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 --> 00:01:03.170 we're sparking Welcome back to the Bullbine Podcast, 00:01:03.390 --> 00:01:05.489 where we cut through dairy industry noise to 00:01:05.489 --> 00:01:07.689 get you the insights that actually matter for 00:01:07.689 --> 00:01:10.790 your operation. And today, we're diving deep 00:01:10.790 --> 00:01:13.189 into a feature piece that's got some serious 00:01:13.189 --> 00:01:16.329 buzz. This isn't just commodity analysis, you 00:01:16.329 --> 00:01:18.769 know. This one's got layers that'll make every 00:01:18.769 --> 00:01:21.489 farmer rethink their approach to trade expectations, 00:01:21.989 --> 00:01:24.650 especially concerning our reliance on China. 00:01:25.120 --> 00:01:28.280 If you've ever felt burned by an optimistic market 00:01:28.280 --> 00:01:31.959 forecast before, you need this deep dive. We 00:01:31.959 --> 00:01:34.420 are absolutely going to do a deep dive into what 00:01:34.420 --> 00:01:36.739 we're calling the promise delivery gap. Right. 00:01:36.900 --> 00:01:40.540 It's this massive, I mean, undeniable discrepancy 00:01:40.540 --> 00:01:42.939 between the headline -grabbing international 00:01:42.939 --> 00:01:45.579 trade announcements, specifically agreements 00:01:45.579 --> 00:01:48.420 the U .S. makes with partners like China, and 00:01:48.420 --> 00:01:50.700 the actual reality. The reality of what actually 00:01:50.700 --> 00:01:53.120 gets on a boat and gets paid for. Exactly. And 00:01:53.120 --> 00:01:55.760 we have data. sourced right here that shows this 00:01:55.760 --> 00:01:57.840 gap isn't just a slight miss. It's consistently 00:01:57.840 --> 00:02:00.939 ranging between a near total collapse of 2 .7 00:02:00.939 --> 00:02:03.359 percent delivery. Wait, 2 .7 percent. That's 00:02:03.359 --> 00:02:06.400 not a gap. That's a chasm. That means if the 00:02:06.400 --> 00:02:08.240 government announces a deal that's supposed to 00:02:08.240 --> 00:02:11.500 stabilize your forward pricing, you have historical 00:02:11.500 --> 00:02:13.979 data suggesting that, you know, nine out of 10 00:02:13.979 --> 00:02:17.360 times that stability won't materialize. And in 00:02:17.360 --> 00:02:21.159 the worst cases. 97 out of 100 times it won't. 00:02:21.159 --> 00:02:23.280 And the context here for everyone listening is 00:02:23.280 --> 00:02:26.020 crucial. Yeah. This is not about politics. We're 00:02:26.020 --> 00:02:27.879 not judging foreign policy here. No, this is 00:02:27.879 --> 00:02:30.099 dollars and cents. This is purely about financial 00:02:30.099 --> 00:02:32.659 planning for your farm. It's your fiduciary responsibility. 00:02:33.199 --> 00:02:35.900 I mean, trade optimism, those big declarations 00:02:35.900 --> 00:02:37.620 that say the market is secured for the next three 00:02:37.620 --> 00:02:40.500 years. Yeah. That kind of talk drives major financial 00:02:40.500 --> 00:02:42.740 decisions. Oh, absolutely. That's the conversation 00:02:42.740 --> 00:02:45.409 you have with your lender. It is your decision 00:02:45.409 --> 00:02:48.270 to pull the trigger on an expansion or take out 00:02:48.270 --> 00:02:50.430 that new equipment loan. It's all predicated 00:02:50.430 --> 00:02:52.389 on those headline promises. And when you look 00:02:52.389 --> 00:02:55.030 at the stakes here, I mean, the cost of getting 00:02:55.030 --> 00:02:58.590 this optimism wrong is just it's frighteningly 00:02:58.590 --> 00:03:01.289 high. It is. The analysis shows that for a typical 00:03:01.289 --> 00:03:05.030 1000 cow dairy, that massive fluctuation in price 00:03:05.030 --> 00:03:07.530 driven by these underdelivered trade promises. 00:03:08.509 --> 00:03:12.569 can cost you upwards of $91 ,000 annually. $91 00:03:12.569 --> 00:03:15.650 ,000. That's the kind of volatility that hits 00:03:15.650 --> 00:03:17.889 your replacement heifers, your feed contracts, 00:03:18.169 --> 00:03:20.389 your ability to make capital improvements. I 00:03:20.389 --> 00:03:22.990 mean, it touches everything. And here's the controversy 00:03:22.990 --> 00:03:25.050 we want to tease right up front because this 00:03:25.050 --> 00:03:27.050 gets at a core assumption a lot of us operate 00:03:27.050 --> 00:03:30.330 under. Okay. The common belief that your cooperative 00:03:30.330 --> 00:03:33.300 membership somehow... insulates you from this 00:03:33.300 --> 00:03:35.960 volatility. Ah, the co -op shield. Yeah, the 00:03:35.960 --> 00:03:38.460 data says otherwise. We're going to look at why 00:03:38.460 --> 00:03:41.599 massive global co -ops, names you trust like 00:03:41.599 --> 00:03:44.139 Friesland, Campina, and Fonterra, are struggling 00:03:44.139 --> 00:03:46.800 with the exact same structural challenges. And 00:03:46.800 --> 00:03:48.759 often they struggle even harder because they're 00:03:48.759 --> 00:03:51.020 just slower to adjust. It's time to start taking 00:03:51.020 --> 00:03:53.139 the political soundbites at face value, isn't 00:03:53.139 --> 00:03:55.620 it? We need a rigorous risk mitigation framework. 00:03:55.979 --> 00:03:57.500 And that's exactly what we're building today. 00:03:57.620 --> 00:04:00.180 We're turning skepticism into savings. Okay, 00:04:00.199 --> 00:04:02.620 let's unpack this. The core issue we're analyzing 00:04:02.620 --> 00:04:05.800 is the promise delivery gap. It is the fundamental 00:04:05.800 --> 00:04:09.000 disconnect between the promise, which is always, 00:04:09.060 --> 00:04:12.639 you know, rhetorically 100%, a guaranteed sale, 00:04:12.800 --> 00:04:15.520 and the execution, which is... Always lower. 00:04:15.639 --> 00:04:18.339 Often. Drastically so. I think we have to start 00:04:18.339 --> 00:04:20.279 with that most shocking number to really set 00:04:20.279 --> 00:04:23.819 the baseline for expectations. Give us the snarkiest 00:04:23.819 --> 00:04:26.139 example you found, the one that just screams 00:04:26.139 --> 00:04:29.300 volatility. The soybean example is truly shocking 00:04:29.300 --> 00:04:31.899 because it was so widely reported. The initial 00:04:31.899 --> 00:04:34.500 announcements. the ones that gave farmers across 00:04:34.500 --> 00:04:37.620 the Midwest that burst of market confidence and 00:04:37.620 --> 00:04:39.899 pushed up grain futures. Everyone remembers this 00:04:39.899 --> 00:04:41.519 one. They announced that China had committed 00:04:41.519 --> 00:04:46.060 to purchasing 12 million tons of U .S. soybeans. 00:04:46.730 --> 00:04:49.149 12 million tons. That's a massive commitment. 00:04:49.329 --> 00:04:51.670 I mean, that sort of declared demand changes 00:04:51.670 --> 00:04:54.290 the entire hedging strategy for the global feed 00:04:54.290 --> 00:04:56.930 complex, which directly impacts what dairy farmers 00:04:56.930 --> 00:05:00.050 pay for TMR ingredients. It creates this powerful, 00:05:00.209 --> 00:05:03.129 if temporary, sense of guaranteed demand. And 00:05:03.129 --> 00:05:05.529 more importantly, lenders and large processors 00:05:05.529 --> 00:05:08.589 read that too. They bake that expectation into 00:05:08.589 --> 00:05:10.550 their future projections. Precisely. Now here's 00:05:10.550 --> 00:05:13.560 the critical reality check. Yeah. By mid -November, 00:05:13.579 --> 00:05:17.899 USDA export data showed that only 332 ,000 tons 00:05:17.899 --> 00:05:20.540 had actually shipped. That's not what was ordered. 00:05:20.600 --> 00:05:23.360 That's what left port and was confirmed as delivered. 00:05:23.560 --> 00:05:25.819 Okay, stop right there. You've got 12 million 00:05:25.819 --> 00:05:29.459 promised. 332 ,000 delivered. So mathematically, 00:05:29.720 --> 00:05:33.339 that is a what? A 2 .7 % delivery rate? 2 .7%. 00:05:33.339 --> 00:05:36.480 Wow. You couldn't fail that badly if you tried 00:05:36.480 --> 00:05:39.180 to sabotage the deal. If you based your purchasing 00:05:39.180 --> 00:05:41.560 power, your inventory management, or your financial 00:05:41.560 --> 00:05:44.379 forecasting on a 12 million ton commitment, when 00:05:44.379 --> 00:05:47.480 97 .3 % of that demand just vanishes. Or never 00:05:47.480 --> 00:05:49.319 shows up in the first place. Right. It's not 00:05:49.319 --> 00:05:51.459 just disappointing, it's catastrophic for a business 00:05:51.459 --> 00:05:53.649 model. And that's the danger. A farmer doesn't 00:05:53.649 --> 00:05:55.930 see that 2 .7 percent number immediately. What 00:05:55.930 --> 00:05:57.850 they see is the immediate market spike the announcement 00:05:57.850 --> 00:06:00.290 caused. So they might lock in feed contracts 00:06:00.290 --> 00:06:03.430 or purchase inputs at a higher rate based on 00:06:03.430 --> 00:06:05.389 the expectation of higher milk checks that just 00:06:05.389 --> 00:06:08.189 never materialize because the underlying demand 00:06:08.189 --> 00:06:11.089 didn't ship. That lag time is where the financial 00:06:11.089 --> 00:06:13.350 damage happens. Now, the pushback we often hear 00:06:13.350 --> 00:06:15.569 is, well, that must be an anomaly. That has to 00:06:15.569 --> 00:06:18.149 be a one off timing issue. But the data shows 00:06:18.149 --> 00:06:20.329 this pattern of under execution is consistent. 00:06:20.930 --> 00:06:22.949 Let's zoom out and look at the broader pattern 00:06:22.949 --> 00:06:24.930 of the phase one trade agreement. Right. The 00:06:24.930 --> 00:06:27.750 big one from January 2020. This was the largest, 00:06:27.850 --> 00:06:30.110 most structural commitment we've analyzed recently. 00:06:30.370 --> 00:06:32.769 Eighty point one billion dollars. I mean, that's 00:06:32.769 --> 00:06:35.029 a figure designed to instill massive confidence 00:06:35.029 --> 00:06:37.819 and stabilize the market after years of. Back 00:06:37.819 --> 00:06:40.040 and forth trade disruptions. The commitment was 00:06:40.040 --> 00:06:42.759 clear. Eighty point one billion dollars in U 00:06:42.759 --> 00:06:46.639 .S. agricultural goods over two years. The Peterson 00:06:46.639 --> 00:06:49.300 Institute for International Economics meticulously 00:06:49.300 --> 00:06:52.379 tracked what actually transpired. And they are 00:06:52.379 --> 00:06:54.300 the gold standard for this. You know, they look 00:06:54.300 --> 00:06:56.300 at customs data, verified shipping manifests, 00:06:56.459 --> 00:06:58.980 not just press releases. No spin. Just the hard 00:06:58.980 --> 00:07:01.279 numbers. And what did their data show? The actual. 00:07:02.209 --> 00:07:04.389 purchases delivered over that two -year period 00:07:04.389 --> 00:07:07.990 were $61 .4 billion. Okay, so if we're looking 00:07:07.990 --> 00:07:10.250 strictly at the agricultural target, that's 77 00:07:10.250 --> 00:07:13.550 % delivery. 77%. And that, surprisingly, is actually 00:07:13.550 --> 00:07:15.670 the high end of the historical execution rate 00:07:15.670 --> 00:07:17.649 we've seen in major trade deals with China. It 00:07:17.649 --> 00:07:21.209 is. 77 % of the ag target was met, yes. And if 00:07:21.209 --> 00:07:23.769 you look at the total commitment across all sectors, 00:07:23.870 --> 00:07:26.649 manufacturing, energy, everything, the overall 00:07:26.649 --> 00:07:30.550 execution only hit 58%. So what does this all 00:07:30.550 --> 00:07:32.910 mean for you, the dairy farmer? It means the 00:07:32.910 --> 00:07:35.410 fundamental range of reality for major headline 00:07:35.410 --> 00:07:38.110 -level trade promises based on recent history 00:07:38.110 --> 00:07:41.769 is 2 .7 % delivery on the low end. The soybean 00:07:41.769 --> 00:07:44.069 disaster. And 77 % delivery on the high end. 00:07:44.170 --> 00:07:47.170 You cannot, under any circumstances, plan your 00:07:47.170 --> 00:07:51.110 business around 100%. That range, 2 .7 % to 77%, 00:07:51.110 --> 00:07:53.769 that's nearly 75 percentage points of massive, 00:07:53.910 --> 00:07:56.029 unpredictable volatility. That's the devil in 00:07:56.029 --> 00:07:58.680 the details. That's the gap where farms start 00:07:58.680 --> 00:08:01.120 making desperate moves. I mean, think about the 00:08:01.120 --> 00:08:04.079 real world impact. You're talking to your lender 00:08:04.079 --> 00:08:06.579 about financing a new freestall barn in Wisconsin 00:08:06.579 --> 00:08:09.439 or upgrading your milking parlor in the Central 00:08:09.439 --> 00:08:12.540 Valley. That's a 15 -year asset. A huge commitment. 00:08:12.759 --> 00:08:15.139 Lenders approve those multi -million dollar loans 00:08:15.139 --> 00:08:17.560 based on projected revenue stability and market 00:08:17.560 --> 00:08:20.779 growth forecasts. But when the very foundation 00:08:20.779 --> 00:08:24.430 of that forecast trade execution varies wildly 00:08:24.430 --> 00:08:27.029 by 75 percentage points from one deal to the 00:08:27.029 --> 00:08:29.470 next. The rug isn't just pulled out from under 00:08:29.470 --> 00:08:32.110 you, it's burned away. You have to start assuming 00:08:32.110 --> 00:08:34.490 the worst case scenario within that historical 00:08:34.490 --> 00:08:37.000 range. It's the constant psychological battle, 00:08:37.100 --> 00:08:39.740 isn't it? The news says secure demand, but the 00:08:39.740 --> 00:08:42.039 data says maybe one quarter of it will ship. 00:08:42.200 --> 00:08:44.720 We have to shift our mindset. A political declaration 00:08:44.720 --> 00:08:46.820 is not a financial guarantee. It's a talking 00:08:46.820 --> 00:08:48.419 point. No, I think it's important we acknowledge 00:08:48.419 --> 00:08:50.679 the context here. It's easy to be skeptical in 00:08:50.679 --> 00:08:53.480 hindsight. The volumes we saw in 2021 and 2022, 00:08:53.799 --> 00:08:55.919 those were real. They absolutely were. They boosted 00:08:55.919 --> 00:08:58.200 prices and they genuinely improved milled checks 00:08:58.200 --> 00:09:02.179 for many operations. When things are good. Optimism 00:09:02.179 --> 00:09:05.399 is infectious. It is. And that's the dangerous 00:09:05.399 --> 00:09:08.440 power of recency bias. When your milk check is 00:09:08.440 --> 00:09:11.720 up and everything is green, it's incredibly hard 00:09:11.720 --> 00:09:14.779 to feel skeptical about the market outlook. It 00:09:14.779 --> 00:09:17.080 truly felt like we had finally hit a sustainable 00:09:17.080 --> 00:09:20.860 baseline, a new floor of permanent high international 00:09:20.860 --> 00:09:23.580 demand. I remember talking to neighbors who were 00:09:23.580 --> 00:09:26.019 finally pulling the trigger on equipment upgrades 00:09:26.019 --> 00:09:28.639 they'd put off for five years. They looked at 00:09:28.639 --> 00:09:31.740 2022's margins and thought, this is the new normal. 00:09:32.059 --> 00:09:34.279 But the critical question that most operations 00:09:34.279 --> 00:09:38.019 and critically most lenders didn't ask was, was 00:09:38.019 --> 00:09:40.940 this high volume driven by sustainable structural 00:09:40.940 --> 00:09:44.320 growth? Or was it a cyclical peak that had an 00:09:44.320 --> 00:09:46.340 expiration date stamped on it? And the research 00:09:46.340 --> 00:09:48.620 makes it clear it was the latter. Without a doubt. 00:09:48.879 --> 00:09:51.159 The warning signs were visible in real time. 00:09:51.529 --> 00:09:53.649 If you knew where to look. Let's break down those 00:09:53.649 --> 00:09:56.710 four key structural indicators that clearly showed 00:09:56.710 --> 00:09:58.690 the peak was temporary. Because if you had looked 00:09:58.690 --> 00:10:00.230 at these four points, you wouldn't have financed 00:10:00.230 --> 00:10:02.730 that big expansion in 2022 with the same blind 00:10:02.730 --> 00:10:04.889 optimism. You'd have seen the clock ticking. 00:10:05.070 --> 00:10:07.830 The first and arguably the most powerful indicator 00:10:07.830 --> 00:10:10.850 driving demand was the African swine fever or 00:10:10.850 --> 00:10:14.669 ASF recovery. ASF devastated China's domestic 00:10:14.669 --> 00:10:18.590 protein supply. According to OECD data, China 00:10:18.590 --> 00:10:20.769 lost roughly 40 percent of its hog inventory 00:10:20.769 --> 00:10:23.950 between 2018 and 2019. 40 percent. I mean, that's 00:10:23.950 --> 00:10:26.450 an economic catastrophe in protein supply. So 00:10:26.450 --> 00:10:29.350 they suddenly had this massive, urgent and temporary 00:10:29.350 --> 00:10:34.169 need for feed imports, soybeans, corn and crucially 00:10:34.169 --> 00:10:37.289 for dairy whey components. They were scrambling 00:10:37.289 --> 00:10:39.990 to rebuild their hog herds just to feed their 00:10:39.990 --> 00:10:42.210 own population. It was essentially a commodity 00:10:42.210 --> 00:10:44.409 emergency response, not sustainable market growth. 00:10:44.730 --> 00:10:46.309 We were exporting dairy components because the 00:10:46.309 --> 00:10:48.169 average Chinese consumer was suddenly drinking 00:10:48.169 --> 00:10:50.850 vastly more imported lattes. No, we were exporting 00:10:50.850 --> 00:10:53.750 feed because 40 % of their livestock infrastructure 00:10:53.750 --> 00:10:56.090 was wiped out and needed immediate replacement. 00:10:56.429 --> 00:10:58.470 We were filling a giant hole. And when the hole 00:10:58.470 --> 00:11:01.070 is filled, the demand for the shovel stops. Exactly. 00:11:01.070 --> 00:11:04.190 By early 2022, Iowa State University's Ag Policy 00:11:04.190 --> 00:11:06.610 Review documented that the herd recovery was 00:11:06.610 --> 00:11:09.129 largely complete. The source material refers 00:11:09.129 --> 00:11:11.470 to this moment as the import engine shutting 00:11:11.470 --> 00:11:14.139 down. So the structural driver was gone. The 00:11:14.139 --> 00:11:16.980 structural temporary driver for massive feed 00:11:16.980 --> 00:11:18.799 and feed component demand, which had kept our 00:11:18.799 --> 00:11:22.120 prices elevated, was gone. Any forward -looking 00:11:22.120 --> 00:11:24.299 analyst should have adjusted projections immediately. 00:11:24.740 --> 00:11:27.279 That's the plain English synthesis. We were busy 00:11:27.279 --> 00:11:29.519 feeding their emergency, not their long -term 00:11:29.519 --> 00:11:32.259 stable growth plan. When the emergency ends, 00:11:32.559 --> 00:11:35.820 so does the demand spike. It was structurally 00:11:35.820 --> 00:11:38.899 temporary. The second indicator was purely mechanical, 00:11:39.200 --> 00:11:42.250 the phase one expiration. That agreement was 00:11:42.250 --> 00:11:44.889 not designed to roll over forever. It had a hard 00:11:44.889 --> 00:11:48.210 stop date. December 31st, 2021. This was publicly 00:11:48.210 --> 00:11:50.730 known. A hard stop date. I mean, if you based 00:11:50.730 --> 00:11:52.889 a 10 -year loan on the market stability from 00:11:52.889 --> 00:11:55.110 a two -year commitment, you were already introducing 00:11:55.110 --> 00:11:57.929 massive unnecessary risk the minute the ink dried. 00:11:58.330 --> 00:12:00.870 Any purchases after that were entirely voluntary, 00:12:01.110 --> 00:12:03.909 easily manipulated, and subject to any geopolitical 00:12:03.909 --> 00:12:06.269 pressures that emerged. The third factor is perhaps 00:12:06.269 --> 00:12:08.710 the most strategically worrisome for Derry, and 00:12:08.710 --> 00:12:10.250 it's about their internal political planning. 00:12:10.539 --> 00:12:13.100 China's aggressive self -sufficiency goal. The 00:12:13.100 --> 00:12:15.039 Chinese government explicitly targeted achieving 00:12:15.039 --> 00:12:18.299 70 % dairy self -sufficiency. This isn't a secret. 00:12:18.379 --> 00:12:21.179 It's a publicly stated national policy objective 00:12:21.179 --> 00:12:23.399 to reduce their reliance on external suppliers. 00:12:23.840 --> 00:12:25.700 They are actively trying to make us redundant. 00:12:25.899 --> 00:12:27.980 That's what that target means. And they are succeeding. 00:12:28.240 --> 00:12:31.600 By 2022, Hoogrecht analysis showed they had already 00:12:31.600 --> 00:12:35.100 reached 66 % self -sufficiency. And that number 00:12:35.100 --> 00:12:37.889 is demonstrably climbing year over year. So while 00:12:37.889 --> 00:12:39.809 we were seeing good component prices, they were 00:12:39.809 --> 00:12:42.070 concurrently building massive domestic processing 00:12:42.070 --> 00:12:44.649 capacity and increasing their domestic milk production. 00:12:44.889 --> 00:12:47.929 Exactly. This structural reality tells us that 00:12:47.929 --> 00:12:50.590 even if trade relations improve, the underlying 00:12:50.590 --> 00:12:53.389 need for U .S. dairy is shrinking by design. 00:12:53.750 --> 00:12:55.690 I mean, if you boil that down for the farmer, 00:12:55.889 --> 00:12:58.429 you're betting on a buyer who is actively building 00:12:58.429 --> 00:13:00.850 his own competing plant right next door. Why 00:13:00.850 --> 00:13:02.250 would you assume that buyer is going to stick 00:13:02.250 --> 00:13:04.289 with your product long term? Finally, the global 00:13:04.289 --> 00:13:06.289 economic reality pointed toward contraction. 00:13:06.809 --> 00:13:09.389 The Asian Development Bank projected that China's 00:13:09.389 --> 00:13:12.309 GDP growth would slow significantly from around 00:13:12.309 --> 00:13:16.450 8 % in 2021 down to a more modest, structurally 00:13:16.450 --> 00:13:21.509 sound 5 % by 2024 -2025. And 5 % GDP growth, 00:13:21.690 --> 00:13:24.750 while still good globally, means reduced consumer 00:13:24.750 --> 00:13:27.769 confidence and consumption. When disposable income 00:13:27.769 --> 00:13:30.009 tightens, what's the first thing that gets cut? 00:13:30.779 --> 00:13:33.000 Often it's the higher value imported specialty 00:13:33.000 --> 00:13:35.220 goods like certain cheeses or high -end components. 00:13:35.379 --> 00:13:37.779 It impacts consumption across the board. That's 00:13:37.779 --> 00:13:40.019 the comprehensive picture. We had the high of 00:13:40.019 --> 00:13:43.100 2021 -2022 because they were facing a feed emergency 00:13:43.100 --> 00:13:46.340 and fulfilling a two -year commitment. But lurking 00:13:46.340 --> 00:13:48.379 behind that peak were four structural factors 00:13:48.379 --> 00:13:51.419 guaranteeing a downturn. The end of the emergency, 00:13:51.679 --> 00:13:54.100 the expiration of the deal, their strategic goal 00:13:54.100 --> 00:13:57.039 to replace us, and a slowing economy. This is 00:13:57.039 --> 00:13:59.320 why forward -looking indicators, like their self 00:13:59.320 --> 00:14:01.539 -sufficiency goals and the hard stop on agreements, 00:14:01.779 --> 00:14:04.100 must override current performance when you are 00:14:04.100 --> 00:14:06.899 financing 10 - or 20 -year assets. You have to 00:14:06.899 --> 00:14:09.600 plan for the structural reality, not the cyclical 00:14:09.600 --> 00:14:11.980 spike. If you didn't factor in those four points 00:14:11.980 --> 00:14:14.639 in 2022, you were using historical data to make 00:14:14.639 --> 00:14:16.679 a future decision. And that's just a recipe for 00:14:16.679 --> 00:14:19.299 disaster. Let's follow the money now. The speed 00:14:19.299 --> 00:14:21.639 with which policy disruptions move from Washington 00:14:21.639 --> 00:14:24.740 or Beijing to the farm gate is astonishing and, 00:14:24.820 --> 00:14:29.549 well... It's an immediate, painful cascade. A 00:14:29.549 --> 00:14:32.210 dairy farmer in Idaho or New York doesn't need 00:14:32.210 --> 00:14:34.269 to read an economic analysis to know the market 00:14:34.269 --> 00:14:36.769 is tightening. They see it in the component price 00:14:36.769 --> 00:14:39.149 compression. They see it in their forward contract 00:14:39.149 --> 00:14:41.850 prices. Let's detail that tariff cascade, specifically 00:14:41.850 --> 00:14:45.110 focusing on the recent 2025 tariff escalation 00:14:45.110 --> 00:14:48.440 data that hit U .S. dairy. Retaliatory tariffs 00:14:48.440 --> 00:14:50.799 on U .S. dairy into China escalated rapidly, 00:14:51.039 --> 00:14:53.940 moving from an already painful 10 percent up 00:14:53.940 --> 00:14:56.600 to an utterly prohibitive 125 percent between 00:14:56.600 --> 00:15:00.019 February and April. 125 percent. That's not a 00:15:00.019 --> 00:15:02.820 tariff. That's a ban disguised as a tax. That 00:15:02.820 --> 00:15:04.860 means that your product suddenly is completely 00:15:04.860 --> 00:15:07.379 uncompetitive against a supplier from the EU, 00:15:07.720 --> 00:15:10.139 New Zealand or Australia. Who might be facing 00:15:10.139 --> 00:15:12.419 zero tariff or maybe just a single digit one. 00:15:12.460 --> 00:15:14.679 Exactly. You are priced entirely out of the market. 00:15:14.960 --> 00:15:17.139 And the market impacts were immediate and brutal, 00:15:17.279 --> 00:15:19.360 especially for specialized component manufacturers. 00:15:19.940 --> 00:15:23.080 First, the whey market contracted sharply. U 00:15:23.080 --> 00:15:25.240 .S. DEC data showed that China had been consuming 00:15:25.240 --> 00:15:29.419 roughly 42 % of U .S. whey exports. 42%. That 00:15:29.419 --> 00:15:32.429 is a monumental hole to fill. Whey, while often 00:15:32.429 --> 00:15:34.750 seen as a byproduct, is a huge margin driver, 00:15:34.970 --> 00:15:37.470 especially for large processors. It offsets raw 00:15:37.470 --> 00:15:40.309 milk costs. Losing nearly half that export market 00:15:40.309 --> 00:15:43.129 overnight means two things. Domestic supply backs 00:15:43.129 --> 00:15:46.649 up and prices for whey premiums crash. If you 00:15:46.649 --> 00:15:48.870 were counting on those higher component premiums 00:15:48.870 --> 00:15:51.429 in your milk check, you felt this loss immediately. 00:15:51.830 --> 00:15:54.909 And lactose faced a similar, if not worse, pressure 00:15:54.909 --> 00:15:58.440 point. China held roughly 72 % of the U .S. lactose 00:15:58.440 --> 00:16:01.720 export market share. Wait, 72 %? That's not diversification. 00:16:02.200 --> 00:16:04.659 Not at all. That's hyper -optimization for a 00:16:04.659 --> 00:16:08.039 single volatile market. It is. When that 125 00:16:08.039 --> 00:16:11.320 % CAREFOL went up, processors that were optimized 00:16:11.320 --> 00:16:13.659 specifically for that export stream were forced 00:16:13.659 --> 00:16:17.220 into immediate, painful, and often costly restructuring. 00:16:17.320 --> 00:16:19.679 They have to find new buyers or shift that product 00:16:19.679 --> 00:16:22.000 into lower -value domestic channels, or sometimes 00:16:22.000 --> 00:16:24.309 they have to dispose of it. The ripple effect 00:16:24.309 --> 00:16:27.830 is unavoidable. When major processors are restructuring 00:16:27.830 --> 00:16:30.389 and fighting to move massive surpluses of product, 00:16:30.549 --> 00:16:32.570 domestically product that used to go into high 00:16:32.570 --> 00:16:35.149 margin export contracts, they cannot possibly 00:16:35.149 --> 00:16:37.370 pay the same price for raw milk. They have to 00:16:37.370 --> 00:16:39.590 pass that cost of market closure back to the 00:16:39.590 --> 00:16:41.570 members and producers. That brings us to the 00:16:41.570 --> 00:16:44.889 final, quantified impact, which hits every producer 00:16:44.889 --> 00:16:47.620 regardless of their component mix. Following 00:16:47.620 --> 00:16:50.000 these trade -driven market contractions, the 00:16:50.000 --> 00:16:53.120 USDA had to revise its price forecasts downward. 00:16:53.580 --> 00:16:56.700 We saw Class III projections drop by about $0 00:16:56.700 --> 00:16:59.620 .35 per hundredweight, or hundred locked. Okay, 00:16:59.639 --> 00:17:02.080 let's quantify the loss, because long and $0 00:17:02.080 --> 00:17:04.960 .35 sounds like pocket change in a $20 price 00:17:04.960 --> 00:17:07.029 environment. But on a commercial scale, that 00:17:07.029 --> 00:17:09.369 is absolutely brutal to the bottom line. Let's 00:17:09.369 --> 00:17:10.809 walk the listener through the math so they can 00:17:10.809 --> 00:17:12.910 check it against their own operation. Absolutely. 00:17:12.970 --> 00:17:15.349 We're going to use the benchmark. A typical 1 00:17:15.349 --> 00:17:17.950 ,000 cow operation, we'll assume they produce 00:17:17.950 --> 00:17:21.200 around 26 ,000 pounds per cow annually. which 00:17:21.200 --> 00:17:23.099 is a standard benchmark for commercial operations. 00:17:23.420 --> 00:17:26.539 So 1 ,000 cows times 26 ,000 pounds means they're 00:17:26.539 --> 00:17:28.880 producing 26 million pounds of milk annually. 00:17:29.259 --> 00:17:32.019 Right. And since 100 weight is 100 pounds, we 00:17:32.019 --> 00:17:35.319 divide that by 100. That gives them 260 ,000 00:17:35.319 --> 00:17:37.299 hundredweight of production per year. Okay. And 00:17:37.299 --> 00:17:41.539 that $1 .35 drop in price. We multiply the $260 00:17:41.539 --> 00:17:45.160 ,000 apiece by $1 .35, and that calculation confirms 00:17:45.160 --> 00:17:48.220 the analysis. That $1 .35 reduction works out 00:17:48.220 --> 00:17:51.579 to roughly $91 ,000 in lost annual revenue for 00:17:51.579 --> 00:17:55.539 that single operation. $91 ,000. Stop and think 00:17:55.539 --> 00:17:56.839 about the weight of that number for a second. 00:17:56.900 --> 00:17:59.980 That is the cost of two or three brand new replacement 00:17:59.980 --> 00:18:03.539 heifers, or your entire annual budget for a major 00:18:03.539 --> 00:18:05.819 parlor maintenance upgrade. It could be your 00:18:05.819 --> 00:18:08.200 annual debt service payment on your new TMR mixer 00:18:08.200 --> 00:18:10.490 or parlor. That's the real world consequence 00:18:10.490 --> 00:18:13.329 of a trade gap that swings between 2 .7 percent 00:18:13.329 --> 00:18:15.869 and 77 percent delivery. And it gets worse because 00:18:15.869 --> 00:18:17.710 farms aren't just losing revenue. They're also 00:18:17.710 --> 00:18:19.910 getting hit on the expense side, often due to 00:18:19.910 --> 00:18:21.769 related trade policy. This is the double squeeze. 00:18:21.970 --> 00:18:24.890 Right. It is. Consider the very specific real 00:18:24.890 --> 00:18:27.289 world example of Half Full Dairy in upstate New 00:18:27.289 --> 00:18:31.829 York, a 3 ,600 cow operation run by A .J. Wormuth. 00:18:32.029 --> 00:18:34.109 They got hit by this exact double challenge. 00:18:34.809 --> 00:18:37.210 Tariffs on imported steel and aluminum added 00:18:37.210 --> 00:18:40.269 $21 ,000 to their barn renovation order, while 00:18:40.269 --> 00:18:42.630 milk revenues were simultaneously plummeting 00:18:42.630 --> 00:18:44.450 due to the export collapses we just discussed. 00:18:44.730 --> 00:18:46.750 So they're paying higher costs because of import 00:18:46.750 --> 00:18:48.809 tariffs and getting paid less because of export 00:18:48.809 --> 00:18:51.390 tariffs. That squeeze is absolutely suffocating. 00:18:51.589 --> 00:18:54.170 As Wormuth told reporters, they're facing a situation 00:18:54.170 --> 00:18:56.309 where they can't raise prices while expenses 00:18:56.309 --> 00:18:59.069 keep rising. This isn't just theory. This is 00:18:59.069 --> 00:19:01.730 cash flow destruction. And if we look long term, 00:19:01.910 --> 00:19:04.150 the implications are stark for the industry as 00:19:04.150 --> 00:19:06.339 a whole. The University of Wisconsin -Madison 00:19:06.339 --> 00:19:08.619 dairy economists projected that net farm income 00:19:08.619 --> 00:19:11.079 across the entire U .S. dairy industry could 00:19:11.079 --> 00:19:14.259 decline by $1 .6 billion on the low end. Billion 00:19:14.259 --> 00:19:17.799 with a B. And up to $7 .3 billion over the next 00:19:17.799 --> 00:19:20.720 four years due to sustained tariff disruptions 00:19:20.720 --> 00:19:24.200 and volatility. Individual farms could face income 00:19:24.200 --> 00:19:28.039 reductions of 25 % or more. This is why we absolutely 00:19:28.039 --> 00:19:30.740 must have a defensive strategy. You cannot simply 00:19:30.740 --> 00:19:33.019 trust the headlines when that kind of money is 00:19:33.019 --> 00:19:35.599 on the line. We've laid out the structural problem. 00:19:35.880 --> 00:19:38.519 Now let's tackle the biggest myth in the dairy 00:19:38.519 --> 00:19:40.539 industry. Let's do it. The common assumption 00:19:40.539 --> 00:19:42.960 among dairy farmers is that cooperative membership 00:19:42.960 --> 00:19:46.000 provides meaningful insulation. The thinking 00:19:46.000 --> 00:19:49.240 goes, if the global market shifts, my co -op 00:19:49.240 --> 00:19:51.259 is diversified. They have deep international 00:19:51.259 --> 00:19:53.460 relationships and multiple processing plants. 00:19:53.720 --> 00:19:57.279 I'll be okay. Is that confidence warranted? That's 00:19:57.279 --> 00:19:59.359 the question on everyone's mind. That confidence, 00:19:59.440 --> 00:20:01.480 unfortunately, is being systematically undermined 00:20:01.480 --> 00:20:03.769 by the data. Cooperatives face the same structural 00:20:03.769 --> 00:20:06.130 pressures as individual farms, but often with 00:20:06.130 --> 00:20:08.329 less flexibility to respond quickly and aggressively 00:20:08.329 --> 00:20:10.809 than a private investor -owned processor. Less 00:20:10.809 --> 00:20:13.170 flexibility, but they have massive scale. They 00:20:13.170 --> 00:20:15.750 should be able to weather any storm better than 00:20:15.750 --> 00:20:18.490 a small regional plant. You'd think so, but they 00:20:18.490 --> 00:20:20.930 are caught in what the source material accurately 00:20:20.930 --> 00:20:24.190 terms the cooperative bind. They are chartered. 00:20:24.190 --> 00:20:26.970 It's their fundamental legal obligation to their 00:20:26.970 --> 00:20:29.990 members to accept all member milk regardless 00:20:29.990 --> 00:20:32.930 of market conditions. Think about the strategic 00:20:32.930 --> 00:20:35.109 difference. A private processor can decide to 00:20:35.109 --> 00:20:38.009 idle a plant, pivot markets aggressively to manage 00:20:38.009 --> 00:20:41.130 risk, or even cut supply contracts. But a co 00:20:41.130 --> 00:20:43.569 -op cannot simply tell its member owners, sorry, 00:20:43.690 --> 00:20:45.150 we don't need your milk this month because our 00:20:45.150 --> 00:20:47.549 Chinese lactose contract fell through. Exactly. 00:20:47.789 --> 00:20:50.470 When processing capacity is built for those high 00:20:50.470 --> 00:20:53.809 peak volumes, the optimism of 2021 and 2022. 00:20:54.369 --> 00:20:57.230 But global deliveries decline rapidly because 00:20:57.230 --> 00:21:00.140 of a trade gap. Co -ops suddenly face rising 00:21:00.140 --> 00:21:02.680 per -unit costs. They're running plants half 00:21:02.680 --> 00:21:04.859 -empty. Right. They are processing milk at a 00:21:04.859 --> 00:21:07.759 loss, often substantial losses, just to fulfill 00:21:07.759 --> 00:21:10.299 their member obligations. And unlike private 00:21:10.299 --> 00:21:12.640 companies who can exit those unprofitable markets 00:21:12.640 --> 00:21:15.720 quickly, cooperatives are bound by charter. They 00:21:15.720 --> 00:21:17.880 absorb those massive losses to try and maintain 00:21:17.880 --> 00:21:20.380 a competitive member price, and that erodes member 00:21:20.380 --> 00:21:23.039 equity over time. So the farmer feels insulated 00:21:23.039 --> 00:21:25.460 in the short term, but the structural cost is 00:21:25.460 --> 00:21:27.880 quietly eating away at the co -op's balance sheet. 00:21:28.119 --> 00:21:30.380 Precisely. And we've seen the results of this 00:21:30.380 --> 00:21:33.160 structural stress play out dramatically across 00:21:33.160 --> 00:21:35.259 the world recently. Give us the big examples. 00:21:35.339 --> 00:21:37.380 I think listeners need to hear this data to understand 00:21:37.380 --> 00:21:40.059 this is an abstract risk. This is reality for 00:21:40.059 --> 00:21:42.759 the biggest players. Look at Friesland Campina, 00:21:42.859 --> 00:21:45.819 a massive global co -op based in the Netherlands. 00:21:46.059 --> 00:21:50.299 They reported a staggering 149 million loss in 00:21:50.299 --> 00:21:56.210 2023. 149 million euros. Their partner. Milkobel 00:21:56.210 --> 00:21:59.710 posted an $11 .6 million loss. The analysis clearly 00:21:59.710 --> 00:22:01.509 states these were structural challenges driven 00:22:01.509 --> 00:22:04.150 by market dynamics, the same dynamics we discussed. 00:22:04.450 --> 00:22:07.450 Rising domestic costs, Chinese self -sufficiency, 00:22:07.569 --> 00:22:10.549 and general European market contraction. The 00:22:10.549 --> 00:22:12.269 market disappeared, and they were legally and 00:22:12.269 --> 00:22:14.829 structurally bound to continue processing. That's 00:22:14.829 --> 00:22:17.470 150 million reasons to be skeptical of co -op 00:22:17.470 --> 00:22:20.329 insulation. When those losses become unsustainable, 00:22:20.410 --> 00:22:23.589 the only path forward is massive, painful restructuring, 00:22:23.670 --> 00:22:26.369 often leading to asset sales. Which is exactly 00:22:26.369 --> 00:22:28.390 what happened with Fonterra, the global giant 00:22:28.390 --> 00:22:31.410 based in New Zealand. After years of struggling 00:22:31.410 --> 00:22:33.930 with market volatility and structural inefficiencies, 00:22:34.130 --> 00:22:36.750 their members voted 88%, a massive majority, 00:22:37.029 --> 00:22:39.690 to sell the consumer operations to Lactalis this 00:22:39.690 --> 00:22:42.490 past October. That is a desperate and drastic 00:22:42.490 --> 00:22:45.940 fundamental move. When 88 % of your member owners 00:22:45.940 --> 00:22:49.539 vote to sell off core legacy assets, it reflects 00:22:49.539 --> 00:22:52.440 an undeniable need to adjust to unsustainable 00:22:52.440 --> 00:22:55.099 structural losses. They are sacrificing long 00:22:55.099 --> 00:22:58.539 -term strategic control just to survive the present 00:22:58.539 --> 00:23:01.420 strain. Rebank dairy analyst Emma Higgins put 00:23:01.420 --> 00:23:03.940 the challenge directly. The problems for dairy 00:23:03.940 --> 00:23:06.140 cooperatives are complex because lower milk intake 00:23:06.140 --> 00:23:08.160 generally coincides with members withdrawing 00:23:08.160 --> 00:23:10.400 capital, accelerating the financial strain. So 00:23:10.400 --> 00:23:12.980 it's a double whammy. It is. If members are pulling 00:23:12.980 --> 00:23:14.880 equity out while the co -op is losing millions 00:23:14.880 --> 00:23:17.099 processing surplus milk, it creates a vicious, 00:23:17.279 --> 00:23:20.490 fast -moving downward cycle. So the key takeaway 00:23:20.490 --> 00:23:22.630 here is that your co -op's balance sheet health 00:23:22.630 --> 00:23:25.809 directly affects your returns. If they're absorbing 00:23:25.809 --> 00:23:28.529 massive structural losses trying to sell product 00:23:28.529 --> 00:23:31.710 into non -existent or high tariff markets, that 00:23:31.710 --> 00:23:33.950 financial pressure eventually comes back to your 00:23:33.950 --> 00:23:36.170 milk check in the form of lower competitive prices, 00:23:36.490 --> 00:23:39.190 reduced patronage, or capital calls. That's why 00:23:39.190 --> 00:23:41.369 you, the member owner, need to be proactive. 00:23:41.980 --> 00:23:44.579 You need to start asking tough, direct questions 00:23:44.579 --> 00:23:47.500 at the next annual meeting about their processing 00:23:47.500 --> 00:23:50.200 capacity utilization versus actual milk intake. 00:23:50.279 --> 00:23:52.079 Are they running full capacity? Are they sitting 00:23:52.079 --> 00:23:54.970 on surplus inventory? But we should provide the 00:23:54.970 --> 00:23:57.529 counterpoint to show the model isn't doomed. 00:23:57.869 --> 00:24:00.829 The source material mentions AgriPoor, which 00:24:00.829 --> 00:24:03.230 achieved a significant turnaround by aggressively 00:24:03.230 --> 00:24:05.529 restructuring its debt and pivoting towards high 00:24:05.529 --> 00:24:08.250 -margin segments like specialty cheese. The co 00:24:08.250 --> 00:24:10.910 -op model can be successful, but it is not automatically 00:24:10.910 --> 00:24:13.369 insulated from the trade promise gap. Success 00:24:13.369 --> 00:24:16.109 depends entirely on proactive, agile management 00:24:16.109 --> 00:24:18.470 that asks the tough questions before the losses 00:24:18.470 --> 00:24:22.109 hit $149 million. Agreed. Proactive management 00:24:22.109 --> 00:24:25.259 is key. But the onus is on the farmer, the member 00:24:25.259 --> 00:24:27.539 owner, to demand that transparency and strategy. 00:24:28.400 --> 00:24:30.859 Okay, here we go. We've established the problem. 00:24:31.019 --> 00:24:34.000 The gap between promise at 100 % and delivery 00:24:34.000 --> 00:24:38.359 somewhere between 2 .7 % and 77%. The core principle 00:24:38.359 --> 00:24:40.440 that must guide your decision -making is this. 00:24:40.779 --> 00:24:43.160 Until the physical product ships and the actual 00:24:43.160 --> 00:24:45.599 money clears the bank, a trade announcement is 00:24:45.599 --> 00:24:48.380 a political sandbite, not market reality. That's 00:24:48.380 --> 00:24:50.420 the mantra. Don't bet the farm on a political 00:24:50.420 --> 00:24:52.930 declaration. We need a defensive playbook, a 00:24:52.930 --> 00:24:54.849 three -step risk mitigation framework we can 00:24:54.849 --> 00:24:57.569 execute within 48 hours of any major market -moving 00:24:57.569 --> 00:25:00.190 trade announcement. This is about turning skepticism 00:25:00.190 --> 00:25:03.130 into an operational advantage. Step one, check 00:25:03.130 --> 00:25:04.769 the history. This takes 30 minutes. You need 00:25:04.769 --> 00:25:06.690 to establish a baseline of realism immediately. 00:25:06.990 --> 00:25:10.289 You cannot accept the 100 % promise. Use objective 00:25:10.289 --> 00:25:12.609 third -party data, specifically trackers like 00:25:12.609 --> 00:25:14.970 the Peterson Institutes, which diligently maintain 00:25:14.970 --> 00:25:17.630 promise versus actual purchases, especially for 00:25:17.630 --> 00:25:20.759 phase one. Why is this so important? Because 00:25:20.759 --> 00:25:23.140 that historical data gives you your realistic 00:25:23.140 --> 00:25:25.619 planning boundaries. We know phase one ran at 00:25:25.619 --> 00:25:29.200 77 % execution for agriculture, but the extreme 00:25:29.200 --> 00:25:32.940 low end was 2 .7%. If a new deal is announced, 00:25:33.140 --> 00:25:35.319 you should immediately assume a delivery rate 00:25:35.319 --> 00:25:38.460 closer to the 77 % max and be prepared for the 00:25:38.460 --> 00:25:40.960 possibility of the low end. The calculation is 00:25:40.960 --> 00:25:43.990 simple but critical. Take the new promise, multiply 00:25:43.990 --> 00:25:46.829 it by the historical execution rate, say 70 % 00:25:46.829 --> 00:25:48.849 if you're trying to be slightly optimistic, or 00:25:48.849 --> 00:25:51.029 50 % if you're being defensive, and that equals 00:25:51.029 --> 00:25:53.630 your realistic delivery estimate. If your viability 00:25:53.630 --> 00:25:56.210 depends on that promise delivering 100 % and 00:25:56.210 --> 00:25:58.890 you only forecast 70%, you already know you are 00:25:58.890 --> 00:26:01.289 taking a 30 % risk based purely on historical 00:26:01.289 --> 00:26:04.660 underperformance. Step 2. Model for Zero This 00:26:04.660 --> 00:26:06.559 will take one to two hours. This is perhaps the 00:26:06.559 --> 00:26:08.380 most contrarian step, but it is the critical 00:26:08.380 --> 00:26:10.980 financial defense. Before you make any major 00:26:10.980 --> 00:26:13.200 financial commitment, no new equipment, no debt 00:26:13.200 --> 00:26:15.380 restructuring, no expansion decisions, you must 00:26:15.380 --> 00:26:17.660 stress test your 12 -month cash flow, assuming 00:26:17.660 --> 00:26:20.119 the announced yield contributes nothing. Zero. 00:26:20.339 --> 00:26:23.119 This forces the conversation. If the viability 00:26:23.119 --> 00:26:25.059 of your business plan depends entirely on this 00:26:25.059 --> 00:26:27.180 deal working, that's a conversation you need 00:26:27.180 --> 00:26:28.759 to have with your accountant and lender right 00:26:28.759 --> 00:26:31.640 now before the market hype fades. You need to 00:26:31.640 --> 00:26:34.640 verify crucial metrics. Specifically, you need 00:26:34.640 --> 00:26:37.240 to check your debt service coverage ratio, or 00:26:37.240 --> 00:26:40.339 DSCR. Farm credit guidelines typically target 00:26:40.339 --> 00:26:44.160 a DSCR of 1 .25 or higher. In plain English, 00:26:44.359 --> 00:26:46.900 that means for every dollar you owe in debt payments, 00:26:47.160 --> 00:26:50.920 your operation must generate $1 .25 in cash flow 00:26:50.920 --> 00:26:53.539 to cover it and have some margin left over. If 00:26:53.539 --> 00:26:55.660 the revenue from the headline promise fails to 00:26:55.660 --> 00:26:58.180 materialize, what happens to that ratio? Does 00:26:58.180 --> 00:27:01.220 your DSCR drop below that critical 1 .25 threshold? 00:27:01.519 --> 00:27:04.259 If it does, you need to pull back on debt immediately. 00:27:04.680 --> 00:27:06.640 And you must know how long your working capital 00:27:06.640 --> 00:27:09.019 can sustain reduced milk prices. If that sudden 00:27:09.019 --> 00:27:12.109 $0 .35 centile at -sunny -at drop hits you, The 00:27:12.109 --> 00:27:15.210 $91 ,000 annual hit? How many months can you 00:27:15.210 --> 00:27:16.769 absorb that without running out of operating 00:27:16.769 --> 00:27:19.430 cash or having to liquidate assets? Documenting 00:27:19.430 --> 00:27:21.029 this analysis strengthens your position with 00:27:21.029 --> 00:27:22.730 the lender, regardless of the decision you make. 00:27:22.970 --> 00:27:27.029 Step 3. Verify DMC status. This takes 45 minutes. 00:27:27.309 --> 00:27:30.150 This is a time -sensitive tactical move that 00:27:30.150 --> 00:27:33.549 can save your farm from that $91 ,000 loss. The 00:27:33.549 --> 00:27:36.730 timing trap is so real. Trade optimism spikes, 00:27:36.950 --> 00:27:38.950 and farmers often skip or delay dairy margin 00:27:38.950 --> 00:27:41.319 coverage enrollment. They think, Prices look 00:27:41.319 --> 00:27:43.519 great. Why spend the premium? We're covered by 00:27:43.519 --> 00:27:46.000 this new global demand. But when prices fall, 00:27:46.259 --> 00:27:49.900 because the deal only delivers 2 .7%, the enrollment 00:27:49.900 --> 00:27:52.859 window is closed. For example, 2025 enrollment 00:27:52.859 --> 00:27:56.039 might close March 31st. If the prices drop in 00:27:56.039 --> 00:27:58.619 July, you have no safety net. You have to contact 00:27:58.619 --> 00:28:01.059 your local FSA office and verify your enrollment 00:28:01.059 --> 00:28:03.259 status immediately. And if the window is open, 00:28:03.400 --> 00:28:06.269 enroll. DMC is so critical because it depends 00:28:06.269 --> 00:28:08.730 on actual market prices and feed costs, not on 00:28:08.730 --> 00:28:11.210 a politician's promise. It provides reliable 00:28:11.210 --> 00:28:13.170 margin protection when farm margins compress, 00:28:13.289 --> 00:28:15.470 and that protection is most valuable when purchased 00:28:15.470 --> 00:28:17.549 before you think you need it. It is the cheapest 00:28:17.549 --> 00:28:19.190 insurance policy against the promise delivery 00:28:19.190 --> 00:28:22.430 gap. Beyond the 48 -hour plan, smart operations 00:28:22.430 --> 00:28:24.589 are integrating these principles into their long 00:28:24.589 --> 00:28:27.250 -term strategies. They are maintaining robust 00:28:27.250 --> 00:28:30.490 working capital flexibility by keeping conservative 00:28:30.490 --> 00:28:33.700 debt -to -asset ratios. It's not pessimism. It's 00:28:33.700 --> 00:28:35.859 room to maneuver when the global forces inevitably 00:28:35.859 --> 00:28:38.700 shift without facing forced asset liquidation. 00:28:38.740 --> 00:28:41.420 And critically, they are exploring market diversification. 00:28:42.160 --> 00:28:44.779 direct sales, specialty products like organic 00:28:44.779 --> 00:28:48.240 or A2, or developing relationships with regional 00:28:48.240 --> 00:28:51.599 non -export dependent processors, this creates 00:28:51.599 --> 00:28:53.740 optionality, which is far more valuable than 00:28:53.740 --> 00:28:56.400 maximizing every metric in a single volatile 00:28:56.400 --> 00:28:59.220 commodity export channel. Optionality means you 00:28:59.220 --> 00:29:01.700 have choices when 42 % of your way market disappears 00:29:01.700 --> 00:29:03.920 overnight. Right. A farmer just finished milking 00:29:03.920 --> 00:29:06.079 and is driving to the feed store. They need to 00:29:06.079 --> 00:29:08.319 turn this skepticism into action. What are the 00:29:08.319 --> 00:29:09.859 three things they need to remember from today? 00:29:10.000 --> 00:29:11.680 We need to give them a takeaway that impacts 00:29:11.680 --> 00:29:13.720 their actions this week, next month, and next 00:29:13.720 --> 00:29:15.900 year. This is the real mission. We need to frame 00:29:15.900 --> 00:29:18.079 this not as doom and gloom, but as strategic 00:29:18.079 --> 00:29:21.420 clarity. First takeaway, trade promises are discounted. 00:29:21.440 --> 00:29:23.880 The gap is real, somewhere between 2 .7 % and 00:29:23.880 --> 00:29:27.339 77%. So the immediate action this week, if a 00:29:27.339 --> 00:29:29.579 new deal is announced, do not change your feed, 00:29:29.680 --> 00:29:32.440 ordering, or inventory based on optimism. Check 00:29:32.440 --> 00:29:34.680 the historical execution rate immediately using 00:29:34.680 --> 00:29:37.180 that phase one data. Your medium -term strategy 00:29:37.180 --> 00:29:40.140 over the next three to six months is to recalibrate 00:29:40.140 --> 00:29:42.559 all financial projections using a conservative 00:29:42.559 --> 00:29:46.339 execution rate, say 70 % max, for any announced 00:29:46.339 --> 00:29:49.160 trade -dependent revenue streams. Adjust your 00:29:49.160 --> 00:29:51.839 hedging based on this lower realistic figure. 00:29:52.059 --> 00:29:53.980 Ip long -term positioning over the next one to 00:29:53.980 --> 00:29:56.660 two years. Stress test any major capital investment 00:29:56.660 --> 00:29:58.859 or expansion decision by modeling profitability, 00:29:59.180 --> 00:30:01.500 assuming zero benefit from any announced trade 00:30:01.500 --> 00:30:03.839 deal. Make sure the project stands on domestic 00:30:03.839 --> 00:30:06.730 demand alone. Okay, takeaway number two, secure 00:30:06.730 --> 00:30:09.690 your safety net. DMC doesn't rely on promises. 00:30:10.089 --> 00:30:12.130 Immediate action this week. Contact your local 00:30:12.130 --> 00:30:14.730 FSA office today and verify your dairy margin 00:30:14.730 --> 00:30:17.130 coverage enrollment status. If the window is 00:30:17.130 --> 00:30:19.569 open, enroll immediately to protect against margin 00:30:19.569 --> 00:30:22.529 collapse. Medium term, three to six months. Develop 00:30:22.529 --> 00:30:25.009 a long -term risk management plan that prioritizes 00:30:25.009 --> 00:30:27.390 margin protection programs like DMC and forward 00:30:27.390 --> 00:30:29.569 hedging over speculating on commodity prices 00:30:29.569 --> 00:30:32.490 driven by geopolitical headlines. And long term, 00:30:32.589 --> 00:30:35.539 one to two years. Maintain robust working capital 00:30:35.539 --> 00:30:37.839 flexibility and conservative debt -to -asset 00:30:37.839 --> 00:30:41.140 ratios. This is how you absorb potential $91 00:30:41.140 --> 00:30:44.740 ,000 annual losses from price drops without resorting 00:30:44.740 --> 00:30:47.079 to distress sales. Finally, takeaway number three, 00:30:47.259 --> 00:30:50.059 question the baseline. Remember... peaks aren't 00:30:50.059 --> 00:30:52.740 floors. Immediate action for this week. Request 00:30:52.740 --> 00:30:54.380 the most recent financial statement from your 00:30:54.380 --> 00:30:57.079 cooperative. Ask direct, documented questions 00:30:57.079 --> 00:31:00.019 about their processing capacity utilization versus 00:31:00.019 --> 00:31:02.940 actual milk intake volume. Medium term, three 00:31:02.940 --> 00:31:05.599 to six months out. Investigate market diversification 00:31:05.599 --> 00:31:08.279 or specialty production options A2, organic, 00:31:08.380 --> 00:31:10.920 regional, to reduce reliance on volatile commodity 00:31:10.920 --> 00:31:12.980 export channels and counter the risk of market 00:31:12.980 --> 00:31:16.099 closure, like that 72 % lactose dependence. And 00:31:16.099 --> 00:31:18.180 long -term positioning. for the next one to two 00:31:18.180 --> 00:31:20.680 years. Analyze the global structural context, 00:31:20.880 --> 00:31:24.400 ASF recovery completion, China's 70 % self -sufficiency 00:31:24.400 --> 00:31:27.279 goals, GDP forecasts when making multi -year 00:31:27.279 --> 00:31:29.700 capital investment decisions. You need to prioritize 00:31:29.700 --> 00:31:32.819 optionality over maximizing every metric in a 00:31:32.819 --> 00:31:35.460 single export channel. That distinction between 00:31:35.460 --> 00:31:37.819 immediate reaction and long -term strategy is 00:31:37.819 --> 00:31:40.920 key. The immediate action is purely defensive, 00:31:41.339 --> 00:31:44.000 discounting the hype and verifying your safety 00:31:44.000 --> 00:31:46.750 nets. And the medium and long -term actions are 00:31:46.750 --> 00:31:50.130 offensive building, building a structurally resilient 00:31:50.130 --> 00:31:52.529 business that doesn't rely on foreign policy 00:31:52.529 --> 00:31:55.130 compliance to succeed. We covered a lot of ground 00:31:55.130 --> 00:31:57.970 today, from the structural failures of high -profile 00:31:57.970 --> 00:31:59.910 trade agreements to the financial instability 00:31:59.910 --> 00:32:02.789 they create right at the farm gate. The very 00:32:02.789 --> 00:32:05.089 fact that modern dairy farmers need a rigorous 00:32:05.089 --> 00:32:07.309 defensive playbook for government trade promises 00:32:07.309 --> 00:32:09.349 tells you everything you need to know about the 00:32:09.349 --> 00:32:12.509 system we operate in. We have to be our own best 00:32:12.509 --> 00:32:15.319 financial defense. And until that system changes, 00:32:15.460 --> 00:32:17.619 until those announcements actually match delivery, 00:32:17.940 --> 00:32:20.559 we have to assume that the gap is real and the 00:32:20.559 --> 00:32:24.140 potential $91 ,000 annual cost is real. Don't 00:32:24.140 --> 00:32:26.460 let headline optimism cost you your working capital 00:32:26.460 --> 00:32:29.099 or your chance at margin protection. This has 00:32:29.099 --> 00:32:31.019 been another deep dive from The Bullvine Podcast. 00:32:31.559 --> 00:32:33.420 For more straight -talking industry analysis 00:32:33.420 --> 00:32:35.519 and to see the links to the Peterson Institute 00:32:35.519 --> 00:32:38.920 tracker we discussed, head to www .thebullvine 00:32:38.920 --> 00:32:42.509 .com. Subscribe wherever you get podcasts. we're 00:32:42.509 --> 00:32:44.990 out with new episodes every day upcoming topics 00:32:44.990 --> 00:32:47.289 will be diving into the real roi of genomics 00:32:47.289 --> 00:32:49.529 testing and whether the next generation robotics 00:32:49.529 --> 00:32:52.170 is finally priced for small operations until 00:32:52.170 --> 00:32:54.690 next time remember optionality is the only real 00:32:54.690 --> 00:32:57.230 hedge against geopolitical chaos and never bet 00:32:57.230 --> 00:32:58.230 the farm on a press release