Are you leaving calf money on the table?

Not long ago, a Holstein bull calf might have earned you 50 bucks, if that. Today, thanks to high beef prices and better breeding tools, that same cow might deliver a $1,000 calf instead.

Beef-on-dairy isn’t just a trend; it’s changing how progressive dairies manage their herds and drive revenue.

In this episode of The Milk Check, host Ted Jacoby III talks with CoBank’s Corey Geiger and Abbigail Prins about how dairy farmers are rethinking breeding strategies and how those decisions are reshaping herd structure, replacement numbers, and profitability.

• Why some farms are holding onto cows longer
• How sexed semen and genomics are guiding breeding calls
• And how beef calves are becoming a serious income stream

Whether you’re breeding for replacements, premiums or profit, this episode unpacks how to make herd decisions that pay.

Listen now to hear why the value of a cow’s uterus might be higher than ever.

Got questions?

Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk Check

Intro (with music):

Welcome to the Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III:

Welcome everybody to this month’s version of the Milk Check, a T.C. Jacoby & Co. podcast. Really excited today to have two special guests from CoBank, Corey Geiger and Abbi Prins. We are going to talk about breeding to beef and the profitability of the dairy farm, and how that dairy farm profitability has changed over the years as this trend has come about, and what it means for the future of dairy. Excited to have this conversation, Corey, Abbi, thank you so much for joining us today. So Corey, what do you do?

Corey Geiger:

CoBank is actually short for cooperative banks, so we’re the bank of cooperatives. We’re part of the Farm Credit System. Abbi and I are part of the knowledge exchange division, so we have a group of 10 economists who work in dairy and animal protein, consumer package goods, digital infrastructure, and farm inputs and crops. I’ve been at CoBank for two years now. I have just started my third year with CoBank, and Abbi joined our team about a year ago. She can tell you a little bit about herself.

Abbigail Prins:

Thanks, Corey. I also joined CoBank about a year and a half ago. I helped cover the dairy and animal protein sectors, come from a very heavy dairy and agriculture background, originally from Tulare, California, based out of Minnesota now. We’re excited to be on the podcast with you today, so thank you for the invitation.

Ted Jacoby III:

Abbi, Corey, thank you so much for joining us. Really appreciate it. So our topic today is going to be about breeding to beef and the dairy farm profitability, and how the whole breeding to beef trend has been affecting dairy farm profitability. Give us a little background on this trend of how more and more dairy farmers are breeding dairy cows in order to get cows to enter the dairy herd. More and more dairy farmers are breeding to beef and how is that affecting the dairy breed right now?

Corey Geiger:

I have a broad background, having been in the editorial team of Hoard’s Dairyman for 28 years and a past president of Holstein USA, and this is a journey. It really involves a triple play. The first part of that triple play was gender sorted semen coming onto the scene. Then genomics came on the scene, and then it all kind of came together with the beef on dairy movement. Now, economics always enters the equation because if I were to come back and have a conversation with my late grandfathers and say, “We’re breeding some of our prize Holsteins to Angus,” they’d throw me out the window, thinking I fell on my head. But gender sorted semen came along. Fertility rates really improved in dairy cattle, and I think that’s another part of the story for fertility and conception rates, and we landed up with more dairy replacements. Those prices dropped tremendously in about 2015 and almost fell to under 1,200 a head. At that time, beef prices started climbing, and a new opportunity opened up.

Abbigail Prins:

We start to see beef prices rise, followed by the introduction of beef semen purchases by dairy producers. Of course, this was not actually confirmed by the National Association of Animal Breeders, which started tracking this until 2023; however, the trend began in 2015, 2016, and 2017. We start to see more of these beef semen purchases,, and we see them being implemented into the dairy industry. We then yield these beef on dairy cross animals. They just start their career on the beef track right away instead of the secondary career after being in the milk industry and having that extra revenue generator I think was a very important piece for dairy producers to take advantage of and try to figure out strategically on the dairy farm, where’s the money going to come from and how can we best utilize the dollars that are coming back from all of our animals, whether it be from milk sales or cattle sales.

Ted Jacoby III:

The surprise to me was that the beef price started going up because if you think of it on a real, simplified level, if you’ve got more beef cattle coming into the beef herd, then why wouldn’t that cause an oversupply of beef cattle and cause the prices of beef cattle to start going down, but the opposite has happened since. What’s the dynamic that’s causing that? Is that simply an increase in demand for beef, or is there something else going on in the beef side of the business right now?

Abbigail Prins:

This, I would say, starts back to 2019. We see the peak of the beef cow cycle, so that was the most recent time that we had the highest number of beef female cows; that number we’ve been liquidating ever since. And when you have a low supply and high demand, that means the price is going to go up, according to a straightforward economic equation. So, where these animals come into it is that if we see this decline in the beef cow herd, if there are fewer females available, that means that fewer calves are going to be born in the preceding years. And then we’ve seen this transition since the late 1990s, where beef quality has skyrocketed.

We are seeing record amounts of prime and choice-grade beef, and as a result, we have extremely high consumer demand. We continue to see retail beef prices hitting records nearly month after month. They just keep going back to the meat case and buying more beef, which has caused cattle prices to really skyrocket and hit record levels nearly every week with regard to live and feeder cattle futures. And so that’s where we’re seeing this beef price really start to take off.

Corey Geiger:

Three bench posts to keep in mind total cattle inventory and that counts all beef cattle and all dairy cattle is at the lowest since 1951. The beef cow herd is the lowest since 1961, and feeder supplies the rest of us, which we would call those steers, are at the lowest levels since ’72. When you take those three data points and look at consumer demand and where we are today, limited supply, strong demand equals record prices.

Ted Jacoby III:

Did this really strong demand for beef start just before COVID, or has this increased beef demand been coming for a while yet?

Abbigail Prins:

I think it’s been a gradual shift in demand. I think the initial push started back in the 1990s to improve meat quality. Of course, that takes time, as we see gestation lengths in cattle are nine months, and then you still have to raise them until they can become part of the beef supply chain. I think that was the initial starting point where we see quality go up, and then just this gradual introduction back to consumers of we have this incredible quality of beef for you to be able to consume. I’d say it’s been a really big shift, probably over the past decade or so, and then moving into what it is today.

Ted Jacoby III:

When COVID hit, it was just kind of that perfect storm of everything is already tight, the demand for beef was already good, now everybody’s locked up at home, and all they want to do is cook steaks because they can’t go to the restaurant. They have a special meal, and the next thing you know, the beef herd drops a significant percent that just started the cycle, and when you’re talking about a herd, once it’s low, there’s no way to just snap your fingers and get that number back to where it needs to be, correct?

Abbigail Prins:

Sure. I definitely think that COVID kind of exacerbated the situation a little bit, and I definitely agree that COVID hits, you can’t go to the restaurant anymore, you’re going to buy a Pit Boss or a Traeger grill, and you’re going to start making all of those restaurant-quality dishes at home. I think because we’ve seen such a drastic change in price for food at home and food away from home, with regards to some of the CPI numbers that we’ve been seeing, that consumers would rather spend the money and “I can make a great steak at home. I don’t necessarily need to go out to a high-end steak house because I perfected it during COVID.” So I think that definitely brought it to an extreme very quickly. But yeah, I completely agree.

Ted Jacoby III:

Abbi, I think you’ve hit the nail on the head. I can tell you, for the last five years, when I go to a steak place, I don’t order steak. I can cook a great steak at home. I’ll usually order the fish or something that I’m not anywhere near as good at making as I am at grilling a steak at home. It makes perfect sense to me. So now we’re in a situation where the beef cattle herd is the lowest it’s been in, what did you say, Corey, 50 years?

Corey Geiger:

1951. Almost 75, right?

Ted Jacoby III:

Jeez. So even though we are not only adding new beef cattle inventory from beef cows, we’re also adding new beef inventory from dairy cows. We’re still behind the eight-ball trying to catch up, trying to grow the beef herd back. Are we making any progress?

Corey Geiger:

When you look at the beef herd in general, where the source of beef is, a good thumb rule is about 20% or so comes from a dairy source, it might be a freckle higher, and then about 80% comes from native or purebred beef. Here’s a situation: the average age of a dairy farmer is about 58 years old, according to USDA data. The average age of a cow-calf operator, so the ones raising beef calves, is pushing 65 years old.

If I have nobody standing behind me to take over my farm, and I am now at the point that I can cash in my poker chips, beef calves, beef steers, and beef heifers at the highest price ever, am I going to breed them all back, or am I going to send some of those to the feedlot at these prices? And that’s really the biggest question that everyone’s asking: when will that reverse? Right now, you might see a percent or two, a few more heifers being retained, preliminary in this data, but for the last three or four years, they’ve been sending them, even the heifers, to capitalize on these record prices. This is a historic run.

Ted Jacoby III:

So how does it end? What do you think the scenario is? And we haven’t even gotten to the point where we’re talking about exactly how profitable this is for the dairy farmer, which is really the goal of the conversation, but I can’t help but ask the question: How does this end from a beef perspective? At what point does it need to be completely demand-driven, that for whatever reason, beef prices start to come down because the demand changes, and are we going to continually be chasing our tail, or can this scenario play out, and can beef prices normalize?

Corey Geiger:

Every bull market has an endpoint. The question is when, the reason we’re going to have a long run here versus poultry or hogs is the life cycle. You breed a cow right now, you’ve got nine months, and then at least probably another two years. So let’s just round this up and say three years here. We have that situation taking place, and I think equally important in the dairy space, we have this $10 billion of new investment in dairy plants. Dairy farmers have pivoted so fast that dairy replacements are at a 20-year low. We’ve culled 600,000 fewer dairy cows in the last 100 weeks. Heifer replacement prices are at a historic high. So now the dairy farmers are faced with a new option: do I make more heifer calves? Do I make more beef on dairy? But the reason that many I’ll tip towards that beef on dairy yet, “I can get 1,000 to $1,500 for a calf that’s seven days old, and boy, my risk is gone.” So where does it end, Abbi?

Abbigail Prins:

Well, I don’t think it ends with the consumer. They have shown us time and time again that beef demand is just absolutely superb based on USDA forecasts. When we were looking at those last year, we thought 2024 was going to be lower in consumption in comparison to 2023, and we were flat out wrong. They actually grew in consumption. I would say the same is very likely, again, for this year. What’s really been interesting is the question about when the rebuild is going to happen. What’s changing now is that we’re adding more weight to these animals. They’re staying longer on feed, and so we do see a little bit of reduced overall annual beef production, but not to the point where it’s really causing prices to go too far out of hand that the consumer’s willing to pay for it. So I do believe that beef is definitely a demand-driven market, and I think there are a variety of factors that could turn it around with regard to pasture conditions.

I think the age of the producer is something that definitely needs to be kept in mind. Who is the next generation coming to raise all of these animals? Do you have enough feed? Do you have pasture? Do you have capital? At the end of the day, we keep talking about record prices. Do you have the capital to be able to invest and ensure all of these animals that you own? So I think there’s a variety of factors that really play into this. I’m curious to see when the rebuild will actually happen, but when it does, I do think it will take longer to reach our next peak than what we’ve seen in the past.

Ted Jacoby III:

If it’s not going to end with the consumer, then it almost feels to me like, especially as we’re looking at how we’re probably going to see in the coming months, dairy heifer prices become really expensive. It almost feels like there’s always an end for a bull market, as Corey liked to say. But that end isn’t on the horizon at the moment.

Abbigail Prins:

I don’t think we are near it. No, even looking 12 months out, I would be pressed to say that we would be near the end. I think it’s going to be a little bit further than that.

Corey Geiger:

Different consumers buy different products. One of the other big things here is lean ground beef. The Burger Kings from McDonald’s to Burger King. If you’re in Canada, Tim Hortons relies on ground beef, and there was an article in the Wall Street Journal earlier this month that talked about Burger King. 25% of their costs right now is beef. It’s up 15% this year alone. That makes some of our fast food chains a little less cost-effective for consumers. Now we had been shoring that up with some lean ground beef from countries like New Zealand, Australia, and Brazil, but this is becoming a global phenomenon here on tight cattle inventories. This is beyond the U.S., and that’s why this bull market has a longer run.

Ted Jacoby III:

If feed prices are going to stay up here for at least the foreseeable future, how is that benefiting the dairy farmer? If we go back to 2005, a dairy cow calf, 50- 51% of the time, it was a cow. 50/50, 49-ish percent of the time, it was a bull calf, and that bull calf was usually sold for maybe $100. Gosh, am I a little bit too low? Was it maybe a little bit more than that?

Corey Geiger:

Maybe a little bit, but $100 is rounded to $100.

Ted Jacoby III:

Rounded to 100. Either way, what we’re saying is that on the balance sheet, it did not represent that much. Now they’re getting upwards of $1,000 for a beef calf. How has that changed profitability for the dairy farmer? If I’m a dairy farmer today, I’m getting income from my milk. That one’s pretty straightforward. We can more or less figure out what that revenue would be on a per farm basis based on how much milk they’re making. There would be revenue when it was time to sell their cows to slaughter. Now there’s revenue in many cases from their manure, and now there’s revenue as well from breeding to beef. How big a portion right now of that top line revenue for a dairy farmer is their beef revenue from beef calves?

Corey Geiger:

There’s some really good data out there from Farm Credit East and Frazer & Torbet that we just recently analyzed here. And you’re absolutely right, this wasn’t a big part of the ledger, but the numbers have really, really changed here in the last two to three years.

Abbigail Prins:

So the Farm Credit East data we’re looking at in Northeastern dairies includes some of their financial data. They break this down into milk sales and government payments. We have cattle receipts and then crop sales and things like that. So if you take all of that income and put it together, and you make a percentage of cattle receipts of this total income, we were sitting at about 5% starting in 2019. Even before then, it was a little bit smaller, but you can think of calf sales or cull cow sales falling into this category. Now that we’ve seen such a large revenue increase from what these animals are worth when they’re being sold, we’re close to about 9% as of 2024. It’s very likely this number will go up in 2025.

And if you look at it on a chart, you’re moving up and to the right with regard to what these cattle are worth with regard to total profitability. The same kind of trend line can be seen from the Fraser data that Corey mentioned. This includes states like California, Arizona, Washington, New Mexico, and Texas. So very much the western region of the United States. And what’s interesting is that the trend is very much the same. They were sitting at about 2 to 3% back in 2019, so just five years ago, and that number is over 6% as of 2024. The same trend is being seen there, and they’re definitely making an impact on profitability at the end of the day.

Corey Geiger:

And those numbers are revenue, and I think the listeners got to keep in mind most of that’s also profit because if you’re looking at it at the farm level, a dairyman or dairywoman can milk a cow throughout the year and the net profit that they’re making in 2024 on those milk sales or that beef on dairy calf is almost equal at this point. So we’re seeing unusual retention of dairy cows these days because if I’m talking to farmers in the audience, the value of the uterus is so important. The value of getting another calf out of there supersedes the value as a cull cow because you’ve got to remember her beef is also worth something too. But what’s the next best alternative?

Ted Jacoby III:

Everybody, we will be right back after these messages.

Center commercial (with music):

I’m Diego Carvalho with T.C. Jacoby and Company. T.C. Jacoby and Company specializes in international dairy markets. For new customers that haven’t done business with Jacoby, I would tell them that we can provide them with many of the powders and dairy products that they consume, not only with the physical product, but we can also help them mitigate their risk. We know dairy, we know the main players, we know the main providers for the whole value chain. We are one of the strongest players in the U.S. market because we have contact all the way from the farmer moving the liquid milk all the way to the end users that buy the end products. I am Diego Carvallo with T.C. Jacoby and Company, and we bring dairy to the world.

Ted Jacoby III:

Where my head’s going as I’m listening to Abbi’s numbers, let’s just say 2 to 3% of revenue to nine, maybe 10% at the end of 2025, plus we’ve probably had some increases in manure revenue. Plus, as we transition into 2026, feed prices are probably going to be lower as well. I just drove from St. Louis to Michigan right through the heart of Illinois. We did not see one stock of corn that wasn’t absolutely perfect. The corn harvest this year is going to be phenomenal, and I mentioned that in the context that we just had milk production up 3.3% the last time we had milk production up over 3%, ultimately, the prices of milk really came down.

But now we’ve got a number of other income sources for the dairy farmer. Are we going to see a reduction in cow numbers? If the Class III price drops $2/cwt, that’s probably not enough. We probably need to see the Class III price come down to $3, $4/cwt minimum and stay there for a while before we see any significant change in the way they manage their herd. Compared to 5, 10 years ago, when we’d see big swings in cow numbers, when we’d see big swings in milk production.

Corey Geiger:

You haven’t run the numbers on what it would take to drop a milk price to change cattle numbers, but you touched on the most important part first. I also run a six-generation farm. I sold some of my corn crop futures on July 3rd, and corn is down 45 cents a bushel since this is called Independence Day. That really changes the input part of the equation here, and it will be a lot more cost-effective to feed dairy cows in the coming season. The other thing we have to keep in mind is that we’re going to see some pretty high milk growth volumes here in the second half of the year because we have to remember that the number one dairy state, California, had 18% of the milk production battling HPAI, pathogenic avian influenza. And so 80% of those herds were impacted by it. So we’re going to see some big gains here.

What will it take to reduce the dairy cow herd? I think it would be a significant shift in the milk price. Right now, we are on a record pace for exports, certainly something that your team works on each and every day. If my memory’s right, you opened up the first office in Mexico way back under the NAFTA days, so you were pioneers in that era. If we keep growing exports and domestic demand holds strong here, we’re not going to see a big run on cow numbers because if you look, again, come back to this pullback on dairy cow culling. There’s no national data, but cows are getting older. If we culled 600,000 fewer in the last 100 weeks, there’s a group of 20% that’s a lactation older now. And so we’re going to have to see some turnover, and based on semen sales, there are just so many moving parts that never happened in our lifetime.

Beef semen sales in the last five years to dairy farmers are up 58%. Gender sorted semen sales to make a heifer calf, a dairy heifer calf is up 43.5. And conventional semen sales, what we would call random XY 50/50 bull calf heifers, are down 46%. So farmers are planning their future replacements, but because dairy replacement inventory is at a 20-year low, the pen of heifers in the national herd, we can’t grow topside right now. In fact, some numbers Abbi and I ran, we looked at in 2025 and 2026. Those two years, we’re probably running 400,000 fewer heifers than the year before each of those years, just because of this dramatic shift. So even if milk production’s going up right now, we don’t have a lot of upside capacity to grow it because we just don’t have cow numbers, future cows.

Ted Jacoby III:

The only way to grow it is an older cow’s back-of-the-envelope estimate. I’m almost afraid to mention this on a podcast, and if you guys have better numbers, please contradict me. But my back-of-the-envelope estimate is we grew the average number of lactation in the past year that a dairy cow would put out by roughly a third of a year. And so I think it was roughly 2.3, and after a year, it’s probably about 2.6, which means we can maybe do this for two or three more years. And then we’re now getting into the point where we’re at 3.5 to four lactations per cow. That feels to me like the point where we’re going to start having trouble maintaining increases in milk volume because the cows are just getting too old. Does my back-of-the-envelope math sound about right to you, Corey?

Corey Geiger:

You’re back at the envelope math. I could go a third. I could go for half a lactation. And this is such a big issue that the American Dairy Science Association had a discovery conference in May. We had people from 17 countries around the world talking about this because we have spent a generation taking better care of our first lactation cows, because they’re, think about being in high school when you’re a freshman versus a senior, you’ve got to take care of them a little bit differently. And now we have a bunch of seniors in the pen who have different challenges. Older cows when they are in the cabin have more metabolic and fresh cow issues. So yes, every time we make another turn on that lactation, we need really good cow people on these farms to bring them around to that next lactation. Those are just some of the high-level dynamics there.

Abbigail Prins:

I think something else that we need to keep in consideration. So Corey mentioned avian being in the dairy cattle herd, which is how we’ve seen that large year-over-year increase in milk production. Something else that Cory and I have really been studying for the past year is milk component production. When you’re asking earlier about milk pricing, well, we have over 90% of milk priced on multiple component pricing. And so if we are growing butterfat and protein production, that’s, I think, the key to what is being reflected in milk checks that are sent back to the dairy farmer. We’ve seen in some of the early data that, of course, it makes sense intuitively that if you have the next generation of heifers coming on farm, they are supposed to have the best genetics of all of your animals. So now, as these animals start progressing through the herd, they become more of the sophomores, juniors, and seniors that Corey just mentioned, that very early on they have that really high component production, and that stays with them.

And as we keep bringing on the next best set of genomics and genetics on the farm, you’re going to see that component production start to grow, too. And I think that at the end of the day, to bring it back to your original question, what happens to the milk price to be able to shift cow inventories? I don’t think we’re going to see a bunch of declines in component production because that’s such a large part of the milk check, but anything is possible. I do think the health challenges that Corey mentioned are very important when talking about an older herd. You do need to manage them differently. And at the end of the day, it’s all about strategy, and you’re not going to take care of a newborn calf the same way you take care of a first-lactation cow or an aged cow. It’s going to be very different for each of those groups.

Ted Jacoby III:

I didn’t think of it that way, that you’re going to get more and more specialized in terms of how do we take care of these older cows and in the short-term we’re chasing it, but in the medium-term, they’re going to figure out how to take care of those older cows and they’re probably going to be able to keep them healthier for longer and get more milk out of them as well.

Josh White:

Listening to the whole conversation around non-milk income on the farm drives an entirely different set of decision-making rationale on the farm. You have a changing farm dynamic with certainly many larger style operations that have resources that the smaller farms don’t. And I just wonder with this income that’s being generated, do you believe the dairymen today are investing in these types of things? Are they in front of it, or did Ted mention chasing a moment ago? Do we think that the dairymen are out there really working with their nutritionists and others to make sure that the aging herd can perform? I’ll just preface it by saying there are a lot of people out there who will talk about the output of an older cow. That could be wonderful. It can be a great component output, it can be high-volume output. They’re just more vulnerable to illness, injury, and other factors. So do you think people are investing in that?

Corey Geiger:

Well, I absolutely do. People have different skill sets. There are regions of the country that used to run on high turnover rates in dairy replacements because you know what? When they were 11, $1,200 a piece, that’s a whole different fundamental equation. Now, the USDA’s July 2025 number is $3,000 average for dairy replacement. Wisconsin’s topping the country at 3,200, and in auctions in Pennsylvania, Pipestone, Minnesota, and over in California, the top Holstein heifers are bringing four grand. Well, that’s a whole different proposition level, and how you care for them and keep them around is you’re going to put more money into that. So that’s one part of it. The neat thing about beef semen on dairy, though, is that everyone can play. Everyone can play in that market. $4 I think would be a little bit on the high side for me, but I’ve seen numbers certainly touch $3 and crawl over that number.

Doesn’t matter. Five years ago, that number would’ve been under $1. None of us would be talking about it right now. So it’s a big time game changer. Reemphasize the value of the dairy replacement because spending time on beef, and we’ve made that proposition in April of 2019, you could have paid under 1,200 and got choice and privilege for any good dairy replacement out of anyone’s barn, and they would’ve sold every one of them to you. So if July that number’s at 3,000, that’s a 165% increase. And so if you’re planning an expansion or you want to help fill one of these plants that are coming online across the country, and you’re talking to your banker, that’s a bigger gulp of a number. So now you’re faced with, “I’m going to grow, and I know there are dairy farmers out there. I’m going to plan my dairy replacements for a three-year horizon because at that price point, I can’t run around and buy them all either, right?”

Josh White:

One thing that shocks us during every cycle, and this goes back before my time, and I think Ted will echo it through generations, is the resilience of the dairy event. We’ll put them through tough times, and the response on the farm tends to be much different from what we would think when trading the product or moving the products. I guess if I’m hearing this discussion correctly, they’ve only built more equity. They have the sensitivity to the milk price, although extremely important, and the number one thing is a little bit less than it was in prior years and generations. And as a result of that, it really feels like the U.S. is poised to continue growing milk continuously over the next several years.

Corey Geiger:

In the last five years, I’ve had a number of livestock groups call a dairy guy up and really want to understand this, and if that call had come in 10 years ago, I would’ve called it lunacy or heresy. But now people are really trying to wrap their heads around it because it’s kind of fun being a dairy farmer. Because you have these different options to make, and you can make more dairy replacements, and you’re going to do quite well on them, too. Part of it may be, “Hey, I don’t want to build another barn. Let’s make more beef from dairy calves. Hey, I’m going to grow. I can put up another barn and raise more heifers. Hey, I can call and get those shipped out somewhere.” So there are just so many options in a decision tree right now. It’s kind of fun to manage them.

Mike Brown:

All right, this is Mike Brown. Well, if you’re going to commit to growing a dairy, you’re committing to a long-term horizon because it’s a lot of investment. People are truly in it for the long haul and a lot of them, they’re greenfield, they’re really going for the long-term return. We’re increasing the cost of assets, which means that the commitment is bigger than ever going to reinvest to grow. You better be planning for a long-term horizon.

Corey Geiger:

Absolutely. If you’re going to build a new dairy today and you just look at what that cost was 12 to 18 months ago with inflation, we’ve seen double-digit increases in concrete, in wiring, in labor, in steel. We’ve had over 25 quarters of insurance increases. So all these little things add up and it affects not only dairy farmers, but dairy processors. If you are going to retool and revamp and build something for the next 10, 25 years or longer, it is a long-term play and it will impact how you approach this entire situation.

Ted Jacoby III:

Just doing the math in the back of my head, even if we’re up $3/cwt in terms of extra revenue, that’s not even showing up on the melt check. You have probably since 2019 an increased minimum of 30% of costs for a dairy farmer. That’s my guess. Plus you’re probably also selling fewer cows at the end of their second and third lactation. So the number of fully grown cows sales has gone down, so that’s a part of it. And even though your component prices are up, so maybe you’re getting a little bit more revenue on your milk check there in the last six years, I think most dairy farmers would tell you the break even price on the milk check is not the same as it was five years ago. It’s still gone up even with those other revenue streams.

Corey Geiger:

Correct. Everything’s shifted higher, exactly.

Tristan Suellentrop:

We mentioned that over the last 20 years there’s been a lot of variables influencing cow prices, and Abbi mentioned that aging farmers without a succession plan is one of those factors. I was wondering if you see them trending to follow a specific path such as selling their herd, or is it just kind of too varied to predict?

Abbigail Prins:

So I could speak a little bit more to this on the beef cow side rather than dairy, but I’m sure the similar concept applies that if you are an older individual, you’re looking to retire and you do not have the next generation to come up behind you. Well, why not get out while the market is high? I mean, it’s better than getting out when the market is at a rock bottom, right? So intuitively, that makes a little bit of sense. We’ve also seen where, I mean, this plays a little bit into the rebuild as well, that they’re not keeping extra heifers back. And I could say the same thing that dairy farmers are not going to expand if they do not have the capital to be able to invest in those animals or they have other debt that needs to be paid off.

When we talk about the dairy industry or even just other sectors of agriculture, it is very common to have a diverse business that you are not only raising dairy cattle or you are not only raising beef cattle, you’re doing crops or you’re growing trees or you’re doing something else to diversify your business. We’ve seen how crop prices have fallen over the past couple of years that you have producers in the beef sector that are selling off extra calves because they are at record high prices, sell them off and help cover some of that loss on the crop side. That also plays into this a little bit.

I would like to believe that happens on the dairy side too, that if you have other things that are taking precedence of what debt needs to be paid off first, where’s the money going to come from? And when we’re talking about diversification of income, I think the dairy industry has really been a beacon or a front-runner where you have milk sales, you have cull cow sales, you have beef on dairy calf sales, you have all of these other revenue generators besides just milk, and that’s helping spread risk across the business so that when volatile times hit, because it’s not an if, it’s a when, that you are better prepared for those situations.

Corey Geiger:

Costs have gone up over the last five-year horizon. But the other thing is milk coming off a U.S. dairy farmers has changed tremendously. If 90% of the milk in this country is priced on multiple component prices with 90% of that price fixed to butterfat and protein, farmers are shipping a lot more butterfat and protein and a lot less water. I had the opportunity to co-present with Jonathan Lamb on New York dairyman at the USDA Ag Outlook Forum, and he put data on the screen. This was a data set, same herds, same management. His fifth and later lactation cows were averaging a three six butterfat. This is a Holstein herd. His first and second lactation cows were averaging a 50, 50 versus 36.

Ted Jacoby III:

Wow.

Corey Geiger:

From protein. The young ones were averaging 36, and the older ones were averaging 32. Now, nobody sells percentages, but when you multiply that by pounds, that means that milk coming off of Jonathan’s farm and he’s really representative maybe on the higher side because he’s all in on genetics and genomics. But look how much more valuable his milk got per pound over that five years. And those who are being very aggressive in this category and aggressive in my mind means using the top end Holstein and Jersey Bulls are your favorite breed, getting heifer calves out of those best cows and for dairy replacements, and then looking at the bottom end of that bell-shaped curve and saying, “Hey, you guys don’t need to put a dairy replacement here. I’m going to harvest and send your calf to the second career right away at beef on dairy.”

There is a lot of revenue to be made not only on the beef side of this, but raising the component level. Because consumers, when we work the export market, we’re largely not shipping fluid around. We’re putting solids out there and processors want solids. And this story has just begun.

Ted Jacoby III:

Corey, I couldn’t agree with you more. I think Mike and I have already started talking about having an episode here in the next month or two where we’re talking about that very theme. And even more specifically, over 50% of all the milk in this country goes into making cheese and the fat component is growing faster than the protein component. And cheese plants are starting to really struggle with that. And so we’re traders here, everything’s about supply and demand, and right now we’re seeing a drastic shift in the supply-demand balance of butterfat as we speak because of that change. I’m very curious to see how that all plays out in the next three to five years as that fat percentage continues to go up. And also how cheese plants deal with the surplus fat that’s coming at them, especially as it relates to protein, because there’s more fat out there than protein, and it’s creating a very fascinating dynamic in the cheese plant right now.

Corey Geiger:

And from a genetic standpoint, so now you’re going to talk geneticy, but there’s a 80% correlation. So if you raise butterfat, there’s 80% chance you’re going to raise protein and vice versa. So these two traits are hitched to one another. Now the difference though is we can do more things through feeding to raise butterfat levels, and right now the dairy farmer is receiving signals that butterfat’s worth more in protein, and that’s where the processors need to deal with it on the next end of it. I agree though that long-term, when you’re looking to make cheese, half the milk in this country goes into cheese. We do need to be very cognizant of that fat-to-protein ratio because it’ll have some dramatic impacts long-term.

Ted Jacoby III:

Yeah. Well, and the math is simple, if I’m a dairy farmer. Whether the butter price is $4 a pound or $2 a pound, the formula still comes to a very simple conclusion, produce more butterfat.

Corey Geiger:

Bingo.

Mike Brown:

And over-exaggerate a bit on the cheese side because you can’t get the revenue quickly from the whey cream that you’re going to get from double-A butter, which determines the regulated price. And that’s part of the challenge as well. Grade-A butter is not the only value of fat, but is the one that regulates price and that’s causing some of the difficulty.

Ted Jacoby III:

All right guys, Corey, Abbi, this was a fantastic conversation. I learned a lot. I have a feeling everybody else in this call learned a lot. Look forward to seeing you soon.

Corey Geiger:

Take care.

Tristan Suellentrop:

Take care. Thank you guys.

Ted Jacoby III:

Bye.

Outro (with music):

We welcome your participation in the milk check. If you have comments to share or questions you want answered, send an email to podcast at jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check, is a production of T.C. Jacoby and Co..