. flavors, and 00:12:24.730 --> 00:12:26.610 made them exclusive through a secret process 00:12:26.610 --> 00:12:28.970 and relentless, overwhelming marketing. And we 00:12:28.970 --> 00:12:31.490 in dairy are plagued by abundance without any 00:12:31.490 --> 00:12:33.889 scarcity. That complete lack of differentiation 00:12:33.889 --> 00:12:37.549 means we have no pricing power. None. We are 00:12:37.549 --> 00:12:40.169 constantly vulnerable to the lowest cost producer 00:12:40.169 --> 00:12:43.370 or the next technological leap that makes milk 00:12:43.370 --> 00:12:46.590 cheaper. We saw the ultimate consequence of this 00:12:46.590 --> 00:12:48.710 market vulnerability with the collapse of Dean 00:12:48.710 --> 00:12:51.950 Foods back in November 2019. Yeah, that was a 00:12:51.950 --> 00:12:55.070 shocker. They achieved massive scale over 100 00:12:55.070 --> 00:12:58.129 plants at their peak, which conventional wisdom 00:12:58.129 --> 00:13:01.330 says should provide unbeatable efficiency. Scale 00:13:01.330 --> 00:13:03.250 should win, right? Right. That's what we're always 00:13:03.250 --> 00:13:05.710 told. Get bigger, get more efficient. But wait, 00:13:05.750 --> 00:13:08.070 if scale is all about efficiency, why didn't 00:13:08.070 --> 00:13:10.789 Dean's 100 plants give them the negotiating power 00:13:10.789 --> 00:13:12.950 they needed to survive? What happened there? 00:13:13.149 --> 00:13:15.169 Because their entire foundation was built on 00:13:15.169 --> 00:13:17.470 sand. When the bankruptcy documents came out, 00:13:17.549 --> 00:13:20.230 the brutal truth was that they had zero consumer 00:13:20.230 --> 00:13:23.519 brand loyalty. Zero. Wow. They were solely focused 00:13:23.519 --> 00:13:25.399 on the commodity volume supplying private label. 00:13:25.480 --> 00:13:27.799 When Walmart, their major customer, decided to 00:13:27.799 --> 00:13:29.840 build its own processing plant. Pulled the rug 00:13:29.840 --> 00:13:33.100 out. Dean lost major supply contracts overnight 00:13:33.100 --> 00:13:36.320 and collapsed immediately. Scale wasn't enough 00:13:36.320 --> 00:13:38.960 without value capture and brand power. It meant 00:13:38.960 --> 00:13:41.419 nothing without loyalty. It's sobering, isn't 00:13:41.419 --> 00:13:44.169 it? Imagine achieving that kind of scale 100 00:13:44.169 --> 00:13:47.230 plants only to realize your entire foundation 00:13:47.230 --> 00:13:50.350 was built on customer indifference. It's a fundamental 00:13:50.350 --> 00:13:52.929 lesson for every dairy farmer listening. Volume 00:13:52.929 --> 00:13:56.429 alone without a strategy for value capture is 00:13:56.429 --> 00:13:59.269 a dangerously precarious foundation. You need 00:13:59.269 --> 00:14:01.750 more than just pounds of milk. So we've established 00:14:01.750 --> 00:14:04.610 the chasm and the structural reasons why it exists. 00:14:04.750 --> 00:14:07.509 It's pretty clear. Now let's pivot to the solutions. 00:14:08.059 --> 00:14:10.360 The three strategies identified in the source 00:14:10.360 --> 00:14:12.500 material that are actually delivering Coke -like 00:14:12.500 --> 00:14:15.440 stability or sustainable profitability in the 00:14:15.440 --> 00:14:17.500 dairy world right now. Yeah, let's talk about 00:14:17.500 --> 00:14:19.399 what is working. We're talking beef on dairy, 00:14:19.580 --> 00:14:21.759 premium storytelling, and strategic processor 00:14:21.759 --> 00:14:24.639 partnerships. Hashtag, tag, tag, tag, beef on 00:14:24.639 --> 00:14:26.960 dairy, the simplification model. Let's start 00:14:26.960 --> 00:14:28.940 here because this is the most immediate, simple, 00:14:29.080 --> 00:14:31.120 and frankly effective strategy available right 00:14:31.120 --> 00:14:33.879 now for a lot of farms. Cook is win. Yeah. This 00:14:33.879 --> 00:14:36.379 is dairy's version of simplification. You're 00:14:36.379 --> 00:14:38.419 leveraging your entire existing infrastructure, 00:14:38.759 --> 00:14:41.639 your cows, your breeding program, your housing, 00:14:41.759 --> 00:14:45.700 your parlor, and simply changing one input, the 00:14:45.700 --> 00:14:48.139 semen you use. And the data supports the massive 00:14:48.139 --> 00:14:51.500 adoption of this simplification model. The American 00:14:51.500 --> 00:14:53.740 Farm Bureau Federation showed in its October 00:14:53.740 --> 00:14:58.919 data that 81 percent, 81 percent, of U .S. dairy 00:14:58.919 --> 00:15:01.980 herds now use beef semen. That's nearly four 00:15:01.980 --> 00:15:04.340 out of five operations. So if you're not in that 00:15:04.340 --> 00:15:07.039 81%, you are clearly leaving serious money on 00:15:07.039 --> 00:15:09.399 the table without needing massive capital expenditure. 00:15:09.700 --> 00:15:11.519 Okay, let's break down the economics in detail 00:15:11.519 --> 00:15:14.039 because we threw out that $70 ,000 extra revenue 00:15:14.039 --> 00:15:16.240 figure. We need to show how that works. Okay, 00:15:16.299 --> 00:15:18.179 let's take a common industry scenario. A 200 00:15:18.179 --> 00:15:20.659 cow herd. Pretty typical size. A conservative 00:15:20.659 --> 00:15:22.659 strategy would be to breed the bottom third, 00:15:22.720 --> 00:15:24.820 maybe genetically or just older cows, say 66 00:15:24.820 --> 00:15:27.940 cows, to beef genetics. Eve cross calves are 00:15:27.940 --> 00:15:30.740 averaging around $480 this spring. Pretty strong 00:15:30.740 --> 00:15:33.399 market. Compare that to a typical Holstein bull 00:15:33.399 --> 00:15:36.519 calf bringing in maybe $110 on a good day. That's 00:15:36.519 --> 00:15:39.299 a net difference of $370 per calf. Significant. 00:15:39.460 --> 00:15:43.440 Right. Now, factoring in a strong 90 % calf survival 00:15:43.440 --> 00:15:46.620 rate, which is reasonable, you have roughly 60 00:15:46.620 --> 00:15:49.500 saleable beef -dairy cross calves from those 00:15:49.500 --> 00:15:53.799 66 breedings. 60 calves times that $370 difference 00:15:53.799 --> 00:15:58.700 equals $22 ,200 in extra revenue. $22 ,000 just 00:15:58.700 --> 00:16:01.240 from changing semen on a third of the herd. Just 00:16:01.240 --> 00:16:04.019 from that one breeding decision per year. Wait, 00:16:04.039 --> 00:16:06.139 I thought we said $70 ,000. Where does that number 00:16:06.139 --> 00:16:09.529 come from? Ah, good question. That 22k calculation 00:16:09.529 --> 00:16:12.370 assumes you are still raising all your own replacements 00:16:12.370 --> 00:16:15.059 from the other two -thirds of the herd. The figure 00:16:15.059 --> 00:16:18.279 of $70 ,000 comes from slightly larger operations, 00:16:18.460 --> 00:16:22.000 say 400 cows breeding, maybe 40 % or even 50 00:16:22.000 --> 00:16:25.039 % of the herd to beef. This allows them to fully 00:16:25.039 --> 00:16:27.659 outsource heifer development and focus only on 00:16:27.659 --> 00:16:29.960 the core milking animals. They buy their replacements 00:16:29.960 --> 00:16:32.379 instead of raising them. Ah, so the $70 year 00:16:32.379 --> 00:16:34.679 includes the savings from not raising heifers. 00:16:34.799 --> 00:16:37.240 Exactly. For many operations, the true value 00:16:37.240 --> 00:16:39.139 capture comes from that simplification reducing 00:16:39.139 --> 00:16:42.120 the capital cost, the labor, the feed, and the 00:16:42.120 --> 00:16:44.350 risk associated with raising replacements. they 00:16:44.350 --> 00:16:46.649 don't actually need to maintain herd size if 00:16:46.649 --> 00:16:48.870 they use sexed semen effectively on the top end. 00:16:48.970 --> 00:16:53.529 But even at $22 ,200 for a 200 -cow herd, that's 00:16:53.529 --> 00:16:56.190 an immediate massive cash flow injection for 00:16:56.190 --> 00:17:00.620 maybe $2 ,000 in additional semen costs. Maybe. 00:17:00.740 --> 00:17:03.220 The cost -benefit ratio is profoundly favorable. 00:17:03.399 --> 00:17:05.359 It's almost a no -brainer. And it's not just 00:17:05.359 --> 00:17:07.440 about the gross price. It's about strategic market 00:17:07.440 --> 00:17:10.819 timing, too. Sandy Larson from UW -Madison Extension 00:17:10.819 --> 00:17:14.140 made a great point that taxing these beef -on 00:17:14.140 --> 00:17:16.680 -dairy breedings for spring calving aligns perfectly 00:17:16.680 --> 00:17:18.960 with when beef markets typically peak. So you 00:17:18.960 --> 00:17:21.019 can leverage those seasonal fluctuations. Smart. 00:17:21.140 --> 00:17:23.890 Sell when demand is highest. And we shouldn't 00:17:23.890 --> 00:17:25.730 overlook government aid that can support the 00:17:25.730 --> 00:17:29.049 shift towards simplification. The USDA's NRCS 00:17:29.049 --> 00:17:32.049 Environmental Quality Incentives Program, or 00:17:32.049 --> 00:17:35.130 EQIP, is specifically designed to cover up to 00:17:35.130 --> 00:17:37.990 75 % of costs for certain practices that support 00:17:37.990 --> 00:17:39.670 these kinds of transitions. Can you give us an 00:17:39.670 --> 00:17:41.970 example of what qualifies under EQIP for this? 00:17:41.990 --> 00:17:44.329 Absolutely. If a farmer is using beef on dairy 00:17:44.329 --> 00:17:46.849 as part of a larger plan to transition away from 00:17:46.849 --> 00:17:48.930 intensive confinement toward more efficient rotational 00:17:48.930 --> 00:17:51.750 grazing, maybe integrating the beef crosses differently. 00:17:52.240 --> 00:17:54.619 or if they are implementing new manure management 00:17:54.619 --> 00:17:56.980 systems that are better suited for integrating 00:17:56.980 --> 00:18:00.619 a small beef component alongside the dairy, EQIP 00:18:00.619 --> 00:18:03.579 can help cover the structural costs of that change, 00:18:03.700 --> 00:18:06.559 like fencing or watering systems. So it de -risks 00:18:06.559 --> 00:18:08.900 the initial shift. Exactly. It allows producers 00:18:08.900 --> 00:18:11.380 to de -risk the initial shift, recognizing that 00:18:11.380 --> 00:18:13.839 this simplification strategy can also be environmentally 00:18:13.839 --> 00:18:17.380 sound, which NRCS likes. Hashtag, tag, tag, tag, 00:18:17.519 --> 00:18:20.079 premium storytelling. Selling value, not specs. 00:18:20.460 --> 00:18:23.039 Okay, the second strategy. This is taking a page 00:18:23.039 --> 00:18:24.900 right out of the Coca -Cola marketing playbook. 00:18:25.500 --> 00:18:28.680 Stop selling milk specs, you know, fat, protein, 00:18:28.779 --> 00:18:31.700 solids, and start selling feelings and values. 00:18:31.859 --> 00:18:34.140 Yeah, the intangibles. Coke sells happiness and 00:18:34.140 --> 00:18:36.339 nostalgia. Dairy needs to sell environmental 00:18:36.339 --> 00:18:38.940 stewardship, animal welfare, local connection, 00:18:39.279 --> 00:18:42.380 authenticity. That Vermont producer example in 00:18:42.380 --> 00:18:44.140 the research really stuck with me because she... 00:18:44.329 --> 00:18:46.309 fundamentally changed her product offering without 00:18:46.309 --> 00:18:48.309 changing the milk itself all that much. How'd 00:18:48.309 --> 00:18:50.529 she do it? She spent six years transitioning 00:18:50.529 --> 00:18:54.029 her operation to certified organic, which involved, 00:18:54.250 --> 00:18:58.250 the article said, approximately $45 ,000 in accumulated 00:18:58.250 --> 00:19:00.769 certification and infrastructure costs over that 00:19:00.769 --> 00:19:04.369 period. Not insignificant, but spread out. Okay, 00:19:04.430 --> 00:19:08.329 so $45 ,000 investment over six years. What was 00:19:08.329 --> 00:19:10.750 the return on that investment? Her key realization 00:19:10.750 --> 00:19:14.170 was this. She stopped selling a gallon of white 00:19:14.170 --> 00:19:16.390 liquid and started selling a relationship with 00:19:16.390 --> 00:19:18.910 the land and the cows. Telling the story. Exactly. 00:19:18.910 --> 00:19:21.289 Her customers are buying into the farm's values, 00:19:21.569 --> 00:19:24.109 local sourcing, environmental stewardship, the 00:19:24.109 --> 00:19:27.430 family farming tradition, animal care. It created 00:19:27.430 --> 00:19:29.849 consumer -driven scarcity. They can only buy 00:19:29.849 --> 00:19:32.730 her story, her values in her region. And this 00:19:32.730 --> 00:19:34.529 market is no longer a tiny niche, right? No way. 00:19:34.630 --> 00:19:37.369 The Organic Trade Association data confirms these 00:19:37.369 --> 00:19:39.769 story -driven premium markets are growing 7 % 00:19:39.769 --> 00:19:42.779 to 9 % annually. outpacing the flat commodity 00:19:42.779 --> 00:19:44.940 market. Seven to nine percent growth is huge. 00:19:45.200 --> 00:19:47.039 We are projecting this premium market segment 00:19:47.039 --> 00:19:50.180 could hit between 3 .2 and 5 .4 billion dollars 00:19:50.180 --> 00:19:53.160 by the early 2030s. That's serious money. And 00:19:53.160 --> 00:19:54.619 these are the operations getting those really 00:19:54.619 --> 00:19:57.009 high prices. These are the operations getting 00:19:57.009 --> 00:20:00.049 $35 to $50 per hundredweight compared to the 00:20:00.049 --> 00:20:02.829 20 to 22 commodity price floor, sometimes even 00:20:02.829 --> 00:20:05.490 higher for direct market. They are achieving 00:20:05.490 --> 00:20:07.930 this premium because they have successfully created 00:20:07.930 --> 00:20:10.890 a kind of consumer -driven scarcity. They are 00:20:10.890 --> 00:20:13.369 the only ones telling that specific verifiable 00:20:13.369 --> 00:20:16.309 story to that specific consumer base that cares 00:20:16.309 --> 00:20:19.279 about it. We see clear regional examples of how 00:20:19.279 --> 00:20:21.380 this adaptation works against local liabilities, 00:20:21.500 --> 00:20:23.720 too, like down in the southeast. Yeah, the heat 00:20:23.720 --> 00:20:25.900 stress issue. Where heat stress naturally knocks 00:20:25.900 --> 00:20:29.400 production down by 25 % or more in conventional 00:20:29.400 --> 00:20:32.019 herds during the summer. Some producers switched 00:20:32.019 --> 00:20:34.339 to grass -fed systems with heat -tolerant breeds. 00:20:34.720 --> 00:20:37.059 They didn't view it as a production loss. They 00:20:37.059 --> 00:20:39.259 framed the story around resilient, heat -adapted 00:20:39.259 --> 00:20:41.740 genetics and a pasture -based system that their 00:20:41.740 --> 00:20:44.599 local consumer base valued highly, turning a 00:20:44.599 --> 00:20:46.789 negative into a positive. And the result was 00:20:46.789 --> 00:20:49.670 tangible. They secured $3 to $4 per hundredweight 00:20:49.670 --> 00:20:51.529 premiums through regional retail partnerships, 00:20:51.789 --> 00:20:54.009 allowing them to offset that natural production 00:20:54.009 --> 00:20:57.069 drop while capturing significant value. They 00:20:57.069 --> 00:20:58.769 made more money with less milk, essentially. 00:20:59.089 --> 00:21:02.230 Similarly, look west at places like Colorado 00:21:02.230 --> 00:21:05.349 and New Mexico, where water is the primary scarcity. 00:21:06.009 --> 00:21:08.789 Big issue there. Farmers are monetizing water 00:21:08.789 --> 00:21:11.289 conservation efforts, documenting the use of 00:21:11.289 --> 00:21:13.769 advanced drip irrigation for feed, recycling, 00:21:14.009 --> 00:21:15.930 parlor water. They make it part of their brand. 00:21:16.089 --> 00:21:18.430 And retailers are actively seeking them out because 00:21:18.430 --> 00:21:20.869 they offer a supply chain solution with a powerful 00:21:20.869 --> 00:21:23.549 sustainability story. They're turning the liability 00:21:23.549 --> 00:21:26.509 of water scarcity into a marketing asset that 00:21:26.509 --> 00:21:29.470 commands a premium. Hashtag, hashtag, hashtag 00:21:29.470 --> 00:21:32.410 processor partnerships, creating scarcity of 00:21:32.410 --> 00:21:35.299 chaos. Okay, the third strategy. This one focuses 00:21:35.299 --> 00:21:37.839 on distribution and risk management, mirroring 00:21:37.839 --> 00:21:39.579 that Coca -Cola bottler model we talked about. 00:21:39.660 --> 00:21:41.940 Right. Coke makes the concentrate. The bottlers 00:21:41.940 --> 00:21:43.900 handle the messy, capital -intensive logistics 00:21:43.900 --> 00:21:47.099 locally. For dairy, this translates to strategic 00:21:47.099 --> 00:21:49.380 processor partnerships. This is the critical 00:21:49.380 --> 00:21:51.440 option for the mid -to -large operation that 00:21:51.440 --> 00:21:53.660 doesn't want to become a retailer or a marketing 00:21:53.660 --> 00:21:56.200 agency itself. They want to focus on milk and 00:21:56.200 --> 00:21:59.099 cows. The Idaho example in the research is perfect. 00:21:59.480 --> 00:22:02.640 Larger operations there are securing $1 .50 over 00:22:02.640 --> 00:22:05.319 Class III, pricing through long -term contracts 00:22:05.319 --> 00:22:07.990 with regional cheese processors. Okay, for the 00:22:07.990 --> 00:22:09.930 listener who might not be immersed in the complex 00:22:09.930 --> 00:22:12.710 milk pricing formulas every day, can you quickly 00:22:12.710 --> 00:22:16.009 define Class 3 and explain why a premium over 00:22:16.009 --> 00:22:19.250 that benchmark matters so much? Sure. Class 3 00:22:19.250 --> 00:22:22.250 is the price calculated based primarily on the 00:22:22.250 --> 00:22:24.910 wholesale value of cheese blocks and dry whey. 00:22:24.970 --> 00:22:28.710 It is essentially the volatile commodity baseline 00:22:28.710 --> 00:22:32.289 price for milk used in cheese. It pounces around 00:22:32.289 --> 00:22:36.160 a lot. Okay. A $1 .50 premium over that index 00:22:36.160 --> 00:22:38.440 might not sound like the $50 per hundred weight 00:22:38.440 --> 00:22:40.160 that the boutique farms are getting by selling 00:22:40.160 --> 00:22:42.240 stories. Oh, it's much smaller. But the true 00:22:42.240 --> 00:22:44.880 value isn't just the premium itself. It's the 00:22:44.880 --> 00:22:47.160 predictability and stability it provides over 00:22:47.160 --> 00:22:49.940 multiple years. Exactly. Predictability is a 00:22:49.940 --> 00:22:52.039 form of value capture that allows for stable 00:22:52.039 --> 00:22:54.910 investment. That's the key. When you know you're 00:22:54.910 --> 00:22:57.329 getting at least $1 .50 above the market minimum 00:22:57.329 --> 00:22:59.650 for the next three to five years, you can budget 00:22:59.650 --> 00:23:02.210 for that new barn, you can plan for genetic upgrades, 00:23:02.470 --> 00:23:04.609 you can access better financing terms from the 00:23:04.609 --> 00:23:06.990 bank. It removes the market chaos. You're not 00:23:06.990 --> 00:23:09.150 riding that class three roller coaster month 00:23:09.150 --> 00:23:11.910 to month. And if you want the ultimate example 00:23:11.910 --> 00:23:15.150 of stability through structural discipline, we 00:23:15.150 --> 00:23:17.490 have to at least mention the Canadian supply 00:23:17.490 --> 00:23:21.170 management system. Ah, yes. The Canadian model. 00:23:22.019 --> 00:23:24.480 Always comes up. Producers there capture only 00:23:24.480 --> 00:23:27.279 about 29 percent of the retail value, which is 00:23:27.279 --> 00:23:29.500 actually less than the U .S. average. Right. 00:23:29.599 --> 00:23:31.460 A lower percentage capture. But they operate 00:23:31.460 --> 00:23:33.519 under a predictable cost of production pricing. 00:23:33.779 --> 00:23:37.119 It was adjusted by 2 .3 percent this year based 00:23:37.119 --> 00:23:39.980 on their input costs. The price might be lower 00:23:39.980 --> 00:23:42.160 overall, but the income is basically guaranteed. 00:23:42.160 --> 00:23:44.200 And the result of that pricing predictability 00:23:44.200 --> 00:23:47.059 is stark. Statistics Canada reports virtually 00:23:47.059 --> 00:23:49.680 zero dairy farm bankruptcies in the last five 00:23:49.680 --> 00:23:52.220 years. Compare that to the U .S. It's a completely 00:23:52.220 --> 00:23:54.940 different model for risk management. Total stability. 00:23:55.319 --> 00:23:57.579 But we can't just blindly praise it. We have 00:23:57.579 --> 00:24:00.299 to acknowledge the tradeoff, the downside. Canadian 00:24:00.299 --> 00:24:03.059 producers view their quota, the right to produce 00:24:03.059 --> 00:24:06.240 milk, as a capital asset that appreciates 4 to 00:24:06.240 --> 00:24:09.579 6 percent annually for decades, which is great 00:24:09.579 --> 00:24:11.920 for existing farms holding that quota. Builds 00:24:11.920 --> 00:24:14.920 massive equity. But that quota represents a massive 00:24:14.920 --> 00:24:18.000 barrier to entry. The capital cost to buy quota 00:24:18.000 --> 00:24:20.140 alone makes it nearly impossible for the next 00:24:20.140 --> 00:24:22.180 generation of farmers or new farmers to start 00:24:22.180 --> 00:24:24.319 up without inheriting it or having massive capital. 00:24:24.859 --> 00:24:27.319 Isn't that trading long -term stability for existing 00:24:27.319 --> 00:24:29.880 players for potential short -term stagnation 00:24:29.880 --> 00:24:32.339 and lack of new blood? It absolutely is. And 00:24:32.339 --> 00:24:34.579 that's the strategic choice every region, every 00:24:34.579 --> 00:24:36.839 country has to make. There's no perfect system. 00:24:37.039 --> 00:24:40.269 Yeah. But the lesson holds true across all these 00:24:40.269 --> 00:24:43.190 models. Creating scarcity, whether it's scarcity 00:24:43.190 --> 00:24:45.589 of products, scarcity of brand, or scarcity of 00:24:45.589 --> 00:24:48.569 market chaos through long -term contracts, is 00:24:48.569 --> 00:24:50.809 fundamental to capturing and retaining value 00:24:50.809 --> 00:24:52.849 in this industry. You need some kind of barrier. 00:24:53.369 --> 00:24:55.170 Okay, now let's synthesize these findings into 00:24:55.170 --> 00:24:57.569 the three definitive structural paths that the 00:24:57.569 --> 00:24:59.329 sources identified for different farm sizes. 00:24:59.710 --> 00:25:02.069 It's crucial to realize that survival isn't about 00:25:02.069 --> 00:25:05.289 choosing one single best path. It's about aligning 00:25:05.289 --> 00:25:07.289 your operation with the one that fits your scale, 00:25:07.369 --> 00:25:10.029 your resources, and your geography. This is the 00:25:10.029 --> 00:25:12.849 scale game, pure and simple. These operations 00:25:12.849 --> 00:25:15.410 mimic Koch's strategy of concentrating production 00:25:15.410 --> 00:25:19.549 to achieve unparalleled low costs. Get big or 00:25:19.549 --> 00:25:22.210 get out. essentially. They're achieving benchmark 00:25:22.210 --> 00:25:25.789 costs of $14 to $16 per hundredweight because 00:25:25.789 --> 00:25:28.109 they leverage aggressive economies of scale in 00:25:28.109 --> 00:25:30.490 feed purchasing, specialized labor management, 00:25:30.750 --> 00:25:33.049 high -throughput parlors, and facility amortization 00:25:33.049 --> 00:25:36.269 over many, many cows. But this path requires 00:25:36.269 --> 00:25:38.670 specialization in management, not just owning 00:25:38.670 --> 00:25:41.630 more cows. It requires extreme data analysis. 00:25:41.890 --> 00:25:44.210 Oh yeah, data is king here. Tracking feed efficiency 00:25:44.210 --> 00:25:46.910 down to the last gram, precise labor management 00:25:46.910 --> 00:25:49.450 schedules, sophisticated environmental controls, 00:25:49.549 --> 00:25:52.410 for barns. You aren't just farming. You are managing 00:25:52.410 --> 00:25:55.410 a complex industrial scale data center that happens 00:25:55.410 --> 00:25:57.950 to produce milk. And the market validates this 00:25:57.950 --> 00:26:00.589 path. Rabobank and the USDA project that these 00:26:00.589 --> 00:26:03.309 massive operations, 500 cows and up, really more 00:26:03.309 --> 00:26:05.369 like a thousand plus these days, will produce 00:26:05.369 --> 00:26:07.829 60 to 65 percent of the U .S. milk supply by 00:26:07.829 --> 00:26:11.690 2030. 60 to 65 percent. Wow. They survive by 00:26:11.690 --> 00:26:14.210 dominating the lowest cost position in the commodity 00:26:14.210 --> 00:26:17.589 pool. Effectively forcing smaller, less efficient 00:26:17.589 --> 00:26:20.269 producers out of the market who can't hit those 00:26:20.269 --> 00:26:22.329 cost numbers. This is the Kraft Soda analogy. 00:26:22.609 --> 00:26:25.809 If you can't beat Coke on volume, you beat them 00:26:25.809 --> 00:26:29.250 on identity and uniqueness. Exactly. Smaller 00:26:29.250 --> 00:26:31.630 dairies, specifically those in the 40 to 200 00:26:31.630 --> 00:26:34.710 cow range, they can't compete on cost with Path 00:26:34.710 --> 00:26:38.009 1. So they compete fiercely on value and narrative. 00:26:38.329 --> 00:26:40.859 They sell identity. not just nutrients. This 00:26:40.859 --> 00:26:43.480 requires building authentic, verifiable stories 00:26:43.480 --> 00:26:45.440 around A2 genetics, grass -fed certification, 00:26:45.819 --> 00:26:48.940 organic, maybe hyper -local identity, specific 00:26:48.940 --> 00:26:51.299 animal welfare practices. This is how they hit 00:26:51.299 --> 00:26:54.680 that $35 to $50 per hundredweight premium, or 00:26:54.680 --> 00:26:57.240 even more with direct sales. They create a loyal 00:26:57.240 --> 00:26:59.380 consumer base that is willing to pay significantly 00:26:59.380 --> 00:27:01.759 more for the story and the values behind the 00:27:01.759 --> 00:27:03.779 gallon than the basic specs of the milk itself. 00:27:04.039 --> 00:27:06.140 But Path 2 demands a completely different skill 00:27:06.140 --> 00:27:08.339 set from the farmer, doesn't it? Totally different. 00:27:08.500 --> 00:27:10.900 You have to master consumer -facing compliance, 00:27:11.180 --> 00:27:14.059 small -batch packaging rules, direct -to -consumer 00:27:14.059 --> 00:27:16.539 logistics, if you go that route, food safety 00:27:16.539 --> 00:27:19.339 regs, and sophisticated digital marketing, social 00:27:19.339 --> 00:27:21.960 media, websites, farmer's markets. You have to 00:27:21.960 --> 00:27:24.259 become a retailer and a brand manager first and 00:27:24.259 --> 00:27:27.579 a farmer second, almost. Pretty much. This path 00:27:27.579 --> 00:27:30.119 is high reward, potentially very profitable, 00:27:30.299 --> 00:27:32.799 but it's also high risk if marketing and dealing 00:27:32.799 --> 00:27:34.839 with the public isn't your strength. It takes 00:27:34.839 --> 00:27:38.119 a certain personality. Okay, path three. This 00:27:38.119 --> 00:27:41.019 path is for the mid to large operation, the 800 00:27:41.019 --> 00:27:44.420 to maybe 2 ,500 cow segment, that focuses purely 00:27:44.420 --> 00:27:47.019 on production excellence and efficiency, but 00:27:47.019 --> 00:27:49.160 wisely avoids the massive capital expenditure 00:27:49.160 --> 00:27:51.700 and risk of building and maintaining processing 00:27:51.700 --> 00:27:53.819 infrastructure themselves. They're the ideal 00:27:53.819 --> 00:27:56.079 Coke bottler model in dairy. They stick to their 00:27:56.079 --> 00:27:58.660 knitting. They focus on what they do best, producing 00:27:58.660 --> 00:28:01.240 a consistent, high -quality supply of milk efficiently. 00:28:01.740 --> 00:28:04.480 By securing guaranteed premiums that $1 .50 or 00:28:04.480 --> 00:28:06.359 more over Class III pricing through partnerships, 00:28:06.700 --> 00:28:09.119 they manage their risk without having to take 00:28:09.119 --> 00:28:11.160 on the liabilities, the debt, and the market 00:28:11.160 --> 00:28:13.579 headaches of running a processing plant. It's 00:28:13.579 --> 00:28:16.200 a pure focus on production efficiency married 00:28:16.200 --> 00:28:18.539 to supply chain predictability. It makes sense 00:28:18.539 --> 00:28:21.079 for a lot of farms in that size range. This path 00:28:21.079 --> 00:28:24.299 keeps the midsize farm viable because it removes 00:28:24.299 --> 00:28:26.339 the uncertainty of the volatile spot market. 00:28:26.680 --> 00:28:29.900 Their job is clear. Deliver a predictable supply 00:28:29.900 --> 00:28:33.019 that meets certain quality specs. And the processor's 00:28:33.019 --> 00:28:35.539 job is clear. Handle the marketing, the logistics, 00:28:35.680 --> 00:28:37.779 the product development. It's a mutual risk management 00:28:37.779 --> 00:28:40.140 agreement that benefits both parties if structured 00:28:40.140 --> 00:28:42.519 correctly. Now we have to talk about the huge 00:28:42.519 --> 00:28:44.799 elephant in the room. The thing that puts an 00:28:44.799 --> 00:28:47.619 expiration date on standing still. Precision 00:28:47.619 --> 00:28:50.119 fermentation. Yeah, the disruptor. This is a 00:28:50.119 --> 00:28:52.099 technology that is coming for both the dairy 00:28:52.099 --> 00:28:53.940 industry and the beverage industry, potentially. 00:28:54.460 --> 00:28:56.619 And it will fundamentally change the calculation 00:28:56.619 --> 00:28:59.410 of commodity value. It changes the game. This 00:28:59.410 --> 00:29:01.849 is the technology threat that the 18 -month survival 00:29:01.849 --> 00:29:04.630 window we mentioned earlier is based upon. Companies 00:29:04.630 --> 00:29:07.769 like Perfect Day, Future Cow, others, they are 00:29:07.769 --> 00:29:11.029 producing molecularly identical proteins, whey, 00:29:11.029 --> 00:29:13.650 casein, all the components you need to make dairy 00:29:13.650 --> 00:29:16.410 products through microbial fermentation, basically 00:29:16.410 --> 00:29:19.170 using microbes like yeast or fungi in tanks. 00:29:19.430 --> 00:29:22.259 Like brewing beer, almost. Kind of, yeah. To 00:29:22.259 --> 00:29:24.680 manufacture milk components without the gal. 00:29:24.839 --> 00:29:26.440 And these aren't just lab experiments anymore, 00:29:26.519 --> 00:29:28.279 right? They're commercial products. Exactly. 00:29:29.099 --> 00:29:31.579 Perfect Day's proteins are already used in Brave 00:29:31.579 --> 00:29:34.039 Robot ice cream, Modern Kitchen cream cheese. 00:29:34.339 --> 00:29:36.339 You can find them stocked on shelves at Whole 00:29:36.339 --> 00:29:38.880 Foods and other regional retailers. Right now, 00:29:39.039 --> 00:29:41.680 it's here. And the consumer readiness is startling. 00:29:41.900 --> 00:29:44.480 The Journal of Food Science and Technology study 00:29:44.480 --> 00:29:47.920 showed 78 .8 % of consumers are willing to try 00:29:47.920 --> 00:29:51.599 these products. Nearly 80%. With 70%. intending 00:29:51.599 --> 00:29:54.579 to buy regularly they don't seem to have the 00:29:54.579 --> 00:29:57.000 ick factor that maybe some earlier plant -based 00:29:57.000 --> 00:29:59.759 alternatives did because they're chemically identical 00:29:59.759 --> 00:30:01.900 and we can't overlook their marketing weapon 00:30:01.900 --> 00:30:04.799 sustainability this is huge for them huge UC 00:30:04.799 --> 00:30:07.480 Davis analysis shows this fermentation process 00:30:07.480 --> 00:30:11.720 results in 72 to 97 % lower greenhouse gas emissions 00:30:11.720 --> 00:30:16.019 and 81 to 99 % less water use compared to traditional 00:30:16.019 --> 00:30:18.960 dairy production. That gives them a massive fact 00:30:18.960 --> 00:30:21.339 -based marketing advantage in a climate -conscious 00:30:21.339 --> 00:30:24.099 consumer market. How do we compete with those 00:30:24.099 --> 00:30:26.720 numbers? But here is the critical distinction 00:30:26.720 --> 00:30:29.119 brought up by Leonardo Vieira of Future Cow. 00:30:29.380 --> 00:30:32.000 That ties us back to Coca -Cola. This is key. 00:30:32.240 --> 00:30:35.259 He noted that technology can match dairy proteins 00:30:35.259 --> 00:30:37.920 or Coca -Cola flavor compounds with the same 00:30:37.920 --> 00:30:41.640 efficiency. Science can replicate both. But Coke's 00:30:41.640 --> 00:30:44.119 brand equity and proprietary formula protect 00:30:44.119 --> 00:30:46.619 them. They've built consumer loyalty barriers, 00:30:46.819 --> 00:30:49.700 that emotional connection that technology struggles 00:30:49.700 --> 00:30:53.059 to cross easily. People want Coke, not just Cola 00:30:53.059 --> 00:30:55.839 flavor. Our commodity status, however, offers 00:30:55.839 --> 00:30:58.880 no such protection. None at all. If you are selling 00:30:58.880 --> 00:31:01.220 generic milk and the consumer cannot differentiate 00:31:01.220 --> 00:31:04.359 your milk protein from the milk protein synthesized 00:31:04.359 --> 00:31:07.119 in a bioreactor that boasts 90 % lower water 00:31:07.119 --> 00:31:10.039 use and might be 20 % cheaper at the store. Which 00:31:10.039 --> 00:31:12.380 one wins? The cheaper, more sustainable option 00:31:12.380 --> 00:31:15.039 wins. Period. Especially with younger consumers. 00:31:15.420 --> 00:31:17.579 This is why value capture and branding are now 00:31:17.579 --> 00:31:19.960 existential requirements, not just nice -to -haves. 00:31:20.140 --> 00:31:22.910 This brings us to the hard deadline. The sources 00:31:22.910 --> 00:31:24.809 indicate precision fermentation is scheduled 00:31:24.809 --> 00:31:26.750 to launch commercially in large -scale facilities 00:31:26.750 --> 00:31:30.089 between 2026 and 2028. That's just around the 00:31:30.089 --> 00:31:32.750 corner. We are in an 18 -month window, roughly, 00:31:32.930 --> 00:31:36.009 where decisive moves matter most. Farms that 00:31:36.009 --> 00:31:37.769 are making these structural strategic shifts 00:31:37.769 --> 00:31:41.630 now, choosing a path, building value, show an 00:31:41.630 --> 00:31:45.269 85 % survival probability in the face of this 00:31:45.269 --> 00:31:47.690 disruption, according to the analysis. 85 % if 00:31:47.690 --> 00:31:51.259 you act now. And those waiting. waiting for commodity 00:31:51.259 --> 00:31:53.539 markets to magically improve. What's their number? 00:31:53.619 --> 00:31:56.500 They show a 25 % survival probability. 25%. That's 00:31:56.500 --> 00:31:59.920 grim. It is. The reality is that... Your farm's 00:31:59.920 --> 00:32:02.140 equity, the underlying value of your land, your 00:32:02.140 --> 00:32:05.019 herd, your business model, is actively evaporating 00:32:05.019 --> 00:32:06.660 while you delay making those tough decisions. 00:32:07.000 --> 00:32:09.599 The market is already pricing in this disruption. 00:32:10.000 --> 00:32:12.680 So let's challenge the popular industry narrative 00:32:12.680 --> 00:32:15.180 that dominates every farm meeting, every coffee 00:32:15.180 --> 00:32:17.940 shop conversation, the obsession with production 00:32:17.940 --> 00:32:20.579 volume. Yeah, pounds shipped, cows milked, herd 00:32:20.579 --> 00:32:23.140 averages. It's all about more milk. But what 00:32:23.140 --> 00:32:26.019 if volume is a secondary or even dangerous metric 00:32:26.019 --> 00:32:28.579 to lead with? What if focusing only on volume 00:32:28.579 --> 00:32:31.200 is digging our own grave? That's the contrarian 00:32:31.200 --> 00:32:33.740 take we need to hammer home. The key metric isn't 00:32:33.740 --> 00:32:36.079 just volume. It's tracking the percentage of 00:32:36.079 --> 00:32:39.180 retail value captured. Exactly. It's not about 00:32:39.180 --> 00:32:41.400 how much milk you produce in total. It's about 00:32:41.400 --> 00:32:44.059 how much of the end consumer's dollar you actually 00:32:44.059 --> 00:32:46.400 command and keep. If you do the math on your 00:32:46.400 --> 00:32:49.039 operation, figure out what the consumer pays 00:32:49.039 --> 00:32:51.039 and what you get back. And that number is below 00:32:51.039 --> 00:32:55.180 35%. That critical 35 % line. You are definitively 00:32:55.180 --> 00:32:58.359 stuck in the commodity trap, no matter how much 00:32:58.359 --> 00:33:00.299 milk you ship. You might be the most efficient, 00:33:00.480 --> 00:33:03.079 high -producing operation in the county. But 00:33:03.079 --> 00:33:05.599 if you're not capturing value beyond the bare 00:33:05.599 --> 00:33:07.960 minimum commodity price, you're constantly vulnerable 00:33:07.960 --> 00:33:10.920 to market swings, technological disruption like 00:33:10.920 --> 00:33:13.039 we just discussed, and the 50 % raw material 00:33:13.039 --> 00:33:15.819 cost burden of your downstream processors who 00:33:15.819 --> 00:33:18.890 have no room to pay you more. This requires producers 00:33:18.890 --> 00:33:21.049 to ask fundamental questions about differentiation. 00:33:21.589 --> 00:33:24.170 Can you create any kind of scarcity around your 00:33:24.170 --> 00:33:26.869 product? Anything at all. Is it geographic? Is 00:33:26.869 --> 00:33:30.490 it a unique attribute like A2 or organic? Is 00:33:30.490 --> 00:33:32.650 it verifiable superior production excellence 00:33:32.650 --> 00:33:35.049 that a partner will pay for? If you can't answer 00:33:35.049 --> 00:33:37.049 that with a clear yes, you have no leverage. 00:33:37.430 --> 00:33:40.589 You are fungible. You're replaceable. And finally, 00:33:40.710 --> 00:33:43.589 we have to look at operational focus. This ties 00:33:43.589 --> 00:33:46.460 into the paths. Are you trying to do everything 00:33:46.460 --> 00:33:49.279 yourself? Yeah. The farmer trying to be CEO, 00:33:49.519 --> 00:33:52.299 CFO, herdsman, agronomist, mechanic, marketer. 00:33:52.339 --> 00:33:54.460 Right. Raising replacements, growing all your 00:33:54.460 --> 00:33:57.359 own feed, milking, maybe dabbling in processing, 00:33:57.559 --> 00:34:00.380 trying to market, operations, trying to do everything, 00:34:00.460 --> 00:34:03.000 are rarely excelling at anything. We should echo 00:34:03.000 --> 00:34:05.400 the idea. Coca -Cola doesn't grow sugar cane. 00:34:05.680 --> 00:34:08.440 They don't own farms. They don't. They focus 00:34:08.440 --> 00:34:10.699 on what creates the most value, which is the 00:34:10.699 --> 00:34:13.110 brand and the concentrate formula. Everything 00:34:13.110 --> 00:34:15.769 else they outsource or partner on. For dairy, 00:34:15.929 --> 00:34:18.570 that means focusing ruthlessly on superior production 00:34:18.570 --> 00:34:21.829 efficiency, path one or three, or superior storytelling 00:34:21.829 --> 00:34:24.849 and brand building, path two. Figure out what 00:34:24.849 --> 00:34:27.590 you're truly best at, your core competency, and 00:34:27.590 --> 00:34:29.530 seriously consider partnering or outsourcing 00:34:29.530 --> 00:34:32.659 the rest. Focus is absolutely crucial for survival 00:34:32.659 --> 00:34:34.420 in this environment, especially as technology 00:34:34.420 --> 00:34:37.320 like precision fermentation forces costs down 00:34:37.320 --> 00:34:39.539 relentlessly on the pure commodity side. You 00:34:39.539 --> 00:34:41.599 can't be average at everything anymore. All right, 00:34:41.619 --> 00:34:43.219 let's wrap this up with the actionable insight 00:34:43.219 --> 00:34:45.599 segment. You, the farmer, just finished morning 00:34:45.599 --> 00:34:47.699 milking. You're driving to the feed store, maybe 00:34:47.699 --> 00:34:50.380 listening to this right now. Based on this entire 00:34:50.380 --> 00:34:53.019 deep dive, what are the three tiered things you 00:34:53.019 --> 00:34:55.320 absolutely need to know and execute starting 00:34:55.320 --> 00:34:57.860 today? Okay, we need a clear tiered playbook. 00:34:58.039 --> 00:35:00.840 And it's all focused on moving that value capture 00:35:00.840 --> 00:35:04.039 percentage above the 35 % commodity line. That's 00:35:04.039 --> 00:35:07.059 the goal. Focus. Immediate value capture. The 00:35:07.059 --> 00:35:10.199 fastest, highest ROI move we discussed that people 00:35:10.199 --> 00:35:12.780 can do right now. Action. If you are not already 00:35:12.780 --> 00:35:14.860 doing so, implement a Beef on Dairy genetics 00:35:14.860 --> 00:35:18.829 program. Today. Tomorrow. This is the quickest 00:35:18.829 --> 00:35:22.050 path to serious immediate extra revenue. We calculated 00:35:22.050 --> 00:35:25.230 $22 ,200 for a small herd just breeding the bottom 00:35:25.230 --> 00:35:28.750 third, or potentially $70 ,000 plus for larger 00:35:28.750 --> 00:35:31.090 ones focusing on replacement reduction strategies. 00:35:31.650 --> 00:35:34.730 Minimal. Maybe $2 ,000 in additional semen costs 00:35:34.730 --> 00:35:38.289 for that 200 cow example. It's a low -risk, high 00:35:38.289 --> 00:35:40.750 -reward simplification strategy. Check with your 00:35:40.750 --> 00:35:43.550 extension services like UW -Madison on the best 00:35:43.550 --> 00:35:45.650 timing for breedings to hit the typical spring 00:35:45.650 --> 00:35:48.750 beef market peaks for maximum value. Stop delaying 00:35:48.750 --> 00:35:50.989 on this one immediately. It's found money. Okay, 00:35:51.050 --> 00:35:53.449 focus. Differentiation and stability. This is 00:35:53.449 --> 00:35:55.989 about building barriers to competition, insulating 00:35:55.989 --> 00:35:58.250 yourself from that commodity volatility. What's 00:35:58.250 --> 00:36:00.769 the move here? Action. You must stop selling 00:36:00.769 --> 00:36:02.889 generic milk specs and start selling your farm's 00:36:02.889 --> 00:36:05.250 unique story or secure guaranteed price stability 00:36:05.250 --> 00:36:07.670 through partnership. Pick one. If you're that 00:36:07.670 --> 00:36:10.670 midsize operation, 800 to 2 ,500 cows, likely 00:36:10.670 --> 00:36:13.050 path three, actively investigate and work to 00:36:13.050 --> 00:36:14.869 secure a processor partnership arrangement for 00:36:14.869 --> 00:36:17.869 guaranteed premiums, that $1 .50 or more over 00:36:17.869 --> 00:36:20.710 class three pricing. This is crucial risk management 00:36:20.710 --> 00:36:23.489 and enables long -term capital planning. Start 00:36:23.489 --> 00:36:25.309 those conversations now. And for the smaller 00:36:25.309 --> 00:36:27.710 farms. If you are a smaller path to operation. 00:36:28.539 --> 00:36:31.260 40 to 200 cows. Start building the narrative 00:36:31.260 --> 00:36:34.239 now. Get certified organic. Transition to A2. 00:36:34.460 --> 00:36:37.139 Document your grass -fed practices. Quantify 00:36:37.139 --> 00:36:39.980 your water conservation. Do whatever fits your 00:36:39.980 --> 00:36:42.599 farm and market to get you into that $35 to $50 00:36:42.599 --> 00:36:45.460 per hundredweight premium market. Start documenting 00:36:45.460 --> 00:36:47.639 your story. Building your website. Connecting 00:36:47.639 --> 00:36:49.559 with potential customers or retailers today. 00:36:49.780 --> 00:36:53.000 Don't wait. Finally, focus. Strategic alignment 00:36:53.000 --> 00:36:56.130 and survival in the face of disruption. This 00:36:56.130 --> 00:36:58.409 is about preparing for that technology future, 00:36:58.550 --> 00:37:01.829 that 18 -month window. You need to honestly assess 00:37:01.829 --> 00:37:03.869 your operation relative to the three definitive 00:37:03.869 --> 00:37:06.670 paths. Go big on efficiency, build your premium 00:37:06.670 --> 00:37:08.789 story, or partner strategically. Where do you 00:37:08.789 --> 00:37:11.050 fit? Where can you fit? Calculate your percentage 00:37:11.050 --> 00:37:13.190 of the retail dollar today. Know your number. 00:37:13.309 --> 00:37:15.590 And then commit to a concrete plan that structurally 00:37:15.590 --> 00:37:18.349 moves that number above the 35 % commodity line 00:37:18.349 --> 00:37:20.010 over the next one, two years. And remember that 00:37:20.010 --> 00:37:22.690 countdown. Absolutely. Remember, the 18 -month 00:37:22.690 --> 00:37:24.829 countdown for precision fermentation is real. 00:37:25.289 --> 00:37:27.650 It's coming. Standing still and just hoping for 00:37:27.650 --> 00:37:29.690 the commodity price to save you is statistically 00:37:29.690 --> 00:37:31.690 the riskiest strategy you can choose right now. 00:37:31.809 --> 00:37:34.369 Your equity, your farm's future depends on making 00:37:34.369 --> 00:37:38.090 a decisive move. Now, hashtag Enhanced Show Outro. 00:37:38.989 --> 00:37:41.010 This has been another deep dive from the Bullvine 00:37:41.010 --> 00:37:43.730 podcast. That gap between Coke's 70 % and our 00:37:43.730 --> 00:37:46.769 30 -49 % value capture, it reflects fundamental 00:37:46.769 --> 00:37:49.130 structural and business model differences that 00:37:49.130 --> 00:37:51.190 aren't going away on their own. But understanding 00:37:51.190 --> 00:37:52.929 those differences, like we talked about today, 00:37:53.010 --> 00:37:55.110 is precisely how we build a resilient, profitable 00:37:55.110 --> 00:37:57.769 business for the future. Knowledge is power here. 00:37:57.949 --> 00:37:59.869 If this kind of hard -hitting, no BS analysis 00:37:59.869 --> 00:38:02.929 helps your operation, head to www .thebullvine 00:38:02.929 --> 00:38:05.170 .com for more articles that tell you what's really 00:38:05.170 --> 00:38:07.780 happening in dairy. And seriously. Subscribe 00:38:07.780 --> 00:38:10.119 wherever you get your deep dives, your podcasts. 00:38:10.699 --> 00:38:13.659 We're releasing episodes twice weekly now, bringing 00:38:13.659 --> 00:38:16.260 you this kind of analysis more often. And trust 00:38:16.260 --> 00:38:18.360 me, you don't want to miss what we've got coming 00:38:18.360 --> 00:38:21.159 next week about the true economic costs of robotic 00:38:21.159 --> 00:38:23.340 milking versus conventional parlors. We're going 00:38:23.340 --> 00:38:25.780 to dig into whether the ROI is truly there for 00:38:25.780 --> 00:38:28.380 the average farm. Ooh, that's a hot one. Or if 00:38:28.380 --> 00:38:30.519 the technology is sometimes just a massive capital 00:38:30.519 --> 00:38:33.179 sink that only really benefits those huge operations 00:38:33.179 --> 00:38:36.010 already on path one. That's a whole other structural 00:38:36.010 --> 00:38:38.309 challenge we need to unpack. We will see you 00:38:38.309 --> 00:38:38.670 next time.