Hello and welcome to another episode of the OddLotss podcast. I'm Tracy Aloway

and I'm Joe Weisenthal.

Joe, you're a gym person, aren't you? Notice I did not say gym bro.

Yeah, that's right. That's right. Thank you. Aspirationally, I do go to the gym regularly. I don't go to the gym regularly enough to see a difference. I think bec like I'm at the stage of life where like every day I'm getting a little bit closer to death and so I'm like holding serve. I'm like sort of holding at the same so like I know progress but maybe I'm not regressing. But yes,

I still think if you go to the gym regularly, you're a gym person.

Yeah. Okay. Yeah. All right.

That's that's impressive.

Yeah. I'm gonna have less shame about it.

Okay. Here's my question. Yeah.

Have you noticed the drinking habits of some of your fellow gym people? Have you noticed anyone walking around with bottles of milk?

I have. I mean, I still see more people with like the energy drinks rather than milk. But yeah, I've definitely seen, you know, I think like back in the day, you know, you had these guys. I think some of them still do with actual like people would try to drink a gallon of milk in a day. There's that famous um um guy, he has a book called Starting Strength. He's like a cult guru within the barbell world whose name I'm blanking on. I think he's a big like drink a bunch of milk

If you're serious about it, you got to mix raw eggs in with milk. That's what I say.

You do? Have you done that?

No, I haven't. Although I did when I I triple fractured my foot when I was in Hong Kong and I did have a doctor who advised me to drink a lot of milk to build up the calcium and heal the foot. Anyway, we're getting slightly off topic.

Yeah.

Okay. One of the milk brands that you see a lot in gyms is something called Fair Life.

Yeah, I've seen it and I actually literally like had never thought about what it is or but yes, I had seen this brand.

Okay. So, I don't know that much about it, but I first got kind of interested in the company reading Austin Freric's book Barrens. There's a whole chapter in there about dairy barons,

and it's about fair oaks, which turned into Fair Life.

And it's turned into this phenomenon where Fair Life is this milk that's I guess supposed to be healthier. It has more protein.

Uh it has less lactose or no lactose, I can't remember. Which means you can keep it in your fridge for like a 100 days,

which is actually I find that useful. So, we should talk about it because it's also kind of kicked off this whole protein craze.

Protein. Oh my god. Protein everywhere. So, protein like uh yes, Starbucks, they have these. Now, you can get this protein drinks. I haven't tried them yet. I you know,

when did it become a crime to just eat normally? I got I eat some meat and I eat some veggies and occasionally eat some carbs and stuff like that and whatever. But yeah, you over time it's like different macronutrients trend, right? So there was a while it's like good fats, right? People were really into fats for a while and then it's like, oh, you need fermented stuff, so they have to, you know, let's eat more of that. It's good for your gut health. But we're in like a we're certainly in a protein bull market right now. People really want more protein because reasons.

Yeah. And what's interesting again about Fair Life is it's making a lot of money. That's feeding into CO's bottom line. Share price has gone up quite a bit. And it's also at odds with basically everything else that's happening in the dairy industry where you know prices tend to be pretty low and have been kind of stuck in a downward spiral for a long time. Profit margins are very very thin. So this is an outlier.

People are consuming less traditional dairy. I think a lot you know at least I don't know how big is it it is but some of the quote alternative milks, the almond milks of the world, the cashew milks, soy milks probably taking some Yeah. plain old regular dairy. No one ever talks about, by the way, number two milk. I feel like everyone is either skim or fat these days because more of the sort of like polarization of society that no one likes a nice middle ground milk anymore. So now apparently they want super high protein milk, too.

All right, so we have the perfect guest to discuss Fair Life and the dairy industry in general. We're going to be speaking with Corey Guyger. He is the lead dairy economist with Coobank, which is a very big lender to the industry. So really the perfect person to speak to. Corey, thank you so much for coming on Odd Thoughts.

Well, I'm glad to be here, Tracy and Joe.

So I'm going to start with a basic question. What differentiates Fair Life from traditional [clears throat] milk?

I think there's two big parts to this protein and portability. The portability is it's ultraasteurized and uses aseptic packaging. So that means it you can actually ship it without refrigeration. And when you think about the dairy industry, the dairy industry is the largest refrigerated food chain in the world really. You think as soon as we milk a cow and we cool the milk, it's cooled in the truck to the processing plant and then traditional dairy products are refrigerated all the way to the grocery store or convenience store. But the Fairlife story and products like it now are uh when you go to that aseptic packaging and ultra filtration until you open that bottle, it's got a lot longer shelf life. Of course, once it's opened, you're at a the 14-day clock starts ticking. this technology that allows you to store milk for a long time without refrigeration.

Is this something that's been understood for a long time and now there's suddenly a demand for this milk or is the technology relatively recent and then the industry is like oh we can because of this technology we can market and get people excited about a new product that can take advantage of these capabilities.

Well, Fairlife first came on the scene in 2014. So, it's been with us about a decade. But one of the things that the team at Fairlife had to really perfect was this high temperature, shorttime pasteurization. So, you're heating the milk up quick and then cooling it quick. One of the things I like sharing is that milk is nature's most perfect beverage. You talked about it being a health beverage. If it's nature's most perfect beverage, that also means it's a great place to grow bacteria. So pasteurization, you know, over 100 years ago, the pasteurized milk ordinance came about and that set a national standard so that a Wisconsin farmer could sell milk in the Chicago market or a upstate New York farmer could sell milk into the in New York City under the same rules and standards. But going to this ultra the HTST, the high temperature shorttime pasteurization, originally you kind of got a burnt milk taste. So, if you're a consumer and you're tasting that, you're like, "Eh, it didn't hit the mark." But now, they pro perfected that process and you really get the flavor that you've come to expect from a dairy milk.

You mentioned having to um sell into markets, and I'm not quite sure why, but I was reading a book about small-scale farming from the 1950s last night, and it was talking about if you're a smallcale farmer and you want to get into dairy, you have some options. One option is you sell into a local market that's very close to you because you know you can't refrigerate the milk for that long or you sell to like a cheese factory or something like that and you can go a little bit further sell maybe more in bulk that sort of thing. How big a deal was fairife's distribution deal with Coke in its success? this idea that now you have a beverage that can be shipped over very very long distances, long timelines and you have Coke distributing it.

I think it was huge when you really look at it. I if you look at the founders of the concept of what became fair life originally they were experimenting Mike and Sumaclausi with a product that they eventually called athletes milk honey and so they were looking at finding a health beverage for consumers in that in that market. So there's one thing to be innovative, then it's distribution. And one of the for me, I'm a grew up on a sixth generation Wisconsin dairy farmer. One of the obstacles always for milk has been portability. You know, it's you have to have this elaborate transportation system to move it. And I'm talking beverage milk here.

Yeah.

And that really overcame the situation with what Fairlife has done with aseptic packaging and the HSUT process to high pasteurization. It was gamechanging.

I think this is old news, but it used to be the case that milk prices, what's the deal? They were like set based on your distance from Oaklair, Wisconsin or something like that because there was this premise like oh we want milk very far away and you you sell it to your local market and it's distri explain that that went away or something but why was Oaklair Wisconsin this sort of central hub for a while of the index for pricing milk explain that

yes there's a number of reasons for it actually we'll start with a little dairy history up until about 1910 New York [clears throat] New York was the largest milk producing state in the United States. Then that became Wisconsin and obviously now America's dairy land is on the license plates. Wisconsin actually in the 1800 late 1800s the gentleman who became governor of the state William Dempster Horde secured the first refrigerated rail car to ship Wisconsin cheese to New York City in the 1870s. And today, Wisconsin exports about 90% of their milk production via cheese. And that export could be the other 49 states and certainly now around the world. But because of all the cheese made in Wisconsin and Minnesota, Oaklair was that kind of center point between Wisconsin and Minnesota to establish a a base price for milk. That went away here in about 2000 and we have a different system. But milk is still highly regulated under federal milk marketing orders, which is really what establishes milk prices.

Well, can you just real quickly explain what are these or like what does that mean? Like it's regulate because I the prices do fluctuate. So what does that mean that it's still highly regulated?

Yeah, highly regulated means that federal milk marketing orders there's four classes of milk. Class one would be beverage milk. That would be the traditional milk that you drink. And when you come back to the fair life story and you uh discussed that milk fluid milk sales have been flat but products like fair life and core power and those are actually a mixture of fluid milk and class two products which traditionally have been scoopable products like yogurt ice cream would be in there. Sour cream would be in there and then class three I liked sharing little Miss Tuffet sat on her muffet eating her curds and waist. So class 3 is cheese, curds and whey. And then class 4 products are butter and powder. And powder would be non-fat dry milk. But each of these classes has different pricing mechanisms.

And today beverage milk is priced on the higher of class 3 or class 4. It gets complicated and that's why I call dairy very regulated. But these orders came about in 1937. It was an act of Congress and it was to ensure the orderly marketing of milk and ensure fluid milk in markets that didn't have a lot of dairy cows.

So [clears throat] one thing I learned from reading my old farming book is that there are a lot of levers that you can pull if you're again this is for smallcale farming but there are levers you can pull to boost profit. So maybe you're not going to make that much from milk itself, but you know, you can sell the calves for ve or once the uh dairy production starts going down with your cows, you can sell those or you can sell manure for fertilizer and things like that. All these different levers. Can you talk a little bit more about the actual business model of a dairy farm and where money comes from nowadays? Because I imagine it's changed quite a bit.

This is a dynamic space and from an over we'll talk about the dairy farm in a second but dairy right now has 11 billion dollar of new plant investment in the United States and it's in a number of categories. So there's a lot of energy taking place and a lot of investment. This is historic investment. When you get to the dairy farm obviously if you're a milking cows your number one revenue source is milk. I would say up until 5 years ago, 90% of your income came from milk unless you were selling a lot of crops. But one of the dynamic things that have changed and it's in the news a lot right now is beef prices.

And every cow has a second career as a beef animal. About five years ago, well, I considered the dairy cow the most researched animal on planet Earth. We know more about her. We have over 123 million records on her over the last hundred years. In 2008, the science of genomics came into the industry. I was actually the first one to write a public article about it. But what you do is you take a a DNA sample from the cow. You run her profile and you can compare it to all this phenotypic data that 123 million records. And with about 70% accuracy, we can predict what that baby calf will do as a cow. And that has changed a lot of things in dairy. We are uh improving butter fat and protein levels at paces we've never seen before. And these days, one out of four heer calavs, baby calves that will eventually become cows have a genomic test run on them. And that has really changed things. Then as that took place, gender sorted semen came into the industry so we can uh they use lasers. They can sort out the Y chromosomes which make a bull calf and with about 90 to 95% accuracy produce a product that makes dairy heer calves. So dairy farmers were planning their replacements. They're using science to predict the ones. And that opened a whole new door

to use what we call beef breeds. Think Angus, Limousine, Charlay that we would breed those. We'd use artificial insemination, the original AI in agriculture, not [laughter] artificial intelligence, to uh inseminate the cows. And dairy farmers are making more money on that these days. So about five years ago, back to Tracy's original question, a dairy farmer was making about $1 per hundred weight, per 100 pounds of milk equivalent from beef sales. and say a dairy farmer is making 18 to 20. So it wasn't $18 to $20 per hundred weight for milk. It wasn't a big deal. But today that number has gone to 4450. So we're get generating a baby black heighted calf, an Angus calf that's destined for a feed lot eventually is selling between 12 and $1,800 right now. Wow.

And so it's a big revenue stream.

Doesn't no matter what size your farm is, everybody can play.

So when you're talking about improving uh sort of butter fat and so forth, what is going is it selective breeding that just means that you're more likely to get a baby cow that has high levels of whatever you're looking for? Like what is

and better production rate?

Yeah. what is the source of I guess higher yields?

So I'm past president of holing association USA which is the largest dairy breed organization in the world and that source is a bundle of metrics. We study a lot of traits. Uh certainly the big two would be butter fat. Well, big three would be butter fat, protein and milk. But we are also looking at mastitis resistance or that you know the ability to combat an infection in the udder. We're looking for longevity which is a trait we call productive life or even daughter pregnancy rate which is a fertility metric. So it's this bundle of better yields from the cow and reduce costs from uh the standpoint of health care and those kind of things. And right now uh if you use the best group of holing bulls or even jersey bulls on the next generation each year we're improving genetics $100 per year. Prior to genomics that number was like $13. So this is like significant

wow

improvement and using natural uh science and really doing a better job.

Sorry I started laughing at the mastitis reference because

it's hilarious.

It's hilarious. No, one of the oldtimey solutions for this in that old book was using a bicycle pump to inflate the cow's utters.

Huh.

So I'm guessing people don't do that so much anymore. That is a true. We do not do that anymore.

Okay. What about, you know, you're talking about income that dairy farms can generate. What's going on with the actual input prices? Because it takes a lot of, again, from reading this book, takes a lot of feed, a lot of hay, a lot of grains to actually get these cows producing milk and also up to size if you're going to sell them for beef.

So, the biggest costs on a dairy farm are feed and labor. My wife's family was actually the first to put robots in 25 years ago in the United States to start milking their cows. So, some farmers are using robot technology, but that's not exactly mainstream at this point. But look at the near-term prices for feed. Soybean and corn grain certainly in alalfa are some of the core constituents. Those prices are down. Now, that's a good thing if you're a livestock producer. Not a great thing if you're a row crop farmer. The other thing these days, 37% of the US corn crop actually goes to bofuels, ethanol. So, there's byproduct feeds there and as well as in the soybean space, we're making biodiesel and one of the byproducts of that is soybean meal. So, the cow is a great recycler. In fact, that four stomachs of the cow allow her to eat a lot of byproduct feeds. And it I've traveled I think I've been to 48 states covering the dairy industry. You know, I've seen tomatoes and carrots that didn't make human grade food in California get fed to cows. I've been in Ohio where reject jelly from Smuckers has been fed to cows. I've been to Canada where a farmer plows out the driveway next door of the plant that bakes biscuits for McDonald's and the reject biscuits go into what is a total mixed ration, a TMR. So, it's a big food blender. Mixes up all the food and the cows uh get a blended diet. So, it's kind of a remarkable story.

Honestly, a cow fed on McDonald's biscuit. Sounds pretty good.

Sounds great.

It sounds like a cow is just an amazing machine. All of these discarded food products go in that people that there no other use for because most of us don't have four stomachs and then every year the cows get better at production or you get better at producing higher producing cows. Sounds like a great business.

It is remarkable and uh that's why even though uh milk is a product that is very consistent, every farm is different and how every they approach it. You know, there's very there's similarities to it, but there's a lot of regional differences as well.

Wait. Okay. So, cows might be amazing machines. Amazing machines. Machines. Thank you. I had to get at least one pun in there.

But the dairy industry we hear has been challenged, right? So, consumption has been going down. I think I read somewhere it's down 40% in the US since 1975, something like that. profit margins are still pretty compressed. Prices seem to be on basically it's a race to the bottom and so you've kind of seen a lot of consolidation of the smaller farms into these big dairy conglomerates. Is that the story there?

Well, I want to back up first though. Dairy consumption is actually at the highest level it's been in 40 years and we measure that. We have some really good USDA data on that. But if you look at near-term, you know, we started out talking about fair life. That's uh Coca-Cola's newest $1 billion brand. If you look at yogurt year-over-year, it's up almost 10%. One of the big stories in the yogurt category is u certainly Shabbani. And I would h half of the sales of yogurt these days are Greek yogurt, which are high protein yogurt. Another category that's been exploding, it's we made grandma's cottage cheese hip again. And cottage cheese is up for cottage cheese is great. thought it it always feels like it should have a moment more like Greek yogurt. It's like, "Oh, this is cottage cheese year." Is it finally happening?

It it is. And people can't make it fast enough. I was actually talking to a dairy processor at a Wisconsin cheese makers meeting just last week when it comes to yogurt. And one of his customers said, "Can you get me more?" And he goes, "Well, not until next year." And he goes, "Well, just send me whatever you can. It's those products are very tight right now." And then cheese consumption is at an all-time high actually at 40 pounds per person per year per capita. So those are some big growth areas. What you're probably seeing Tracy though is uh the story on fluid milk. In the 1970s the average American drank 30 gallons a year and now are probably closer to 19 gallons. One of the things for fluid milk is it's hitched to dry breakfast cereal compliments to one another and in fact onethird of all fluid milk it's consumed on dry breakfast cereal and that category has not been going well. But then you flip over to these the core power which is really a high protein milkshake and that is not actually tracked in the fluid beverage category. It's considered a different product. We have seen consolidation in the dairy industry. There's fewer dairy farms each year. But the interesting thing is I graduated college in 1995. While dairy farm numbers are down, the number of dairy cows are the same essentially about 9.3 million. But milk production from those cows is up 45% during that time. just speaks to the uh efficiency of the dairy cow and what things are taking place on the dairy farm.

My intuition is correct that within the liquid milks category, we've sort every everything in society has become so polarized and everyone loves extremes and we see it in politics. We see it in everywhere. This is well known people no one likes the middle ground anymore within the liquid milk category. Has everyone sort of has gone to the extreme ends? They want the highfat milk or the skim leaving that good old 2% milk, the missing middle.

That that's a very interesting question, Joel. What's taking place in fluid milk? I three big trends.

Okay.

Protein. So products like Fair Life. Another one is lactosefree. A new milk plant going up today will have membrane technology in to do reverse osmosis. And about everybody on the new milks are pulling out lactose. And you got to remember about onethird of Americans are probably lactose intolerant, about 120 million. So let's make a product that they uh can enjoy. And then in the traditional milk categories, you're absolutely right. Whole milk is about the only one that's growing right now. Skim, which is basically fat-ree, and the other percentages are down. You know, the dietary guidelines for Americans that USDA and FDA uh do every five years haven't really changed their guidance on fat. But there's a lot of research out there that said the fats uh saturated fats found in dairy and animal protein like beef and pork and poultry, fish too, seafood are actually good for you. And so there are people already voting with their pocketbooks this category.

One thing we learned from previous episodes on, I guess, trendy drinks of the moment is the importance of shelf placement in grocery stores. And I have to admit, when I'm buying milk at a grocery store, I basically just buy what's at eye level. I do buy whole milk, though.

Yeah,

that's the preference. But how important is um placement for a product like milk which generally would be considered a staple and perhaps doesn't have as much brand loyalty as some other things.

Yeah, it well there's a reason in the grocery aisle if you look at if you walk through your grocery aisle the next time after listening this podcast dairy is often in the back of the store because dairy is in like n over 95% of households. So, it's uh a routinely purchased product and that's part of the uh placement situation. Now, about 5 years ago, a lot of the p plant plant-based beverages were making inroads and those sales are actually down now. People consumers in my intuition are looking for clean labels and they want to see ingredients that they can understand. And I think that's been part of the changing tide in the dairy space as well. And it's interesting when you look at it and you think about we're just past the 10y year anniversary now of Coca-Cola and Select Milk and Fairlife partnership. Now there's others that are looking into that space. You know PepsiCo has announced that they're going to have a their Propel water brand is going to have a clear protein in it that has 20 grams of protein and they're also reformulating their muscle milk and they're going to have dairybased protein in that category as well. I think when you go to places like Costco or Walmart, the a dairy is just not found in the dairy aisle anymore. It's shelf stable. It could be in the health food section. It could be in, you know, adult nutrition sections and those kind of things. And so, it's expanding beyond its traditional role because of these high protein beverages. And also I you if you're looking for calcium, some of these products are, you know, in one serving can get you 50% of that as well.

the way these trends change when it comes to macronutrients. You know, some I saw a tweet or something and there's like, oh, fiber is going to be the new protein. That's going to be the big thing everyone wants.

We should encourage fiber.

We should probably encourage

more useful than I mean, Americans consume a lot of protein already. I don't know why we need more.

Apparently, we need more. But does the industry like how long does it take the industry to say, you know what, this is a durable trend. We're actually going to invest in the processing space for this because there's got to be some risk. Consumers are very fickle. Internet health influencers, they may be on to something else by next year. We're like, oh no, you got to get whatever you go back to low fat. That's the new hot thing, etc. How do producers think about their capital allocation budget when it comes to playing on new trends within consumption?

Well, that's a large and big question, Joe. And you really look at the long-term trends and where things are going. Tracy's absolutely right. If you read some of the research, fiber probably will be the next followup, the protein. I hear people talking about how do I put a protein drink out there with fiber in it and bundle the two together. You know, when I was uh going to grade school, there was a cheese out there called mozzarella in the late mid 1970s that was only at a couple pounds per capita consumption, and now it's the most consumed cheese in the US largely because of its relationship with pizza. So, these mega trends can reshape categories. You know, in the 19 Well, let's back up even a little further. There was a in the 1960s there was an organization called the Wisconsin Feeder Pig Cooperative and how in the heck would that be formed in Wisconsin when Iowa is the largest hog state but what was happening we didn't have the technology

going back to Kurds and whey making cheese and whey we could make cheese but the byproduct was whey and in whey was protein the most complete amino acid known to humanity but cheese makers would just said in a farmer's home would it do something with it some would spread it on fields. Some would feed it to baby pigs. Well, we learned the baby pigs would grow so fast. So, the Wisconsin feeder pig co-op started shipping two to three million feeder pigs to Iowa to be finished with corn and soybeans. Well, now we can use these big dryers, just using drying and harvest that way. In a lot of cheese plants, not a lot, all the new cheese plants are really going in with a business model, not only to make cheese, but to capture the whey. Whey protein isolates are selling roughly at $10 a pound, which is record high. And so these business models that are taking place and the research to build these 11 billion in new plant investment is really how do we make more out of milk. I think you know collagens and colostrum and now a new one is lactopherin which is one of the milk components that really helps reduce inflammation. There's some research out there, you know, depending on the number you see, there may be 5,000, there may be 6,300 somewhere in there unique molecules in milk. And we are just beginning to research that, learning what parts we can pull apart and help humans. And there's going to be more and more in that space here in the coming years. And that's all part of that investment strategy, what's going to take place in the plant. We're years away from some of that. But

so one thing I know about farmers is they're always complaining about something. And no no judgment there. I'm always complaining about something too. Joe can attest to this. But what are the what are the current complaints that you're hearing the most from dairy farms?

Well, right now near-term 90% of milk in the United States is priced on multiple component pricing. Dairy farmers would say MCP. So and 90% of that pricing is butter, fat, and protein. Well, if you look at protein and butter fat as two NASCARs on the racetrack from 2000 to 2014, the protein NASCAR always won. And then as consumers started demanding more fat, and remember the flavor is in the fat. Butter fat won eight of the last 10 years. But right now, we've made so much butter fat that butter prices are down not only in the US, but worldwide. So that's changed the milk checks. So that would be if you went to a dairy meeting right now to be like that's what's sent milk prices down here in the last 60 days. That's one issue that is near and top of mind. The other thing would be uh labor. Of course it takes a lot of people to run a dairy farm and the US dairy industry and a lot of farmers. Americans don't like doing dirty jobs when it comes down to it. I on weekends I work on our family farm. But the these are still just like building homes. This is very hands-on process here. And that would be another issue that would be top of- mind. Dairy farmers and you'll always get a good conversation on the weather. Farmers in general are we always uh beholden to mother nature.

It's interesting you didn't say trade and but partly like I get the impression that there's always

a million little lawsuits going on between Wisconsin farmers and their friends on the other side of the border about some rules of origin and they're not buying enough at this. It seems like this is one of those things that transcends every administration. They try to hammer it out but they're always like sort of arguing over details. You're not fulfilling this. You're supposed to let in this many gallons. who didn't. What are the core persistent issues that American dairy farmers feel is unfair or unidal about I guess our dairy trading relationship with Canada?

Joe, that's a great point and I should have put it in my list. Trade is top of mind. In 1995, the US was essentially a nonplayer in the global dairy exports. And that's the year that NAFTA came about. Actually NAFTA came about in 1994 and in 1995 the US dairy export council was formed and these days about 17% of the US milk supply or one out of seven tankers of milk are actually exported as either dairy products or ingredients around the world. So it's very important to dairy. We're actually having a strong export year, but largely because US dairy products and ingredients were lower than the other two major competitors. So the EU, the 27 countries of the European Union are the world's largest dairy exporters. They roughly export 20% of their milk production. Then the small and mighty nation of New Zealand is the number two exporter in the world. They have 5 million cows and 5 million people roughly in the size of Minnesota and Wisconsin. So onethird of their gross domestic product comes from dairy. If you read a Oakuckland paper, you would hear dairy at least weekly. And then comes the US. The US's number one e export customer is our friends south of the border in Mexico. So the US is about a $9 billion export market on dairy. Mexico is at about two billion of that. Now, Canada is a discussion to itself. Canada's milk supply is largely governed by a quota system. So, dairy farmers up there purchase the right to sell milk. And in fact, in on a Canadian dairy farm, the quota is worth more than everything else. It's worth more than the cows. It's worth more than the land. It's worth more than the equipment to make that work. You can't have a lot of imports come in. So, there are some things that we send north of the border. butter being one of them. But when you uh hear the headlines right now, of course, there are other things that were agreed upon in the trade agreement the last time, the US, Mexico, Canada trade agreement, and one of those largely centers on protein surprisingly.

H that's interesting. So if you look into your crystal ball for the future in the next 10 years looking at the dairy industry, what's going to be most important in terms of the success of a dairy farm or profitability? Is it technology? Is it scale and consolidation?

Is it perhaps branding and specialization or efficiencies in the way you're breaking down, you know, milk into all these various products or all of the above? Mhm.

I think that's a two-part question because you got the dairy farmers or dairy producers and then you have the dairy processors. We're going to have to use more and more technology on the dairy farms. I think coming back to the cow, when dairy farmers invest in genetics, those genetics are additive and they're so important and if this protein booms continues, genetics is one of the only ways to improve it. We don't have a lot of feeding practices in the toolbox in that regard. Certainly AI and technology and I'm going to say artificial intelligence here for the farmers out there listening will be very crucial into this and we're going to have to use more technology and find ways to use robotic technology. We're already doing some of that in rotary milking parlor. So a rotary parlor would be like a merrygoround that the cows go on. But when we do milking preparation right now some robots are putting on te dip or a sanitizer before we milk that cow which is important. So those are some areas the space in a lot of dairy farmers are also crop farmers especially growing corn silage or alalfa would be two big staples and you know the whole space on farm equipment would be another area when it comes to the processing plants. You know, some of these new and modern processing plants have a lot of stainless steel and those costs are going up. But it's that investment in technology,

the investment in it. You know, all this ultra filtered milk that we've been talking about, too. You know, I was just in a plant. There's almost 9,000 filters in there. It's a very, it's a very clean and good process, but it takes a lot of investment. And

it's a materials heavy materials heavy environment.

Yes, it is. All right, Corey, thank you so much for coming on Odd Thoughts. We're going to have to leave it there, but that was so much fun. Love talking about milk with you.

Yeah, that was fantastic. I learned a bunch of stuff.

Thank you, Joe and Tracy.

Although, I will say after that conversation, I'm not I'm not craving liquid milk. I'm craving cheese.

Yeah, I'm craving cheese right now and butter. Like a nice piece I want a piece of bread with just like go crazy with the butter. That's really good. Yeah, butter and salt. I love that. Yeah.

It's lunch [music] time. I know.

Yeah, I We need Yeah. All right.

I really did learn a lot from that conversation.

No, that was uh really helpful. This is one of those markets like many a markets I think where there's clearly a heavy market component and clearly a heavy regulatory component as well. And so I think those are some of the hardest for me to wrap my head around. I didn't realize, for example, that in Canada that you buy the right to sell dairy and so that just that right to sell into the market becomes a very valuable asset in its own right. I thought that was a great conversation. I'm also fascinated by the fact that maybe it's just day one in terms of learning about all of the useful molecules in milk that can be separated out and have some he mentioned a few that I had never heard of, but the idea that there's just more science there to be done on learning what is milk or what is in it that could be of value. A lot of interesting stuff there.

No, the efficiencies and the values you can ring out of a single product, the cow,

kind of amazing.

Yeah.

So, yeah. Again, I'm gonna go back to that book just because it's fresh in my mind, but one of the things it was saying is if you feed the cows a bunch of corn,

then they spit out corn kernels in their manure.

Oh,

and you can apparently actually feed pigs on the halfeaten corn kernels.

It's truly disgusting.

In the manure. I know. But it's efficient, Joe.

It's interesting. I think what do you call it? mixed something something that you could just like, oh, we're going to have some old biscuits and we're going to put some tomatoes together and it doesn't matter the cow's stomach is going to be able to digest it. Like that is a really incredible machine and it is a good reminder of how extraordinary nature and biology are from efficiency standpoint that if you wanted to build a machine that could separate do the equivalent of you know four different stomachs etc. It would be such an extraordinarily costly machine

in nature has solved this for us via hundreds of millions of years of evolution. It's just a very fascinating thing to think about some of these how efficient these processes have gotten and then what scientists can do when they learn more about how they work.

The cows are efficient themselves. I'm still amazed at some of the labor inputs that go into this. So, you know, cows producing milk have to produce calves. So, you have to

inseminate them. You have to take the calves away from the cows so that the cows will produce milk that you can sell. And then you have to teach the cows to like drink from either a bucket or an artificial udder or whatever. Like there there's a lot you have to do.

I'm not sure. I may have mentioned it once or twice. When I was growing up in the Midwest, my grandmother, her um husband was a dairy and fruit farmer in the middle of Michigan

and he was very big in the local sort of dairy board or whatever it was, etc. And when I was younger, I thought that was so boring. And now I'm like get so mad. Wish you were still around. I wish I I have so many qu like if I he'd be one of those things where I would like visit him and I would like ask him two hours of questions about the daring. Yeah. Have him on oddlot. It's like one of those people who will answer any of my questions, which he would have if he was a very patient, good guy. And I always feel like, man, I wish a little bit older, whatever, cuz that would have been a very good resource.

Yeah, I feel the same way. My granddad was a cattle rancher in Texas and

he died before I got a chance to ask him all these questions. All I remember from his cow industry is that he used to name some of the cows after me and my cousin

and then he'd slaughter them and he'd tell us like Tracy number three is no [laughter] longer with us.

So there we go.

That's fun.

All right. Shall we leave it there?

Let's leave it there.

This has been another episode of the All Thoughts podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway.

And I'm Joe Wisenthal. You can follow me at the stalwart. Follow our producers Carmen Rodriguez at Carmen Arman Dash Bennett at Dashbot and Kale Brooks at Kaleb Brooks. [music] For more OddLots content, go to bloomberg.com/odlots, where the daily newsletter and all of our episodes. And you can chat about all of these topics 247 in our Discord, discord.gg/odlots.

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