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 --> 00:01:00.719 we're sparking Welcome back to the Bold Blind 00:01:00.719 --> 00:01:02.759 Podcast, where we cut through dairy industry 00:01:02.759 --> 00:01:05.219 noise to get you the insights that actually matter 00:01:05.219 --> 00:01:09.099 for your operation. And today we're really diving 00:01:09.099 --> 00:01:11.480 deep into a feature piece that's been making 00:01:11.480 --> 00:01:14.739 some serious waves. It's called the dairy mirage. 00:01:15.000 --> 00:01:18.359 I read this analysis and, well, it felt like 00:01:18.359 --> 00:01:21.099 someone finally put words to that sinking feeling 00:01:21.099 --> 00:01:23.359 I've had in my gut for the last five years. Right. 00:01:23.480 --> 00:01:27.769 The core idea is just devastatingly simple. The 00:01:27.769 --> 00:01:29.750 author isn't arguing that the system is broken. 00:01:29.930 --> 00:01:32.109 No, not at all. The argument is that the system 00:01:32.109 --> 00:01:35.310 is, in fact, performing exactly as it was designed 00:01:35.310 --> 00:01:38.250 to. And that's the scary part. Precisely. We 00:01:38.250 --> 00:01:41.010 have to shed this comforting idea that this is 00:01:41.010 --> 00:01:43.250 just a market failure or some unpredictable cycle. 00:01:43.510 --> 00:01:46.049 What we're looking at is a fundamentally extractive 00:01:46.049 --> 00:01:48.519 business model. Where the value is... Pulled 00:01:48.519 --> 00:01:51.060 away from the producer on purpose. Yes. Intentionally 00:01:51.060 --> 00:01:53.799 at every single step of the supply chain. That 00:01:53.799 --> 00:01:56.980 extraction is the design. And that matters right 00:01:56.980 --> 00:01:59.239 now. I mean, today, because if you're one of 00:01:59.239 --> 00:02:01.280 the thousands of operators out there hanging 00:02:01.280 --> 00:02:04.019 on, just hoping for better margins next quarter, 00:02:04.079 --> 00:02:07.480 maybe next year, this deep dives is going to 00:02:07.480 --> 00:02:10.500 show you exactly who profits from that hope and 00:02:10.500 --> 00:02:13.620 what your loyalty, what that sheer grit is actually 00:02:13.620 --> 00:02:16.110 costing you in hard equity. We're going to look 00:02:16.110 --> 00:02:19.490 at the cold, hard numbers. We need to see where 00:02:19.490 --> 00:02:22.310 the dollars are actually leaving your farm and 00:02:22.310 --> 00:02:24.650 landing directly in someone else's P &L statement. 00:02:24.849 --> 00:02:26.650 And we're also going to have to confront that, 00:02:26.689 --> 00:02:30.050 that brutal truth from the article. The one that 00:02:30.050 --> 00:02:32.930 people say behind closed doors, that small dairies 00:02:32.930 --> 00:02:34.990 are often viewed by the people running the show 00:02:34.990 --> 00:02:38.770 as being, well. Emotionally important, but economically 00:02:38.770 --> 00:02:40.930 irrelevant. And crucially, we're going to dissect 00:02:40.930 --> 00:02:43.550 why the popular solutions, the things that promise 00:02:43.550 --> 00:02:46.569 salvation like organic conversion, which feels 00:02:46.569 --> 00:02:48.569 like such a great choice. Or relying on your 00:02:48.569 --> 00:02:51.389 co -op. Right, relying on co -op loyalty. Why 00:02:51.389 --> 00:02:54.770 those are often just, well, polite ways to harvest 00:02:54.770 --> 00:02:56.789 your last few dollars before the final sale. 00:02:57.129 --> 00:02:59.310 It's a tough conversation, but it's a necessary 00:02:59.310 --> 00:03:01.729 one. Let's start with the math then. The numbers 00:03:01.729 --> 00:03:04.110 that really dictate the terms of survival in 00:03:04.110 --> 00:03:06.650 modern dairy. This is the data point that, frankly, 00:03:06.750 --> 00:03:08.930 nobody in the mainstream industry wants to admit 00:03:08.930 --> 00:03:11.150 out loud. Because it tells the whole story. It 00:03:11.150 --> 00:03:13.210 tells the entire story. We're talking about the 00:03:13.210 --> 00:03:15.889 cost of production data from the USDA's Economic 00:03:15.889 --> 00:03:18.969 Research Service, the ERS. Okay, so lay it out 00:03:18.969 --> 00:03:21.389 for us. Give us the numbers that show this huge 00:03:21.389 --> 00:03:24.069 divide. So the ERS data, and this is across multiple 00:03:24.069 --> 00:03:27.330 regions, multiple years, it details this massive 00:03:27.330 --> 00:03:30.469 discrepancy in production costs. And it's tied 00:03:30.469 --> 00:03:33.530 directly to herd size. Bigger is cheaper. We 00:03:33.530 --> 00:03:36.069 know that. But how much cheaper? It's a pasm. 00:03:36.520 --> 00:03:39.000 Small herds, and we're talking fewer than 100 00:03:39.000 --> 00:03:42.620 cows, the classic family farm, they produce milk 00:03:42.620 --> 00:03:45.780 at a cost of somewhere between $42 and $44 per 00:03:45.780 --> 00:03:48.759 hundredweight. Okay, $42 to $44. Now you compare 00:03:48.759 --> 00:03:51.039 that to the large herds, the industrial operations, 00:03:51.280 --> 00:03:54.439 2 ,000 cows and up, they produce that same hundredweight 00:03:54.439 --> 00:03:57.800 of milk for $19 to $20. Wait, wait, hold on. 00:03:57.840 --> 00:03:59.319 I need to make sure I heard that right. That's 00:03:59.319 --> 00:04:02.460 a $23 difference per hundredweight. Exactly, 00:04:02.560 --> 00:04:05.280 a $23 gap in the fundamental cost structure. 00:04:05.719 --> 00:04:08.319 That's insane. Yeah. That is not a margin problem 00:04:08.319 --> 00:04:11.699 you can fix with a better ration or tighter management. 00:04:11.939 --> 00:04:14.159 I'm out here fighting every single day. I'm pouring 00:04:14.159 --> 00:04:16.759 over spreadsheets, trying to trim a quarter here, 00:04:16.920 --> 00:04:19.600 maybe 50 cents there. With robotics, with apps. 00:04:20.000 --> 00:04:23.560 Exactly. But $23, you can't close that. It's 00:04:23.560 --> 00:04:26.160 an unbridgeable chasm. You've hit the nail on 00:04:26.160 --> 00:04:28.939 the head. This proves it isn't a management problem 00:04:28.939 --> 00:04:31.779 on the small farm. It's a systemic economic reality. 00:04:32.100 --> 00:04:34.819 The smaller farm is operating at literally double 00:04:34.819 --> 00:04:37.019 the cost structure of the largest operations. 00:04:37.439 --> 00:04:41.040 But then, the question I have to ask is, if that 00:04:41.040 --> 00:04:43.500 gap is so massive, why are we still here? Why 00:04:43.500 --> 00:04:45.560 haven't all the small dairies just vanished already? 00:04:45.879 --> 00:04:48.079 That's the critical follow -up, and the source 00:04:48.079 --> 00:04:50.420 material explains it. See, the ERS calculation 00:04:50.420 --> 00:04:54.850 includes everything. Feed, hired labor, vet costs, 00:04:55.129 --> 00:04:57.829 depreciation. And the important ones. And crucially, 00:04:57.930 --> 00:05:00.649 return to management and unpaid family labor. 00:05:00.889 --> 00:05:03.709 So when the mega farm hits $19, they've spread 00:05:03.709 --> 00:05:06.709 the cost of a $2 million robotic system across 00:05:06.709 --> 00:05:09.730 2 ,500 cows. So the cost per hundredweight just 00:05:09.730 --> 00:05:12.970 shrinks to almost nothing. Precisely. Let's look 00:05:12.970 --> 00:05:15.870 at what's driving that $23 difference. First, 00:05:16.029 --> 00:05:20.000 volume purchasing power. A mega farm buying three 00:05:20.000 --> 00:05:22.839 semi loads of silage a day gets a price a hundred 00:05:22.839 --> 00:05:25.560 cow farm can never, ever touch. That's probably 00:05:25.560 --> 00:05:27.680 four to six dollars per hundredweight right there. 00:05:27.779 --> 00:05:30.720 The source estimates that, yes. Then there's 00:05:30.720 --> 00:05:34.160 labor. The large operation automates everything. 00:05:34.779 --> 00:05:38.930 One herdsman overseeing 500 cows. The small farm 00:05:38.930 --> 00:05:41.269 is paying for labor, whether it's the owner or 00:05:41.269 --> 00:05:44.170 a family member, and that cost is baked into 00:05:44.170 --> 00:05:47.129 that $44 figure. And I bet financing is another 00:05:47.129 --> 00:05:49.689 one. They get better rates. Of course. Preferential 00:05:49.689 --> 00:05:51.689 rates from institutional lenders. It all adds 00:05:51.689 --> 00:05:54.889 up. So the $44 producer, like me, isn't necessarily 00:05:54.889 --> 00:05:57.310 inefficient. I'm fundamentally priced out of 00:05:57.310 --> 00:05:59.470 the commodity market before my milk even leaves 00:05:59.470 --> 00:06:02.769 the farm. Correct. The only way that $34 farm 00:06:02.769 --> 00:06:05.449 survives is by sacrificing something. Either 00:06:05.449 --> 00:06:07.589 they don't pay themselves a negative return on 00:06:07.589 --> 00:06:09.449 management, or they just burn through their equity 00:06:09.449 --> 00:06:11.430 to cover the operating loss. And what about the 00:06:11.430 --> 00:06:14.509 farms in the middle? The 400 to 800 cow dairies 00:06:14.509 --> 00:06:16.649 trying to scale up. They get stuck in the most 00:06:16.649 --> 00:06:20.410 dangerous position of all. They take on all the 00:06:20.410 --> 00:06:23.470 debt risk of scaling up new parlors, massive 00:06:23.470 --> 00:06:26.189 machinery, but they never actually reach the 00:06:26.189 --> 00:06:29.069 efficiencies of the 2000 plus cow operations. 00:06:29.149 --> 00:06:32.029 So you have all the debt, but none of the real 00:06:32.029 --> 00:06:34.149 benefit. You're just a high risk buffer zone 00:06:34.149 --> 00:06:36.149 for the banks. Which brings us back to that awful 00:06:36.149 --> 00:06:37.730 quote you mentioned earlier, the one from the 00:06:37.730 --> 00:06:39.959 meeting in Madison. Right. The quote that really 00:06:39.959 --> 00:06:42.899 captures the systemic view, a co -op board member 00:06:42.899 --> 00:06:46.420 reportedly leaned back and said, small dairies 00:06:46.420 --> 00:06:49.800 are emotionally important, but economically irrelevant. 00:06:50.160 --> 00:06:52.100 Emotionally important, economically irrelevant. 00:06:52.180 --> 00:06:55.699 That is just a devastating, cold hearted phrase. 00:06:56.079 --> 00:06:58.920 But it explains so much, doesn't it? It does. 00:06:59.000 --> 00:07:01.319 It explains why the people at the top know this. 00:07:01.839 --> 00:07:03.360 They know most of their members are operating 00:07:03.360 --> 00:07:05.399 at double the cost, but they won't publish it. 00:07:05.620 --> 00:07:07.699 Because if you admit that, you have to admit 00:07:07.699 --> 00:07:10.120 the system is designed to service the large farms. 00:07:10.180 --> 00:07:12.699 And the small ones are just window dressing. 00:07:13.199 --> 00:07:16.040 Or, more practically, a temporary supply buffer. 00:07:16.319 --> 00:07:19.040 Their losses are actually a mechanism that provides 00:07:19.040 --> 00:07:21.439 stability for the big players in the system. 00:07:21.779 --> 00:07:24.120 So if the economics prove that efficiency is 00:07:24.120 --> 00:07:27.139 just a mirage for the average farm, where do 00:07:27.139 --> 00:07:29.139 they go? They start looking for a premium, right? 00:07:29.319 --> 00:07:32.120 Exactly. They turn to the siren song of a higher 00:07:32.120 --> 00:07:35.319 price. Solutions dressed up as market alternatives. 00:07:36.160 --> 00:07:38.939 And let's start with the most popular one, the 00:07:38.939 --> 00:07:41.920 organic trap. Oh, yeah. Every time prices crash, 00:07:42.100 --> 00:07:45.300 someone says it. Go organic. Get $8 more per 00:07:45.300 --> 00:07:48.939 hundredweight. Save the farm. It sounds like 00:07:48.939 --> 00:07:51.879 salvation. It does. But the data shows that for 00:07:51.879 --> 00:07:54.920 the majority, it's not a viable path. Converting 00:07:54.920 --> 00:07:58.319 is this massive multi -year commitment. The land 00:07:58.319 --> 00:08:01.120 has to be chemical free for 36 months. Three 00:08:01.120 --> 00:08:03.600 full growing seasons. And the cattle have to 00:08:03.600 --> 00:08:06.360 be on organic rations for 12 months before you 00:08:06.360 --> 00:08:08.519 even qualify for certification, before you see 00:08:08.519 --> 00:08:10.860 a dime of that premium. That's three years of 00:08:10.860 --> 00:08:13.040 higher expenses before you see any benefit. That 00:08:13.040 --> 00:08:15.399 takes a mountain of operating capital. And the 00:08:15.399 --> 00:08:18.779 cost hike is severe. The Cornell 2024 Organic 00:08:18.779 --> 00:08:21.839 Dairy Study breaks it down. Feed costs jump a 00:08:21.839 --> 00:08:24.319 staggering 30 to 40 percent when you switch to 00:08:24.319 --> 00:08:26.459 organic rations. And let's talk about sourcing 00:08:26.459 --> 00:08:28.860 that feed. It's not just the cost. It's the availability, 00:08:29.160 --> 00:08:31.720 isn't it? You're absolutely right. In many areas, 00:08:31.800 --> 00:08:34.500 you just can't get certified organic corn or 00:08:34.500 --> 00:08:37.220 soybeans locally. So you're shipping it in from 00:08:37.220 --> 00:08:39.860 hundreds of miles away. It adds massive risk 00:08:39.860 --> 00:08:42.559 and logistical cost. Which is why your tank weights 00:08:42.559 --> 00:08:46.179 often drop. They drop by about 8 % on average 00:08:46.179 --> 00:08:49.820 during that transition. The new ration just isn't 00:08:49.820 --> 00:08:52.919 always optimized for peak yield. Okay, let's 00:08:52.919 --> 00:08:55.659 crunch the numbers for that 250 cow example from 00:08:55.659 --> 00:08:58.120 the source. This is where the mirage really disappears. 00:08:58.340 --> 00:09:01.120 For that 250 cow farm, you're looking at an extra 00:09:01.120 --> 00:09:06.440 $180 ,000 a year in feed costs, about $10 ,000 00:09:06.440 --> 00:09:09.539 in certification fees, and another $40 ,000 in 00:09:09.539 --> 00:09:11.960 lost yield from that production drop. That's 00:09:11.960 --> 00:09:16.480 $230 ,000. In sunk costs. Before the first premium 00:09:16.480 --> 00:09:19.559 check ever clears the bank. A $230 ,000 hole 00:09:19.559 --> 00:09:21.340 just to get to the starting line. If you are 00:09:21.340 --> 00:09:23.500 already struggling, how can you possibly survive 00:09:23.500 --> 00:09:25.960 that? You can't. And that's what happened to 00:09:25.960 --> 00:09:27.840 Dan Richter, the farmer in Cashion, Wisconsin. 00:09:28.220 --> 00:09:30.960 That quote from him is just haunting. We made 00:09:30.960 --> 00:09:33.320 it to certification, but we were broke before 00:09:33.320 --> 00:09:35.820 the first organic load hit the plant. They did 00:09:35.820 --> 00:09:37.559 everything right. They completed the marathon, 00:09:37.860 --> 00:09:39.919 and then they collapsed right at the finish line 00:09:39.919 --> 00:09:42.629 because the cost just bled them dry. So if the 00:09:42.629 --> 00:09:45.389 data is so clear, the Cornell study suggests 00:09:45.389 --> 00:09:47.529 two -thirds of these transitions never reach 00:09:47.529 --> 00:09:50.669 sustainable profitability. Why do the consultants 00:09:50.669 --> 00:09:53.149 and the programs keep pushing it? Because they 00:09:53.149 --> 00:09:55.289 get paid no matter what. Exactly. The program 00:09:55.289 --> 00:09:57.529 isn't designed to save the farmer. It's designed 00:09:57.529 --> 00:10:00.470 to extract from the process. The feed suppliers 00:10:00.470 --> 00:10:03.389 make their margin on that expensive feed. The 00:10:03.389 --> 00:10:05.950 certifiers get their 10 grand. The consultants 00:10:05.950 --> 00:10:08.830 get their fees. They get paid up front. The farmer 00:10:08.830 --> 00:10:12.019 takes on 100 % of the risk. And the support industry 00:10:12.019 --> 00:10:14.919 takes 100 % of the guaranteed margin. It makes 00:10:14.919 --> 00:10:18.299 that organic salvation feel less like a lifeline 00:10:18.299 --> 00:10:21.360 and more like a final expensive obligation. Okay, 00:10:21.419 --> 00:10:23.539 let's talk about the other big fix they push 00:10:23.539 --> 00:10:26.580 at extension meetings. Equipment sharing co -ops. 00:10:26.700 --> 00:10:29.340 This one appeals directly to that need to trim 00:10:29.340 --> 00:10:32.120 capital expenses. As a farmer, I have to say 00:10:32.120 --> 00:10:34.620 I'm just deeply skeptical of anything that makes 00:10:34.620 --> 00:10:36.679 me rely on my neighbor's schedule when a weather 00:10:36.679 --> 00:10:39.600 window is closing. Your skepticism is well -founded. 00:10:40.110 --> 00:10:43.049 On paper, it sounds great. Pool your resources, 00:10:43.429 --> 00:10:46.610 buy one big forage harvester, and cut overhead. 00:10:46.950 --> 00:10:49.450 The University of Minnesota Extension said it 00:10:49.450 --> 00:10:52.730 could shave about 10 % off ownership costs. 10 00:10:52.730 --> 00:10:56.289 % sounds decent on a $400 ,000 machine. That's 00:10:56.289 --> 00:10:59.149 40 grand. But where does that benefit disappear? 00:10:59.740 --> 00:11:02.460 It disappears into chaos and liability. The same 00:11:02.460 --> 00:11:04.759 extension office followed up and found that downtime 00:11:04.759 --> 00:11:07.460 climbed by 20 % because of scheduling conflicts. 00:11:08.179 --> 00:11:10.899 Everyone needs that chopper on the same two sunny 00:11:10.899 --> 00:11:13.419 days in October. And when my neighbor is rushing 00:11:13.419 --> 00:11:15.740 because I'm waiting, he's driving that machine 00:11:15.740 --> 00:11:18.240 hard. So repair costs go up. They eat another 00:11:18.240 --> 00:11:21.600 7%. The net gain just evaporates. And then you 00:11:21.600 --> 00:11:24.419 have the liability. If that shared manure tanker 00:11:24.419 --> 00:11:26.779 crashes into a school bus, who gets sued? The 00:11:26.779 --> 00:11:29.740 co -op. Which means me. Right. And the source 00:11:29.740 --> 00:11:31.740 noted the high cost of the specialized legal 00:11:31.740 --> 00:11:33.820 counsel and insurance just to set these things 00:11:33.820 --> 00:11:37.299 up. Another 5 % in annual costs, just for legal 00:11:37.299 --> 00:11:40.139 fees. Which is why they all fall apart. That 00:11:40.139 --> 00:11:42.080 quote from the Verocco producer just sums it 00:11:42.080 --> 00:11:45.419 all up. We spent more time arguing over whose 00:11:45.419 --> 00:11:47.679 turn it was to use the chopper than actually 00:11:47.679 --> 00:11:49.919 chopping. It stops being about farming and starts 00:11:49.919 --> 00:11:52.360 being about arbitration. It's the reality of 00:11:52.360 --> 00:11:56.029 partitioning urgency. Weather dictates the timeline. 00:11:56.309 --> 00:11:58.470 The only people who really win are the sales 00:11:58.470 --> 00:12:00.649 reps who sold the machine. All right, let's get 00:12:00.649 --> 00:12:03.070 to the core of this. Let's follow the money. 00:12:03.210 --> 00:12:06.649 We keep hearing manage costs better, but we need 00:12:06.649 --> 00:12:09.009 proof that our losses are directly tied to someone 00:12:09.009 --> 00:12:11.870 else's gains. Okay, let's trace the money using 00:12:11.870 --> 00:12:15.529 the source's benchmark 250 cow dairy. We'll pinpoint 00:12:15.529 --> 00:12:18.690 exactly where the dollars leave the farm. Let's 00:12:18.690 --> 00:12:21.500 start with the biggest one, feed. Based on USDA 00:12:21.500 --> 00:12:25.679 data, that 250 cow dairy spends roughly $580 00:12:25.679 --> 00:12:29.600 ,000 a year on feed. Now, the feed companies, 00:12:29.679 --> 00:12:32.519 they operate on very healthy margins. The source 00:12:32.519 --> 00:12:35.179 puts their net margin somewhere between 8 and 00:12:35.179 --> 00:12:37.940 12 percent. 8 to 12 percent. Let's translate 00:12:37.940 --> 00:12:39.720 that into what it costs the farmer over time. 00:12:40.009 --> 00:12:42.350 Over three years, that consistent margin means 00:12:42.350 --> 00:12:47.809 between $175 ,000 and $240 ,000 is transferred 00:12:47.809 --> 00:12:50.669 out of the farm's pocket and into the feed company's 00:12:50.669 --> 00:12:53.070 coffers. Money that leaves my farm and becomes 00:12:53.070 --> 00:12:55.950 stable, predictable profit for them. No matter 00:12:55.950 --> 00:12:59.649 what, I get paid for my milk. Next up, the bank. 00:13:00.169 --> 00:13:03.289 Finance. They get paid first. Always. The farm 00:13:03.289 --> 00:13:05.570 credit system reports that operating and mortgage 00:13:05.570 --> 00:13:09.450 interest averages around 6 .8%. For a dairy that 00:13:09.450 --> 00:13:12.289 size with typical loans, that's about $85 ,000 00:13:12.289 --> 00:13:16.429 a year. Just an interest. 85 grand. A fixed payment. 00:13:16.610 --> 00:13:19.629 Paid before I pay myself a single dime. Finally, 00:13:19.690 --> 00:13:22.629 the processor and the hauler. Rabobank's latest 00:13:22.629 --> 00:13:25.830 outlook says most processors net around $3 .50 00:13:25.830 --> 00:13:28.350 per hundredweight after their costs, but before 00:13:28.350 --> 00:13:30.809 they pay the farmer. So for that 250 -cow farm. 00:13:31.279 --> 00:13:33.500 What does that translate to in raw dollars? It 00:13:33.500 --> 00:13:38.100 translates to $575 ,000 extracted from that single 00:13:38.100 --> 00:13:40.240 farm's production annually. That's the locked 00:13:40.240 --> 00:13:41.919 -in profit they get just for moving the property. 00:13:41.960 --> 00:13:45.940 So when you stack all that up, feed, finance, 00:13:46.259 --> 00:13:50.279 processing, the amount of money leaving the farm 00:13:50.279 --> 00:13:53.039 is just staggering. It completely inverts how 00:13:53.039 --> 00:13:55.700 you see success. Right. We celebrate these companies 00:13:55.700 --> 00:13:58.080 for their record quarters, but those record quarters 00:13:58.080 --> 00:14:00.360 are a direct result of the financial stress on 00:14:00.360 --> 00:14:02.519 producers. It leads to that accountant's brutal 00:14:02.519 --> 00:14:05.019 math you mentioned. What was it again? For every 00:14:05.019 --> 00:14:07.700 dollar a farm burns in equity, someone up the 00:14:07.700 --> 00:14:10.320 chain makes six. Six dollars made for every one 00:14:10.320 --> 00:14:14.019 I lose. How? How does that ratio even work? It's 00:14:14.019 --> 00:14:16.639 because their businesses have fixed high margins, 00:14:16.740 --> 00:14:19.240 and the farm's margin is the fluctuating bit 00:14:19.240 --> 00:14:21.440 that's left over. When the milk price drops, 00:14:21.720 --> 00:14:23.940 your margin shrinks or goes negative. But the 00:14:23.940 --> 00:14:26.539 bank still gets its $85 ,000. The feed company 00:14:26.539 --> 00:14:29.740 still gets its 10%. Exactly. When your farm starts 00:14:29.740 --> 00:14:32.419 losing money -burning equity, it means you're 00:14:32.419 --> 00:14:34.940 still covering their stable profits while depleting 00:14:34.940 --> 00:14:38.000 your own capital. Your loss maintains their profitability. 00:14:38.480 --> 00:14:40.379 I'm subsidizing their stable business model? 00:14:40.750 --> 00:14:43.490 with my family's legacy. That's the key. So when 00:14:43.490 --> 00:14:45.789 someone says manage costs better, you have to 00:14:45.789 --> 00:14:48.809 realize your slow erosion of equity is financing 00:14:48.809 --> 00:14:51.870 their record quarter. Okay, let's look at a subtler 00:14:51.870 --> 00:14:55.690 form of extraction. The component bonus. Yes, 00:14:55.750 --> 00:14:58.350 the one dressed up as an incentive. Processors 00:14:58.350 --> 00:15:00.809 love to brag about these. And when you see that 00:15:00.809 --> 00:15:04.110 extra $1 .25 on the check, it feels like a win. 00:15:04.269 --> 00:15:08.129 I mean, when the base price is $16 or $17, that's 00:15:08.129 --> 00:15:10.759 a huge psychological boost. But you have to look 00:15:10.759 --> 00:15:13.299 at what it costs to chase that premium. You don't 00:15:13.299 --> 00:15:16.500 get high components for free. Cornell nutritionists 00:15:16.500 --> 00:15:19.559 estimate it requires a big ration bump, expensive 00:15:19.559 --> 00:15:23.019 proteins and fats, costing about $75 ,000 a year 00:15:23.019 --> 00:15:26.580 for that 250 herd. Plus another $15 ,000 for 00:15:26.580 --> 00:15:28.620 consultants and testing. Right. So you're in 00:15:28.620 --> 00:15:31.399 for $90 ,000 in extra expense just to try and 00:15:31.399 --> 00:15:33.279 capture that premium. And what's the net gain 00:15:33.279 --> 00:15:36.649 after all that? Best case scenario. Maybe $20 00:15:36.649 --> 00:15:39.210 ,000. That's a massive amount of risk and attention 00:15:39.210 --> 00:15:42.230 for a minimal return. But the processor is the 00:15:42.230 --> 00:15:44.889 one who really benefits. We need to quantify 00:15:44.889 --> 00:15:47.889 their win. Okay, so they get uniform, high solids 00:15:47.889 --> 00:15:50.669 milk. That means less water, which saves them 00:15:50.669 --> 00:15:54.169 a ton on hauling costs. For powder plants, it's 00:15:54.169 --> 00:15:57.470 way less energy for evaporation. For cheesemakers, 00:15:57.610 --> 00:16:00.809 it means less time and fewer additives. So I 00:16:00.809 --> 00:16:03.960 spend $90 ,000. to improve their input quality, 00:16:04.159 --> 00:16:06.720 lower their energy use, and cut their logistics 00:16:06.720 --> 00:16:10.240 costs. And I get maybe a tenth of that back as 00:16:10.240 --> 00:16:12.720 a reward. That is the math of the management 00:16:12.720 --> 00:16:14.940 leash, which brings us to that quote from the 00:16:14.940 --> 00:16:16.879 New York Nutritionist. Yeah, that one hit home. 00:16:17.159 --> 00:16:19.759 Protein bonuses aren't a windfall, they're a 00:16:19.759 --> 00:16:22.399 management leash. A management leash. Let's break 00:16:22.399 --> 00:16:24.399 that down. What does that really mean? It means 00:16:24.399 --> 00:16:27.159 the processor, with a relatively small incentive, 00:16:27.539 --> 00:16:30.179 is effectively dictating your entire feeding 00:16:30.179 --> 00:16:33.620 program, your testing, your consulting. It subtly 00:16:33.620 --> 00:16:35.899 controls your operational decisions. Because 00:16:35.899 --> 00:16:38.159 if I tried to simplify my ration to save that 00:16:38.159 --> 00:16:41.539 $75 ,000, I'd lose the premium and maybe my market. 00:16:41.700 --> 00:16:44.120 The bonus structure ensures you remain obedient 00:16:44.120 --> 00:16:46.080 to their needs, whether you see a true benefit 00:16:46.080 --> 00:16:49.139 or not. It's loyalty demanded, not loyalty rewarded. 00:16:49.600 --> 00:16:51.340 So if this is all a choreographed extraction, 00:16:51.639 --> 00:16:54.080 where is it all heading? Towards extreme consolidation 00:16:54.080 --> 00:16:57.620 and bottlenecking at every level, market, genetics, 00:16:57.779 --> 00:16:59.679 logistics. Let's start with the consolidation 00:16:59.679 --> 00:17:03.000 forecast because those numbers are just shocking. 00:17:03.240 --> 00:17:07.680 The USDA's projections to 2034 are... Well, they're 00:17:07.680 --> 00:17:10.480 alarming. They project we'll have only 12 ,000 00:17:10.480 --> 00:17:13.220 to 15 ,000 dairies left by 2030. We're at about 00:17:13.220 --> 00:17:16.480 26 ,000 now. So we're on track to lose over half 00:17:16.480 --> 00:17:18.720 the dairies in the next six years. It's an acceleration 00:17:18.720 --> 00:17:21.039 of the extraction plan. And it comes with this 00:17:21.039 --> 00:17:23.839 frightening concentration of control. Look at 00:17:23.839 --> 00:17:26.519 the Rabobank data on market control. Who's left 00:17:26.519 --> 00:17:29.240 holding the power? Rabobank projects that just 00:17:29.240 --> 00:17:32.660 six processors will control 80 % of the entire 00:17:32.660 --> 00:17:36.069 U .S. milk flow within the decade. Six entities 00:17:36.069 --> 00:17:38.710 deciding the price, the terms, the standards 00:17:38.710 --> 00:17:40.970 for four -fifths of the country's milk. The leverage 00:17:40.970 --> 00:17:42.890 they'll have is unbelievable. And the bottleneck 00:17:42.890 --> 00:17:45.029 isn't just in the plant. It's in the genetics, 00:17:45.089 --> 00:17:47.349 too. The Council on Dairy Cattle Breeding report 00:17:47.349 --> 00:17:50.769 from 2025 showed that five Holstein sires now 00:17:50.769 --> 00:17:53.529 sire 82 % of all replacements in the U .S. herd. 00:17:53.690 --> 00:17:56.349 Five bulls. Five bulls controlling the genetic 00:17:56.349 --> 00:17:59.150 future of an entire food sector. So if you own 00:17:59.150 --> 00:18:01.970 the market and you own the genetics, you own 00:18:01.970 --> 00:18:04.569 the whole industry. The small farm has no control 00:18:04.569 --> 00:18:06.869 over price and no control over the biological 00:18:06.869 --> 00:18:09.509 inputs they have to buy just to stay in the game. 00:18:09.650 --> 00:18:12.410 It creates a perfectly insulated extractive loop. 00:18:12.609 --> 00:18:14.990 And the impact isn't just on the balance sheet. 00:18:15.109 --> 00:18:17.650 It's devastating the rural landscape. What does 00:18:17.650 --> 00:18:20.269 that loss of farms mean for local communities? 00:18:20.650 --> 00:18:23.829 UW -Madison economists calculated it. Each hundred 00:18:23.829 --> 00:18:26.809 cow farm loss strips half a million dollars from 00:18:26.809 --> 00:18:30.089 the regional rural economy annually. Half a million 00:18:30.089 --> 00:18:32.789 dollars gone. That's not abstract. That's the 00:18:32.789 --> 00:18:34.950 local vet clinic closing, the feed store going 00:18:34.950 --> 00:18:37.230 under, the mechanic with no tractors to service. 00:18:37.410 --> 00:18:39.750 It's the declining tax base that starves the 00:18:39.750 --> 00:18:42.109 local schools. And you can see it when you drive 00:18:42.109 --> 00:18:44.690 through dairy country. The boarded barns, the 00:18:44.690 --> 00:18:47.869 auction today signs. This isn't chaos, the source 00:18:47.869 --> 00:18:51.009 says. This is a deliberate, predictable business 00:18:51.009 --> 00:18:53.730 plan. This deep dive forces us to challenge everything, 00:18:53.930 --> 00:18:56.329 even the sacred cows. And that has to include 00:18:56.329 --> 00:18:58.789 the co -op structure. Historically, co -ops were 00:18:58.789 --> 00:19:00.569 our shield. They were. That's their foundational 00:19:00.569 --> 00:19:03.890 history. Solidarity, producer protection, a stable 00:19:03.890 --> 00:19:07.349 market. But that structure has been quietly, 00:19:07.390 --> 00:19:10.089 strategically inverted. I have to push back a 00:19:10.089 --> 00:19:13.190 little here. My grandfather built our farm because 00:19:13.190 --> 00:19:15.849 of the co -op. Are you saying decades of loyalty 00:19:15.849 --> 00:19:18.289 and commitment mean nothing when the chips are 00:19:18.289 --> 00:19:21.029 down? The co -op has a duty to protect the small 00:19:21.029 --> 00:19:22.769 guy, right? That's the emotional expectation, 00:19:22.910 --> 00:19:25.089 but the structure doesn't support that duty anymore. 00:19:25.559 --> 00:19:29.480 The 2024 GAO report on co -op governance revealed 00:19:29.480 --> 00:19:33.640 the shift. 78 % of major U .S. co -ops now use 00:19:33.640 --> 00:19:36.519 milk volume voting. So one member, one vote is 00:19:36.519 --> 00:19:39.440 basically gone. It's been replaced by cubic tons 00:19:39.440 --> 00:19:42.180 of milk per vote. Meaning if I produce 10 ,000 00:19:42.180 --> 00:19:45.180 pounds a day and the mega farm produces 200 ,000, 00:19:45.200 --> 00:19:47.819 they have 20 times the voting power I do. Exactly. 00:19:47.819 --> 00:19:50.259 The mega farms, who already have that massive 00:19:50.259 --> 00:19:52.980 $23 cost advantage, now control the governance, 00:19:53.279 --> 00:19:55.039 the board seats, and the strategic direction 00:19:55.039 --> 00:19:57.579 of the co -op. The small farmer is left with 00:19:57.579 --> 00:20:00.359 effectively no voice. You hear that frustration. 00:20:01.039 --> 00:20:03.720 That quote from the Brookings County farmer is 00:20:03.720 --> 00:20:07.029 just painful. My co -op makes more on hauling 00:20:07.029 --> 00:20:09.430 my milk than I make milking the cows. And again, 00:20:09.529 --> 00:20:12.069 the GAO data supports that. The report shows 00:20:12.069 --> 00:20:14.309 that the co -op processing divisions now generate 00:20:14.309 --> 00:20:16.349 more profit than they distribute to members and 00:20:16.349 --> 00:20:19.349 payments. The co -op's processing wing is succeeding 00:20:19.349 --> 00:20:22.269 at the expense of its own smaller members. So 00:20:22.269 --> 00:20:25.289 the organization built to be member first has 00:20:25.289 --> 00:20:28.470 flipped to margin first. And that brings us to 00:20:28.470 --> 00:20:30.990 the most heartbreaking part of this, the emotional 00:20:30.990 --> 00:20:33.730 trap of just one more year. That's the phrase 00:20:33.730 --> 00:20:35.890 you hear when a farm has gone from hopeful to 00:20:35.890 --> 00:20:38.390 cornered. And who profits most from that delay? 00:20:38.650 --> 00:20:41.210 The bankers, the feed mills, the processors. 00:20:41.470 --> 00:20:44.509 They're the ones who want you to hang on. They'll 00:20:44.509 --> 00:20:47.250 offer extensions because it maximizes their extraction 00:20:47.250 --> 00:20:50.130 window. Tom Green's analysis called it equity 00:20:50.130 --> 00:20:52.289 farming for other people. That's precisely what's 00:20:52.289 --> 00:20:54.690 happening. Every year, a small dairy runs at 00:20:54.690 --> 00:20:57.490 a loss. And we know the $44 cost structure guarantees 00:20:57.490 --> 00:21:00.470 a loss. That $85 ,000 in interest still goes 00:21:00.470 --> 00:21:03.630 to the bank. The $580 ,000 in feed sales still 00:21:03.630 --> 00:21:06.849 goes to the supplier. And my farm's equity, the 00:21:06.849 --> 00:21:10.369 land, the machinery, just erodes away to cover 00:21:10.369 --> 00:21:12.930 it all. The longer you stay running at a loss, 00:21:12.950 --> 00:21:14.910 the more they gain. That's the hidden calculated 00:21:14.910 --> 00:21:17.730 cost of loyalty. All right, let's bring this 00:21:17.730 --> 00:21:20.210 home. The farmer listening right now, they just 00:21:20.210 --> 00:21:21.769 finished milking, they're driving to the feed 00:21:21.769 --> 00:21:24.250 store, and they've just heard their whole business 00:21:24.250 --> 00:21:27.549 is an extractive trap. What are the three things 00:21:27.549 --> 00:21:30.079 they need to do? Immediate, medium, and long 00:21:30.079 --> 00:21:32.480 -term. What are the actions? Okay, first thing. 00:21:32.579 --> 00:21:35.960 The immediate action this week is about securing 00:21:35.960 --> 00:21:39.420 truth, not more time. So what's the action? Call 00:21:39.420 --> 00:21:42.079 your accountant, not your lender. The bank wants 00:21:42.079 --> 00:21:44.880 to extend the loan. The accountant deals in cold, 00:21:44.980 --> 00:21:48.019 hard truth. You need to run your TrueNet financial 00:21:48.019 --> 00:21:50.940 position after including two critical costs. 00:21:51.480 --> 00:21:54.259 unpaid family labor at a market rate, and true 00:21:54.259 --> 00:21:57.019 depreciation on all assets. Not just the tax 00:21:57.019 --> 00:21:59.400 depreciation. No, you need to see the real number. 00:21:59.519 --> 00:22:02.680 If you're truly losing $100 ,000 a year, you 00:22:02.680 --> 00:22:04.839 need to know that now. Okay, so once you have 00:22:04.839 --> 00:22:07.200 that brutal truth, what's the medium -term strategy? 00:22:07.700 --> 00:22:10.640 Next three to six months, get a land appraisal. 00:22:11.119 --> 00:22:14.440 This is purely about equity preservation. The 00:22:14.440 --> 00:22:17.119 source material noted that Midwest farmland values 00:22:17.119 --> 00:22:20.819 finally plateaued in 2025. that window might 00:22:20.819 --> 00:22:23.619 be closing. So if an exit is on the table, you 00:22:23.619 --> 00:22:25.920 act while you still have that equity. Don't wait 00:22:25.920 --> 00:22:28.460 until the bank is dictating the sale price. Exactly. 00:22:28.579 --> 00:22:30.460 And that leads to the long -term positioning. 00:22:30.640 --> 00:22:32.380 The hardest part. The hardest part. The next 00:22:32.380 --> 00:22:35.259 one to two years, run two lists and hold a family 00:22:35.259 --> 00:22:37.559 meeting. What are the two lists? List one is 00:22:37.559 --> 00:22:40.660 the stay scenario. What's the emotional, physical, 00:22:40.799 --> 00:22:44.339 and financial cost? Project that $100 ,000 annual 00:22:44.339 --> 00:22:47.640 equity loss forward five years. List two is the 00:22:47.640 --> 00:22:49.799 exit scenario. What could you do if you kept 00:22:49.799 --> 00:22:52.759 that $2 .5 million in equity clean? You're forcing 00:22:52.759 --> 00:22:55.019 the decision to be about math, not just emotion. 00:22:55.400 --> 00:22:57.380 And you have to have that family meeting. Now, 00:22:57.440 --> 00:23:00.759 this isn't quitting. It is protecting what generations 00:23:00.759 --> 00:23:03.519 build before the system finishes the job for 00:23:03.519 --> 00:23:06.079 you. Saving the family's financial legacy is 00:23:06.079 --> 00:23:08.660 the ultimate strategic move here. This has been 00:23:08.660 --> 00:23:10.680 another deep dive from the Bullvine podcast. 00:23:11.200 --> 00:23:13.660 If this kind of analysis helps your operation 00:23:13.660 --> 00:23:16.500 cut through the noise, you should head to www 00:23:16.500 --> 00:23:20.079 .thebullvine .com. There are more articles there 00:23:20.079 --> 00:23:21.740 that tell you what's really happening in dairy. 00:23:21.980 --> 00:23:24.460 And seriously, subscribe wherever you get your 00:23:24.460 --> 00:23:26.400 deep dives. We're releasing these twice a week 00:23:26.400 --> 00:23:28.900 now. And trust me, you do not want to miss what 00:23:28.900 --> 00:23:30.559 we have coming next week. We're talking about 00:23:30.559 --> 00:23:33.119 regenerative grazing programs. And who is really 00:23:33.119 --> 00:23:35.380 benefiting financially from that trend, too. 00:23:35.519 --> 00:23:38.119 The entire premise of this... deep dive was that 00:23:38.119 --> 00:23:40.619 the dairy system isn't failing. It's succeeding 00:23:40.619 --> 00:23:43.140 exactly the way it was designed to. So you need 00:23:43.140 --> 00:23:45.180 to ask yourself that final question. If everyone 00:23:45.180 --> 00:23:48.000 else, the bank, the feed company, the processors, 00:23:48.039 --> 00:23:50.700 making money off my financial losses, how long 00:23:50.700 --> 00:23:51.779 am I willing to play the game?