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 --> 00:01:03.359 we're sparking Welcome back to the Bullvine Podcast, 00:01:03.780 --> 00:01:05.780 where we cut through dairy industry noise to 00:01:05.780 --> 00:01:07.920 get you the insights that actually matter for 00:01:07.920 --> 00:01:11.359 your operation. And today, we're diving deep 00:01:11.359 --> 00:01:14.260 into a feature piece that's got some serious 00:01:14.260 --> 00:01:17.219 buzz. This one's got layers that'll make every 00:01:17.219 --> 00:01:19.920 farmer rethink their approach to genetics and 00:01:19.920 --> 00:01:45.180 growth strategy for the next five years. broke 00:01:45.180 --> 00:01:48.180 ground in 2025. It really does sound like we 00:01:48.180 --> 00:01:50.620 should be taking a victory lap. It does. But 00:01:50.620 --> 00:01:52.439 that's the danger, isn't it? When I read through 00:01:52.439 --> 00:01:54.379 this analysis, it didn't feel like a celebration. 00:01:54.719 --> 00:01:56.640 It felt more like a warning flare shot across 00:01:56.640 --> 00:01:59.060 the bow of the entire industry. Because the core 00:01:59.060 --> 00:02:01.870 argument here is that all these wins... They're 00:02:01.870 --> 00:02:03.650 basically built on sand. They don't actually 00:02:03.650 --> 00:02:07.049 solve the real underlying structural problems. 00:02:07.109 --> 00:02:09.050 Right. The piece argues that these successes 00:02:09.050 --> 00:02:12.349 are being completely undermined by three specific 00:02:12.349 --> 00:02:15.169 forces that are all colliding at the same time. 00:02:15.270 --> 00:02:17.569 And they're not separate issues. That's the key. 00:02:17.689 --> 00:02:20.490 They all interact. So you have force number one, 00:02:20.509 --> 00:02:23.550 which is that 800 ,000 head heifer deficit. Right. 00:02:23.650 --> 00:02:25.629 That's a biological problem you can't just throw 00:02:25.629 --> 00:02:27.949 money at. Right. Then you have the second force, 00:02:28.110 --> 00:02:31.330 the massive processor overcapacity driven by 00:02:31.330 --> 00:02:33.789 that $11 billion we just mentioned. And third? 00:02:33.949 --> 00:02:37.819 The FMMO reform. It permanently repriced what 00:02:37.819 --> 00:02:40.800 quality milk actually is by changing those component 00:02:40.800 --> 00:02:43.020 benchmarks. And what's really fascinating and 00:02:43.020 --> 00:02:45.699 frankly a little scary is that the analysis says 00:02:45.699 --> 00:02:48.460 these forces are already widening the gap between 00:02:48.460 --> 00:02:50.479 the farms that get this and the ones that don't. 00:02:50.479 --> 00:02:52.620 We're not talking pennies either. No, we're talking 00:02:52.620 --> 00:02:55.080 spreads that could be over a dollar per hundredweight. 00:02:55.240 --> 00:02:58.460 A dollar. A dollar spread day in and day out 00:02:58.460 --> 00:03:01.099 for three years on every single hundredweight 00:03:01.099 --> 00:03:03.490 you ship. I mean, that's the difference between 00:03:03.490 --> 00:03:06.189 refinancing the farm and having a liquidation 00:03:06.189 --> 00:03:08.409 sale. And the timing here is what makes it so 00:03:08.409 --> 00:03:10.889 critical. The paper is crystal clear on this. 00:03:11.129 --> 00:03:14.770 The window to gain leverage, to rebuild your 00:03:14.770 --> 00:03:17.129 genetics, to lock in a good deal with your processor. 00:03:17.349 --> 00:03:20.439 That window is narrow. It slams shut after 2027. 00:03:20.680 --> 00:03:22.659 The second that heifer shortage corrects itself, 00:03:22.840 --> 00:03:24.939 all that leverage just flips right back to the 00:03:24.939 --> 00:03:27.719 processor. Exactly. So our mission today is pretty 00:03:27.719 --> 00:03:29.439 straightforward. We're going to connect all the 00:03:29.439 --> 00:03:31.879 forces laid out in this analysis. We'll map out 00:03:31.879 --> 00:03:34.780 the three viable paths a farmer can take and 00:03:34.780 --> 00:03:37.319 give you a framework to make decisions in this 00:03:37.319 --> 00:03:40.000 really narrow window. We're taking that celebratory 00:03:40.000 --> 00:03:41.840 industry narrative and turning it completely 00:03:41.840 --> 00:03:44.280 inside out. We're going from press releases to 00:03:44.280 --> 00:03:48.120 a real hard balance sheet reality check. So let's 00:03:48.120 --> 00:03:51.060 dive in with the biggest constraint of all. The 00:03:51.060 --> 00:03:52.919 simple fact that we don't have enough cows. Let's 00:03:52.919 --> 00:03:55.539 do it. So this is the real choke point, isn't 00:03:55.539 --> 00:03:57.819 it? Because you can buy steel, you can buy feed. 00:03:58.180 --> 00:04:00.419 Capital can solve a lot of problems. But you 00:04:00.419 --> 00:04:02.900 can't pay biology to speed up. And that $800 00:04:02.900 --> 00:04:06.319 ,000 head heifer deficit, the analysis says it 00:04:06.319 --> 00:04:08.520 is absolutely locked in. There's no escaping 00:04:08.520 --> 00:04:10.500 it. It's locked in because the decisions that 00:04:10.500 --> 00:04:12.219 caused it already happened. They happened back 00:04:12.219 --> 00:04:16.120 in 2022 and 2023. Right. That's the tough lesson 00:04:16.120 --> 00:04:18.860 in dairy, you know. Today's shortage was baked 00:04:18.860 --> 00:04:21.000 in by breeding decisions made two years ago. 00:04:21.259 --> 00:04:24.360 The USDA cattle inventory report from January 00:04:24.360 --> 00:04:27.920 25 confirmed it. Dairy replacement numbers dropped 00:04:27.920 --> 00:04:31.000 to a shocking 3 .9 million head. I got to put 00:04:31.000 --> 00:04:34.519 that in context. 3 .9 million. That's down almost 00:04:34.519 --> 00:04:38.120 18 percent from 2018 levels. Yeah. That's not 00:04:38.120 --> 00:04:40.680 just a little dip in the cycle. That is a structural 00:04:40.680 --> 00:04:43.120 gut punch to the whole replacement pool. It is. 00:04:43.199 --> 00:04:44.959 And Coal Bank's modeling shows that number is 00:04:44.959 --> 00:04:46.920 going to keep shrinking or at best stay flat 00:04:46.920 --> 00:04:49.259 for the next two years. We won't even start to 00:04:49.259 --> 00:04:52.519 see a real rebound until late 2027. So that $800 00:04:52.519 --> 00:04:55.139 ,000 deficit isn't some forecast. It's the reality 00:04:55.139 --> 00:04:57.540 of heifers that just weren't born. Exactly. And 00:04:57.540 --> 00:04:59.639 what drove those decisions? It was a short -term 00:04:59.639 --> 00:05:03.699 cash decision that honestly... Oh, it was simple 00:05:03.699 --> 00:05:05.920 economics during a really high -cost period. 00:05:06.439 --> 00:05:08.740 Farmers just looked at the prices. Right. They 00:05:08.740 --> 00:05:10.879 were breeding 60, sometimes 70 percent of their 00:05:10.879 --> 00:05:13.480 herd to beef semen because those beef on dairy 00:05:13.480 --> 00:05:16.819 calves were bringing in a huge premium. We're 00:05:16.819 --> 00:05:20.180 talking $1 ,200, even $1 ,800 a calf. And a straight 00:05:20.180 --> 00:05:22.860 dairy bull calf was what, 50 bucks? 50 bucks 00:05:22.860 --> 00:05:25.000 if you were lucky. I remember hearing guys say, 00:05:25.160 --> 00:05:29.100 I can't afford not to breed to beef. Sure. For 00:05:29.100 --> 00:05:31.790 a big operation, that's... Hundreds of thousands 00:05:31.790 --> 00:05:34.970 of dollars in immediate cash flow. It is. But 00:05:34.970 --> 00:05:37.790 those short -term choices created this long -term 00:05:37.790 --> 00:05:41.110 hole we're all living in now. And this just slams 00:05:41.110 --> 00:05:43.470 home that brutal timeline. Even if you switch 00:05:43.470 --> 00:05:46.029 back to 100 % sex dairy semen today. The clock 00:05:46.029 --> 00:05:48.910 is ticking. You have a biological reality of 00:05:48.910 --> 00:05:52.069 27 months to first calving. Nine months gestation 00:05:52.069 --> 00:05:55.449 plus, what, 18 to 24 months to freshen? Best 00:05:55.449 --> 00:05:58.209 case. So the supply won't feel healthy again 00:05:58.209 --> 00:06:01.379 until... mid to late 2028. You just can't rush 00:06:01.379 --> 00:06:03.660 it. So let's just scale that for a second. If 00:06:03.660 --> 00:06:06.500 you're running, say, an 800 cow herd, you need 00:06:06.500 --> 00:06:10.120 around 280 to 300 heifer calves a year for a 00:06:10.120 --> 00:06:12.819 normal replacement rate. Right, about 35%. If 00:06:12.819 --> 00:06:14.639 you dropped your dairy breeding down to just 00:06:14.639 --> 00:06:16.759 30 % of the herd because you were heavy on beef, 00:06:16.959 --> 00:06:20.079 you might have only banked 80 or 90 dairy heifers 00:06:20.079 --> 00:06:22.019 that year. That's a 200 heifer hole for just 00:06:22.019 --> 00:06:24.680 one farm for one year. Now multiply that across 00:06:24.680 --> 00:06:27.839 9 million cows nationally. You see how we got 00:06:27.839 --> 00:06:30.420 to an 800 ,000 head deficit really fast. And 00:06:30.420 --> 00:06:32.180 this is where it really hits home on the farm. 00:06:32.300 --> 00:06:34.939 It's why the culling math is completely flipped 00:06:34.939 --> 00:06:37.879 on its head. This shortage is forcing good farmers 00:06:37.879 --> 00:06:40.379 to make, you know, what are really uneconomic 00:06:40.379 --> 00:06:42.980 decisions. Okay, so talk to me about that marginal 00:06:42.980 --> 00:06:45.199 cow. The one you've been meaning to ship for 00:06:45.199 --> 00:06:47.879 six months, chronic mastitis, always a high sell 00:06:47.879 --> 00:06:50.779 count. That cow. Right now, she's still worth 00:06:50.779 --> 00:06:53.750 decent money as a cull cow. Maybe... $2 ,200, 00:06:53.970 --> 00:06:57.149 $2 ,400. Which sounds pretty good. It does, but 00:06:57.149 --> 00:06:59.470 you can't look at that number by itself. If you 00:06:59.470 --> 00:07:01.649 ship her, her replacement is now going to cost 00:07:01.649 --> 00:07:05.230 you over $3 ,000. Maybe $3 ,500 if you want good 00:07:05.230 --> 00:07:08.009 component genetics. Exactly. So you ship her 00:07:08.009 --> 00:07:11.790 and you are instantly $600 to, what, $1 ,300 00:07:11.790 --> 00:07:14.290 in the hole just to maintain your herd size. 00:07:14.649 --> 00:07:17.110 So you're actually paying a penalty just to try 00:07:17.110 --> 00:07:20.069 and improve your herd's efficiency. That's why 00:07:20.069 --> 00:07:23.000 the whole calculation changes. It's better from 00:07:23.000 --> 00:07:25.680 a cash flow perspective to keep her for one more 00:07:25.680 --> 00:07:27.920 marginal lactation, even if she's inefficient. 00:07:28.240 --> 00:07:31.000 You get a little income and you save a huge capital 00:07:31.000 --> 00:07:33.480 outlay. Short -term cash flow wins again. It 00:07:33.480 --> 00:07:35.800 wins over long -term genetic improvement every 00:07:35.800 --> 00:07:38.319 time. But keeping those marginal cows has to 00:07:38.319 --> 00:07:40.860 be dragging down the whole herd's average, right? 00:07:40.959 --> 00:07:42.839 I mean, you're suppressing turnover. Absolutely 00:07:42.839 --> 00:07:44.920 you are. And that's the structural drag we're 00:07:44.920 --> 00:07:47.990 talking about. The USDA slaughter data, it backs 00:07:47.990 --> 00:07:50.829 this up completely. Dairy cow slaughter has been 00:07:50.829 --> 00:07:54.050 trailing year -ago levels for like 94 of the 00:07:54.050 --> 00:07:56.610 last 100 weeks. Wow. Farmers are delaying the 00:07:56.610 --> 00:07:59.189 inevitable. And when you do that, the whole national 00:07:59.189 --> 00:08:01.470 herd average for production, for components, 00:08:01.629 --> 00:08:04.449 it gets dragged down by these older, less efficient 00:08:04.449 --> 00:08:07.670 cows. And that same reality, it just blows up 00:08:07.670 --> 00:08:09.910 the math for any kind of expansion too. Oh, completely. 00:08:10.110 --> 00:08:14.189 If you were planning a 250 cow expansion at three 00:08:14.189 --> 00:08:18.029 grand a head, For heifers, you now need almost 00:08:18.029 --> 00:08:20.970 double the capital you budgeted just a few years 00:08:20.970 --> 00:08:23.589 ago. And the lenders see that. Lenders see that 00:08:23.589 --> 00:08:25.790 and they say, nope, the ROI isn't there. The 00:08:25.790 --> 00:08:28.129 pencil just doesn't work. The only guys still 00:08:28.129 --> 00:08:30.110 expanding are doing it differently. They're either 00:08:30.110 --> 00:08:32.629 getting more milk out of the cows they already 00:08:32.629 --> 00:08:35.830 have, you know, chasing 26 ,000 pounds, or they're 00:08:35.830 --> 00:08:38.389 buying fresh cows, which has its own whole set 00:08:38.389 --> 00:08:40.590 of risks. So this makes your breeding decision. 00:08:41.259 --> 00:08:43.480 not just about farm management. It's a critical 00:08:43.480 --> 00:08:45.740 capital allocation choice now. You can't afford 00:08:45.740 --> 00:08:49.279 to waste a $40 straw of sex semen on a low -narrate 00:08:49.279 --> 00:08:51.419 cow who's just going to give you a daughter that 00:08:51.419 --> 00:08:53.419 underperforms on the new component standards. 00:08:53.820 --> 00:08:56.120 So what's the new logic? The analysis talks about 00:08:56.120 --> 00:08:58.620 a new breeding strategy that the really progressive 00:08:58.620 --> 00:09:01.419 herds are using. It's all about discipline, and 00:09:01.419 --> 00:09:03.460 it requires genomic testing. This isn't just 00:09:03.460 --> 00:09:05.820 an idea on a spreadsheet. You need separate semen 00:09:05.820 --> 00:09:09.000 tanks, clear protocols. It's a whole system. 00:09:09.159 --> 00:09:11.570 Walk me through it. It's sort of a 40 -40 -20 00:09:11.570 --> 00:09:14.690 rule. You use your high -end sex dairy semen 00:09:14.690 --> 00:09:17.850 on the top 40 % of your herd. These are your 00:09:17.850 --> 00:09:19.789 genomic multipliers. They're the future of your 00:09:19.789 --> 00:09:21.970 herd's components. Then you use conventional 00:09:21.970 --> 00:09:25.090 dairy on the middle 40%. Conception rates are 00:09:25.090 --> 00:09:26.669 usually a bit better, so you're making sure you 00:09:26.669 --> 00:09:29.090 hit your baseline replacement numbers. The genetics 00:09:29.090 --> 00:09:31.330 aren't elite, but they're solid. And the beef 00:09:31.330 --> 00:09:34.190 semen only goes on the bottom 20%. Strictly for 00:09:34.190 --> 00:09:36.549 genetic purging. You get that cash flow bump 00:09:36.549 --> 00:09:39.669 from the valuable calf. But you are guaranteeing 00:09:39.669 --> 00:09:42.049 that the genetics you absolutely do not want 00:09:42.049 --> 00:09:45.129 in your future herd are not passed on. It's a 00:09:45.129 --> 00:09:47.830 strategic exit for those animals. So the producers 00:09:47.830 --> 00:09:50.169 who thought this was just a temporary price spike 00:09:50.169 --> 00:09:53.750 are now realizing that biology, it just doesn't 00:09:53.750 --> 00:09:56.250 negotiate. Not at all. Okay, let's pivot now 00:09:56.250 --> 00:09:58.350 to the other side of this equation, the capacity 00:09:58.350 --> 00:10:00.669 side. This is where it gets really interesting. 00:10:00.789 --> 00:10:02.549 Because this is where all the leverage for the 00:10:02.549 --> 00:10:05.490 producer is right now. We just laid out a supply 00:10:05.490 --> 00:10:08.090 problem that's locked in for 30 months. And at 00:10:08.090 --> 00:10:10.389 the exact same time, the processing industry 00:10:10.389 --> 00:10:13.830 built a massive, multi -billion dollar demand 00:10:13.830 --> 00:10:16.590 problem for itself. It's the ultimate mismatch. 00:10:17.250 --> 00:10:21.590 The irony is just staggering. By mid -2025, we 00:10:21.590 --> 00:10:24.149 added enough capacity to process almost 20 million 00:10:24.149 --> 00:10:27.309 more pounds of milk per day. Eleven. Billion 00:10:27.309 --> 00:10:29.929 dollars. To put that into perspective for everyone, 00:10:30.070 --> 00:10:32.450 that's enough new stainless steel to process 00:10:32.450 --> 00:10:34.909 about one out of every 10 gallons of melt produced 00:10:34.909 --> 00:10:37.210 in the entire country. The scale is just hard 00:10:37.210 --> 00:10:39.110 to get your head around. Chobani's building that 00:10:39.110 --> 00:10:42.509 $1 .2 billion plant in New York to handle 12 00:10:42.509 --> 00:10:45.110 million pounds a day. Darigold opened their billion 00:10:45.110 --> 00:10:47.169 -dollar facility in Washington for 8 million 00:10:47.169 --> 00:10:49.950 pounds a day. It's everyone. Hillimar, California 00:10:49.950 --> 00:10:52.809 dairies. And they were all pouring concrete based 00:10:52.809 --> 00:10:55.350 on forecasts that are now completely, utterly 00:10:55.350 --> 00:10:58.039 wrong. They built all this assuming that historical 00:10:58.039 --> 00:11:00.240 milk growth, you know, that one and a half to 00:11:00.240 --> 00:11:02.039 two percent a year would just go on forever. 00:11:02.220 --> 00:11:04.720 But these plants, they need to run at 80, 85 00:11:04.720 --> 00:11:07.120 percent utilization just for the investment to 00:11:07.120 --> 00:11:09.159 make sense. And then biology, like we just said, 00:11:09.240 --> 00:11:11.059 stepped in and just vetoed all those assumptions. 00:11:11.159 --> 00:11:14.240 The milk pipeline is capped. And it's shrinking 00:11:14.240 --> 00:11:17.659 until late 2027 at the earliest. So CoBank's 00:11:17.659 --> 00:11:20.019 analysis basically confirms it. The leverage 00:11:20.019 --> 00:11:22.539 has completely shifted. They built for growth 00:11:22.539 --> 00:11:25.450 right when supply hit a wall. Which makes any 00:11:25.450 --> 00:11:28.509 producer who can reliably ship quality milk. 00:11:29.110 --> 00:11:31.970 You're not just a supplier anymore. You're a 00:11:31.970 --> 00:11:34.070 necessity. So what does that desperation look 00:11:34.070 --> 00:11:35.450 like on the ground? I mean, they're not going 00:11:35.450 --> 00:11:37.190 to put out a press release saying, hey, we're 00:11:37.190 --> 00:11:40.330 only running at 60 % capacity. No, but they signal 00:11:40.330 --> 00:11:43.190 it with their behavior. The first sign is their 00:11:43.190 --> 00:11:45.990 recruitment radius. Right. If a plant used to 00:11:45.990 --> 00:11:48.600 get all its milk from, say, 100 -mile radius, 00:11:48.899 --> 00:11:51.940 and now their field reps are making calls three, 00:11:52.019 --> 00:11:54.559 four, even 500 miles out. That's desperation. 00:11:54.580 --> 00:11:57.039 They're eating huge hauling costs just to keep 00:11:57.039 --> 00:11:58.940 the lines running. And if you're the farm that's 00:11:58.940 --> 00:12:01.460 only 50 miles away from that plant, and they're 00:12:01.460 --> 00:12:03.419 spending all that money to get mill from 400 00:12:03.419 --> 00:12:06.919 miles away, you are their lowest cost, lowest 00:12:06.919 --> 00:12:10.039 risk option. That's maximum leverage. Maximum. 00:12:10.039 --> 00:12:12.500 And the analysis points to some really tangible 00:12:12.500 --> 00:12:15.179 signs of this. We're seeing real volume bonuses, 00:12:15.340 --> 00:12:19.039 consistency premiums. And multi -year price floors. 00:12:19.299 --> 00:12:22.200 That's a big one. Contracts with floors well 00:12:22.200 --> 00:12:25.059 above the pool price. We're hearing about 20, 00:12:25.139 --> 00:12:27.679 even 30 cents per hundredweight being built into 00:12:27.679 --> 00:12:30.440 multi -year deals. 30 cents per hundredweight 00:12:30.440 --> 00:12:34.860 on a 50 ,000 pound daily average. That's over 00:12:34.860 --> 00:12:37.519 50 grand a year. That's real money. That pays 00:12:37.519 --> 00:12:40.220 for a herdsman or your seaman bill. But the most 00:12:40.220 --> 00:12:42.940 revolutionary thing we're seeing, and the analysis 00:12:42.940 --> 00:12:45.679 really highlights this, is the co -financing. 00:12:46.039 --> 00:12:48.279 Let's follow the money on that. Why on earth 00:12:48.279 --> 00:12:50.879 would a processor finance a farmer's herd? Because 00:12:50.879 --> 00:12:53.360 they can get capital way cheaper than a farmer 00:12:53.360 --> 00:12:55.820 can. They're huge corporations. They can borrow 00:12:55.820 --> 00:12:57.919 at 4 or 5 percent. And the average farmer is 00:12:57.919 --> 00:13:00.419 looking at, what, 7, 8, 9 percent for an equipment 00:13:00.419 --> 00:13:03.519 loan? If they're lucky. So the processor is using 00:13:03.519 --> 00:13:05.980 their cheaper cost of capital as a tool to lock 00:13:05.980 --> 00:13:08.100 in their milk supply. So they're basically saying, 00:13:08.299 --> 00:13:10.909 we'll be your bank for these new heifers? Or 00:13:10.909 --> 00:13:12.850 for that new robot, but you have to guarantee 00:13:12.850 --> 00:13:16.210 that milk to us through 2028. Exactly. They're 00:13:16.210 --> 00:13:19.090 offering to co -finance it, say, 5 .5%, in exchange 00:13:19.090 --> 00:13:21.629 for a reliable multi -year commitment for high 00:13:21.629 --> 00:13:25.009 -component milk. It solves two huge problems 00:13:25.009 --> 00:13:27.490 at once. The processor gets their plant utilization 00:13:27.490 --> 00:13:31.570 up from 65 % to maybe 78%, which makes their 00:13:31.570 --> 00:13:34.190 numbers work. And the producer gets the high 00:13:34.190 --> 00:13:36.470 -quality genetics or the automation they desperately 00:13:36.470 --> 00:13:40.000 need at a much lower capital cost. It's a powerful 00:13:40.000 --> 00:13:42.600 alignment. But, and this is a huge but, the analysis 00:13:42.600 --> 00:13:45.279 warns this opportunity is temporary. Absolutely. 00:13:45.340 --> 00:13:47.639 The second those replacement inventories start 00:13:47.639 --> 00:13:52.159 to rebuild in late 27, early 28, one supply finally 00:13:52.159 --> 00:13:54.799 catches up to all that new stainless steel. The 00:13:54.799 --> 00:13:56.559 leverage pendulum just swings right back. It 00:13:56.559 --> 00:13:58.620 swings right back. They won't need to offer 30 00:13:58.620 --> 00:14:00.940 cent bonuses or co -financing when they've got 00:14:00.940 --> 00:14:03.200 20 other farms knocking on their door. So the 00:14:03.200 --> 00:14:05.720 window for producers to lock this stuff in, to 00:14:05.720 --> 00:14:08.120 secure a real partnership and to use that cheaper 00:14:08.120 --> 00:14:11.840 capital, It's right now. It's fleeting. And the 00:14:11.840 --> 00:14:14.360 smart producer is using this moment to fix their 00:14:14.360 --> 00:14:16.700 structural future. OK, so while all this supply 00:14:16.700 --> 00:14:19.320 and demand chaos is happening, the actual economics 00:14:19.320 --> 00:14:21.259 of what's in the tank changed permanently on 00:14:21.259 --> 00:14:25.039 December 1st, 2025. Yeah, this is the FMMO component 00:14:25.039 --> 00:14:28.000 factor change. And it might be the biggest structural 00:14:28.000 --> 00:14:30.799 shift that nobody's really ready for. This wasn't 00:14:30.799 --> 00:14:34.120 just a small tweak, was it? No, this was a permanent 00:14:34.120 --> 00:14:37.419 repricing of milk for the entire industry. For 00:14:37.419 --> 00:14:39.899 decades, the protein standard in the formula 00:14:39.899 --> 00:14:44.559 was 3 .1%. And that moved up to 3 .3%. Right. 00:14:44.659 --> 00:14:47.159 And that wasn't an arbitrary number. The old 00:14:47.159 --> 00:14:49.879 3 .1 standard was scientifically out of date. 00:14:50.580 --> 00:14:53.360 Modern cheese plants, which drive the Class III 00:14:53.360 --> 00:14:55.659 price, they get their best yield and efficiency 00:14:55.659 --> 00:14:59.860 with milk that's closer to 3 .3 % protein. So 00:14:59.860 --> 00:15:01.700 the pricing just finally caught up with the reality 00:15:01.700 --> 00:15:04.039 of the manufacturing process. Exactly. So if 00:15:04.039 --> 00:15:05.899 you're shipping milk that meets or beats that 00:15:05.899 --> 00:15:08.460 new 3 .3 standard, you're finally getting paid 00:15:08.460 --> 00:15:10.480 more accurately for the value you're providing. 00:15:10.659 --> 00:15:12.259 But if you're below it, say you're still at 3 00:15:12.259 --> 00:15:15.100 .0, you're getting benchmarked against that higher 00:15:15.100 --> 00:15:16.899 bar every single month. And the financial hit 00:15:16.899 --> 00:15:19.580 is immediate, and it compounds. The folks at 00:15:19.580 --> 00:15:21.860 University of Wisconsin ran the numbers. And 00:15:21.860 --> 00:15:24.179 the spread between a low protein herd and a high 00:15:24.179 --> 00:15:27.320 protein herd, we're talking 3 .4 or 3 .5 percent, 00:15:27.500 --> 00:15:30.860 can easily be over a dollar per hundredweight. 00:15:31.080 --> 00:15:33.980 That's before you even factor in butterfat. A 00:15:33.980 --> 00:15:36.820 dollar a hundredweight on a million pounds of 00:15:36.820 --> 00:15:39.679 milk a month. That is $10 ,000 a month you're 00:15:39.679 --> 00:15:43.419 leaving on the table. $120 ,000 a year. Every 00:15:43.419 --> 00:15:45.830 year. And this gets us to the trap, doesn't it? 00:15:45.850 --> 00:15:48.590 The old mindset of our milk has always been good 00:15:48.590 --> 00:15:51.509 enough or we're a volume operation. That mindset 00:15:51.509 --> 00:15:54.129 is dead. For the last 20 years, you could kind 00:15:54.129 --> 00:15:56.830 of make up for lower components with sheer volume. 00:15:57.320 --> 00:16:00.480 Scale gave you leverage. Not anymore. If your 00:16:00.480 --> 00:16:03.759 neighbor is running 3 .4 protein and 4 .1 fat, 00:16:04.019 --> 00:16:07.840 they are stacking an extra $1 .25, $1 .50 per 00:16:07.840 --> 00:16:10.360 hundredweight on every single load. They're running 00:16:10.360 --> 00:16:13.159 fewer cows with higher efficiency per cow and 00:16:13.159 --> 00:16:15.399 way lower overhead for every pound of component 00:16:15.399 --> 00:16:18.100 they ship. You are structurally outcompeted and 00:16:18.100 --> 00:16:20.139 it doesn't matter how big your barn is. Okay, 00:16:20.200 --> 00:16:21.799 so let's talk about the timeline to fix this. 00:16:21.980 --> 00:16:25.279 Can you fix low components with genetics? Yes, 00:16:25.279 --> 00:16:27.820 you can. But you need a lot of patience and a 00:16:27.820 --> 00:16:30.539 serious capital commitment. It's tough for farmers 00:16:30.539 --> 00:16:32.419 who are used to managing on a 12 -month cycle. 00:16:32.720 --> 00:16:34.620 And the source material is pretty sobering on 00:16:34.620 --> 00:16:36.919 this. It lays out a four - to six -year journey. 00:16:37.080 --> 00:16:39.799 And that's if you do everything right. It is. 00:16:39.919 --> 00:16:42.460 So years one and two, you're just spending money, 00:16:42.559 --> 00:16:44.940 you're buying the premium component -focused 00:16:44.940 --> 00:16:47.919 semen, you're starting to genomic test your whole 00:16:47.919 --> 00:16:50.139 herd, and you're just waiting for those better 00:16:50.139 --> 00:16:52.889 daughters to be born. Years three and four, the 00:16:52.889 --> 00:16:55.289 first wave of those heifers finally freshens. 00:16:55.289 --> 00:16:57.889 Your herd average might start to creep up from 00:16:57.889 --> 00:17:02.769 3 .0 to maybe 3 .15%. So you've made progress, 00:17:02.990 --> 00:17:06.240 but you are still way behind the new... 3 .3 00:17:06.240 --> 00:17:08.339 standard. So you won't even get close to that 00:17:08.339 --> 00:17:10.940 new benchmark until year five or six. And that's 00:17:10.940 --> 00:17:13.119 only if you are absolutely ruthless about your 00:17:13.119 --> 00:17:15.220 breeding and culling strategy. Right. It's a 00:17:15.220 --> 00:17:17.059 long -term commitment. You have to be willing 00:17:17.059 --> 00:17:19.680 to spend the money now for a return that's way 00:17:19.680 --> 00:17:21.640 down the road. The other option is to just buy 00:17:21.640 --> 00:17:23.440 your way out of the problem, which is faster, 00:17:23.539 --> 00:17:25.880 but... It requires a massive immediate pile of 00:17:25.880 --> 00:17:28.299 cash. The high component heifers are trading 00:17:28.299 --> 00:17:31.500 in that same 3 ,000 plus range, maybe 3 ,500, 00:17:31.660 --> 00:17:34.640 4 ,000 for the really elite ones. So if you have 00:17:34.640 --> 00:17:36.940 a 1 ,200 cow herd and you need to replace half 00:17:36.940 --> 00:17:39.420 of it to fix your average, you're talking about 00:17:39.420 --> 00:17:41.720 millions of dollars in animal purchases right 00:17:41.720 --> 00:17:44.380 now. Which is why the analysis says the FMMO 00:17:44.380 --> 00:17:47.079 changes didn't create the problem of poor genetics. 00:17:47.200 --> 00:17:49.900 They just exposed it and made it financially 00:17:49.900 --> 00:17:52.579 fatal. Which brings us to the toughest question 00:17:52.579 --> 00:17:55.940 in the entire analysis. When does the math tell 00:17:55.940 --> 00:17:58.500 you to just get out? I mean, if you're running 00:17:58.500 --> 00:18:01.119 a low component herd and you realize it's going 00:18:01.119 --> 00:18:04.039 to take you, say, mid six figures over the next 00:18:04.039 --> 00:18:06.900 five to seven years just to get back to average. 00:18:07.119 --> 00:18:09.000 And your break even on that investment is almost 00:18:09.000 --> 00:18:11.200 a decade away and you're carrying a lot of term 00:18:11.200 --> 00:18:14.180 debt. Exactly. If you're in your late 50s, maybe 00:18:14.180 --> 00:18:16.539 early 60s, you don't have a clear successor. 00:18:17.680 --> 00:18:20.599 Is grinding for 10 more years just to get back 00:18:20.599 --> 00:18:23.099 to parity the smartest financial move you can 00:18:23.099 --> 00:18:25.920 make? It's a really hard, honest conversation 00:18:25.920 --> 00:18:29.000 you have to have. An orderly, strategic exit 00:18:29.000 --> 00:18:31.720 right now, while land and cattle and facilities 00:18:31.720 --> 00:18:34.500 still have good value. That might be a much better 00:18:34.500 --> 00:18:37.079 financial decision than a prolonged high -cost 00:18:37.079 --> 00:18:40.460 fight just to stay in the game. It's the difference 00:18:40.460 --> 00:18:43.240 between a controlled sale and a forced liquidation. 00:18:43.880 --> 00:18:47.299 And the new component pricing, it's forcing that 00:18:47.299 --> 00:18:50.130 conversation to happen today. So let's talk about 00:18:50.130 --> 00:18:52.509 the macro environment for a second. The Fed lowering 00:18:52.509 --> 00:18:55.089 interest rates into that four, four and a quarter 00:18:55.089 --> 00:18:58.349 percent range. That's a huge factor here. The 00:18:58.349 --> 00:19:00.490 timing is critical. You have this cheaper money 00:19:00.490 --> 00:19:03.869 coming in right when all these structural forces, 00:19:03.990 --> 00:19:06.210 the need for genetics, the need for automation 00:19:06.210 --> 00:19:08.829 are hitting their peak. So cheaper money doesn't 00:19:08.829 --> 00:19:12.069 save a bad business, but it can really turbocharge 00:19:12.069 --> 00:19:15.029 a smart one. Absolutely. So where does that cheaper 00:19:15.029 --> 00:19:18.569 debt? really create an advantage. It's not in 00:19:18.569 --> 00:19:20.390 just building a bigger barn, which we already 00:19:20.390 --> 00:19:22.789 said is too expensive. It's in financing the 00:19:22.789 --> 00:19:25.549 fix, the component fix and a labor fix. Right. 00:19:25.930 --> 00:19:27.990 Financing those competitive genetics. You have 00:19:27.990 --> 00:19:30.569 to spend, I don't know, a million dollars over 00:19:30.569 --> 00:19:32.509 five years to get your components up to par. 00:19:32.569 --> 00:19:34.349 The fact that you're paying 5 % interest instead 00:19:34.349 --> 00:19:38.109 of 8%. It shortens your payback period by years. 00:19:38.309 --> 00:19:41.930 It makes that huge investment actually. pencil 00:19:41.930 --> 00:19:43.970 out. And this comes right back to that processor 00:19:43.970 --> 00:19:46.269 backed capital we talked about. Exactly. Their 00:19:46.269 --> 00:19:49.670 capital is cheap and their need for your milk 00:19:49.670 --> 00:19:52.569 is high. If they can co -finance your automation 00:19:52.569 --> 00:19:55.329 project or your genetics at five and a half percent. 00:19:56.170 --> 00:19:58.930 They get their milk and you get a huge competitive 00:19:58.930 --> 00:20:01.569 edge. It's a powerful alignment you have to exploit. 00:20:01.769 --> 00:20:04.650 And this makes the ROI on automation look completely 00:20:04.650 --> 00:20:06.829 different, too, especially with how tight the 00:20:06.829 --> 00:20:08.950 labor market is. Oh, it's critical. The analysis 00:20:08.950 --> 00:20:11.289 had some pretty grim numbers on labor. In the 00:20:11.289 --> 00:20:13.990 Northeast, you're looking at 18, 20 bucks an 00:20:13.990 --> 00:20:16.670 hour for a skilled milker, if you can even find 00:20:16.670 --> 00:20:19.130 one. And in the Southwest, you're competing with 00:20:19.130 --> 00:20:21.470 construction and the energy sector for workers. 00:20:21.769 --> 00:20:24.309 It's just as tough. So think about the math on 00:20:24.309 --> 00:20:26.670 a robotic milking system. Let's say it's half 00:20:26.670 --> 00:20:28.809 a million dollars. When interest rates were at 00:20:28.809 --> 00:20:32.710 8%, the ROI was borderline. Maybe a six or seven 00:20:32.710 --> 00:20:34.710 year payback. But you drop that financing to 00:20:34.710 --> 00:20:37.170 5 % and you factor in that you're eliminating 00:20:37.170 --> 00:20:40.049 two full -time employees at 20 bucks an hour 00:20:40.049 --> 00:20:42.589 plus benefits. That's 80 grand a year in labor 00:20:42.589 --> 00:20:44.529 savings right there. The payback suddenly drops 00:20:44.529 --> 00:20:47.140 to... three and a half or four years, it's a 00:20:47.140 --> 00:20:49.059 no -brainer. You're solving your labor problem 00:20:49.059 --> 00:20:51.180 and your capital cost problem at the same time. 00:20:51.220 --> 00:20:53.940 The cheap money is the catalyst. Now let's pivot 00:20:53.940 --> 00:20:56.759 to exports because this is a bit of a paradox. 00:20:57.140 --> 00:21:00.640 We saw U .S. dairy exports hit $8 .2 billion 00:21:00.640 --> 00:21:04.400 in 2024. The headline just screams, U .S. dairy 00:21:04.400 --> 00:21:07.000 is strong. Okay, wait, I have to put on the farmer 00:21:07.000 --> 00:21:10.119 hat here. The news says $8 .2 billion in exports. 00:21:10.500 --> 00:21:13.759 How can record sales possibly be a bad thing? 00:21:14.329 --> 00:21:17.490 Help me square that with Class III futures struggling 00:21:17.490 --> 00:21:20.990 through 2025. That's the paradox. The fine print 00:21:20.990 --> 00:21:23.390 shows that export strength is often just good 00:21:23.390 --> 00:21:25.970 PR for an oversupply problem. Meaning? If your 00:21:25.970 --> 00:21:28.109 domestic consumption is slowing down, where does 00:21:28.109 --> 00:21:30.170 all that extra milk go? It has to be exported. 00:21:30.369 --> 00:21:33.970 We saw U .S. milk output grow 4 % in some months, 00:21:34.069 --> 00:21:36.589 but domestic demand only inched up 1 % or 2%. 00:21:36.589 --> 00:21:38.769 So that extra 2 % or 3 % surplus had nowhere 00:21:38.769 --> 00:21:40.410 else to go. You had to push it onto the world 00:21:40.410 --> 00:21:43.589 market. At a discount, exactly. When your production 00:21:43.589 --> 00:21:45.750 growth is consistently outpacing your domestic 00:21:45.750 --> 00:21:48.849 demand, you're basically masking an oversupply 00:21:48.849 --> 00:21:51.289 issue that's dragging down your domestic price. 00:21:51.809 --> 00:21:56.329 We're selling cheap, nonfat, dry milk and whey 00:21:56.329 --> 00:21:58.670 just to clear the shelves. So we have to understand 00:21:58.670 --> 00:22:01.190 the difference between structural, demand -driven 00:22:01.190 --> 00:22:04.380 exports that actually help. Right. Mexico is 00:22:04.380 --> 00:22:06.279 the perfect example of that. They have a dairy 00:22:06.279 --> 00:22:09.500 deficit. We have the USMCA trade deal. We have 00:22:09.500 --> 00:22:11.880 a huge logistics advantage. They take about a 00:22:11.880 --> 00:22:14.539 third of our exports. That's stable trade. You 00:22:14.539 --> 00:22:16.920 can build a business plan around. Versus the 00:22:16.920 --> 00:22:19.319 supply -driven exports that are actually a warning 00:22:19.319 --> 00:22:21.700 sign, pushing surplus powder into places like 00:22:21.700 --> 00:22:24.039 China or Southeast Asia. When tariffs change 00:22:24.039 --> 00:22:26.740 or when Europe has a good year, that U .S. surplus 00:22:26.740 --> 00:22:29.099 has to get discounted even more just to move 00:22:29.099 --> 00:22:31.140 it. You're just acting as the world's chief supply 00:22:31.140 --> 00:22:33.460 valve. So you focus your big capital decisions, 00:22:33.759 --> 00:22:36.160 the $3 ,000 heifers, the half -million -dollar 00:22:36.160 --> 00:22:38.839 robots on, optimizing for those stable structural 00:22:38.839 --> 00:22:42.140 markets? Absolutely. The 2026 USMCA review is 00:22:42.140 --> 00:22:44.460 way more important to your bottom line than some 00:22:44.460 --> 00:22:46.819 temporary tariff deal in Asia. Okay, we've covered 00:22:46.819 --> 00:22:49.440 the structure, the biology, the economics. Now 00:22:49.440 --> 00:22:52.559 we have to talk about the wild card. The low 00:22:52.559 --> 00:22:55.019 -probability, high -consequence event that could 00:22:55.019 --> 00:22:58.079 just throw a wrench in everything. The New World 00:22:58.079 --> 00:23:02.950 Screw Worm. NWS. This is a devastating disease 00:23:02.950 --> 00:23:05.430 that can change your entire operational reality 00:23:05.430 --> 00:23:08.890 in like 72 hours. And it's been moving north 00:23:08.890 --> 00:23:11.349 through Mexico. The real alarm bell went off 00:23:11.349 --> 00:23:14.750 in September of 2025 when a heifer tested positive 00:23:14.750 --> 00:23:18.009 in Sabina, Hidalgo. That's less than 70 miles 00:23:18.009 --> 00:23:20.450 from the Texas border. It is knocking on the 00:23:20.450 --> 00:23:22.529 door. And if it crosses that border and gets 00:23:22.529 --> 00:23:25.519 confirmed in a U .S. commercial herd. The consequences 00:23:25.519 --> 00:23:27.579 for cattle movement are immediate and they are 00:23:27.579 --> 00:23:29.700 severe. You're talking about operational paralysis. 00:23:30.160 --> 00:23:32.539 As soon as there's a confirmation, local auctions, 00:23:32.559 --> 00:23:35.079 feedlots, they just stop taking cattle from that 00:23:35.079 --> 00:23:37.319 region. Feeder cattle prices in that zone would 00:23:37.319 --> 00:23:40.259 just collapse. And within days, APHIS will set 00:23:40.259 --> 00:23:42.940 up quarantine zones and they'll restrict or just 00:23:42.940 --> 00:23:45.240 outright ban livestock movement. So what does 00:23:45.240 --> 00:23:47.559 that mean in practical terms, freezing cattle 00:23:47.559 --> 00:23:50.130 as collateral? It means if your primary source 00:23:50.130 --> 00:23:53.150 of cash flow is those high value beef on dairy 00:23:53.150 --> 00:23:55.490 calves and you suddenly can't move them off the 00:23:55.490 --> 00:23:59.589 farm, that asset is frozen. And the bank that's 00:23:59.589 --> 00:24:01.710 holding the note on your operating loan sees 00:24:01.710 --> 00:24:03.690 that collateral as being suddenly worthless. 00:24:04.190 --> 00:24:07.250 Your risk just skyrockets. That $1 ,200 revenue 00:24:07.250 --> 00:24:09.410 stream can disappear overnight and you could 00:24:09.410 --> 00:24:12.599 be without that cash for 60 or 90 days. So mitigation 00:24:12.599 --> 00:24:14.759 here is just cheap insurance. You have to be 00:24:14.759 --> 00:24:17.799 proactive. First, you have to map out alternative 00:24:17.799 --> 00:24:20.460 marketing outlets for your cull cows and your 00:24:20.460 --> 00:24:23.079 beef calves. And they have to be genuinely outside 00:24:23.079 --> 00:24:25.859 a likely quarantine radius. And second, you have 00:24:25.859 --> 00:24:28.660 to stress test your cash flow. Just run the numbers. 00:24:29.099 --> 00:24:31.779 What happens if that beef calf revenue is delayed 00:24:31.779 --> 00:24:34.640 by 90 days or cut in half? And talk to your lender 00:24:34.640 --> 00:24:37.099 about it now. Don't wait for the crisis. Get 00:24:37.099 --> 00:24:39.420 a temporary line of credit set up just in case. 00:24:39.539 --> 00:24:41.400 Let's shift from the wild card to the safety 00:24:41.400 --> 00:24:45.500 net. The DMC program got extended to 2031. Tier 00:24:45.500 --> 00:24:48.819 1 was raised to 6 million pounds. You get a 25 00:24:48.819 --> 00:24:51.700 % discount for long -term enrollment. It's a 00:24:51.700 --> 00:24:54.160 crucial tool. But the analysis calls it a mirror. 00:24:54.599 --> 00:24:57.680 It's either a weapon or it's life support. Right. 00:24:57.740 --> 00:25:00.240 If you're a competitive operation, solid components, 00:25:00.400 --> 00:25:03.619 good efficiency, DMC is a weapon. You max out 00:25:03.619 --> 00:25:06.359 your Tier 1, you take the discount, and you treat 00:25:06.359 --> 00:25:08.980 it like underpriced catastrophic insurance. In 00:25:08.980 --> 00:25:12.039 a bad year... That indemnity payment shores up 00:25:12.039 --> 00:25:13.900 your balance sheet and lets you stay aggressive 00:25:13.900 --> 00:25:16.079 while your competitors are pulling back. But 00:25:16.079 --> 00:25:18.559 if you're a marginal operation, high debt, low 00:25:18.559 --> 00:25:21.039 components, you're relying on those DMC checks 00:25:21.039 --> 00:25:23.460 just to stay afloat. It's life support. It's 00:25:23.460 --> 00:25:25.759 what's paying your loan interest. So the move 00:25:25.759 --> 00:25:28.059 is to use it, but you have to be brutally honest 00:25:28.059 --> 00:25:30.299 with yourself about why you need it. If it's 00:25:30.299 --> 00:25:33.259 just buying you time, you need to use that time 00:25:33.259 --> 00:25:35.819 to either fix the structural problems we've been 00:25:35.819 --> 00:25:39.220 talking about or to plan that orderly exit. Which 00:25:39.220 --> 00:25:42.019 brings us to the final and most critical part 00:25:42.019 --> 00:25:45.359 of this, the three strategic paths forward. Given 00:25:45.359 --> 00:25:47.339 everything we've discussed, what are the three 00:25:47.339 --> 00:25:50.380 choices farmers need to make in 2026? It really 00:25:50.380 --> 00:25:53.279 comes down to your capital access, your risk 00:25:53.279 --> 00:25:55.720 tolerance, and where your genetics are starting 00:25:55.720 --> 00:25:59.019 from. Okay, path one, the internal rebuild. This 00:25:59.019 --> 00:26:02.039 is the slowest path. It's five plus years. But 00:26:02.039 --> 00:26:04.279 it gives you the most control and the most independence. 00:26:05.019 --> 00:26:07.519 The goal here is to become self -sufficient on 00:26:07.519 --> 00:26:10.470 replacements. So you stop relying on buying those 00:26:10.470 --> 00:26:13.430 $3 ,500 heifers on the open market. Exactly. 00:26:13.470 --> 00:26:15.930 You slash your beef on dairy breeding down to 00:26:15.930 --> 00:26:19.710 the bottom 10 or 15 % just for purging bad genetics. 00:26:20.009 --> 00:26:22.690 And you strategically use that expensive sex 00:26:22.690 --> 00:26:26.109 semen on your top cows. It costs you a lot up 00:26:26.109 --> 00:26:28.990 front in lost beef calf revenue, but it's a long 00:26:28.990 --> 00:26:32.130 -term insurance policy. Okay. Path two. Processor 00:26:32.130 --> 00:26:34.289 -financed growth. This is the fastest way to 00:26:34.289 --> 00:26:36.710 expand and improve, but it's totally relationship 00:26:36.710 --> 00:26:39.490 dependent. You have to aggressively lean into 00:26:39.490 --> 00:26:41.849 your processor's desperation. You offer them 00:26:41.849 --> 00:26:44.450 what they need most, guaranteed high component 00:26:44.450 --> 00:26:47.250 volume. And in exchange, you negotiate a contract 00:26:47.250 --> 00:26:50.069 that's locked through 2028 with premiums, price 00:26:50.069 --> 00:26:52.470 floors, and critically, you get them to co -finance 00:26:52.470 --> 00:26:54.930 your replacements or your automation using their 00:26:54.930 --> 00:26:57.170 cheap capital. This only works if your processor 00:26:57.170 --> 00:26:59.089 is really hurting for milk, but if they are, 00:26:59.230 --> 00:27:01.880 it's a once -in -a -cycle opportunity. And finally, 00:27:01.940 --> 00:27:05.079 path three, the hybrid approach. This is for 00:27:05.079 --> 00:27:07.359 the producers who can't just eliminate that beef 00:27:07.359 --> 00:27:10.039 on dairy income completely, but know they have 00:27:10.039 --> 00:27:12.579 to improve their components. So you keep maybe 00:27:12.579 --> 00:27:16.099 15 or 20 percent bread to beef for that cash 00:27:16.099 --> 00:27:18.619 flow. Right. You grow enough of your own replacements 00:27:18.619 --> 00:27:21.519 to cover your baseline needs. And then you selectively 00:27:21.519 --> 00:27:24.500 buy a few high end heifers on the outside, maybe 00:27:24.500 --> 00:27:26.579 with some processor help. You're balancing income, 00:27:26.839 --> 00:27:30.559 genetics and capital. It's moderate growth. moderate 00:27:30.559 --> 00:27:32.960 risk. The analysis makes it really clear though. 00:27:33.059 --> 00:27:36.440 By 2028, the difference between a farm being 00:27:36.440 --> 00:27:39.039 competitive and planning its exit will come down 00:27:39.039 --> 00:27:41.839 to the decisions you make deliberately in 2026. 00:27:42.160 --> 00:27:44.680 The time to pick a path is now. That window is 00:27:44.680 --> 00:27:47.420 closing. All right. A farmer just finished milking 00:27:47.420 --> 00:27:49.680 and is driving to the feed store. What are the 00:27:49.680 --> 00:27:51.960 three immediate actionable things they need to 00:27:51.960 --> 00:27:54.359 remember from today's deep dive? Okay. Takeaway 00:27:54.359 --> 00:27:57.519 number one, get surgical on Genetics NOW. Immediate 00:27:57.519 --> 00:28:00.119 action this week. Review your breeding protocols. 00:28:00.420 --> 00:28:03.000 If you are still putting $40 sexed semen in your 00:28:03.000 --> 00:28:06.019 low -merit cows, stop right now. And if you're 00:28:06.019 --> 00:28:07.960 not doing it, start genomic testing to find out 00:28:07.960 --> 00:28:10.619 who your top 40 % actually are. Medium -term 00:28:10.619 --> 00:28:13.299 strategy, three to six months. You have to budget 00:28:13.299 --> 00:28:16.079 for the higher cost of component -focused semen. 00:28:16.480 --> 00:28:19.619 And you have to redefine your marginal cow. With 00:28:19.619 --> 00:28:22.319 replacements this expensive, that cow has to 00:28:22.319 --> 00:28:25.259 deliver real value in the tank or... She's a 00:28:25.259 --> 00:28:27.440 financial drag you have to get rid of. Long -term 00:28:27.440 --> 00:28:30.200 positioning, one to two years. You have to commit 00:28:30.200 --> 00:28:32.880 the capital and the discipline to hitting 3 .3 00:28:32.880 --> 00:28:36.460 % protein or higher by 2030. That is the new 00:28:36.460 --> 00:28:38.980 minimum standard. If you're below that, you're 00:28:38.980 --> 00:28:41.119 losing money every day. Takeaway number two, 00:28:41.500 --> 00:28:44.400 exploit processor desperation. Immediate action, 00:28:44.579 --> 00:28:47.190 this week. Get your data together. Know your 00:28:47.190 --> 00:28:49.150 reliable volume. Know your component profile. 00:28:49.450 --> 00:28:51.329 And find out where your processor is getting 00:28:51.329 --> 00:28:53.349 your milk from. If their trucks are running 300 00:28:53.349 --> 00:28:56.109 miles out, you have huge leverage. Medium -term 00:28:56.109 --> 00:28:58.390 strategy. Three to six months. Get on the phone 00:28:58.390 --> 00:29:01.029 with your field rep. Aggressively. You need to 00:29:01.029 --> 00:29:02.970 be negotiating multi -year contracts locked through 00:29:02.970 --> 00:29:06.529 2028 with 20 or 30 cent component premiums. And 00:29:06.529 --> 00:29:08.309 you push hard for those co -financing options. 00:29:08.589 --> 00:29:11.230 Use their cheap money to fix your farm. And long 00:29:11.230 --> 00:29:14.430 -term positioning. One to two years. Lock in 00:29:14.430 --> 00:29:17.589 those favorable terms now. Because after 2027, 00:29:17.650 --> 00:29:20.170 when the heifer numbers start to normalize, that 00:29:20.170 --> 00:29:23.309 leverage is gone. This window is temporary. Use 00:29:23.309 --> 00:29:26.809 it. And takeaway number three, de -risk the wildcat. 00:29:27.549 --> 00:29:30.519 Immediate action this week. If you're in a high 00:29:30.519 --> 00:29:33.319 -risk region for NWS, you need to map out alternative 00:29:33.319 --> 00:29:35.740 places to sell your cull cows and beef calves, 00:29:35.960 --> 00:29:39.140 places outside the likely quarantine zone. Medium 00:29:39.140 --> 00:29:41.539 -term strategy, three to six months. Stress test 00:29:41.539 --> 00:29:44.240 your cash flow. Just assume a 90 -day delay in 00:29:44.240 --> 00:29:46.779 your beef calf revenue. Run the numbers, and 00:29:46.779 --> 00:29:48.440 then go talk to your banker about how you'd manage 00:29:48.440 --> 00:29:50.619 that gap. Long -term positioning, one to two 00:29:50.619 --> 00:29:52.779 years. build up your cash reserves a little bit, 00:29:52.839 --> 00:29:54.400 and build up your internal dairy replacement 00:29:54.400 --> 00:29:57.319 capacity, the less you rely on outside markets 00:29:57.319 --> 00:29:59.519 and high -risk beef calves, the more flexible 00:29:59.519 --> 00:30:01.980 and resilient your operation will be. That structural 00:30:01.980 --> 00:30:04.900 reality, that $1 per hundredweight efficiency 00:30:04.900 --> 00:30:08.539 gap, it's permanent now. The only question is 00:30:08.539 --> 00:30:10.000 which side of that dollar you're going to land 00:30:10.000 --> 00:30:12.779 on in 2028. This has been another Bullvine Podcast 00:30:12.779 --> 00:30:15.599 from The Bullvine Podcast. For more straight 00:30:15.599 --> 00:30:19.339 -talking industry analysis, head to www .thebullvine 00:30:19.339 --> 00:30:22.539 .com. Subscribe wherever you get podcasts. We're 00:30:22.539 --> 00:30:24.240 out with new episodes every day and upcoming 00:30:24.240 --> 00:30:26.619 topics will be maximizing the DMC safety net 00:30:26.619 --> 00:30:29.480 and new protocols for HPAI biosecurity. We'll 00:30:29.480 --> 00:30:30.019 see you next time.