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 --> 00:01:04.620 we're sparking where we cut through dairy industry 00:01:04.620 --> 00:01:06.739 noise to get you the insights that actually matter 00:01:06.739 --> 00:01:09.900 for your operation. And today, we're diving deep 00:01:09.900 --> 00:01:12.379 into a feature piece about the massive influx 00:01:12.379 --> 00:01:14.859 of private equity in the dairy industry and why 00:01:14.859 --> 00:01:16.760 some of the top producers are telling those funds 00:01:16.760 --> 00:01:19.569 to take a hike. Yeah, we are getting into some 00:01:19.569 --> 00:01:22.230 really heavy structural stuff today. I mean, 00:01:22.250 --> 00:01:25.269 if you think about a heavy -duty tractor suffering 00:01:25.269 --> 00:01:27.730 a catastrophic engine failure in the middle of 00:01:27.730 --> 00:01:30.390 corn silage harvest, that is an absolute nightmare. 00:01:30.590 --> 00:01:32.450 Oh, it's brutal. Your blood pressure is through 00:01:32.450 --> 00:01:34.290 the roof. You're scrambling for a rental. Your 00:01:34.290 --> 00:01:36.829 whole crew is just standing around. Right. But 00:01:36.829 --> 00:01:39.090 fundamentally, it's a mechanical linear problem. 00:01:39.400 --> 00:01:42.000 You pull the tractor into the shop, you diagnose 00:01:42.000 --> 00:01:44.180 the blown piston, you order the parts, turn the 00:01:44.180 --> 00:01:47.299 ranches, and it's fixed. It operates on a completely 00:01:47.299 --> 00:01:49.859 predictable timeline. Yeah, it's binary. It's 00:01:49.859 --> 00:01:53.079 either broken or it's running. The engine doesn't 00:01:53.079 --> 00:01:55.500 need, you know, a six -month psychological recovery 00:01:55.500 --> 00:01:57.980 period to adjust to the new piston. You turn 00:01:57.980 --> 00:02:00.739 the key, it fires up, you go chop corn. Exactly. 00:02:00.780 --> 00:02:03.599 You can force a mechanical asset to adhere to 00:02:03.599 --> 00:02:06.189 your schedule, but... And this is the crux of 00:02:06.189 --> 00:02:08.469 this whole deep dive. The second you step out 00:02:08.469 --> 00:02:10.229 of the machine shed and walk into the freestyle 00:02:10.229 --> 00:02:13.330 barn. You completely leave the world of mechanics. 00:02:13.689 --> 00:02:16.870 Oh, yeah. You are entering the deeply complex, 00:02:17.129 --> 00:02:20.750 interconnected and just agonizingly slow world 00:02:20.750 --> 00:02:24.349 of bovine biology. There are no quick fixes in 00:02:24.349 --> 00:02:27.969 a dairy barn. None. You can't just swap out a 00:02:27.969 --> 00:02:30.270 cow's rumen like a fuel filter and expect peak 00:02:30.270 --> 00:02:31.789 performance the next morning. It just doesn't 00:02:31.789 --> 00:02:34.050 work that way. It is the ultimate delayed reaction 00:02:34.050 --> 00:02:36.530 environment. Like if you make a fundamental change 00:02:36.530 --> 00:02:39.770 to your transition cow program today or or if 00:02:39.770 --> 00:02:41.830 you totally over. haul your genomic breeding 00:02:41.830 --> 00:02:44.129 strategy this afternoon, you are not going to 00:02:44.129 --> 00:02:46.349 see the true financial impact of that for years. 00:02:46.610 --> 00:02:48.990 Right. The feedback loop is incredibly long and 00:02:48.990 --> 00:02:51.750 extremely murky. And that biological murkiness 00:02:51.750 --> 00:02:54.150 is exactly where the core of our discussion today 00:02:54.150 --> 00:02:56.629 collides with this massive unyielding wall. The 00:02:56.629 --> 00:02:59.469 Wall Street wall. Exactly. We are unpacking the 00:02:59.469 --> 00:03:01.310 severe structural friction between the hyper 00:03:01.310 --> 00:03:03.909 -fast timeline of Wall Street finance and the 00:03:03.909 --> 00:03:06.370 slow biological timeline of raising a dairy cow. 00:03:06.729 --> 00:03:09.370 It's oil and water. They just do not mix. They 00:03:09.370 --> 00:03:11.750 really don't. So we're looking at this phenomenal 00:03:11.750 --> 00:03:13.849 feature piece that breaks down a recent panel 00:03:13.849 --> 00:03:17.550 at the 2025 Milk Business Conference. It pulls 00:03:17.550 --> 00:03:19.689 in perspectives from industry heavyweights like 00:03:19.689 --> 00:03:22.949 Greg Bethard, T .J. Tulls, and Hank Halflegger. 00:03:23.180 --> 00:03:25.219 And we're going to overlay those stories with 00:03:25.219 --> 00:03:28.500 some hard, unvarnished financial data from Cornell 00:03:28.500 --> 00:03:31.659 University's 2024 Dairy Farm Business Summary. 00:03:31.800 --> 00:03:34.699 Right. Our mission here is to look at what extreme 00:03:34.699 --> 00:03:37.219 financial leverage actually does to the day to 00:03:37.219 --> 00:03:39.819 day reality on a farm. We want you to be able 00:03:39.819 --> 00:03:41.979 to evaluate the capital options for your own 00:03:41.979 --> 00:03:45.039 operation without accidentally signing away control 00:03:45.039 --> 00:03:47.159 of your family's legacy. Because the stakes right 00:03:47.159 --> 00:03:49.539 now are absolutely massive. To understand why 00:03:49.539 --> 00:03:51.960 private equity is suddenly knocking on barn doors 00:03:51.960 --> 00:03:54.229 all over. the country, we really have to look 00:03:54.229 --> 00:03:56.169 at the macro level shift that has completely 00:03:56.169 --> 00:03:58.490 reshaped the rural landscape over the last few 00:03:58.490 --> 00:04:02.009 years. The contest is honestly staggering. Let's 00:04:02.009 --> 00:04:03.889 just look at the window strictly between 2017 00:04:03.889 --> 00:04:08.030 and 2022. According to the USDA's Census of Agriculture, 00:04:08.430 --> 00:04:11.129 the number of U .S. dairy operations with off 00:04:11.129 --> 00:04:13.879 -farm milk sales plummeted. It went from over 00:04:13.879 --> 00:04:17.240 39 ,000 down to just over 24 ,000. Which is, 00:04:17.300 --> 00:04:20.139 I mean, let that sink in. That is nearly 4 in 00:04:20.139 --> 00:04:23.839 10 U .S. dairy farms gone. Just... gone. A 39 00:04:23.839 --> 00:04:26.699 % decline at a five -year window. We are talking 00:04:26.699 --> 00:04:29.819 about roughly 12 ,000 family businesses, multi 00:04:29.819 --> 00:04:32.339 -generational operations completely wiped off 00:04:32.339 --> 00:04:35.019 the map. And that doesn't just mean 12 ,000 empty 00:04:35.019 --> 00:04:37.560 barns either. That means a massive hit to the 00:04:37.560 --> 00:04:39.879 local feed mills, the rural veterinary clinics, 00:04:40.060 --> 00:04:42.620 the tax bases of all those rural counties. It's 00:04:42.620 --> 00:04:44.660 a hollow out effect. But, and here's the crazy 00:04:44.660 --> 00:04:47.379 part. the cows didn't disappear. Right. This 00:04:47.379 --> 00:04:49.519 is the exact piece of data that makes the private 00:04:49.519 --> 00:04:51.720 equity funds sit up in their chairs. Even though 00:04:51.720 --> 00:04:54.079 we lost 12 ,000 farming operations, the total 00:04:54.079 --> 00:04:56.100 number of dairy cows in the United States barely 00:04:56.100 --> 00:04:58.939 flinched. It stayed completely steady. The national 00:04:58.939 --> 00:05:01.720 herd size hovered right around that 9 .3 to 9 00:05:01.720 --> 00:05:04.819 .4 million head mark the entire time. And not 00:05:04.819 --> 00:05:07.500 only did the cow number stay flat, but the total 00:05:07.500 --> 00:05:10.519 volume of milk produced in the country actually 00:05:10.519 --> 00:05:13.839 climbed by about 5 % during that exact same window. 00:05:14.019 --> 00:05:15.839 Wait, so let me get this straight. The cows aren't 00:05:15.839 --> 00:05:17.959 leaving, the national milk volume is going up, 00:05:18.000 --> 00:05:20.660 but the individual farms are vanishing at an 00:05:20.660 --> 00:05:23.509 unprecedented rate. So we are witnessing... A 00:05:23.509 --> 00:05:25.949 hyper consolidation event. Exactly. The cows 00:05:25.949 --> 00:05:27.550 are just moving down the road. They're loading 00:05:27.550 --> 00:05:30.310 onto a trailer and walking into a brand new, 00:05:30.410 --> 00:05:34.769 massively scaled mega facility. That is the reality 00:05:34.769 --> 00:05:37.069 of the modern dairy economy. The result of this 00:05:37.069 --> 00:05:41.079 shift is that today, just over 2000 herds. specifically 00:05:41.079 --> 00:05:44.339 herds milking 1 ,000 or more cows, are now producing 00:05:44.339 --> 00:05:46.920 roughly two -thirds of the entire country's milk 00:05:46.920 --> 00:05:50.439 supply. Two -thirds. From just 2 ,000 operations, 00:05:50.639 --> 00:05:53.240 we're looking at an extreme concentration of 00:05:53.240 --> 00:05:56.000 production power. And this brings us to the absolute 00:05:56.000 --> 00:05:57.959 stakes for anyone listening right now who is 00:05:57.959 --> 00:05:59.839 trying to run a dairy. Because if you want to 00:05:59.839 --> 00:06:01.879 compete in an industry where two -thirds of the 00:06:01.879 --> 00:06:03.980 milk is coming from these megaherds and you are 00:06:03.980 --> 00:06:05.860 looking at your own five - to ten -year plan, 00:06:06.040 --> 00:06:09.120 any serious expansion you want to undertake hits 00:06:09.120 --> 00:06:11.720 an immediate brick wall. And that wall is your 00:06:11.720 --> 00:06:14.480 own balance sheet. Exactly. You can't just cash 00:06:14.480 --> 00:06:16.920 flow a major expansion out of the biweekly milk 00:06:16.920 --> 00:06:20.060 check anymore. Those days are gone. You absolutely 00:06:20.060 --> 00:06:22.560 cannot. If you're talking about building a new 00:06:22.560 --> 00:06:25.579 80 -stall rotary parlor, or adding a state -of 00:06:25.579 --> 00:06:27.839 -the -art cross -ventilated barn with robotic 00:06:27.839 --> 00:06:31.480 feed pushers, or, heck, just securing the massive 00:06:31.480 --> 00:06:34.259 land base required to responsibly apply the manure 00:06:34.259 --> 00:06:37.300 and grow the forage for those extra cows. The 00:06:37.300 --> 00:06:39.800 capital requirements are astronomical. We're 00:06:39.800 --> 00:06:42.220 talking tens of millions of dollars just to get 00:06:42.220 --> 00:06:43.959 the concrete poured and the steel in the air. 00:06:44.060 --> 00:06:46.680 You need outside money. Which leaves you, the 00:06:46.680 --> 00:06:51.310 dairyman, facing a brutal... Do you take the 00:06:51.310 --> 00:06:54.250 fast capital? Right. Do you accept the aggressive 00:06:54.250 --> 00:06:56.870 leverage and the private equity money that is 00:06:56.870 --> 00:06:58.670 currently flooding into the agricultural space? 00:06:58.990 --> 00:07:01.709 Do you leverage your family farm to the absolute 00:07:01.709 --> 00:07:04.750 hilt to capture that scale right now? Or do you 00:07:04.750 --> 00:07:07.290 take the much harder, much slower path of finding 00:07:07.290 --> 00:07:09.389 patient capital, the kind of money that might 00:07:09.389 --> 00:07:11.329 restrict how fast you can pour concrete, but 00:07:11.329 --> 00:07:13.050 lets you sleep at night and keeps the actual 00:07:13.050 --> 00:07:15.189 control of your operation in your own hands? 00:07:15.430 --> 00:07:17.449 Well, let's talk about why private equity wants 00:07:17.449 --> 00:07:20.410 in on this in the first place. The PE world has 00:07:20.410 --> 00:07:23.709 developed a very specific thesis for why they 00:07:23.709 --> 00:07:26.110 want to deploy. billions of dollars into dairy 00:07:26.110 --> 00:07:28.110 right now. They actually call it a defensive 00:07:28.110 --> 00:07:30.490 thesis. Defensive thesis. Yeah. From a high rise 00:07:30.490 --> 00:07:33.269 office in Manhattan or Chicago, I'm sure the 00:07:33.269 --> 00:07:35.470 logic seems totally bulletproof. It does. They 00:07:35.470 --> 00:07:37.769 look at it and say, no matter how bad the general 00:07:37.769 --> 00:07:40.189 economy gets, no matter what inflation does or 00:07:40.189 --> 00:07:42.550 how the stock market fluctuates, people still 00:07:42.550 --> 00:07:45.689 have to eat. So they view those 2000 megahertz 00:07:45.689 --> 00:07:50.290 not as farms. but as stable, recession -proof 00:07:50.290 --> 00:07:53.009 biological manufacturing plants. I can see the 00:07:53.009 --> 00:07:54.629 appeal if you're looking at a PowerPoint slide. 00:07:54.769 --> 00:07:56.569 If you're a fund manager looking to hedge against, 00:07:56.589 --> 00:07:59.689 say, tech industry volatility, a massive dairy 00:07:59.689 --> 00:08:02.410 farm pumping out necessary commodity every single 00:08:02.410 --> 00:08:05.329 day looks like a beautiful, stable asset class. 00:08:05.769 --> 00:08:08.649 But there is a massive friction point here. Private 00:08:08.649 --> 00:08:11.370 equity operates on a brutal, unforgiving clock. 00:08:11.589 --> 00:08:13.949 They call it the buy -grow -flip model. Yeah, 00:08:13.970 --> 00:08:16.050 that is their entire structural business model. 00:08:16.439 --> 00:08:18.560 They raise money from institutional investors 00:08:18.560 --> 00:08:21.399 like pension funds and university endowments, 00:08:21.519 --> 00:08:24.339 and they promise a massive return within a strict 00:08:24.339 --> 00:08:27.220 five to seven year window. Right. And how in 00:08:27.220 --> 00:08:29.120 the world does a five to seven year financial 00:08:29.120 --> 00:08:32.480 sprint work when the biology of a dairy cow fundamentally 00:08:32.480 --> 00:08:35.419 refuses to be rushed? It doesn't. Let's actually 00:08:35.419 --> 00:08:37.360 trace that biological timeline on the farm just 00:08:37.360 --> 00:08:39.360 to put it in perspective. You sit down today 00:08:39.360 --> 00:08:42.059 and you make a decision on your genetics program. 00:08:42.279 --> 00:08:45.460 OK. You select a specific sire to improve, let's 00:08:45.460 --> 00:08:48.139 say. component yield, and udder attachment in 00:08:48.139 --> 00:08:51.500 your herd. You inseminate the cow. You wait through 00:08:51.500 --> 00:08:53.679 a nine -month gestation. And then the heifer 00:08:53.679 --> 00:08:56.419 calf finally hits the ground. Right. Now, you 00:08:56.419 --> 00:08:59.679 have to invest heavily in premium colostrum management, 00:08:59.919 --> 00:09:02.860 milk replacer, starter grain, hutch housing, 00:09:03.059 --> 00:09:06.039 and intense labor for nearly two full years before 00:09:06.039 --> 00:09:08.379 that animal ever drops a single calf of her own 00:09:08.379 --> 00:09:10.559 and enters the milking string. So you are nearly 00:09:10.559 --> 00:09:12.779 three years deep from the moment you made the 00:09:12.779 --> 00:09:15.789 genetic decision. You've poured thousands of 00:09:15.789 --> 00:09:18.649 dollars of feed and labor into this animal, and 00:09:18.649 --> 00:09:21.009 she hasn't generated a single drop of saleable 00:09:21.009 --> 00:09:23.909 milk yet. Not a dime. And when she finally does 00:09:23.909 --> 00:09:26.950 enter the parlor for her first lactation, she's 00:09:26.950 --> 00:09:29.169 essentially just working to pay off the massive 00:09:29.169 --> 00:09:31.730 debt you incurred raising her. It isn't until 00:09:31.730 --> 00:09:34.750 her second, or more realistically her third lactation, 00:09:34.809 --> 00:09:37.409 that this specific animal finally crosses the 00:09:37.409 --> 00:09:40.210 break -even threshold and becomes a net positive 00:09:40.210 --> 00:09:42.830 profit center for the farm. Exactly. You are 00:09:42.830 --> 00:09:45.549 looking at a five to six year biological cycle 00:09:45.549 --> 00:09:48.549 just to see if the genetic and calf care decisions 00:09:48.549 --> 00:09:51.049 you made half a decade ago actually worked out. 00:09:51.129 --> 00:09:53.070 Which completely shatters the private equity 00:09:53.070 --> 00:09:56.230 timeline. If the fund manager is on a five year 00:09:56.230 --> 00:09:58.769 clock to buy the farm, double its size, increase 00:09:58.769 --> 00:10:01.090 its margins and sell it to the next guy, they 00:10:01.090 --> 00:10:03.250 literally do not have the time to wait for a 00:10:03.250 --> 00:10:05.909 calf to become a profitable third lactation cow. 00:10:06.350 --> 00:10:08.950 They don't. You cannot put a biological asset 00:10:08.950 --> 00:10:11.490 on a quarterly earning sprint without cutting 00:10:11.490 --> 00:10:15.009 fundamental corners. It legally forces the farm 00:10:15.009 --> 00:10:17.809 into short -term thinking on an animal that strictly 00:10:17.809 --> 00:10:20.950 requires long -term management. The suit in the 00:10:20.950 --> 00:10:23.289 boardroom looking at the spreadsheet assumes 00:10:23.289 --> 00:10:26.289 a linear progression of efficiency, right? They 00:10:26.289 --> 00:10:28.970 assume that if you inject $10 million of capital, 00:10:29.230 --> 00:10:32.190 output increases predictably by a set percentage 00:10:32.190 --> 00:10:34.779 every single quarter. But any dairyman listening 00:10:34.779 --> 00:10:37.679 to this knows that biology is wildly nonlinear. 00:10:37.759 --> 00:10:40.320 The boardroom has absolutely no idea what a bad 00:10:40.320 --> 00:10:42.980 milk year actually smells like. Let's talk about 00:10:42.980 --> 00:10:46.179 that reality, because that defensive thesis assumes 00:10:46.179 --> 00:10:48.460 the cows are just machines on an assembly line. 00:10:48.750 --> 00:10:50.990 But what happens when you open up a bunker silo 00:10:50.990 --> 00:10:53.610 in January and it's full of mycotoxins because 00:10:53.610 --> 00:10:55.450 it rained for three straight weeks during corn 00:10:55.450 --> 00:10:57.610 silage harvest last fall? Oh, it wrecks your 00:10:57.610 --> 00:11:00.230 entire system. The mycotoxins hit the rumen, 00:11:00.309 --> 00:11:02.970 the cows drop their feed intake, your fresh cow 00:11:02.970 --> 00:11:05.710 transition program completely falls apart, metabolic 00:11:05.710 --> 00:11:08.129 diseases spike, and suddenly your milk volume 00:11:08.129 --> 00:11:11.009 just falls off a cliff. Or consider a brutal, 00:11:11.169 --> 00:11:14.230 unrelenting summer heat wave. The humidity index 00:11:14.230 --> 00:11:16.490 stays dangerously high for a month straight. 00:11:16.710 --> 00:11:19.049 Right. The cows are panting. They aren't resting. 00:11:19.129 --> 00:11:21.129 Blood flow shifts away from the rumen to the 00:11:21.129 --> 00:11:23.750 skin to cool the animal down. Your component 00:11:23.750 --> 00:11:27.750 tests your butterfat and protein tank. And your 00:11:27.750 --> 00:11:30.009 conception rates for the next three months are 00:11:30.009 --> 00:11:32.730 completely destroyed. And when that happens, 00:11:32.830 --> 00:11:34.990 the fund manager looking at the quarterly dashboard. 00:11:35.769 --> 00:11:37.769 doesn't care about the humidity index. They don't 00:11:37.769 --> 00:11:39.769 care about the rain during harvest. No, their 00:11:39.769 --> 00:11:42.389 legal mandate to their investors is to fix the 00:11:42.389 --> 00:11:44.950 spreadsheet. So they demand immediate interventions 00:11:44.950 --> 00:11:48.049 to hit the quarterly revenue target, even if 00:11:48.049 --> 00:11:50.370 those interventions are detrimental to the long 00:11:50.370 --> 00:11:52.450 -term health of the herd. Like what? What do 00:11:52.450 --> 00:11:54.389 they usually demand? Well, they might demand 00:11:54.389 --> 00:11:56.970 you push the cows harder on a hotter, more aggressive 00:11:56.970 --> 00:11:59.389 ration to spike milk production, which risks 00:11:59.389 --> 00:12:03.159 ruminal acidosis. Or they demand you delay necessary 00:12:03.159 --> 00:12:05.720 maintenance on the free stalls to save cash this 00:12:05.720 --> 00:12:08.200 quarter. So when you take that hyperaggressive 00:12:08.200 --> 00:12:11.019 fast capital, the problem isn't just about who 00:12:11.019 --> 00:12:13.759 legally owns the equity in the farm. It's about 00:12:13.759 --> 00:12:16.799 whose timeline dictates the daily routine in 00:12:16.799 --> 00:12:19.379 the parlor. Exactly. You surrender your animal 00:12:19.379 --> 00:12:22.039 husbandry to a financial algorithm. Man, that 00:12:22.039 --> 00:12:25.139 is bleak. So as the math of biology and the math 00:12:25.139 --> 00:12:27.779 of Wall Street are so fundamentally mismatched, 00:12:27.919 --> 00:12:30.539 what does it actually look like when that massive 00:12:30.539 --> 00:12:33.159 debt load hits a farm's balance sheet? Let's 00:12:33.159 --> 00:12:35.600 dive into the hard, unforgiving numbers. Yes. 00:12:35.659 --> 00:12:37.879 Let's look at the data. The data from the Cornell 00:12:37.879 --> 00:12:41.960 2024 Dairy Farm Business Summary, the DFBS, is 00:12:41.960 --> 00:12:43.960 honestly one of the most sobering reality checks 00:12:43.960 --> 00:12:45.919 I've ever seen. This data set is incredible. 00:12:46.100 --> 00:12:49.360 It looks specifically at 129 dairy farms in New 00:12:49.360 --> 00:12:52.399 York, sorting them into earnings quartiles. And 00:12:52.399 --> 00:12:54.600 look, while the exact dollar amounts might shift 00:12:54.600 --> 00:12:56.639 slightly if you are milking cows in Wisconsin 00:12:56.639 --> 00:12:59.700 or Idaho or Texas, the agricultural economists 00:12:59.700 --> 00:13:02.100 make it very clear that the fundamental financial 00:13:02.100 --> 00:13:05.179 patterns hold true nationally. Right. And the 00:13:05.179 --> 00:13:07.159 contrast between the top earning quartile of 00:13:07.159 --> 00:13:09.480 farms and the bottom earning quartile completely 00:13:09.480 --> 00:13:12.179 destroys the myth that scaling up automatically 00:13:12.179 --> 00:13:14.789 equals profitability. Let's rank down the top 00:13:14.789 --> 00:13:17.350 quartile first. Okay. The most profitable 25 00:13:17.350 --> 00:13:19.990 % of farms in the program. Yep. They carried 00:13:19.990 --> 00:13:24.820 an average debt of $2 ,997 per cow. Now, the 00:13:24.820 --> 00:13:26.960 absolute dollar amount of debt isn't the most 00:13:26.960 --> 00:13:29.200 important metric here. It is their debt service 00:13:29.200 --> 00:13:32.460 coverage ratio, or DSCR. The top quartile had 00:13:32.460 --> 00:13:35.559 a DSCR north of 5x. We need to pause and explain 00:13:35.559 --> 00:13:38.360 DSCR in very plain farmer English because it 00:13:38.360 --> 00:13:41.340 is arguably the single most important metric 00:13:41.340 --> 00:13:43.700 for farm survival. Go for it. How do you explain 00:13:43.700 --> 00:13:46.320 it? Your debt service coverage ratio is the ultimate 00:13:46.320 --> 00:13:48.580 measure of your financial breathing room. A 1 00:13:48.580 --> 00:13:52.159 .0x DSCR means that for every $1 of scheduled 00:13:52.159 --> 00:13:54.100 principal and interest payments, you owe the 00:13:54.100 --> 00:13:57.059 bank this year, your farm generated exactly $1 00:13:57.059 --> 00:13:59.139 of available cash flow to pay it. So you are 00:13:59.139 --> 00:14:02.039 perfectly at zero. Exactly. You made the payment 00:14:02.039 --> 00:14:03.740 to the bank, but there is absolutely nothing 00:14:03.740 --> 00:14:06.799 left over. No money to replace a blown tractor 00:14:06.799 --> 00:14:09.559 engine. No money to survive a sudden drop in 00:14:09.559 --> 00:14:12.519 milk prices. No money to reinvest in the facility. 00:14:12.820 --> 00:14:15.539 You are scraping the bottom. So when the Cornell 00:14:15.539 --> 00:14:18.679 data shows that the top quartile has a DSCR north 00:14:18.679 --> 00:14:22.470 of 5x, That means for every single dollar they 00:14:22.470 --> 00:14:24.889 owe the bank in debt service, they are generating 00:14:24.889 --> 00:14:28.629 $5 in available cash flow. Yes, that is an incredibly 00:14:28.629 --> 00:14:30.950 resilient bulletproof position. If the cheese 00:14:30.950 --> 00:14:33.509 markets collapse or if soybean meal prices go 00:14:33.509 --> 00:14:37.009 through the roof, they have a massive multi -dollar 00:14:37.009 --> 00:14:39.049 buffer before they ever come close to missing 00:14:39.049 --> 00:14:41.269 a payment. They can weather almost any storm. 00:14:41.509 --> 00:14:43.149 Okay, now let's look at the bottom quartile. 00:14:43.480 --> 00:14:46.980 the least profitable 25 % of farms. Their average 00:14:46.980 --> 00:14:51.840 debt is a massive $6 ,638 per cow. Wow. It is 00:14:51.840 --> 00:14:53.700 more than double the debt load at the top tier. 00:14:53.860 --> 00:14:56.059 Double. And their debt service coverage ratio, 00:14:56.220 --> 00:14:59.820 it was sitting under 1 .0x. Under 1 .0x, which 00:14:59.820 --> 00:15:01.679 means their farm's cash flow could not even cover 00:15:01.679 --> 00:15:04.039 their required legally binding debt payments 00:15:04.039 --> 00:15:06.240 to the bank. And the most terrifying part of 00:15:06.240 --> 00:15:08.700 this Cornell report is the timing. This data 00:15:08.700 --> 00:15:12.090 was from 2024. This happened during a year when 00:15:12.090 --> 00:15:14.990 average net farm income per cow actually jumped 00:15:14.990 --> 00:15:17.529 sharply across the industry. Wait, really? Yes. 00:15:17.769 --> 00:15:20.190 Even in one of the strongest income years in 00:15:20.190 --> 00:15:23.269 recent memory, the most highly leveraged herds, 00:15:23.269 --> 00:15:27.129 those carrying that $1 ,600 per cow burden, were 00:15:27.129 --> 00:15:30.610 drowning. So if they cannot generate enough cash 00:15:30.610 --> 00:15:32.970 to make their debt payments during a boom year, 00:15:33.110 --> 00:15:35.509 what on earth happens to them when the milk price 00:15:35.509 --> 00:15:37.970 inevitably cycles downward? They get completely 00:15:37.970 --> 00:15:41.250 wiped out. The bank steps in or the private equity 00:15:41.250 --> 00:15:43.889 firm executes a takeover clause, fires the management 00:15:43.889 --> 00:15:46.250 and liquidates the biological assets to recover 00:15:46.250 --> 00:15:48.470 their capital. But the heavy debt load doesn't 00:15:48.470 --> 00:15:50.549 just sit in a vacuum on a spreadsheet. It acts 00:15:50.549 --> 00:15:52.750 like a parasite on the daily operational efficiency 00:15:52.750 --> 00:15:54.789 of the farm. Right, because the public tables 00:15:54.789 --> 00:15:57.629 from the DFBS reveal a staggering gap in the 00:15:57.629 --> 00:16:00.629 actual cost of production. The top tier farms 00:16:00.629 --> 00:16:04.610 are producing milk $6 .53 per 100 weight cheaper 00:16:04.610 --> 00:16:07.149 than the bottom group. Let that number sink in 00:16:07.149 --> 00:16:11.870 for a second. $6 .53 cheaper for every 100 pounds 00:16:11.870 --> 00:16:14.779 of milk that leaves the farm. That is a chasm. 00:16:14.840 --> 00:16:17.240 It's massive. And we have to be very clear about 00:16:17.240 --> 00:16:19.720 how those top farms are achieving that gap. It 00:16:19.720 --> 00:16:23.000 is a function of intense, relentless operational 00:16:23.000 --> 00:16:26.019 excellence that is only possible when you aren't 00:16:26.019 --> 00:16:28.659 suffocating under debt. Exactly. You're talking 00:16:28.659 --> 00:16:31.799 about superior feed efficiency because they have 00:16:31.799 --> 00:16:34.379 the cash to invest in precision feeding technology. 00:16:34.679 --> 00:16:37.480 So they are getting more pounds of milk out of 00:16:37.480 --> 00:16:39.799 every single pound of dry matter intake. They 00:16:39.799 --> 00:16:41.980 have higher labor productivity, too. They can 00:16:41.980 --> 00:16:44.799 afford to pay slightly better wages, which reduces 00:16:44.799 --> 00:16:47.679 employee turnover. And that means their parlor 00:16:47.679 --> 00:16:49.840 routines are flawlessly consistent. And they 00:16:49.840 --> 00:16:52.440 have better fixed cost absorption. They are pushing 00:16:52.440 --> 00:16:55.220 the absolute optimal amount of milk through their 00:16:55.220 --> 00:16:57.759 facilities without overcrowding the pens. causing 00:16:57.759 --> 00:17:00.659 stress. Let's run the math on what that $6 .53 00:17:00.659 --> 00:17:02.720 difference actually means in the real world. 00:17:02.840 --> 00:17:04.980 Let's take a hypothetical but very realistic 00:17:04.980 --> 00:17:08.980 2 ,000 cow herd. Okay, 2 ,000 cows. And let's 00:17:08.980 --> 00:17:10.880 say they're running a very respectable production 00:17:10.880 --> 00:17:13.960 average of 280 hundredweight per cow per year. 00:17:14.079 --> 00:17:17.039 That gives you a total annual production of 560 00:17:17.039 --> 00:17:19.279 ,000 hundredweight of milk. All right, so if 00:17:19.279 --> 00:17:22.440 we take that $560 ,100 weight and multiply it 00:17:22.440 --> 00:17:25.859 by that $6 .53 cost of production spread between 00:17:25.859 --> 00:17:29.420 the top quartile and the bottom quartile, you 00:17:29.420 --> 00:17:31.599 are looking at an operating cost difference of 00:17:31.599 --> 00:17:38.000 $3 ,656 ,800. Over $3 .6 million per year in 00:17:38.000 --> 00:17:42.000 one single year. Just. This data absolutely vaporizes 00:17:42.000 --> 00:17:43.960 the most pervasive myth in the dairy industry 00:17:43.960 --> 00:17:46.200 right now. There's this dangerous coffee shop 00:17:46.200 --> 00:17:48.480 narrative that you just need more cows to be 00:17:48.480 --> 00:17:50.920 profitable. Oh, you hear it all the time. That 00:17:50.920 --> 00:17:52.700 if your margins are tight, the answer is to take 00:17:52.700 --> 00:17:55.000 on massive leverage, build a new barn, add 1 00:17:55.000 --> 00:17:57.259 ,000 cows, and try to outrun your inefficiencies 00:17:57.259 --> 00:17:59.839 with sheer volume. But these two hypothetical 00:17:59.839 --> 00:18:02.240 farms are selling their make into the exact same 00:18:02.240 --> 00:18:04.619 volatile market. They're buying their corn and 00:18:04.619 --> 00:18:06.880 soybean meal from the exact same commodity markets. 00:18:07.369 --> 00:18:10.430 But because one farm has low debt and extreme 00:18:10.430 --> 00:18:13.589 operational efficiency and the other is suffocating 00:18:13.589 --> 00:18:17.210 under $6 ,600 per cow in debt and poor efficiency, 00:18:17.529 --> 00:18:21.289 there is a $3 .6 million divergence in their 00:18:21.289 --> 00:18:24.329 bank accounts every 12 months. Top tier profitability 00:18:24.329 --> 00:18:26.569 comes from lowly debt and better efficiency, 00:18:26.750 --> 00:18:29.829 not just massive scale fueled by fast capital. 00:18:29.950 --> 00:18:32.920 So when a private equity term sheet. pushes you 00:18:32.920 --> 00:18:36.039 to leverage up into that mid $6 ,000 per cow 00:18:36.039 --> 00:18:38.900 neighborhood before your actual operational chops 00:18:38.900 --> 00:18:40.799 and your cost structure prove that you belong 00:18:40.799 --> 00:18:43.480 there. The underlying math of your farm is fundamentally 00:18:43.480 --> 00:18:45.900 broken. You are building a house of cards. But 00:18:45.900 --> 00:18:47.940 let's say a producer ignores the math. They see 00:18:47.940 --> 00:18:50.240 a neighbor building a massive new rotary. The 00:18:50.240 --> 00:18:52.799 FOMO kicks in to take the heavy PE back debt 00:18:52.799 --> 00:18:55.809 and they expand. Their balance sheet is now stretched 00:18:55.809 --> 00:18:57.609 as tight as a drum. Yeah, they're feeling good 00:18:57.609 --> 00:18:59.509 for a minute. Right. But what actually happens 00:18:59.509 --> 00:19:02.109 on a Tuesday morning in November when the inevitable 00:19:02.109 --> 00:19:04.369 bad year finally hits and the cash flow tightens 00:19:04.369 --> 00:19:06.450 up. To understand the nightmare that follows, 00:19:06.670 --> 00:19:09.170 you have to look at the legal mechanics of aggressive 00:19:09.170 --> 00:19:12.569 debt structures. When a fund or a major lender 00:19:12.569 --> 00:19:15.650 hands you a check for $20 million, they don't 00:19:15.650 --> 00:19:17.650 just shake your hand and wish you luck. No, they 00:19:17.650 --> 00:19:19.569 definitely do not. They protect their capital 00:19:19.569 --> 00:19:23.009 with strict, legally binding financial rules 00:19:23.009 --> 00:19:25.869 written deep into your operating agreement. These 00:19:25.869 --> 00:19:28.490 are called covenants. Right. These aren't suggestions. 00:19:28.509 --> 00:19:31.420 These are triggers. They will include... strict 00:19:31.420 --> 00:19:34.500 DSCR floors, meaning if your cash flow drops 00:19:34.500 --> 00:19:36.819 and your debt service coverage ratio falls below, 00:19:37.019 --> 00:19:40.599 say, 1 .2x, you are immediately in technical 00:19:40.599 --> 00:19:43.039 default of your loan. And they will include rigid 00:19:43.039 --> 00:19:46.339 caps on capital expenditures or CapEx, meaning 00:19:46.339 --> 00:19:48.140 you are legally barred from spending more than 00:19:48.140 --> 00:19:50.180 a predetermined amount on facility improvements 00:19:50.180 --> 00:19:52.740 without explicit written permission from the 00:19:52.740 --> 00:19:54.819 board. And none of those covenants matter when 00:19:54.819 --> 00:19:58.000 milk is $24 hundredweight and feed is dirt cheap. 00:19:58.380 --> 00:20:00.609 When you're printing money, The board leaves 00:20:00.609 --> 00:20:03.190 you alone. You feel like a genius. But every 00:20:03.190 --> 00:20:05.269 single farmer has lived through the nightmare 00:20:05.269 --> 00:20:08.210 year. The year when the feed quality is garbage, 00:20:08.529 --> 00:20:11.490 a respiratory virus sweeps through the calf hutches, 00:20:11.650 --> 00:20:14.789 and the milk price drops $3 in a single month. 00:20:15.069 --> 00:20:18.630 When that severe down cycle hits, a good dairyman's 00:20:18.630 --> 00:20:21.230 natural instinct is survival through preservation. 00:20:21.829 --> 00:20:24.470 You know the biological environment is stressed. 00:20:24.890 --> 00:20:27.890 Your gut tells you to slow down. Right, you decide 00:20:27.890 --> 00:20:30.170 to hold onto your young stock rather than selling 00:20:30.170 --> 00:20:32.329 them for a quick cash hit because you know you 00:20:32.329 --> 00:20:34.609 will desperately need those genetically superior 00:20:34.609 --> 00:20:37.509 replacements when the herd finally recovers in 00:20:37.509 --> 00:20:39.930 two years. You realize that to get the cows through 00:20:39.930 --> 00:20:42.490 the summer heat, you need to spend capital right 00:20:42.490 --> 00:20:45.849 now to retrofit a dry cow barn or install high 00:20:45.849 --> 00:20:49.130 -velocity fans to buy the cows some relief and 00:20:49.130 --> 00:20:51.559 protect their next lactation. But the covenants 00:20:51.559 --> 00:20:54.500 demand the exact opposite behavior. The financial 00:20:54.500 --> 00:20:56.920 spreadsheet sees cash flow dropping toward that 00:20:56.920 --> 00:21:00.099 1 .2x default trigger. So the covenant mandate 00:21:00.099 --> 00:21:02.440 comes down from the boardroom, frees all spending 00:21:02.440 --> 00:21:06.160 immediately. No new fans. No dry cow barn retrofits. 00:21:06.460 --> 00:21:08.660 Delay all routine maintenance on the parlor. 00:21:08.740 --> 00:21:11.000 And to make up for the lost revenue, the order 00:21:11.000 --> 00:21:13.119 comes down to push more milk out of the existing 00:21:13.119 --> 00:21:16.940 footprint. Cram more cows into the pens. Overcrowd 00:21:16.940 --> 00:21:19.440 the freestalls. Sell the young stock immediately 00:21:19.440 --> 00:21:22.640 to generate a cash injection, completely sacrificing 00:21:22.640 --> 00:21:25.160 your future genetic pipeline. It's essentially 00:21:25.160 --> 00:21:27.980 stripping the copper wire out of the walls of 00:21:27.980 --> 00:21:30.440 your house to pay the mortgage. And the psychological 00:21:30.440 --> 00:21:33.619 toll this takes on a farmer is absolutely devastating. 00:21:33.900 --> 00:21:36.700 It really is. This isn't just an abstract argument 00:21:36.700 --> 00:21:38.740 about capital structure at an annual meeting. 00:21:39.059 --> 00:21:43.220 It is a daily grinding, soul crushing reality. 00:21:43.700 --> 00:21:46.240 It feels like you are constantly arguing with 00:21:46.240 --> 00:21:49.660 a spreadsheet about basic fundamental cow care. 00:21:49.940 --> 00:21:52.660 If you have to set up a Zoom call with a 28 year 00:21:52.660 --> 00:21:55.740 old financial analyst in a high rise to beg for 00:21:55.740 --> 00:21:58.400 permission to hang fans over a holding area or 00:21:58.400 --> 00:22:00.599 to authorize an extra hoof trimming visit because 00:22:00.599 --> 00:22:02.539 the cows are showing signs of lameness on the 00:22:02.539 --> 00:22:04.900 concrete, you haven't just sold. equity in your 00:22:04.900 --> 00:22:07.359 business. No, you have literally sold the rights 00:22:07.359 --> 00:22:09.339 to how you manage your animals. You are watching 00:22:09.339 --> 00:22:11.160 your cows suffer. You know exactly how to fix 00:22:11.160 --> 00:22:13.839 it. But the capex ceiling legally prevents you 00:22:13.839 --> 00:22:16.339 from taking action. So if the highly leveraged 00:22:16.339 --> 00:22:19.480 private equity route is a trap that strips you 00:22:19.480 --> 00:22:22.900 of your operational autonomy, who out there is 00:22:22.900 --> 00:22:25.960 actually expanding successfully without selling 00:22:25.960 --> 00:22:28.259 their soul to a financial fund? Well, let's look 00:22:28.259 --> 00:22:30.460 at three families from that Milk Business Conference 00:22:30.460 --> 00:22:33.099 panel who took three completely different paths, 00:22:33.339 --> 00:22:36.500 but all explicitly refused the traditional private 00:22:36.500 --> 00:22:38.799 equity model. Right. The panel featured Greg 00:22:38.799 --> 00:22:41.859 Bethard, T .J. Tolles, and Hank Halflager. And 00:22:41.859 --> 00:22:44.019 what is so fascinating about their stories is 00:22:44.019 --> 00:22:47.039 that they didn't just reject P .E., they actively 00:22:47.039 --> 00:22:50.099 built three distinct, highly creative alternative 00:22:50.099 --> 00:22:52.970 models. But none of them are perfect. They all 00:22:52.970 --> 00:22:55.210 required accepting massive, terrifying trade 00:22:55.210 --> 00:22:57.549 -offs. Let's start with T .J. Tulls, representing 00:22:57.549 --> 00:23:00.490 the path of massive vertical integration. T .J. 00:23:00.549 --> 00:23:02.549 is a fourth -generation dairyman in Nebraska, 00:23:02.849 --> 00:23:05.009 and his family is taking a swing that is almost 00:23:05.009 --> 00:23:07.230 hard to comprehend for the average producer. 00:23:07.410 --> 00:23:09.069 What are they doing? They are currently building 00:23:09.069 --> 00:23:11.210 DRI, processing a state -of -the -art facility 00:23:11.210 --> 00:23:13.670 at Nebraska's Seward Rail Campus. It's being 00:23:13.670 --> 00:23:16.029 reported as the state's first major greenfield 00:23:16.029 --> 00:23:19.150 dairy plant built in over six decades. The scale 00:23:19.150 --> 00:23:22.190 is immense. Trade sources are pegging the cost 00:23:22.190 --> 00:23:26.890 of this plant at around $165 million. Yeah, $165 00:23:26.890 --> 00:23:30.970 million. It's designed to process roughly 1 .8 00:23:30.970 --> 00:23:34.509 million pounds of raw milk per single day, with 00:23:34.509 --> 00:23:37.849 a target startup around 2027. And when Tulls 00:23:37.849 --> 00:23:39.470 was asked on the panel where he would choose 00:23:39.470 --> 00:23:42.210 to build a new dairy facility today, his answer 00:23:42.210 --> 00:23:45.009 was incredibly blunt. He said, close to a milk 00:23:45.009 --> 00:23:47.480 plant. But instead of hoping a processor decides 00:23:47.480 --> 00:23:50.039 to build near his cows, his family decided to 00:23:50.039 --> 00:23:52.519 bypass the processor entirely and become the 00:23:52.519 --> 00:23:55.119 plant. They avoided the PE funds, grading them 00:23:55.119 --> 00:23:57.559 on a five -year internal rate of return, and 00:23:57.559 --> 00:23:59.420 instead partnered with traditional lenders and 00:23:59.420 --> 00:24:01.700 entities focused on multi -decade infrastructure. 00:24:02.349 --> 00:24:04.430 But the massive trade -off the Tulls family accepted 00:24:04.430 --> 00:24:07.130 is execution risk. They swapped the dependency 00:24:07.130 --> 00:24:09.549 of being at the mercy of a processor's quotas 00:24:09.549 --> 00:24:12.009 for the terrifying risk of constructing and operating 00:24:12.009 --> 00:24:15.289 a $165 million manufacturing plant. Just think 00:24:15.289 --> 00:24:17.210 about the logistics of a rail campus. If there 00:24:17.210 --> 00:24:19.410 are massive construction overruns, if the global 00:24:19.410 --> 00:24:21.509 supply chain for stainless steel vats gets delayed, 00:24:21.730 --> 00:24:23.769 if the plant struggles during its ramp -up period 00:24:23.769 --> 00:24:26.170 and can't process the milk fast enough, or if 00:24:26.170 --> 00:24:28.170 the wholesale margins on the processed dairy 00:24:28.170 --> 00:24:31.180 products get squeezed globally, Every single 00:24:31.180 --> 00:24:33.500 one of those financial shockwaves travels straight 00:24:33.500 --> 00:24:35.500 back down the pipeline and hits the family's 00:24:35.500 --> 00:24:38.160 farm operation. It is a phenomenal case study 00:24:38.160 --> 00:24:41.460 in ambition. But I look at that $165 million 00:24:41.460 --> 00:24:44.660 execution risk, and I know that is completely 00:24:44.660 --> 00:24:47.680 out of the stratosphere for 99 % of the industry. 00:24:47.900 --> 00:24:49.960 Oh, for sure. It's not a replicable template 00:24:49.960 --> 00:24:52.920 for a guy milking 1 ,500 cows who just wants 00:24:52.920 --> 00:24:55.079 to add a cross -ventilated barn. Which makes 00:24:55.079 --> 00:24:57.279 Hank Hafliger's model much more interesting. 00:24:57.460 --> 00:25:00.210 Hafliger runs Cedar Ridge Dairy. They started 00:25:00.210 --> 00:25:02.170 in California and eventually moved the operation 00:25:02.170 --> 00:25:05.630 to Filer, Idaho. Hank represents the path of 00:25:05.630 --> 00:25:07.890 structural integration. Yeah, Half Lager took 00:25:07.890 --> 00:25:10.690 a fiercely independent approach. Absolutely no 00:25:10.690 --> 00:25:13.309 outside equity, no PE funds, no infrastructure 00:25:13.309 --> 00:25:15.950 partners. None. The entire expansion of their 00:25:15.950 --> 00:25:18.549 operation across multiple dairy sites is funded 00:25:18.549 --> 00:25:20.730 strictly through traditional bank debt, retained 00:25:20.730 --> 00:25:22.809 earnings, and keeping every single piece of the 00:25:22.809 --> 00:25:25.150 pie inside the family. He owns the operation 00:25:25.150 --> 00:25:27.369 alongside three of his children and their spouses. 00:25:27.980 --> 00:25:30.539 But the genius and the extreme danger of his 00:25:30.539 --> 00:25:33.400 structure is that they run multiple massive sites 00:25:33.400 --> 00:25:37.559 as one single unified business bucket. Halflegger 00:25:37.559 --> 00:25:40.400 explicitly told the crowd that by running them 00:25:40.400 --> 00:25:43.220 as one entity rather than separate LLCs competing 00:25:43.220 --> 00:25:45.519 against each other, they eliminate internal friction. 00:25:45.640 --> 00:25:49.000 You don't have the my dairy facility is producing 00:25:49.000 --> 00:25:51.200 more pounds of component than your dairy facility. 00:25:51.380 --> 00:25:54.400 So I deserve a bigger dividend check argument 00:25:54.400 --> 00:25:56.839 at the dinner table. Right. But the tradeoff 00:25:56.839 --> 00:25:59.619 here is pure people risk. Hank said something 00:25:59.619 --> 00:26:02.240 incredibly profound on that panel. He said the 00:26:02.240 --> 00:26:04.759 single bucket model requires maturity to relax 00:26:04.759 --> 00:26:06.720 and let things happen rather than trying to force 00:26:06.720 --> 00:26:09.859 them. He is demanding a staggering level of emotional 00:26:09.859 --> 00:26:12.519 intelligence, grace and total alignment across 00:26:12.519 --> 00:26:14.660 his children and his in -laws. And that is a 00:26:14.660 --> 00:26:16.700 terrifying tightrope to walk. If you put all 00:26:16.700 --> 00:26:19.039 the family's assets, all the sweat equity and 00:26:19.039 --> 00:26:21.400 all the financial leverage into one massive bucket 00:26:21.400 --> 00:26:23.579 across multiple sites and that family fractures. 00:26:24.619 --> 00:26:27.759 The explosion is catastrophic. If a divorce happens, 00:26:27.920 --> 00:26:30.119 if one sibling suddenly decides they want to 00:26:30.119 --> 00:26:32.539 cash out their equity and move to Florida or 00:26:32.539 --> 00:26:34.779 if there is a fundamental bitter disagreement 00:26:34.779 --> 00:26:37.559 on herd management style, the damage isn't just 00:26:37.559 --> 00:26:40.700 financial. It is deeply, permanently personal. 00:26:40.880 --> 00:26:43.599 You don't just lose the farm. You destroy the 00:26:43.599 --> 00:26:46.000 family Thanksgiving dinner for the next 40 years. 00:26:46.220 --> 00:26:48.900 Which brings us to Greg Bethard, the CEO of High 00:26:48.900 --> 00:26:52.279 Plains Ponderosa Dairy in Kansas. I think Bethard 00:26:52.279 --> 00:26:54.720 represents the most attainable, realistic model 00:26:54.720 --> 00:26:57.579 for a producer looking to scale without losing 00:26:57.579 --> 00:27:00.339 their soul. He represents the path of patient 00:27:00.339 --> 00:27:03.250 partners. I loved his approach. Greg opened his 00:27:03.250 --> 00:27:05.230 presentation by drawing a hard line in the sand, 00:27:05.329 --> 00:27:08.170 saying, we are looking for partners, not investors. 00:27:08.549 --> 00:27:11.170 Beathard expanded his massive rotary parlor operation 00:27:11.170 --> 00:27:13.970 without a dime of private equity. Instead, he 00:27:13.970 --> 00:27:16.049 sought out capital exclusively from people who 00:27:16.049 --> 00:27:18.910 have ag scars. That is such a vivid, perfect 00:27:18.910 --> 00:27:21.549 term, ag scars. He only wants partners who already 00:27:21.549 --> 00:27:23.990 know what a bad milk year feels like. People 00:27:23.990 --> 00:27:26.089 who have walked through a freezing, muddy barn 00:27:26.089 --> 00:27:29.109 in February and deeply understand the cyclical 00:27:29.109 --> 00:27:31.559 volatility of agriculture. He actually brought 00:27:31.559 --> 00:27:34.160 up Malcolm Gladwell's concept of the 10 ,000 00:27:34.160 --> 00:27:36.420 hours of experience required to achieve mastery. 00:27:37.160 --> 00:27:39.599 Bethard was incredibly transparent with the crowd. 00:27:39.680 --> 00:27:42.019 He said, we have our 10 ,000 hours of experience 00:27:42.019 --> 00:27:44.400 now. We're going to screw stuff up. There are 00:27:44.400 --> 00:27:46.880 going to be bad days, but we keep going at it 00:27:46.880 --> 00:27:48.819 and we'll get it figured out. And that is the 00:27:48.819 --> 00:27:51.220 crux of the entire issue. When you are scaling 00:27:51.220 --> 00:27:54.039 up a biological system, you desperately need 00:27:54.039 --> 00:27:56.289 the freedom to screw up. while you are learning 00:27:56.289 --> 00:27:59.089 to manage at a new magnitude. Right. Maybe your 00:27:59.089 --> 00:28:01.990 new robotic fresh cow protocol fails miserably 00:28:01.990 --> 00:28:04.769 for the first six months. Maybe your entire labor 00:28:04.769 --> 00:28:06.809 management structure breaks down when you transition 00:28:06.809 --> 00:28:09.690 from managing a tight crew of 10 employees to 00:28:09.690 --> 00:28:12.710 a sprawling staff of 40. You need time to fail, 00:28:12.930 --> 00:28:15.910 learn, and adjust. And it is absolutely impossible 00:28:15.910 --> 00:28:18.769 to reach those 10 ,000 hours of mastery if your 00:28:18.769 --> 00:28:21.450 business plan has a strict, legally binding five 00:28:21.450 --> 00:28:24.289 to seven year expiration date imposed by a private 00:28:24.289 --> 00:28:26.420 equity fund. If you are forced to hit arbitrary 00:28:26.420 --> 00:28:29.240 IRR hurdles by year three, you will be forced 00:28:29.240 --> 00:28:31.420 to sell the dairy before you ever figure out 00:28:31.420 --> 00:28:33.900 how to run it perfectly. So Bethard's model is 00:28:33.900 --> 00:28:36.359 brilliant, provided you can actually find those 00:28:36.359 --> 00:28:39.339 rare patient partners who are willing to play 00:28:39.339 --> 00:28:42.680 the 30 to 40 year generational game rather than 00:28:42.680 --> 00:28:44.809 the five year flip game. But what happens if 00:28:44.809 --> 00:28:47.130 you fail to find them? What happens if you get 00:28:47.130 --> 00:28:49.630 impatient, sign the term sheet with the short 00:28:49.630 --> 00:28:51.710 -term fund, and let them onto your cap table? 00:28:51.930 --> 00:28:54.630 This is where the legal jargon in those contracts 00:28:54.630 --> 00:28:58.089 turns into real -world nightmare fuel for a family 00:28:58.089 --> 00:29:01.230 farm. We have to talk about a terrifying legal 00:29:01.230 --> 00:29:04.349 mechanism called drag -along language. Oh, man, 00:29:04.529 --> 00:29:07.450 drag -along clauses. They are brutal. When you 00:29:07.450 --> 00:29:09.589 take outside private equity, their shareholder 00:29:09.589 --> 00:29:12.630 agreement will almost always include a drag -along 00:29:12.630 --> 00:29:15.900 clause. What this means in plain English is that 00:29:15.900 --> 00:29:18.480 when the majority shareholder, the private equity 00:29:18.480 --> 00:29:20.400 fund, decides it is time for them to exit the 00:29:20.400 --> 00:29:23.220 investment, sell the farm and realize their profit, 00:29:23.380 --> 00:29:25.859 they have the legal right to force a sale of 00:29:25.859 --> 00:29:27.859 the entire business. They can literally drag 00:29:27.859 --> 00:29:30.039 you, the minority partner, the founder, the farmer 00:29:30.039 --> 00:29:32.039 who built the place along into the sale, whether 00:29:32.039 --> 00:29:33.619 you want to sell your shows or not. In the corporate 00:29:33.619 --> 00:29:36.519 tech world where founders build apps specifically 00:29:36.519 --> 00:29:39.220 to get bought out by Google, that is standard 00:29:39.220 --> 00:29:42.769 practice. But on a family dairy farm? It is a 00:29:42.769 --> 00:29:45.990 generational death sentence. It completely short 00:29:45.990 --> 00:29:48.869 -circuits any slow -build succession plan you 00:29:48.869 --> 00:29:50.730 might have spent the last decade designing for 00:29:50.730 --> 00:29:53.009 your children. Let's look at the cross -industry 00:29:53.009 --> 00:29:55.849 survival statistics for family businesses. They 00:29:55.849 --> 00:29:59.289 are already incredibly grim. Only about 30 % 00:29:59.289 --> 00:30:01.549 of family businesses successfully transition 00:30:01.549 --> 00:30:04.789 to the second generation, and fewer than 13 % 00:30:04.789 --> 00:30:07.650 survive to the third generation. The odds are 00:30:07.650 --> 00:30:09.670 already stacked heavily against you passing the 00:30:09.670 --> 00:30:12.089 farm down to your grandkids. But if you introduce 00:30:12.089 --> 00:30:14.910 a private equity contract that legally accelerates 00:30:14.910 --> 00:30:17.569 a forced sale timeline via a drag -along clause, 00:30:17.849 --> 00:30:19.769 you have essentially guaranteed that your family 00:30:19.769 --> 00:30:22.269 legacy ends with you. You are no longer building 00:30:22.269 --> 00:30:24.150 a business to be inherited. You are building 00:30:24.150 --> 00:30:27.400 an asset to be liquidated. Wait. If a PE fund 00:30:27.400 --> 00:30:29.859 is operating on a strict five -year clock and 00:30:29.859 --> 00:30:32.579 their entire goal is to package the farm and 00:30:32.579 --> 00:30:34.640 sell it to the next corporate buyer by, say, 00:30:34.680 --> 00:30:38.420 2032, that fundamentally changes where they would 00:30:38.420 --> 00:30:40.700 even be willing to buy land and build in the 00:30:40.700 --> 00:30:42.460 first place, doesn't it? It changes everything. 00:30:42.720 --> 00:30:44.140 They aren't going to want to be in the middle 00:30:44.140 --> 00:30:46.940 of nowhere. Exactly. Geography exposes what you 00:30:46.940 --> 00:30:49.940 actually believe about your time horizon. If 00:30:49.940 --> 00:30:52.079 you are an investor running a short -term play, 00:30:52.299 --> 00:30:54.799 you look at geography purely through the lens 00:30:54.799 --> 00:30:57.700 of a neat, tidy exit. You want production clusters. 00:30:57.819 --> 00:31:00.640 You want your dairy located immediately adjacent 00:31:00.640 --> 00:31:03.819 to multiple other megaherds, well within a cheap, 00:31:03.819 --> 00:31:06.160 easy hauling distance of a massive established 00:31:06.160 --> 00:31:09.299 processing plant with perfect highway infrastructure. 00:31:09.619 --> 00:31:11.640 You are building a turnkey package that looks 00:31:11.640 --> 00:31:14.460 irresistible to the next corporate buyer. But 00:31:14.460 --> 00:31:16.759 if you are Drake Bethard and you are building 00:31:16.759 --> 00:31:19.180 a 40 -year generational plan for your grandkids, 00:31:19.380 --> 00:31:22.240 your geographical filter is completely different. 00:31:22.849 --> 00:31:25.150 Bethard said his criteria for citing a new dairy 00:31:25.150 --> 00:31:28.109 today is low environmental risk in a place without 00:31:28.109 --> 00:31:31.190 a lot of people. He is actively looking for fewer 00:31:31.190 --> 00:31:34.789 neighbors, less legal and regulatory risk, and 00:31:34.789 --> 00:31:37.349 massive open spaces to run. He is looking for 00:31:37.349 --> 00:31:39.410 regions where the deep well water rights are 00:31:39.410 --> 00:31:42.309 secure for the next half century, where the local 00:31:42.309 --> 00:31:44.910 permitting process isn't hostile to commercial 00:31:44.910 --> 00:31:47.549 agriculture, and where you are going to get sued 00:31:47.549 --> 00:31:50.049 into oblivion because a real estate developer 00:31:50.049 --> 00:31:52.609 decided to build a new subdivision half a mile 00:31:52.609 --> 00:31:55.240 downwind from your manure lagoon. This is exactly 00:31:55.240 --> 00:31:58.220 why we are seeing massive new capacity being 00:31:58.220 --> 00:32:00.680 pulled into places like western Kansas and the 00:32:00.680 --> 00:32:03.700 I -29 corridor in South Dakota. And it's the 00:32:03.700 --> 00:32:05.759 processors themselves who are pulling that geography. 00:32:06.119 --> 00:32:08.279 Companies like Hilmar Cheese and Valley Queen 00:32:08.279 --> 00:32:11.279 are building massive, multi -hundred million 00:32:11.279 --> 00:32:13.579 dollar new plants in these wide open regions. 00:32:13.880 --> 00:32:16.160 And they are essentially willing the milk into 00:32:16.160 --> 00:32:18.140 existence around them. But as Beathard noted, 00:32:18.319 --> 00:32:20.339 the days of throwing up a barn and hoping a milk 00:32:20.339 --> 00:32:22.700 truck shows up are completely over. You need 00:32:22.700 --> 00:32:25.269 an ironclad milk con. before you even pour the 00:32:25.269 --> 00:32:27.789 first yard of concrete. Right. If you are picking 00:32:27.789 --> 00:32:30.549 a spot where your grandkids will be renegotiating 00:32:30.549 --> 00:32:33.809 those milk contracts in the year 2045, you cannot 00:32:33.809 --> 00:32:36.509 use the same geographical filter as a suit trying 00:32:36.509 --> 00:32:40.329 to flip a facility in 2032. So not everyone listening 00:32:40.329 --> 00:32:42.450 to this has a private equity term sheet sitting 00:32:42.450 --> 00:32:45.289 on their kitchen table right now. But every single 00:32:45.289 --> 00:32:47.730 farmer who wants to survive the hyper consolidation 00:32:47.730 --> 00:32:50.750 and expand their operation is going to be forced 00:32:50.750 --> 00:32:53.150 to choose a capital path. So let's synthesize 00:32:53.150 --> 00:32:54.769 everything we've unpacked today and look at the 00:32:54.769 --> 00:32:57.470 four actual paths farmers can take to fund their 00:32:57.470 --> 00:33:00.230 future. Path one is traditional debt plus patient 00:33:00.230 --> 00:33:02.509 partners. This is your classic commercial bank 00:33:02.509 --> 00:33:04.990 loan, maybe supplemented by aggressively retained 00:33:04.990 --> 00:33:07.829 earnings and a deeply understanding local lender. 00:33:08.089 --> 00:33:10.589 This path makes sense if your farm already possesses 00:33:10.589 --> 00:33:13.049 a rock solid baseline of profitability, your 00:33:13.049 --> 00:33:15.450 current leverage is low, and your lender deeply 00:33:15.450 --> 00:33:17.670 understands the historical volatility of your 00:33:17.670 --> 00:33:19.930 specific zip code. But the absolute requirement 00:33:19.930 --> 00:33:22.440 for path one, based on the core data is that 00:33:22.440 --> 00:33:26.160 you must have a DSCR that stays above 1 .25x 00:33:26.160 --> 00:33:28.000 even when you run it through a bad year scenario. 00:33:28.359 --> 00:33:31.960 We aren't talking about projecting a 1 .25x coverage 00:33:31.960 --> 00:33:35.339 ratio in a boom year like 2024. We're talking 00:33:35.339 --> 00:33:38.000 about maintaining that cash flow cushion when 00:33:38.000 --> 00:33:41.740 feed prices spike and milk drops $3. You need 00:33:41.740 --> 00:33:45.039 genuine, hardworking capital, a real cash cushion, 00:33:45.119 --> 00:33:47.400 not just wishful thinking on a proforma spreadsheet. 00:33:47.960 --> 00:33:50.960 Path two is strategic partners without a fund 00:33:50.960 --> 00:33:53.720 clock. This is the Bethard and Half Lager space. 00:33:54.019 --> 00:33:56.339 You partner with neighbors, family members, or 00:33:56.339 --> 00:33:58.380 independent agribusiness investors who have those 00:33:58.380 --> 00:34:00.559 ag scars. This makes sense when you need more 00:34:00.559 --> 00:34:02.779 capital than your local bank can legally lend 00:34:02.779 --> 00:34:05.359 you, but you refuse to accept a five to seven 00:34:05.359 --> 00:34:07.819 year PE expiration date. But as we discussed 00:34:07.819 --> 00:34:10.090 with the Half Lager model. The massive danger 00:34:10.090 --> 00:34:13.469 here is the people risk. This path absolutely 00:34:13.469 --> 00:34:16.550 requires grueling, awkward, legally ironclad 00:34:16.550 --> 00:34:18.769 written agreements regarding operational control. 00:34:19.010 --> 00:34:21.030 Oh, absolutely. You have to spell out exactly 00:34:21.030 --> 00:34:23.690 who authorizes capital expenditures, who has 00:34:23.690 --> 00:34:26.570 the power to hire or fire the herd manager, the 00:34:26.570 --> 00:34:29.130 rules for land purchases, and the exact formula 00:34:29.130 --> 00:34:31.429 for dividend payouts. If you don't put all of 00:34:31.429 --> 00:34:33.650 that on paper, simply assuming everyone is on 00:34:33.650 --> 00:34:35.409 the same page because you share a last name, 00:34:35.449 --> 00:34:37.550 it will eventually blow up in your face. Now, 00:34:37.570 --> 00:34:40.239 path three. And this is going to be a contrarian 00:34:40.239 --> 00:34:42.099 take because we have spent a lot of time today 00:34:42.099 --> 00:34:44.440 outlining the extreme dangers of private equity. 00:34:44.800 --> 00:34:47.119 But we have to admit, private equity does make 00:34:47.119 --> 00:34:50.539 sense in very specific, rare scenarios. It does. 00:34:51.500 --> 00:34:54.400 If you are attempting a massive, rapid, multi 00:34:54.400 --> 00:34:57.659 -site roll -up, or if you are executing a massive 00:34:57.659 --> 00:34:59.960 vertical integration play like the Tolles family, 00:35:00.159 --> 00:35:03.179 where you need $165 million to build a processing 00:35:03.179 --> 00:35:07.099 plant, that check size is simply impossible for 00:35:07.099 --> 00:35:10.340 a traditional ag lender. Right. If you need $100 00:35:10.340 --> 00:35:12.820 million tomorrow to capture a once -in -a -lifetime 00:35:12.820 --> 00:35:15.760 market opportunity, PE is the only phone call 00:35:15.760 --> 00:35:17.820 you can make. But taking that money demands that 00:35:17.820 --> 00:35:20.599 your operation already operates with an exceptional... 00:35:20.780 --> 00:35:23.460 bottom quartile cost of production, your management 00:35:23.460 --> 00:35:25.800 bench has to be incredibly deep. You need an 00:35:25.800 --> 00:35:28.239 operational story that sells in a corporate boardroom 00:35:28.239 --> 00:35:30.480 just as well as it functions in the milking parlor. 00:35:30.559 --> 00:35:32.440 And most importantly, you need a cold -eyed, 00:35:32.539 --> 00:35:35.219 ruthless lawyer sitting next to you at the table, 00:35:35.300 --> 00:35:37.739 aggressively negotiating every single clause. 00:35:38.139 --> 00:35:40.400 The negative covenants, the drag along rights, 00:35:40.480 --> 00:35:42.940 the tag along rights, the non -competes. And 00:35:42.940 --> 00:35:47.699 finally, path four. The slow build. or what I 00:35:47.699 --> 00:35:50.579 like to call the do less, better path. This is 00:35:50.579 --> 00:35:52.539 for the producer who looks at the math and says, 00:35:52.679 --> 00:35:55.659 my numbers simply do not justify massive leverage 00:35:55.659 --> 00:35:58.500 right now, and I absolutely refuse to give an 00:35:58.500 --> 00:36:01.599 outside board veto power over my farm. Walk us 00:36:01.599 --> 00:36:04.170 through the mechanics of path four. This is the 00:36:04.170 --> 00:36:06.769 path of relentless margin optimization. Instead 00:36:06.769 --> 00:36:09.670 of chasing a headline herd size, instead of leveraging 00:36:09.670 --> 00:36:11.610 the farm to the brink just so you can brag at 00:36:11.610 --> 00:36:14.429 the coffee shop that you milk 3 ,000 cows, you 00:36:14.429 --> 00:36:17.309 focus intensely on the margins. You tighten your 00:36:17.309 --> 00:36:19.750 cost of production per hundredweight. You obsess 00:36:19.750 --> 00:36:22.309 over feed efficiency, pushing for more milk from 00:36:22.309 --> 00:36:24.469 less dry matter. You focus on cow longevity, 00:36:24.829 --> 00:36:27.050 reducing your call rate so you don't have to 00:36:27.050 --> 00:36:29.110 raise as many expensive replacement heifers. 00:36:29.150 --> 00:36:31.150 You dial in your reproduction rates and your 00:36:31.150 --> 00:36:33.940 labor efficiency. You grow your revenue by modestly 00:36:33.940 --> 00:36:36.539 growing your components, shipping more pounds 00:36:36.539 --> 00:36:39.019 of butterfat and protein per cow instead of just 00:36:39.019 --> 00:36:41.360 blindly adding more concrete stalls to the barn. 00:36:41.659 --> 00:36:44.659 The Cornell DFBS data proved definitively that 00:36:44.659 --> 00:36:47.019 the most profitable farms didn't just borrow 00:36:47.019 --> 00:36:49.940 less money. They actively produced mill over 00:36:49.940 --> 00:36:52.599 six dollars cheaper per hundredweight through 00:36:52.599 --> 00:36:55.539 operational excellence. That efficiency is what 00:36:55.539 --> 00:36:58.039 gives them the room to breathe. A slightly smaller, 00:36:58.260 --> 00:37:00.199 highly efficient farm that you own 100 percent 00:37:00.199 --> 00:37:02.460 of and that generates positive cash flow in a 00:37:02.460 --> 00:37:06.400 down year is infinitely better than a massive, 00:37:06.539 --> 00:37:09.800 sprawling mega dairy where you are suffocating 00:37:09.800 --> 00:37:12.900 under 6600. hundred dollars per cow in debt and 00:37:12.900 --> 00:37:14.960 taking orders from a board of directors in Chicago. 00:37:15.199 --> 00:37:17.219 So if a farmer is listening to this right now, 00:37:17.300 --> 00:37:19.079 driving the pickup truck back from the feed mill, 00:37:19.239 --> 00:37:21.440 what are the actionable steps they need to take 00:37:21.440 --> 00:37:23.000 tomorrow morning? All right, let's break it down 00:37:23.000 --> 00:37:25.719 into an immediate, medium and long term timeline. 00:37:25.920 --> 00:37:28.400 First, the immediate action for this week. Pull 00:37:28.400 --> 00:37:30.340 your last 12 months of financials. I want you 00:37:30.340 --> 00:37:32.800 to calculate three specific numbers, your total 00:37:32.800 --> 00:37:35.320 debt per cow, your debt service coverage ratio 00:37:35.320 --> 00:37:38.630 and your working capital percentage. And here 00:37:38.630 --> 00:37:41.150 is your hard rule of thumb based on the data. 00:37:41.650 --> 00:37:44.710 If your proposed expansion plan pushes your debt 00:37:44.710 --> 00:37:48.250 load into the mid - $6 ,000 per cow, that is 00:37:48.250 --> 00:37:51.389 a flashing yellow light. Stop, hit the brakes, 00:37:51.510 --> 00:37:53.809 and reassess the fundamental math of your operation. 00:37:54.150 --> 00:37:56.630 Second, the medium -term strategy over the next 00:37:56.630 --> 00:37:59.030 three to six months. You need to run what we 00:37:59.030 --> 00:38:01.769 call the worst 12 -month stretch stress test. 00:38:02.389 --> 00:38:04.789 Look back over the last five years of your farm's 00:38:04.789 --> 00:38:08.070 history and identify your absolute ugliest, most 00:38:08.070 --> 00:38:10.750 unprofitable, miserable year. Take those brutal 00:38:10.750 --> 00:38:12.889 numbers, the high feed costs, the low milk price, 00:38:13.010 --> 00:38:14.590 the poor weather, and run them through your new 00:38:14.590 --> 00:38:16.929 expansion plan. If your proposed capital structure 00:38:16.929 --> 00:38:20.570 keeps your DSCR above 1 .25x in that specific 00:38:20.570 --> 00:38:23.010 nightmare scenario, then you have a highly resilient 00:38:23.010 --> 00:38:25.710 plan. Build on it. But if that stress test drops 00:38:25.710 --> 00:38:28.409 your coverage below 1 .0x, kill the expansion 00:38:28.409 --> 00:38:30.610 plan immediately. Believe the math, not your 00:38:30.610 --> 00:38:32.849 optimism. And finally, the long -term positioning 00:38:32.849 --> 00:38:34.849 for the next year or two. You need to conduct 00:38:34.849 --> 00:38:37.349 a brutal, unflinching audit of your operational 00:38:37.349 --> 00:38:39.929 autonomy. Sit down with your legal counsel and 00:38:39.929 --> 00:38:42.389 review any existing or proposed operating agreements. 00:38:42.550 --> 00:38:44.789 Look specifically for that drag -along language 00:38:44.789 --> 00:38:47.150 we discussed. Hunt for restrictive covenants 00:38:47.150 --> 00:38:49.889 that would require outside sign -off for basic 00:38:49.889 --> 00:38:52.630 cow comfort spending like fans or hoof trimming 00:38:52.630 --> 00:38:55.489 during a down year. You must ensure that your 00:38:55.489 --> 00:38:58.349 legal structure aggressively protects your 20 00:38:58.349 --> 00:39:01.389 to 40 year generational succession timeline and 00:39:01.389 --> 00:39:03.909 is not chained to a five year Wall Street fun 00:39:03.909 --> 00:39:06.710 clock. Because ultimately, the goal isn't just 00:39:06.710 --> 00:39:09.329 to get bigger. The goal is to build a resilient 00:39:09.329 --> 00:39:12.110 biological system that survives long enough to 00:39:12.110 --> 00:39:14.730 pass the keys to the next generation. Absolutely. 00:39:15.280 --> 00:39:17.619 The next time you are staring at a blown engine 00:39:17.619 --> 00:39:20.159 in the machine shed, appreciate the absolute 00:39:20.159 --> 00:39:22.980 simplicity of fixing a machine. Because the moment 00:39:22.980 --> 00:39:25.460 you step back into that free stall barn, you 00:39:25.460 --> 00:39:28.699 are managing living, breathing biology. And biology 00:39:28.699 --> 00:39:31.559 will never, ever bend to the demands of a five 00:39:31.559 --> 00:39:33.860 -year financial spreadsheet. Protect your cows, 00:39:34.000 --> 00:39:36.519 protect your margins, protect your legacy. This 00:39:36.519 --> 00:39:38.400 has been another deep dive from the Bullvine 00:39:38.400 --> 00:39:40.480 podcast. For more straight -talking industry 00:39:40.480 --> 00:39:44.449 analysis, head to www .thebullvine .com. Keep 00:39:44.449 --> 00:39:46.809 an eye out for our new PEVS partner calculator 00:39:46.809 --> 00:39:49.630 and full debt per cow stress test model dropping 00:39:49.630 --> 00:39:51.750 in the Bullvine weekly. Subscribe wherever you 00:39:51.750 --> 00:39:54.510 get podcasts. We're out with new deep dives every 00:39:54.510 --> 00:39:57.429 day and upcoming topics will be a deep dive into 00:39:57.429 --> 00:39:59.829 how processor premiums are shifting to target 00:39:59.829 --> 00:40:02.170 components over volume and what that means for 00:40:02.170 --> 00:40:04.110 your breeding strategy. See you next time.