This episode was recorded in Reno, Nevada, during the 2025 Western Dairy Management Conference.
This episode was recorded in Reno, Nevada, during the 2025 Western Dairy Management Conference.
Dr. Hemme begins with a demonstration of three different-sized glasses of milk representing the daily average dairy consumption in China, Europe, and the world as a whole. He explains that when you make predictions, it’s good to identify the two main drivers of uncertainty in your industry. In the case of dairy, he cites whether or not people like dairy and whether or not they can afford it. He goes on to describe the four scenarios that can be created from those main drivers: people like dairy and can afford it, people don’t like dairy but could afford it, people like dairy but can’t afford it, and people don’t like dairy and can’t afford it. (4:05)
Walt asks Dr. Hemme to give some perspective on what makes a country a reliable exporter built for the global economy. He gives a unique example of how American football versus soccer compares to exporting dairy from the US to the global market. Matt chimes in with his perspective on how DFA is positioning the industry for exports. He notes that we live in the world of VUCA - volatility, uncertainty, complexity, and ambiguity - and that we have a lot of VUCA happening in the US right now. In general, he’s very bullish on our natural resources, management skills, and technical capability in the US dairy industry. (10:17)
The panel discusses who in the world is going to be able to meet the building demand for dairy products, and what the US might need to do to be a major player - in essence, moving from playing football to playing soccer. Dr. Hemme gives culture, policy, and relationship building as potential challenges for the US. (16:37)
Matt is encouraged by the new investments in processing plants in the US and looks for a “build it and we will grow into it” scenario as we move forward. Dr. Hemme agrees that the processors are on board. But he wonders about the dairy farm side - no growth in cow numbers, not much growth in production, and breeding so many cows with beef semen makes him think the US is not believing in a growing dairy industry. He also talks about changing interest rates over time and impact on capital management. (25:50)
The panel discusses the US milk price compared to the world milk price, the cost of production, and exchange rates. (29:45)
Matt gives some perspective on beef-on-dairy. As the beef cycle levels back out and more beef heifers are retained, he forecasts fewer dairy cows being bred to beef semen and an increase in the supply and retention of dairy heifers. (34:31)
Dr. Hemme talks about dairy demand and global population growth trends and predictions. (39:38)
Panelists share their take-home thoughts. (42:02)
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Scott Sorrell (00:10):
Good evening everyone, and welcome to the Real Science Exchange, the pubcast where leading scientists and industry professionals meet over a few drinks to discuss the latest ideas and trends in animal nutrition. Tonight, we've got a very interesting topic, but I'd first like to start off with our, my co-host tonight joining me Walt Cooley from Progressive Dairy Magazine. Walt, I want you to just introduce yourself to the audience and tell a little bit about what you do.
Walt Cooley (00:34):
Yeah, thanks Scott, for inviting me to visit on this podcast. So progressive Dairy is my affiliation editor with that publication. And we also have our own podcast, so co-host that podcast with some of the other editors. I'm glad to be here to talk with some of your guests.
Scott Sorrell (00:50):
Yeah. What's the name of the podcast?
Walt Cooley (00:51):
The Progressive Dairy Podcast.
Scott Sorrell (00:53):
All right, there you go. Awesome.
Walt Cooley (00:54):
Very appropriately named.
Scott Sorrell (00:55):
And a frequency of that is
Walt Cooley (00:57):
The podcast comes out anywhere from weekly, sometimes multiple times per
Scott Sorrell (01:01):
Week. Okay, great. Awesome. My color commentary today is going to be Matt Musselman from DFA. Matt, introduce yourself. Tell us about what you do at DFA.
Matt Musselman (01:10):
You bet. Well, great to be with you all this evening, Scott. I had the distinct pleasure to grow up on our family dairy farm in Iowa, where we milked a few cows in a double two site opening surge parlor back in the day. So I've been in and around the dairy industry my entire career. 35 years in, in both nutrition and animal health. And then with DFA the last eight years where I work as one of our chief operating officers.
Scott Sorrell (01:44):
Excellent. Well, thank you for joining us. And our featured guest is Torsten Hemme, and he comes to us from Germany. He gave a presentation this week at the Western Dairy Management Conference called Understanding How the US fits into the Global Dairy Development. So, welcome Torsten. Thank you. You and I've got to know each other a few years back when you were with IFCN. You're no longer with them, but tell us what you're doing now and give us kind of a broad overview of the conversation or the presentation you gave yesterday.
Dr. Torsten Hemme (02:15):
Okay. Yeah, good evening ladies and gentlemen. It's a great pleasure. So myself, I'm a dairy economist and have been the founder of ICNI handed over the business to the next generation and right now support people. So I'm a lecturer at University Kil and, and I'm a dairy farmer in New Zealand because I think it's a great place to be a farmer. Excellent. Now you want hear what I have been talking about yesterday?
Scott Sorrell (02:45):
Yes, absolutely. Well, first you know, we, we commonly ask here at the pub what's in your glass tonight, and you've got quite a glass, so why don't you tell us about that?
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Dr. Torsten Hemme (04:05):
Well, you know, I studied in Texas and I learned that in Texas everything is, everything's big, a little bit bigger, right? But that's a German mark. That's a German, so sometimes it's the other way around. So, no I used these three glasses yesterday to explain the destiny of the dairy world to every person involved. So what happens with these three glasses affects every dairy farmer in the world, or farm input companies like Balchem, all dairy journalists all processors, and of course all consumers. So let's start with a glass in the middle. This one is the climate killer number one on this planet,
Walt Cooley (04:48):
According to some people,
Dr. Torsten Hemme (04:49):
According to some people, yeah. Now everyone has the right to have an opinion. Correct. So some people have the opinion this is a climate killer, number one, and if we eliminate that one, we are all safe,
Walt Cooley (05:02):
We're all better. I, I would, I would say Scott's audience probably is gonna disagree with you. Yes, yes.
Dr. Torsten Hemme (05:07):
No. Why? The, why do people talk about that? Well, this is consumption of an world average person of milk per day or dairy products. So that's what an average person on the planet drinks or eats in terms of butter cheese a day. So, cheers. Yeah, cheers. That's the world average. This is what the average Chinese person is drinking
Walt Cooley (05:35):
Or eating
Dr. Torsten Hemme (05:36):
Or eating. Yeah. And that's what a European person is eating, and the US person is drinking a little bit less, right? Okay. So something like that. And so it's either this one liter of milk or the a corn related part in cheese. So one pizza is one liter of milk, or two cheeseburgers is also the same. So that's the dairy demand. And the most exciting thing now is, is the world average going up or down mm-hmm
Scott Sorrell (06:31):
Yeah. And do you have answers for those questions?
Dr. Torsten Hemme (06:35):
Well, I have predictions and four scenarios. Yeah. So, you know, when you do predictions, it's always good to identify the two main uncertain drivers in your industry, and they need to be uncertain and big. So the, the first biggest uncertainty comes from do the people appreciate dairy as a category, yes or no, or see that as the biggest climate climate killer. So you have Nicole Kidman in us doing a great cheers on that one, and you have other people doing the opposite. So that is one element on, on the, on the on the matrix. And the other one is how good is our politics and how good is our economics and prosperity on this planet developing? And the, you know, the last 10 years we have done reasonably well. But it can, the more we, we push our economy down, push the emerging market countries down, starts war, et cetera, et cetera, it's, it's a mess.
Dr. Torsten Hemme (07:30):
So you have basically here the people who like dairy, those who don't like, and then you have here the good economic times and here the bad economic times. And with that one, you have four possible scenarios. So on the top right, you have the pro dairy scenario where we have been in and where we grow dairy demand at 2.5, 2.5% per year. So that's a good time on the bottom right. So people don't like dairy, but still could afford it. That means we are in a rich and pick a scenario so that people, the average rich people, the average person in rich countries moves back in consumption and we lose dairy demand on a significant pace. So that's a rich and piggy scenario then on the top right? So the people would love to drink dairy, but they can't afford it because this is an expensive food, especially if, if you live on one or $2 a day. So, and that's an income restricted scenario. And on the bottom left that is, you have the worst of the two worlds that people either can't afford it or don't like it, and you have a shrinking industry. So the, the most exciting thing now is if you stay on the top ref, right? Scenario we need until 2050 450 million tons more milk. So that's about 50%, or we need to build in dairy industry, which is four and a half times the US today.
Walt Cooley (08:59):
It's a big number.
Dr. Torsten Hemme (09:00):
It's a big number. So us you better, you are now on 10 million tons 10 million cows. So US would take the responsibility on this scenario, you better move to 15 or 20. So be, you know, the Irish had been very smart on that in 2012 said, look, we move out of quota. We wanna grow 50%, let's get ready for that.
Scott Sorrell (09:22):
Yeah. So that's a lot of milk. That's I'm gonna guess we're gonna grow that glass into something a little more like this.
Dr. Torsten Hemme (09:31):
Well, I, I think what you see is this, let's say this is an average Chinese person. Yeah. Right? A rural person is drinking this amount, and the rich Chinese person is drinking this amount because he could afford it. So a person in Beijing is there. So it's just this little amount and on, if you look on, on the world average we think that the world average demand is growing about 20%. So we just make this glass full. Okay? And it could happen here it could happen here and partly also here. So US has the increase, their daily demand the last 10 years by 16%, Europe by 8%. So something is happening here. It could happen here, and it could happen in basically any country.
Walt Cooley (10:17):
Of course, one of the things I liked about your presentation was you, you do bring a global perspective you know, outside of the United States. You're bringing that here to the Western Dairy Management Conference. And one of the things that was interesting, you talked about you know, you have experience watching companies become global exporters mm-hmm. And talk about what typically that requires of the country and its infrastructure to become a global exporter. Not just a a a exporter of excess, but a a reliable exporter that's, that that's built for exporting markets into the, the, the global economy.
Dr. Torsten Hemme (10:50):
Well, I think if you take the example of the United States, right? You are great in American football, right? Most of the people in the world play soccer. So if you wanna be a, a continuous exporter, take that example. And the, you take your, your funny ball and your strong guys, and or you go in a football field somewhere else, and then you have some fun with the guys, but no one takes you really serious because you are a little bit strange, right? For them. So if you wanna play soccer, the world championship of football the size of the ball need to look different. Maybe the the shape of the people need to look different. You don't need this one on your face. So now this is a picture, right? And I think currently it's a choice. And I think the US, for example, has not made the choice whether to be a major dairy exporter or stay in the comfort zone of 94% local sales and get rid of some surplus.
Walt Cooley (11:59):
This is probably the best place to bring in Matt. I mean, Matt, you're, we're in Reno. You just were mentioning just over the hill there's a, a plant in Fallon. It's one of the newest plants that Greenfield construction, the DFA did talk about what that means as you try to position DFA as a, as a global exporter.
Matt Musselman (12:18):
Yeah. So, so I think what, what I would just say as a a high level perspective my view, we live in the world of volatility, uncertainty, complexity, ambiguity. And you would probably say maybe it's been a while since we've had so much VUCA happening in the US in just terms of every front that you look at, whether you wanna talk today about our political environment or the stock market, or the conditions in agriculture and the dairy industry. So there are a lot of unknowns that will become clearer, I think, as we go through the next year or two as we sort of settle out some of these tariff conversations and, and find out, you know, where the priorities are going to be. But in general, we're very bullish on the future of US dairy. We have the natural resources, we have the management skills, we have the technical capability now with all of the new things that we're doing with a variety of robotics and, and other IOT devices or cow jewelry, as I like to call it.
Matt Musselman (13:34):
And you, you put all that together with that, that underpinning of the land base that we have in the US where we can produce crops in a very highly efficient way. I think we're, we're built to be a growth industry. And, and certainly that's what history shows, right? We, we typically have been in this mode of every year we're growing one to 2% of milk production in the us. A portion of that goes for export. I think we're up to around 16, 17% of dairy, of US dairy. That does get exported. Obviously most of that goes out as powder. But if you look at our domestic industry, you just look at the dairy case today versus the dairy case 20 years ago. And my, it's got a plethora of options. And I think consumers in the US now are, are really sort of coming to a new place around dairy.
Matt Musselman (14:35):
Butter is cool again, you know, ice cream is, is delectable. It's even fashionable to drink milk again. Now, maybe it's a little different than that milk you have in your glass. It might be a micro filtered product that's higher protein, maybe filter out the lactose. But the point is, there's a lot of new things that are coming to the marketplace that are causing American consumers to sort of take a look. And I think that's, that's very exciting for our farmers to be able to be tapped into this innovation space and have the ability to see the milk that they produce being turned into so many delicious products that, that Americans can consume
Walt Cooley (15:21):
Of Horton. You and I have done some work and I liked in your presentation yesterday, you mentioned, I mean, one of the assets of the American dairy industry is not only the development of new technology, but also the forefront industry to adopt a lot of new technologies. That's, that's one of the strengths of the dairy industry in the us.
Dr. Torsten Hemme (15:38):
Well, we did this exercise, started that three years ago, mapping what happens in dairy farm tech space. And currently we identified 250 companies in the dairy farm tax space. The amount of money which was invested by this company was more than than a billion US dollar in technologies for farmers. So that's, and most of the companies are from us. So that's a strong assets con congratulations to that one. And, and I agree with you, Matt. If you have the technology you need to bring it into the farms and make it work. And there we have an advantage of larger farms can make that happen much faster, much better. And most likely that would stimulate structural change and speed up the structural change. Again, and if you are already big and have a structure and, and fuel in new, new technologies, you gain faster than an average farm in Europe or in, in, in the other parts of the world.
Dr. Torsten Hemme (16:37):
So I think a clear asset, and Matt, I I fully agree ever to everything you said. The US has the potential, if you look saying who will produce this 450 million tons of mills, or four and a half times the US in the next 25, 30 years. People think New Zealand might have limitations similar, like California has limitations currently. Europe and Holland probably clearly has limitations. In some, some countries are limited. Then you see, okay, where is the ability to produce that milk? Then you, you look for Latin America, south America, where the macroeconomic conditions are not there for, with interest rates and stability for people to do larger investments. Eastern Europe was a nice place to be currently is politically little bit unstable, so it will not happen there. Well, what's, and then you, you stay with a country like United States and Canada.
Walt Cooley (17:45):
Yeah.
Scott Sorrell (17:46):
So I sense you've got a skepticism that, that the US can step up to fill this great demand. And can you talk a little bit about that and, and why the skepticism?
Dr. Torsten Hemme (17:55):
Well I've been studying the us dairy industry and US people for 30 years. And I think you definitely have the ability to be the world championship of dairy in the world to be the leading number one dairy exporter in in the world, and bypassing, probably exporting the volume. What is Europe and United New Zealand is doing today? So that means you might move from, you increase your milk production by 50%, and then you are there mm-hmm
Walt Cooley (18:43):
This is changing the football to a soccer ball, right? Yes. So, explain some of those things, like how, how does, how do we go from playing one sport to another in your opinion.
Dr. Torsten Hemme (18:52):
It's, it's a joke, it's a stereotype joke, and it does not apply on any person in this panel and any person listening. So don't take it personal. The jokes are about in a humorous way identifying opportunity. So the drug is about a survey done by the United Nation and, and asking all the countries in the world one question. And the question was, how do you solve the issue of food shortage? Well, now what's your honest opinion on solutions on food shortage in the rest of the world? Highly relevant que question. We have either 800 million people, hungry, rising style, so highly relevant question. And this survey was a complete failure because the countries didn't understood the question.
Scott Sorrell (19:43):
Okay?
Dr. Torsten Hemme (19:44):
So in Africa, the term food was not fully clear because there was not too many
Dr. Torsten Hemme (20:23):
Yeah. So to, to bring this, this joke into perspective, you have been lead be the leading global country in the world. Everyone was looking at you, everyone was coming to you and, and and so on and on. So that restricted your chance to look in a humble way to the rest of the world. And whenever we want to develop us dairy, you'd sell your milk probably here. So you sell your milk in the rest of the world. So how much does an average American knows the rest of the world? Mm-Hmm. Let's start with a simple thing. How many have a passport? How many have not a passport? How many are decided not to vaccinate against COVID and might get travel restriction based on that? I'm not talking about the educated people, but it, it's, it's a culture. How many of your people in your country speak two or more languages?
Dr. Torsten Hemme (21:25):
How many of you have experienced in another country and another culture? So the, the biggest challenge is that your intercultural competence, if you know one country and one culture, you know, no culture. If you have been living a year or two abroad, experience another culture, you learn a second culture. And with that one, you, you learn your own culture much better. So this is a development perspective which so far and is, is there. So that's, that's number one. It's, it's a culture point. Then I think you have policy tools in place, which were very good for the old times. So let's talk about the federal milk marketing orders. Mm-Hmm. I had a chance to study them a little. And I tried to explain a non-American person, a dairy person, saying, what is that? Very difficult? And then why do the Americans need it? That's even more difficult. And then the question is, do you need something for which no other country needs in the world? And if you wanna become a major dairy exporter, or is that basically the, the thing, what is hindering the dairy industry most and over hindering your companies to do foreign dairy investments? Oh, it might be an entrance. Maybe invite for other companies, invest in us. There are more foreign companies investing in US than us company investing outside. So
Walt Cooley (22:52):
We, we saw that in some presentations here as well, right?
Dr. Torsten Hemme (22:54):
So I think so that there's this, this culture and mindset point. There's framework points which I would review. If you wanna go, if you wanna move from football to soccer, you need to, I would review some, some elements. And you know, what I learned in America, if you really want something, and you really great, right? If you really want something, you have the self-confidence you can be there. But you need to probably throw out some of the things of the past, which are not that needed anymore. And you can figure that out yourself. But he, he needs some courage and needs to saying, look, we are moving from football to soccer, and we need to change something. And then you get there, of
Walt Cooley (23:38):
Course. And what I appreciate you being here at the Western Area Management Conference to explain is, is a different perspective. And it, it does help producers who maybe have a mind towards exporting products to understand what's gonna be required, if, if, if that's the way the, the US industry as a whole wants to go. So I, I appreciate that perspective. Yeah.
Dr. Torsten Hemme (23:57):
I, I have one last point which I wanna add. And actually in current times,
Dr. Torsten Hemme (24:09):
The image of your country is little bit on, on the downturn out of the perspective of the rest of the world. And you know, if you are a representative of the government of Nigeria, you don't want American exports. You want your local dairy industry to grow. So what what I think has not been understood that well in us is you cannot just dump your product somewhere in the market. You need to develop a market, you need to develop relationships. And the country where you which where you wanna import in, that requires that you support the local dairy industry to grow. So, local dairy development, investment in local dairy development in Nigeria goes long with the chance to enter the market with your products. And some governments, you know, you win elections as a politicians in developing countries, but with the topic of milk in India, 25 of the pe percent of the people have a cow at home.
Dr. Torsten Hemme (25:14):
So with dairy, you win elections. So if you are you wanna feed of course, your people, and you see, you can't do the locally, but you still need to have arguments among your people saying, we are importing. At the same time, the, the, the country like us is helping us to grow your, our local dairy industry. You have the best of the two world, which has been seen as a conflict many times. And I think if, if you are, if I'm normal American farmer saying, why in the hell should we invest in local dairy development and spend our money there, that should just, should buy our product, that doesn't work anymore. Mm-Hmm.
Matt Musselman (25:50):
You know, Torsten, I am encouraged by the, the current environment that we're seeing in the US where there's a lot of new investment in manufacturing assets that's going in. And as we watch that all start to ramp up, you see kind of a new era emerging where we're going to have a number of new highly efficient plants to produce a lot of those different types and styles of products that, that people are interested in. I do think that gives us a bit of a, a little bit of a build it and, and we will grow into it type scenario. And you could argue that, you know, with the total amount of new manufacturing that that's going in, you know, people might say, well, where's the milk coming from to, to fill those plants? But I think our US dairy farmers have proven over the years that they're willing to ramp up to meet that, that opportunity.
Matt Musselman (26:45):
So, so I do think that represents a piece of that, that growth scenario that you mentioned where you know, we're, we're kind of moving from some of the older, smaller plants that have been around for many decades and moving into a new era now where there's a lot of investment, and it's both by American companies as well as some other comp countries companies that are coming in to, you know, to invest in those assets. So I think that is supportive of the idea of us sort of growing into that demand curve that you're talking about. Yeah.
Dr. Torsten Hemme (27:19):
No, I fully agree. And I think the number was big yesterday. It was $9 billion in processing investment. Yeah, we saw that. A big number. Yeah. And what I wonder is I think you have the processors on board, but if I look what I learned from the farmers today, cow numbers, stable milk, production volumes in normal in natural fat con protein content flat for four years. And if you invest most of your cows with beef semen I think you're not believing in a growing dairy industry. So I, I think the and I wonder there's one most important driver for milk supply the last 20 years, which we have not, or 40 years, which we have not fully understood yet. And that is declining interest rates. Mm-Hmm
Dr. Torsten Hemme (28:29):
And now you have millionaires, farms, people are my age, h and now the question is whether the next generation is also a dairy premium entrepreneurial company not having the, the back wind of lowering interest rates. And let me explore that a little bit more. Lowering interest rates means a booster on asset values. Mm-Hmm
Walt Cooley (29:45):
Of course, I wanted to ask you a question from your presentation. One of the graphs that you showed was showing world milk prices versus country prices across, you know, the Europe United States and, and other parts of the world. And one graph that was really interesting, I wanna get your take on this, was, you know, for the first time in 2025, the US price is below the world price. In other words, we are a, right now a low cost potentially supplier where that hasn't been the case. Do you see that trend going forward in future years? Or is that just a blip that's gonna flip back the other way at some point in time?
Dr. Torsten Hemme (30:24):
I think it's, it's a blip because you, you had times where your price significantly higher for than the world market and then lower. So you are, you are moving around that one. So I would not overestimate that one. And even though if you are 10% higher, milk price for exports is, is a big thing. So basically with more than 10%, you lose your competitiveness on the, on the world market. Like Europe today with the current butter prices our production cost of cheese is significantly higher than, than in us. So yeah, this significant burden once once you have, you deviate from that price. So I think it's more an occasional thing. If you have overshoot a little bit, you undershoot,
Scott Sorrell (31:10):
You kind of hollow up to that question. So where does us rank in terms of cost of production and where do you see that going longer term now out through 2050? Yeah.
Dr. Torsten Hemme (31:22):
Give me a prediction of your exchange rate.
Scott Sorrell (31:24):
Okay. Yeah. Yeah. I don't know. So
Dr. Torsten Hemme (31:27):
0 1, 1 to one to one, one to 10, one to 30. Let's,
Scott Sorrell (31:32):
Let's just, let's just say it's stable.
Dr. Torsten Hemme (31:34):
Stable. Okay, good. I think the, I need to have it out of my head. New York, not that good. Rising costs in us the last three, four years. But rising costs is not a key challenge because costs are rising ev everywhere in the world. The challenge is that most other countries de inflate or devalue their currency against the us, which makes their dairy dairy farms more competitive than the us. So overall, I've seen the large scale dairy farms at moderate feed prices with moderate exchange rate competitive net competitive at international prices, but probably not. The price is probably not good enough to accelerate a 10 per a five to 10% growth in milk volumes. What we have seen in the past, and, you know, the, the biggest challenge in, in our prediction right now is we see the milk demand rising, the supply not rising as fast as that.
Dr. Torsten Hemme (32:36):
And even though we have slightly higher prices and currently higher milk prices, not activating milk supply, not in New Zealand, not in Europe, and so far not in United States for, for a number of reasons. So that means we are probably in front of a structural milk price shift from an old level. So the old level was $70 per hundred weight for, for many years. We are now maybe on an average between 19 and $20 per hundred weight, but it might be the case that, that we move to the, that was a 20% jump of milk prices, but it might be the case that we move towards 21, 22, maybe 20, $23 average milk price in the future years. And depend then the question is, what happens in us at the milk price, predicted milk price for $23? What happened in Europe? What happened in Australia and New Zealand? Where do we activate first the milk volumes,
Walt Cooley (33:30):
Matt, weigh in on that. I'd be curious to hear you are, are we in a, a, a base price kind of shift upwards with rising costs?
Matt Musselman (33:39):
I mean, certainly inflation has played a significant part the last few years in where we are today with the cost structure, no doubt. But as we all know, the feed price drives so much of that cost to production somewhere 50 to 60%. And so as the feed price goes, generally speaking so goes you know, the broader economic picture for the farm. And you know, we have a lot of dynamics going on right now in that, in that grain market, that, that then everything else gets priced off of that. We'll have to see how that all settles out now that we've got a shift in how we're exporting in particular to Asian markets. So we'll see how that all plays out. But right now at least we have a more favorable milk feed margin in 2024 and into the first part of 25 than, than we've had for a, a little bit.
Matt Musselman (34:31):
So I think that's helpful. But one thing that, that Torsten mentioned that I do think is worth maybe just one additional you know, comment on would be the impact that we're seeing today from the beef market, that that has sort of, you know, piled on over into dairy, and of course we've got the lowest beef cow inventory that we've had since the early 1950s. And so that has played into the availability of, of, of beef for consumer access. And, and no question that drove what we see today where we've got, you know, Dale, old calves bringing a thousand dollars as crossbreds, we've got cold cows bringing significantly higher amounts than they they ever have in history. And so that does fit into the income statement of the farmer, and it does obviously cause some different decisions to be made in terms of how many heifers they're keeping back.
Matt Musselman (35:30):
I do think we'll work through that as the beef cycle plays out. And depending on, you know, which predictions you look at, we might have another two, possibly three years to work through before there might be some more, some more heifers being retained on the beef side, therefore leading to a little bit more beef production. But we've clearly proven that it's possible to rent out some space in the dairy cow to produce a highly efficient beef animal. And, you know, prior to this new trend, obviously half of the calves before sex semen were bull calves, and were going into that, that beef market a little bit different composition of the carcass, but it was still there. And so there's probably always going to be some opportunity for dairy to participate in that, that beef market just due to what we've learned the last four or five years. So I do think that'll settle out a little bit and, and probably we'll get back to a little bit more normal heifer retention type type approach for dairy farmers, then giving them an opportunity to, to increase. I, I don't know that we're gonna I, I don't, in my crystal ball, I don't know if 5 million new dairy cows is, is in the cards or not. But I, I certainly see that, that we could you know, raise the inventory sub.
Dr. Torsten Hemme (36:53):
Well, I think it, it depends on I think a good place to look on that is, is island, right? Island put the farmers, the processors, the governments together and, and build a strategy after a time what they called after quota. Yep. So they had a and then there was a strategy of plus 50% where everyone said, you are crazy. But it, the, the interesting thing is that farmers get excited about it. Processors invested in facilities the same time government was behind it, and banks providing the loans and then they ramped up and the milk volume there, those days they were placed be fattening with dairy, right? Because dairy had a bigger value. So I think how big us wanna be and whether you wanna make that step and it, it's a choice to be taken mm-hmm
Dr. Torsten Hemme (37:49):
And there are I think all, you know, whenever you look on change, you, you have the conservative part and the, the guys who like more than you at the adventure part. And that happens in every person himself, right? And the question is how were the dairy industry as a whole or your the players on what side are you? And at the moment, I think it has not been fully decided and aligned. And once you align well, we have a lower price jump. If you, once you align, you produce more, the, the world market price rise will be moderate. If you don't align then the world market price will be higher. And we probably bring the balance of supply demand in the world to bring it back into balance by making milk so expensive that these consumers stay at that MO volume and we don't have the demand growth..
Matt Musselman (38:50):
Yeah. I, I did have a question I was curious your thoughts on, so we we've been reading and observing a lot in the, the press in the last year or two about the changing demographic profile in several company or countries, particularly China and how that may impact things that we do from a US perspective to export to their markets. And I was just curious if you had any thoughts on that. And there, there's even some models that, that I've seen presented recently where they're showing a flattening out of the global growth curve and even just looking at the aging population versus the ability for us to replace ourselves, if you will. So I'm just curious if you had any thoughts on that.
Dr. Torsten Hemme (39:38):
Yes, I, I know these scenarios and no, let's come back to the, to the simple basics. So dairy demand grew by 2.5% per year, so that is 20 million tons. So the demand was one New Zealand every year more demanded. And the key driver of this 2.5% was 1% was coming on from more people on the planet. So we are adding around 80 million more people on the planet, and we probably the, the percentage growth rate is, is declining, I think was 1.5. Now we are slightly under, under 1%. So that is, that is growing. And the second driver for for the 2.5% growth is the demand per capita. So people from here moving to here mm-hmm
Matt Musselman (41:04):
Yeah.
Dr. Torsten Hemme (41:05):
The Chinese thing is a pretty interesting thing because you said, look, we have the one child policy. Now you are allowed to have a second child, but no one decided for a second child because Too expensive. Yeah. Then you provide a subsidy, even the processors give free milk for the second baby and, and so on. But, you know I think China will not grow. They still, I think they will stabilize and they will have a declining population, similar like Japan. But the Japanese drink double of that with their aging population. So sometimes I, I think you can make a story about an analysis, but if you go to the basic facts China, Korea this is still a there thing. And there is also good for older people. So I'm still optimistic unless we keep the unless the trust in the category is eroded.
Walt Cooley (42:02):
Scott, I think that's kind of my take home from today's message is really, I mean, dairy demand is, is there and it's predicted to be there, with the exception of maybe some activism things that so far I, I think the latest data I've seen show that maybe we're heading in the right direction, but otherwise the, there there's a really good fundamental on dairy demand for producers to get excited about.
Scott Sorrell (42:25):
Yeah, that's kinda my key takeaway as well. Right. I'm pretty simplistic as I look at this, this, and, and if we're gonna grow 450 million tons by 2050, I guess I've got a lot of confidence in the American dairy farmer. If there's a gap, we're nothing but capitalists, right? We're gonna fill that gap. And so I've got confidence in our ingenuity to do it. So I'm, I'm positive about it. I don't know if it sounded like that during the conversation today, but it was a lot, a lot of headwinds. But anyway wrapping up Matt an any key takeaways for you'd like, you'd like to share with the audience?
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Matt Musselman (43:27):
So I, I appreciate all the, the comments and perspectives towards that you brought yesterday and, and, and to this conversation as well. And I, I think it's, it's right, you know, to point out the opportunities and then potentially what the headwinds could be to seizing all of those opportunities. So I think I'm probably in the double ditto category in terms of what you said. I, I'm pretty bullish on the American dairy farmers' capabilities to rise to meet the occasion. And I think you've got the right infrastructure in place to support that across the us. I, I think as you pointed out, Torsten, we've gotta have a next generation that wants to participate in the industry. That's a key. And so, so that'll be an important thing to help facilitate, you know, as, as as we rise to beat this, this next era of growth is, is having the right people in place that want to do this and lead the industry. That's, that's an important point. But, but overall, I, I'm pretty bullish as you are, Scott, on, on our ability to rise to meet, meet that gap.
Scott Sorrell (44:37):
Yeah, I mean, like the, the options are really limited, right? If, where's it going to come from? I mean, Europe, the us, south America, anywhere else? I mean,
Dr. Torsten Hemme (44:46):
Well, I think we shouldn't, should not forgot that dairy still is a local for local product product. So 70% of the additional dairy demand will be produced locally and some will be produced in one country and shipped to the other country. So and most of the milk will be produced locally, and if, if economics is very difficult, you have these countries get a significant price premium over the world market for the fresh milk segment. So, no, don't, no doubts of that. And Matt, you know, I think what we could summarize here, dairy outlook is great. Opportunities for the US is great. You can win if you adapt. And it's fun to play football
Dr. Torsten Hemme (45:36):
Even though you haven't done it that much. And it is, it is a girl's girl sport here in us, right? It's
Walt Cooley (45:42):
Fun to play football. I appreciate you saying that as
Dr. Torsten Hemme (45:44):
You play football. Yeah, yeah. Yeah.
Walt Cooley (45:46):
It works for everybody.
Scott Sorrell (45:49):
Very well. Well, this has been, this has been an awesome discussion. I hope to continue it down the road right the, the, the future's bright. So I want to thank you guys for joining us today. This has been a great conversation, Matt, last minute. Appreciate you joining with us to our loyal audience, as always, thank you again for sharing some time with us. We hope you learned something. I hope you had some fun. We hope to see you next time here at the Real Science Exchange, where it's always happy hour and you're always among friends.
Balchem (46:16):
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