Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Tracy Allowhite.
Speaker 3: And I'm Jill.
Speaker 2: Why isnt thal Joe? You're a Jim person? Aren't you
Speaker 2: notice I did not say Jim Burrow.
Speaker 3: Yeah that's right. Let's say thank you. Aspirationally, I do
Speaker 3: go to the gym regularly. I don't go to the
Speaker 3: gym regular enough to see a difference. I think because
Speaker 3: I'm at the stage of life for like every day
Speaker 3: I'm getting a little bit closer to death, and so
Speaker 3: I'm like holding serve. I'm like sort of holding at
Speaker 3: the same So like I no progress, but maybe I'm
Speaker 3: not regressing.
Speaker 2: But yes, I still think if you go to the
Speaker 2: gym regularly, you're a Jim person. Okay, Yeah, that's impressive.
Speaker 3: I'm gonna have less shame about it.
Speaker 2: Okay, here's my question. Have you noticed the drinking habits
Speaker 2: of some of your fellow Jim people. Have you noticed
Speaker 2: anyone walking around with bottles of milk?
Speaker 3: I have? I mean I still see more people with
Speaker 3: like the energy drinks milk, but yeah, I've definitely seen it.
Speaker 2: You know.
Speaker 3: I think, like back in the day. You know, you
Speaker 3: had these guys. I think some of them still do
Speaker 3: with actual like people who try to drink a gallon
Speaker 3: of milk in a day. There's that famous guy. He
Speaker 3: has a book called Starting Strength. He's like a cult
Speaker 3: guru within the Barbelle world. Whose name I'm blanking on.
Speaker 3: I think he's a big like drink a bunch of
Speaker 3: milk guy.
Speaker 2: If you're serious about it, you got to mix raw
Speaker 2: eggs in with the milk. That's what I say.
Speaker 1: You do.
Speaker 3: Have you done that? No?
Speaker 2: I haven't, although I did when I triple fractured my
Speaker 2: foot when I was in Hong Kong, and I did
Speaker 2: have a doctor who advised me to drink a lot
Speaker 2: of milk to build up the calcium and heal the foot. Anyway,
Speaker 2: we're getting slightly off topic.
Speaker 3: Yeah, Okay.
Speaker 2: One of the milk brands that you see a lot
Speaker 2: in gyms is something called fair Life.
Speaker 3: Yeah, I've seen it, and I actually literally like had
Speaker 3: never thought about what it is or but yes, I
Speaker 3: had seen this brand.
Speaker 2: Okay, so I don't know that much about it, but
Speaker 2: I first got kind of interested in the company reading
Speaker 2: Austin Ferrick's book Barrens. There's a whole chapter in there
Speaker 2: about dairy barns and it's about fair Oaks, which turned
Speaker 2: into fair Life. All I know about fair Life is
Speaker 2: that Coke bought them. They had a big distribution deal
Speaker 2: with Coke, and we know how important distribution is in
Speaker 2: the beverage industry from our previous conversations on Celsius and
Speaker 2: things like that. And it's turned into this phenomenon where
Speaker 2: fair Life is this milk that's I guess supposed to
Speaker 2: be healthier. It has more protein, it has less lactose
Speaker 2: or no lactose I can't remember, which means you can
Speaker 2: keep it in your fridge for like one hundred days,
Speaker 2: which is actually I find that useful. So we should
Speaker 2: talk about it because it's also kind of kicked off
Speaker 2: this whole protein crazy.
Speaker 3: Protein only got protein everywhere I know, I don't get it. Like, yes,
Speaker 3: Starbucks they have these you can get this protein drinks.
Speaker 3: I haven't tried them yet. I you know, when did
Speaker 3: it become a crime to just eat normally? I get
Speaker 3: I ate some eat and I ate some veggies and
Speaker 3: occasionally eat some carbs and stuff like that and whatever.
Speaker 3: But yeah, over time, it's like different macro nutrients trend, right,
Speaker 3: So there was a while it's like good fats, right,
Speaker 3: people are really into fats for a while, and then
Speaker 3: it's like, oh, you need fermented stuff, so you know,
Speaker 3: they's more for your gut health. But we're in like
Speaker 3: a we're certainly in a protein bowl market right now.
Speaker 3: People really want more protein because reasons.
Speaker 2: Yeah, And what's interesting again about fair Life is it's
Speaker 2: making a lot of money that's feeding into Coke bottom line.
Speaker 2: Share price has gone up quite a bit, and it's
Speaker 2: also at odds with basically everything else that's happening in
Speaker 2: the dairy industry, where you know, prices tend to be
Speaker 2: pretty low and have been kind of stuck in a
Speaker 2: downward spiral for a long time. Profit margins are very
Speaker 2: very thin, so this is an outlier.
Speaker 3: People are assuming less traditional dairy. I think a lot,
Speaker 3: you know, at least I don't know how big is
Speaker 3: it it is, but some of the quote alternative milks,
Speaker 3: the almond milks of the world, the cashew milk, so
Speaker 3: he milk's probably taking some yeah, plain old regular dairy.
Speaker 3: No I ever talked on, by the way, number two milk.
Speaker 3: I feel like everyone's either skim or fat. These days
Speaker 3: because more of the sort of like polarization of society
Speaker 3: that no one likes nice middle ground milk anymore. So
Speaker 3: now apparently they want super high protein milk too.
Speaker 2: All right, So we have the perfect guest, yes to
Speaker 2: discuss fair Life and the dairy industry in general. We're
Speaker 2: going to be speaking with Corey Geiger. He is the
Speaker 2: lead dairy economist with Cobank, which is a very big
Speaker 2: lender to the industry, so really the perfect person to
Speaker 2: speak to.
Speaker 3: Corey.
Speaker 2: Thank you so much for coming on.
Speaker 4: All thoughts, Well, I'm glad to be here Tracy and Joel.
Speaker 2: So I'm going to start with the basic question what
Speaker 2: differentiates fair life from traditional milk.
Speaker 4: I think there's two big parts to this, protein and portability.
Speaker 4: The portability is it's ultra pasteurized and uses aseptic packaging,
Speaker 4: so that means it you can actually ship it without refrigeration.
Speaker 4: And when you think about the dairy industry, the dairy
Speaker 4: industry is the largest refrigerated food chain in the world. Really,
Speaker 4: you think, as soon as we milk a cow and
Speaker 4: we cool the milk, it's cooled in the truck to
Speaker 4: the processing plant, and then traditional dairy products are refrigerated
Speaker 4: all the way to the grocery store at a convenience store.
Speaker 4: But the fair Life story and products like it now
Speaker 4: are when you go to that aseptic packaging and altar
Speaker 4: filtration until you open that bottle, it's got a lot
Speaker 4: longer shelf life. Of course, once it's opened, you're at
Speaker 4: the fourteen day clock starts ticking.
Speaker 3: This technology that allows you to store milk for a
Speaker 3: long time without refrigeration. Is this something that's been understood
Speaker 3: for a long time and now there's suddenly a demand
Speaker 3: for this milk or is the technology relatively recent? And
Speaker 3: then the industry is like, oh, we can because of
Speaker 3: this technology, we can market and get people excited about
Speaker 3: a new product that can take advantage of these capabilities.
Speaker 4: Well, fair Life first came on the scene in twenty fourteen,
Speaker 4: so it's been with us about a decade. But one
Speaker 4: of the things that the team at fair Life had
Speaker 4: to really perfect was this high temperature, short time pasturization,
Speaker 4: so you're heating the milk up quick and then cooling
Speaker 4: it quick. One of the things I like sharing is
Speaker 4: that milk is nature's most perfect beverage. You talked about
Speaker 4: it being a health beverage. If it's nature's most perfect beverage,
Speaker 4: that also means it's a great place to grow bacteria.
Speaker 4: So pasteurization. You know, over one hundred years ago, the
Speaker 4: Pasteurized Milk Ordinance came about, and that set a national
Speaker 4: standard so that a Wisconsin farmer could sell milk in
Speaker 4: the Chicago market, or an upstate New York farmer could
Speaker 4: sell milk into the New York City under the same
Speaker 4: rules and standards. But going to this ultra the HTST
Speaker 4: the high temperature short time pasteurization, Originally you kind of
Speaker 4: got a burnt milk taste. So if you're a consumer
Speaker 4: and you're tasting it, you're like, eh, it didn't hit
Speaker 4: the mark. But now they perfected that process and you
Speaker 4: really get the flavor that you've come to expect from
Speaker 4: a dairy milk.
Speaker 2: You mentioned having to sell into markets, and I'm not
Speaker 2: quite sure why, but I was reading a book about
Speaker 2: small scale farming from the nineteen fifties last night and
Speaker 2: it was talking about if you're a small scale farmer
Speaker 2: and you want to get into dairy, you have some options.
Speaker 2: One option is you sell into a local market that's
Speaker 2: very close to you, because you know you can't refrigerate
Speaker 2: the milk for that long, or you sell to like
Speaker 2: a cheese factory or something like that, and you can
Speaker 2: go a little bit further, sell maybe more in bulk
Speaker 2: that sort of thing. How big a deal was fair
Speaker 2: Life's distribution deal with Coke in its success, This idea
Speaker 2: that now you have a bed that can be shipped
Speaker 2: over very very long distances, long timelines, and you have
Speaker 2: Coke distributing it.
Speaker 4: I think it was huge when you really look at it.
Speaker 4: If you look at the founders of the concept of
Speaker 4: what became fair Life. Originally they were experimenting Mike and
Speaker 4: Sue McCloskey with a product that they eventually called athletes
Speaker 4: Milk Honey, and so they were looking at finding a
Speaker 4: health beverage for consumers in that market. So there's one
Speaker 4: thing to be innovative. Then it's distribution. And one of
Speaker 4: the for me, I grew up on a sixth generation
Speaker 4: Wisconsin dairy farmer, one of the obstacles always for milk
Speaker 4: has been portability. You know, it's you have to have
Speaker 4: this elaborate transportation system to move it. And I'm talking
Speaker 4: beverage milk here, and that really overcame the situation with
Speaker 4: what Fair Life has done with aseptic packaging and the
Speaker 4: HSUT process to hype pastorization. It was game changing.
Speaker 3: I think this is old news, but it used to
Speaker 3: be the case that milk prices what's the deal they
Speaker 3: were like set based on your distance from Oak Claire,
Speaker 3: Wisconsin or something like that, because there was this premise like, oh,
Speaker 3: we want milk very far away, and you sell to
Speaker 3: your local market. And explained it that went away or something.
Speaker 3: But why was Oa Claire, Wisconsin this sort of central
Speaker 3: hub for a while of the index for pricing milk.
Speaker 4: Explain that, yes, there's a number of reasons for it. Actually,
Speaker 4: we'll start with a little dairy history. Up until about ten,
Speaker 4: New York was the largest milk producing state in the
Speaker 4: United States. Then that became Wisconsin, and obviously now America's
Speaker 4: dairy Land is on the license plates Wisconsin. Actually, in
Speaker 4: the eighteen late eighteen hundreds, a gentleman who became governor
Speaker 4: of the state, William Dempster Hoartz, secured the first refrigerated
Speaker 4: real car to ship Wisconsin to New York City in
Speaker 4: the eighteen seventies, and today Wisconsin exports about ninety percent
Speaker 4: of their milk production via cheese, and that export could
Speaker 4: be the other forty nine states and certainly now around
Speaker 4: the world. But because of all the cheese made in
Speaker 4: Wisconsin and Minnesota, Well Claire was that kind of center
Speaker 4: point between Wisconsin and Minnesota to establish a base price
Speaker 4: for milk. That went away here in about two thousand
Speaker 4: and we have a different system, but milk is still
Speaker 4: highly regulated under Federal Milk Marketing Orders, which is really
Speaker 4: what establishes milk prices.
Speaker 3: Could you just real quickly explain one of these words.
Speaker 3: What does that mean? Like it's regular because the prices
Speaker 3: do fluctuate, So what does that mean that it's still
Speaker 3: highly regulated?
Speaker 4: Yeah, highly regulated means that Federal Milk Marketing Orders. There's
Speaker 4: four classes of milk. Class one would be beverage milk.
Speaker 4: That would be the traditional milk that you drink. And
Speaker 4: when you come back to the Fair Life story and
Speaker 4: you discussed that milk fluid milk sales have been flat,
Speaker 4: but products like Fair Life and Core Power in those
Speaker 4: are actually a mixture of fluid milk. In Class two,
Speaker 4: products which traditionally have been scupable products like yogurt, ice
Speaker 4: cream would be in there. Sour cream would be in there,
Speaker 4: and then Class three I liked sharing little miss Tuffett
Speaker 4: sat on her muffet eating her curds in waste of
Speaker 4: Class three is cheese, curds and whey, and then Class
Speaker 4: four products are butter and powder, and butt powder would
Speaker 4: be non fat dry milk. But each of these classes
Speaker 4: has different pricing mechanisms, and today beverage milk is priced
Speaker 4: on the higher of Class three or class four. It
Speaker 4: gets complicated, and that's why I call their very regulated.
Speaker 4: But these orders came about in nineteen thirty seven. It
Speaker 4: was an act of Congress and it was to ensure
Speaker 4: the orderly marketing milk and ensure fluid milk in markets
Speaker 4: that don't have a lot of dairy coves.
Speaker 2: So one thing I learned from reading my old farming
Speaker 2: book is that there are a lot of levers that
Speaker 2: you can pull if you're again this is for small
Speaker 2: scale farming, but there are levers you can pull to
Speaker 2: boost profits. So maybe you're not going to make that
Speaker 2: much from milk itself, but you know, you can sell
Speaker 2: the calves for veal, or once the dairy production starts
Speaker 2: going down with your cows, you can sell those, or
Speaker 2: you can sell manure for fertilizer and things like that,
Speaker 2: all these different levers. Can you talk a little bit
Speaker 2: more about the actual business model of a dairy farm
Speaker 2: and where money comes from nowadays, because I imagine it's
Speaker 2: changed quite a bit.
Speaker 4: This is a dynamic space and from over. We'll talk
Speaker 4: about the dairy farm in a second. But dairy right
Speaker 4: now has eleven billion dollars of new plant investment in
Speaker 4: the United States, and it's a number of categories, so
Speaker 4: there's a lot of energy taking place in a lot
Speaker 4: of investment. This is historic investment. When you get to
Speaker 4: the dairy farm. Obviously, if you're a milking cows, your
Speaker 4: number one revenue source is milk. I would say up
Speaker 4: until five years ago, ninety percent of your income came
Speaker 4: from milk, unless you were selling a lot of crops.
Speaker 4: But one of the dynamic things that have changed, and
Speaker 4: it's in the news a lot right now, is beef prices,
Speaker 4: and every cow has a second career as a beef animal.
Speaker 4: About five years ago, well I considered the dairy cow
Speaker 4: the most researched animal on planet Earth. We know more
Speaker 4: about her. We have over one hundred and twenty three
Speaker 4: million records on her over the last one hundred years.
Speaker 4: In two thousand and eight, the science of genomics came
Speaker 4: into the industry. I was actually the first one to
Speaker 4: write a public article about it. But what you do
Speaker 4: is you take a DNA sample from the cow, you
Speaker 4: run her profile, and you can compare it to all
Speaker 4: this phenotypic data that one hundred and twenty three million
Speaker 4: records about seventy percent accuracy, we can predict what that
Speaker 4: baby calf will do as a cow, and that has
Speaker 4: changed a lot of things in dairy. We are improving
Speaker 4: butterfat and protein levels at paces we've never seen before.
Speaker 4: And these days one out of four heifer calves, baby
Speaker 4: calves that will eventually become cows, have a genomic test
Speaker 4: run on them, and that has really changed things. Then
Speaker 4: as that took place, gender sorted seamen came into the industry,
Speaker 4: so we can they use lasers. They can sort out
Speaker 4: the y chromosomes which make a bull calf, and with
Speaker 4: about ninety to ninety five percent accuracy, produce a product
Speaker 4: that makes dairy heffercalves. So dairy farmers are planning their replacements.
Speaker 4: They're using science to predict the ones and that opened
Speaker 4: a whole new door to use what we call beef breeds,
Speaker 4: think angus, limousine, charlat that we breed those, we'd use
Speaker 4: artificial insemination. The original AI and agriculture had artificial intelligence
Speaker 4: to inseminate the cows, and dairy farmers are making more
Speaker 4: money on that these days. So about five years ago,
Speaker 4: back to Tracy's original question, a dairy farmer was making
Speaker 4: about one dollar per hundred weight per hundred pounds of
Speaker 4: milk equivalent from beef sales, and say a dairy farmer's
Speaker 4: making eighteen to twenty, So it wasn't eighteen to twenty
Speaker 4: dollars per hundred weight for milk. It wasn't a big deal.
Speaker 4: But today that number has gone to four four fifty.
Speaker 4: So we're generating a baby black heighted calf. An angus
Speaker 4: calf that's destined for a feed lot eventually is selling
Speaker 4: between twelve and eighteen hundred dollars right now, and so
Speaker 4: it's a big revenue stream doesn't no matter what size
Speaker 4: your farmers, everybody can play.
Speaker 3: So when you're talking about improving sort of butterfat and
Speaker 3: so forth, what is going is it selective breeding? That
Speaker 3: just means that you're more likely to get a baby
Speaker 3: cow that has high levels of whatever you're looking for, like, what.
Speaker 2: Is better production rate?
Speaker 3: Yeah, what is the source of I guess higher yields.
Speaker 4: So I'm past president of Holstein Association USA, which is
Speaker 4: the largest dairy breed organization in the world, and that
Speaker 4: source is a bundle of metrics. We study a lot
Speaker 4: of traits. Certainly the big two would be butterfat, well
Speaker 4: big three would be butter fat, protein, and milk, but
Speaker 4: we are also looking at mass titus, resistance or that
Speaker 4: you know, the ability to combat and infection. In the
Speaker 4: other we're looking for longevity, which as a trait we
Speaker 4: call productive life, or even daughter pregnancy rate, which is
Speaker 4: a fertility metric. So that's this bundle of better yields
Speaker 4: from the cow and reduce costs from the standpoint of
Speaker 4: healthcare and those kind of things. And right now, if
Speaker 4: you use the best group of Holstein bulls or even
Speaker 4: Jersey bulls on the next generation, each year, we're improving
Speaker 4: genetics one hundred dollars per year. Prior to genomics that
Speaker 4: number was like thirteen dollars. So this is like significant
Speaker 4: improvement and using natural science and really doing a better job.
Speaker 2: Sorry, I started laughing at the mastitis reference because it's hilarious.
Speaker 2: It's hilarious.
Speaker 1: No.
Speaker 2: One of the old timey solutions for this in that
Speaker 2: old book was using a bicycle pump to inflate the
Speaker 2: cows utters. Huh, So I'm guessing people don't do that
Speaker 2: so much anymore.
Speaker 4: That is true, we do not do that any Okay.
Speaker 2: What about you know you're talking about income that dairy
Speaker 2: farms can generate. What's going on with the actual input
Speaker 2: prices because it takes a lot, again from reading this book,
Speaker 2: takes a lot of feed, a lot of hay, a
Speaker 2: lot of grains to actually get these cows producing milk
Speaker 2: and also up to size if you're going to sell
Speaker 2: them for beef.
Speaker 4: So the biggest costs on a dairy farm are feed
Speaker 4: and labor. My wife's family was actually the first to
Speaker 4: put robots in twenty five years ago in the United
Speaker 4: States start milking their cow. So some farmers are using
Speaker 4: robot technology, but that's not exactly mainstream at this point.
Speaker 4: But look at the near term prices for feed soybean
Speaker 4: and corn grain, certainly in LFELFA are some of the
Speaker 4: core constituents. Those prices are down now that's a good
Speaker 4: thing if you're a livestock producer, not a great thing
Speaker 4: if you're a row crop farmer. The other thing, these days,
Speaker 4: thirty seven percent of the US corn crop actually goes
Speaker 4: to biofuels ethanol, so there's byproduct feeds there as well
Speaker 4: as in the soybean space. We're making biodiesel and one
Speaker 4: of the by products of that is soybean meals. So
Speaker 4: the cow is a great recycler. In fact, that four
Speaker 4: stomachs of the cow allow her to eat a lot
Speaker 4: of by product feeds. And I've traveled I think I've
Speaker 4: been to forty eight states covering the dairy industry.
Speaker 2: You know.
Speaker 4: I've seen tomatoes and carrots that didn't make human grade
Speaker 4: food in California get fed to cows. I've been in
Speaker 4: Ohio where reject jelly from smuckers has been fed to cows.
Speaker 4: I've been to Canada where a farmer plows out driveway
Speaker 4: next door of the plant that makes biscuits for McDonald's
Speaker 4: and the reject biscuits go into what is a total
Speaker 4: mixed ration a TMR, So it's a big food blender
Speaker 4: mixes up all the food and the cows get a
Speaker 4: blended diet. So it's kind of a remarkable story.
Speaker 2: Honestly, a cow fed on McDonald's biscuit sounds pretty good.
Speaker 3: So great. It sounds like a cow is just an
Speaker 3: amazing machine. All of these discarded food products go in
Speaker 3: that people that there are no other use because most
Speaker 3: of us don't have four stomachs. And then every year
Speaker 3: the cows get better at production, or you get better
Speaker 3: at producing higher producing cows. Sounds like a great business.
Speaker 4: It is remarkable. And that's why. Even though milk is
Speaker 4: a product that is very consistent, every farm is different
Speaker 4: and however they approach it. You know, there's very there's
Speaker 4: similarities to it, but there's a lot of regional differences
Speaker 4: as well.
Speaker 2: Wait, okay, so cows might be amazing machines. Amazing machines.
Speaker 3: Yeah, good machines.
Speaker 2: Thank you. I had to get at least one pun
Speaker 2: in there. But the dairy industry, we hear, has been challenged, right,
Speaker 2: So consumption has been going down. I think I read
Speaker 2: somewhere it's down forty percent in the US since nineteen
Speaker 2: seventy five something like that. Profit margins are still pretty compressed.
Speaker 2: Prices seem to be on basically it's a race to
Speaker 2: the bottom, and so you've kind of seen a lot
Speaker 2: of consolidation of the smaller farms into these big dairy conglomerates.
Speaker 2: Is that this story there?
Speaker 4: Well, I want to back up first though. Dairy consumption
Speaker 4: is actually at the highest level it's been in forty years,
Speaker 4: and we measure that. We have some really good USDA
Speaker 4: data on that. But if you look at your term,
Speaker 4: you know, we started out talking about fair Life, that's
Speaker 4: Coca Cola's newest one billion dollar brand. If you look
Speaker 4: at yogurt year over a year, it's up almost ten percent.
Speaker 4: One of the big stories in the yogurt category is
Speaker 4: certainly Shabani and I would have half of the sales
Speaker 4: of yogurt these days are Greek yogurt, which are high
Speaker 4: protein yogurt. Another category that's been exploding. It's we made
Speaker 4: Grandma's cottage cheese hip again, and cottage cheese is up.
Speaker 3: The cottage cheese is great. I always thought it always
Speaker 3: feels like it should have a moment more like Greek yogurt,
Speaker 3: and it's like, oh, this is cottage cheese is year?
Speaker 3: Is it finally happening?
Speaker 4: It is? And people can't make it fast enough. I
Speaker 4: was actually talking to a dairy processor at Wisconsin Cheesemakers
Speaker 4: just last week when it comes to yogurt, and one
Speaker 4: of his customers said, can you get me more? And
Speaker 4: he goes, well, not until next year, and he goes, well,
Speaker 4: just send me whatever you can. It's those products are
Speaker 4: very tight right now. And then cheese consumption is at
Speaker 4: an all time high, actually at forty pounds per person
Speaker 4: per year per capita. So those are some big growth areas.
Speaker 4: What you're probably seeing Tracy, though, is the story on
Speaker 4: fluid milk. In the nineteen seventies, the average American drank
Speaker 4: thirty gallons a year, and now we're probably closer to
Speaker 4: nineteen gallons. One of the things for fluid milk is
Speaker 4: it's hitch to dry breakfast cereal compliments to one another,
Speaker 4: and in fact, one third of all fluid milk it's
Speaker 4: consumed on dry breakfast cereal, and that category has not
Speaker 4: been going well. But then you flip over to these
Speaker 4: the core power, which is really a high protein milkshake,
Speaker 4: and that is not actually tracked in the fluid beverage
Speaker 4: cat it's considered a different product. We have seen consolidation
Speaker 4: in the dairy industry. There's fewer dairy farms each year.
Speaker 4: But the interesting thing is I graduated college in nineteen
Speaker 4: ninety five. While dairy farm numbers are down, the number
Speaker 4: of dairy cows are the same, essentially about nine nine
Speaker 4: point three million, but milk production from those cows is
Speaker 4: up forty five percent during that time. It just speaks
Speaker 4: to the efficiency of the dairy cow and what things
Speaker 4: are taking place on a dairy farm.
Speaker 3: My intuition is correct that within the liquid milks category,
Speaker 3: we've sort of everything in society has become so polarized,
Speaker 3: and everyone loves extremes, and we see it in politics,
Speaker 3: we see it everywhere. This is well known people. No
Speaker 3: one likes the middle ground anymore. Within the liquid milk category,
Speaker 3: has everyone sort of has gone to the extreme ends.
Speaker 3: They want the high fat milk or the skim leaving
Speaker 3: that good old two percent milk the missing middle.
Speaker 4: That's a very interesting question, Joe. What's taking place in
Speaker 4: fluid milk? I three big trends protein so products like
Speaker 4: fair Life. Another one is lactose free. A new milk
Speaker 4: plant going up today will have membrane technology and to
Speaker 4: do reverse osmosis. And about everybody on the new milks
Speaker 4: are pulling out lactose. And you've got to remember about
Speaker 4: one third of Americans are probably lactose and tolerant, about
Speaker 4: one hundred and twenty million. So let's make a product
Speaker 4: that they can enjoy. And then in the traditional milk categories,
Speaker 4: you're absolutely right, whole milk is about the only one
Speaker 4: that's growing right now, skim, which is basically fat free,
Speaker 4: and the other percentages are down. You know, the dietary
Speaker 4: guidelines for Americans that USDA and FDA do every five
Speaker 4: years haven't really changed their guidance on fat. But there's
Speaker 4: a lot of research out there that said the fats
Speaker 4: saturated fats found in dairy and animal protein like beef
Speaker 4: and pork and poultry, fish too, seafood, are actually good
Speaker 4: for you. And so so there are people already voting
Speaker 4: with their pocketbooks this category.
Speaker 2: One thing we learned from previous episodes on I Guess
Speaker 2: Trendy Drinks of the Moment is the importance of shelf
Speaker 2: placement in grocery stores. And I have to admit, when
Speaker 2: I'm buying milk at a grocery store, I basically just
Speaker 2: buy what's at eye level. I do buy whole milk though, Yeah,
Speaker 2: that's the preference. But how important is placement for a
Speaker 2: product like milk, which generally would be considered a staple
Speaker 2: and perhaps doesn't have as much brand loyalty as some
Speaker 2: other things.
Speaker 4: Yeah, well, there's a reason in the grocery aisle. If
Speaker 4: you look at if you walk through your grocery island
Speaker 4: next time after listening to this podcast, dairy is often
Speaker 4: in the back of the store because dairy is in
Speaker 4: like over ninety five percent of households, so it's a
Speaker 4: routinely purchased product, and that's part of the placement situation. Now.
Speaker 4: About five years years ago, a lot of the plant
Speaker 4: based beverages were making inroads, and those sales are actually
Speaker 4: down now. People consumers, in my intuition, are looking for
Speaker 4: clean labels and they want to see ingredients that they
Speaker 4: can understand, and I think that's been part of the
Speaker 4: changing tide in a dairy space as well. And it's
Speaker 4: interesting when you look at it and you think about
Speaker 4: we're just past a ten year anniversary now of Coca
Speaker 4: Cola and Select Milk and Fair Life Partnership. Now there's
Speaker 4: others that are looking into that space, you know, PepsiCo
Speaker 4: has announced that they're going to have their Propel water
Speaker 4: brand is going to have a clear protein in it
Speaker 4: that has twenty grams of protein. And they're also reformulating
Speaker 4: their muscle milk and they're going to have dairy based
Speaker 4: protein in that category as well. I think when you
Speaker 4: go to places like Costco or Walmart, dairy is just
Speaker 4: not found in the dairy aisle anymore. It's shelf stable.
Speaker 4: It could be in the health food section, it could
Speaker 4: be in you know, all nutrition sections and those kind
Speaker 4: of things. And so it's expanding beyond its traditional role
Speaker 4: because of these high protein beverages. And also if you're
Speaker 4: looking for calcium, some of these products are you know,
Speaker 4: and one serving can get you fifty percent of that
Speaker 4: as well.
Speaker 3: The way these trends change when it comes to macro nutrients,
Speaker 3: you know, someone I saw a tweet or something and
Speaker 3: there's like a fiber is going to be the new protein.
Speaker 3: That's going to be the big thing everyone wants.
Speaker 2: We should encourage fiber. We should probably we're useful than
Speaker 2: I mean, Americans consume a lot of protein already. I
Speaker 2: don't know why we need more.
Speaker 3: Apparently we need more, But does the industry, Like how
Speaker 3: long does it take the industry to say, you know what,
Speaker 3: this is a durable trend We're actually going to invest
Speaker 3: in the processing space for this, because there's got to
Speaker 3: be some risk. Consumers are very fickle Internet health influencers.
Speaker 3: They may be onto something else by next year, like no,
Speaker 3: you got to get whatever, you go back to low fat,
Speaker 3: that's the new hot thing, etc. How do producers think
Speaker 3: about their capital allocation budget when it comes to playing
Speaker 3: on new trends within consumption.
Speaker 4: Well that's a large and big question. Yeah, and you
Speaker 4: really look at the long term trends and where things
Speaker 4: are going. Tracy's absolutely right. If you read some of
Speaker 4: the research. Fiber probably will be the next follow up
Speaker 4: the protein. I hear people talking about how do I
Speaker 4: put a protein drink out there with fiber in it
Speaker 4: and bundle the two together. You know, when I was
Speaker 4: going to grade school, there was a cheese out there
Speaker 4: called Mazzarella in the late mid nineteen seventies that was
Speaker 4: only at a couple pounds per capita consumption, and now
Speaker 4: it's the most consumed cheese, largely because of its relationship
Speaker 4: with pizza. So these mega trends can reshape categories. You
Speaker 4: know in the nineteen well, let's back up even a
Speaker 4: little further. There was in the nineteen sixties there was
Speaker 4: an organization called the Wisconsin Feeder Pig Cooperative. And how
Speaker 4: in the heck would that be formed in Wisconsin when
Speaker 4: I was the largest hog state. But what was happening?
Speaker 4: We didn't have the technology going back to kurds and
Speaker 4: Way making cheese and why we could make cheese, but
Speaker 4: the byproduct was way, and in Way was protein, the
Speaker 4: most complete amino acid known humanity. But cheesemakers were just
Speaker 4: set in a farmer's home with it do something. Some
Speaker 4: would spread it on fields, some would feed it the
Speaker 4: baby pigs. Well, we learned the baby pigs would grow
Speaker 4: so fast, so that Wisconsin Feeder Pig co Op started
Speaker 4: shipping two to three million feeder pigs that I want
Speaker 4: to be finished with porn and soybeans. Well, now we
Speaker 4: can use these big dryers just using drying and harvest
Speaker 4: that way in a lot cheese plants, not a lot.
Speaker 4: All the new cheese plants are really going in with
Speaker 4: a business model not only to make cheese, but to
Speaker 4: capture the way weigh. Protein isolates are selling roughly at
Speaker 4: ten dollars a pound, which is record high. And so
Speaker 4: these business models that are taking place and the research
Speaker 4: to build these eleven billion dollars A new plant investment
Speaker 4: is really how do we make more out of milk?
Speaker 4: I think you know collagens and colostrum, and now a
Speaker 4: new one is lacto fare in, which is one of
Speaker 4: the milk components that really helps reduce inflammation. There's some
Speaker 4: research out there, you know, depending on the number you see,
Speaker 4: there may be five thousand there, maybe six three hundred
Speaker 4: somewhere in their unique molecules and milk. And we are
Speaker 4: just beginning to research that, learning what parts we can
Speaker 4: pull apart and help humans. And there's going to be
Speaker 4: more and more in that space here in the coming years.
Speaker 4: And that's all part of that investment strategy. What's going
Speaker 4: to take place in the plant years away from some
Speaker 4: of that.
Speaker 2: But so, one thing I know about farmers is they're
Speaker 2: always complaining about something and no judgment there. I'm always
Speaker 2: complaining about something too. Joe can attest to this, But
Speaker 2: what are the current complaints that you're hearing the most
Speaker 2: from dairy farms.
Speaker 4: Well, right now, near term, ninety percent of milk in
Speaker 4: the United States is priced on multiple component pricing. Dairy
Speaker 4: farmers would see an mcpiece, so the ninety percent of
Speaker 4: that pricing is butterfat and protein. Well, if you look
Speaker 4: at protein and butterfat is two nascars on the racetrack.
Speaker 4: From two thousand to two thousand and fourteen, the protein
Speaker 4: nascar always won, and then as consumers started demanding more fat,
Speaker 4: and remember the flavor is in the fat, butterfat won
Speaker 4: eight of the last ten years. But right now we've
Speaker 4: made so much butterfat that butter prices are down, not
Speaker 4: only in the US but worldwide. So that's changed the
Speaker 4: milk checks. So that would be if you went to
Speaker 4: a dairy meeting right now to be like, that's what's
Speaker 4: milk prices down here in the last sixty days. That's
Speaker 4: one issue that is near on top of mind. The
Speaker 4: other thing would be labor. Of course, it takes a
Speaker 4: lot of people to run a dairy farm, and the
Speaker 4: US dairy industry and a lot of farmers Americans don't
Speaker 4: like doing dirty jobs when it comes down to it.
Speaker 4: On weekends, I work on our family farm. But these
Speaker 4: are still just like building homes. This is very hands
Speaker 4: on process here and that would be another issue that
Speaker 4: would be top of mind dairy farmers, and you'll always
Speaker 4: get a good conversation on the weather. Farmers in general.
Speaker 4: Are we always beholding to Mother Nature?
Speaker 3: It's interesting you didn't say trade, but partly like I
Speaker 3: get the impression that there's always a million little lawsuits
Speaker 3: going on between Wisconsin farmers and their friends on the
Speaker 3: other side of the border about some rules of origin
Speaker 3: and they're not buying enough this. It seems like this
Speaker 3: is one of those things that transcends every administration. They
Speaker 3: try to hammer it out, but they're always like sort
Speaker 3: of arguing over details. You're not fulfilling that as you're
Speaker 3: supposed to let in this mini galllenge. You didn't what
Speaker 3: are the core persistent issues that American dairy farmers feel
Speaker 3: is unfair or unideal about I guess our dairy trading
Speaker 3: relationship with Canada.
Speaker 4: Joe. That's a great point, and I should have put
Speaker 4: it in my list. Trade is top of mind. In
Speaker 4: nineteen ninety five, the US was essentially a non player
Speaker 4: in the global dairy exports, and that's the year that
Speaker 4: NAFTA came about. Actually, NAFTA came about nineteen ninety four,
Speaker 4: and then nineteen ninety five the US Dairy Export Council
Speaker 4: was formed. And these days about seventeen percent of the
Speaker 4: US milk supply, or one out of seven tankers of milk,
Speaker 4: are actually exported as either dairy products or ingredients around
Speaker 4: the world, so it's very important to dairy. We're actually
Speaker 4: having a strong export year, but largely because US dairy
Speaker 4: products and ingredients were lower than the other two major competitors.
Speaker 4: So the EU the twenty seven countries of the European Union,
Speaker 4: are the world's largest dairy exporters. They roughly export twenty
Speaker 4: percent of their milk production. Then the small and mighty
Speaker 4: nation of New Zealand is the number two export They
Speaker 4: have five million cows and five million people, roughly in
Speaker 4: the size of Minnesota and Wisconsin, so one third of
Speaker 4: their gross domestic product comes from dairy. If you read
Speaker 4: Auckland paper, you would hear dairy at least weekly. And
Speaker 4: then comes to US. The US is number one export
Speaker 4: customer is our friends south of the border in Mexico.
Speaker 4: So the US is about a nine billion dollar export
Speaker 4: market on dairy. Mexico is at about two billion of that.
Speaker 4: Now Canada is a discussion to itself. Canada's milk supply
Speaker 4: is largely governed by quota system, so dairy farmers up
Speaker 4: there purchased the right to sell milk, and in fact,
Speaker 4: on a Canadian dairy farm, the quota is worth more
Speaker 4: than everything else. It's worth more than the cow's it's
Speaker 4: worth more than the land, it's worth more in the
Speaker 4: equipment to make that work. You can have a lot
Speaker 4: of imports come in, so there are some things that
Speaker 4: we send north to the border, butter being one of them.
Speaker 4: But when you hear the headlines right now, of course
Speaker 4: there are other things that were agreed upon in the
Speaker 4: trade agreement the last time, the US Mexico Canada trade agreement.
Speaker 4: In one of those largely centers on protein.
Speaker 2: Surprisingly, that's interesting. So if you look into your crystal
Speaker 2: ball for the future in the next ten years, look
Speaker 2: at the dairy industry, what's going to be most important
Speaker 2: in terms of the success of a dairy farm or profitability?
Speaker 2: Is it technology? Is it scale and consolidation, is it
Speaker 2: perhaps branding and specialization or efficiencies in a way you're
Speaker 2: breaking down milk into all these various products, or all
Speaker 2: of the above.
Speaker 4: I think that's a two part question. Because you got
Speaker 4: the dairy farmers or dairy producers, and then you have
Speaker 4: the dairy processors. We're going to have to use more
Speaker 4: and more technology on the dairy farms. I think, coming
Speaker 4: back to the cow, when dairy farmers invest in genetics,
Speaker 4: those genetics are additive and they're so important and if
Speaker 4: this protein booms continues, genetics is one of the only
Speaker 4: ways to improve it. We don't have a lot of
Speaker 4: feeding practices in the toolbox in that regard, certainly AI
Speaker 4: and technology and I'm going to say artificial intelligence here
Speaker 4: for the farmers out there, listening will be very crucial
Speaker 4: into this, and we're going to have to use more
Speaker 4: technology and find ways to use robotic technology. We're already
Speaker 4: doing some of that and rotary milking parlors. So a
Speaker 4: rotary parlor would be like a merry go round that
Speaker 4: the cows go on. But when we do milking preparation
Speaker 4: right now, some robots are putting on teat dip or
Speaker 4: a sanitizer before we milk that cow, which is important.
Speaker 4: So those are some areas the space, and a lot
Speaker 4: of dairy farmers are also crop farmers, especially growing corn
Speaker 4: silage where alfalfa would be two big staples, and you know,
Speaker 4: the whole space on farm equipment would be another area.
Speaker 4: When it comes to the processing plants. You know, some
Speaker 4: of these new and modern processing plants have a lot
Speaker 4: of stainless steel and those costs are going up. But
Speaker 4: it's that investment in technology, investment in it. You know,
Speaker 4: all this ultra filtered milk that we've been talking about too.
Speaker 4: You know, I was just in a plant. There's almost
Speaker 4: nine thousand filters in there. It's very it's a very
Speaker 4: clean and good process, but it takes a lot of investment.
Speaker 3: It's materials heavy, materials heavy environment.
Speaker 4: Yes, it is.
Speaker 2: All right, Corey. Thank you so much for coming on
Speaker 2: all thoughts that we're going to have to leave it there.
Speaker 2: But that was so much fun. Love talking about milk clicking.
Speaker 3: Yeah, that was fantastic. I learned a bunch of stuff.
Speaker 4: Thank you, Joe and Tracy.
Speaker 2: I will say after that conversation, I'm not I'm not
Speaker 2: craving liquid milk, but I'm craving I'm craving cheese.
Speaker 3: Yeah, I'm craving cheese right now. And butter like a
Speaker 3: nice piece I want a piece of bread, would just
Speaker 3: like go crazy with the butter, butter and salt. Yeah,
Speaker 3: butter and salt.
Speaker 2: I love that it's lunchtime.
Speaker 3: Yeah, I know, we have a yeah, right.
Speaker 2: I really did learn a lot conversation.
Speaker 3: No, that was really helpful. This is one of those markets,
Speaker 3: like many egg markets, I think, where there's clearly a
Speaker 3: heavy market component and clearly a heavy regulatory component as well,
Speaker 3: and so I think those are some of the hardest
Speaker 3: for me to wrap my head around. I didn't realize,
Speaker 3: for example, that in Canada that you buy the right
Speaker 3: to sell dairy, and so that just that right to
Speaker 3: sell into the market becomes a very valuable asset in
Speaker 3: its own right. I thought that was a great conversation.
Speaker 3: I'm also fascinated by the fact that maybe it's just
Speaker 3: day one in terms of learning about all of the
Speaker 3: useful molecules in that can be separated out and have
Speaker 3: some He mentioned a few that I had never heard of.
Speaker 3: But the idea that there's just more science there to
Speaker 3: be done on learning what is milk or what is
Speaker 3: in it that could be a value A lot of
Speaker 3: interesting stuff there.
Speaker 2: No the efficiencies and the values you can ring out
Speaker 2: of a single product. The cow kind of amazing.
Speaker 3: Yeah.
Speaker 2: So yeah, again, I'm going to go back to that
Speaker 2: book just because it's fresh in my mind. But one
Speaker 2: of the things that was saying is if you feed
Speaker 2: the cow is a bunch of corn, then they spit
Speaker 2: out corn kernels in their manure. Oh and you can
Speaker 2: apparently actually feed pigs on the half eaten corn kernels.
Speaker 3: That's truly discussion in the manure.
Speaker 2: I know. But it's efficient, Joe.
Speaker 3: It's interesting. I think, what do you call it? Mixed something,
Speaker 3: something that you could just like, oh, we're going to
Speaker 3: have some old biscuits and we're going to put some
Speaker 3: tomatoes together, and it doesn't matter. The cow's stomach is
Speaker 3: going to be able to digest it like that is
Speaker 3: a really incredible machine, and it is a good reminder
Speaker 3: of how extraordinary nature and biology are from efficiency standpoint.
Speaker 3: That if you wanted to build a machine that could
Speaker 3: separate do the equivalent of four different stomachs, et cetera,
Speaker 3: it would be such an extraordinarily costly machine. And nature
Speaker 3: has solved this for us via hundreds of millions of
Speaker 3: years of evolution. It's just a very fascinating thing to
Speaker 3: think about some of these how efficient these processes have
Speaker 3: gotten and then what scientists can do when they learn
Speaker 3: more about how they work.
Speaker 2: The cows are efficient themselves. I'm still amazed at some
Speaker 2: of the labor inputs that go into this. So, you know,
Speaker 2: cows producing milk have to produce calves, so you have
Speaker 2: to inseminate them. You have to take the calves away
Speaker 2: from the cows so that the cows will produce milk
Speaker 2: that you can sell. And then you have to teach
Speaker 2: the cows to like drink from either a bucket or
Speaker 2: an artificial utter or whatever. There's a lot you have
Speaker 2: to do.
Speaker 3: I'm not sure. I may have mentioned it once or twice.
Speaker 3: When I was growing up in the Midwest, my grandmother,
Speaker 3: her husband was a dairy and fruit farmer in the
Speaker 3: middle of Michigan, and he was very big in the
Speaker 3: local sort of dairy board or whatever it was, et cetera.
Speaker 3: And when I was younger, I thought that was so boring,
Speaker 3: And now I'm like, it's so many I wish you
Speaker 3: were still around. Yeah, I wish I have so many.
Speaker 3: Quite like, if I hear around these days, it'd be
Speaker 3: one of those things where I would like visit him
Speaker 3: and I would like ask him two hours of questions
Speaker 3: about the dairy. You have him on odd Lots like
Speaker 3: one of those people who will answer any of my questions.
Speaker 3: She would have. He was a very patient, good guy.
Speaker 3: And I always feel like, man, I wish a little
Speaker 3: bit older whatever, because that would have been a very
Speaker 3: good resource.
Speaker 2: Yeah. I feel the same way. My granddad was a
Speaker 2: cattle rancher in Texas, and he died before I got
Speaker 2: a chance to ask him all these questions. All I
Speaker 2: remember from his cow industry is that he used to
Speaker 2: name some of the cows after me and my cousin,
Speaker 2: yeah them, and he'd tell us like, Tracy number three
Speaker 2: is no longer with us, So there we go.
Speaker 3: That's fun, all right.
Speaker 2: Shall we leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the odd Bots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy.
Speaker 3: Alloway and I'm Jill Wisenthal. You can follow me at
Speaker 3: the Stalwart. Follow our producers Carbon Rodriguez at Carmen armand
Speaker 3: dash O Bennett at Dashbot and kill Brooks at Kilbrooks.
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