There’s a saying among investors: “The trend is your friend.” Meaning, you can capitalize on the sentiment of the moment by putting your money into what’s trending higher.
The only problem with this saying is that it pertains to human trends, which are fickle, and the marketplace, which is in constant motion. Hence the second part of the phrase that too few wannabe Warren Buffett’s know as well as the first: … “until the end when it bends.”
Point being, trends don’t last forever, that’s why they’re trends and not laws of marketplace reality.
Why am I talking to you about this, you ask? Because we in the business of agriculture are impacted by trends. Food — once in scarce supply and difficult to produce — is neither of those things anymore.
The business of food is more affected by trends generally, than by our ability to produce it. Barring catastrophic weather or disease, we have food production pretty well dialed in. In some cases, it’s so dialed in there’s too much of it. Which brings me to milk.
A recent Wall Street Journal article profiled the travails of Dean Foods, the Dallas-based milk conglomerate. Dean has (or had) 58 dairy processing facilities across 29 states. The company shuttered a chunk of those plants last year. Dean Foods today is valued at 5% of what the company was worth 10 years ago.
Some of my ag friends blame Walmart, which opened a milk processing facility last year. While Walmart’s move may be partly to blame, Walmart has nothing to do with the reality of dairy’s meltdown.
Fluid milk consumption has been declining on a per capita basis since 1947, when we drank 47 gallons annually. Last I looked consumption was around 16 gallons. Walmart didn’t do this. If anything, the retailer’s cheap prices may have propped up milk.
The trend is simply against milk. Cereal consumption has declined due to gluten free eating and the low-carb craze. Milk — cereal’s partner at the breakfast table — declined too.
“Trends don’t last forever, that’s why they’re trends and not laws of marketplace reality.”
Lucky for dairy, the trend line for cheese and yogurt has gone the opposite direction of milk. Consumption of both products has more than tripled since the 1970s. Were it not for cheese and yogurt, we’d be drowning in milk more than we already are, because the spigots of production are wide open.
2,700 dairy farms went out of business last year and we’re still awash in milk. Dairy farmers have gotten really good at squeezing more milk out of Bessie! The average dairy cow produces about 40% more today than she did on my dairy farm of the 1980’s.
We’ve got a lot of the white stuff. And a lot of alternatives. Whether you call plant-based “milk” milk or not won’t change the fact that it’s stealing consumption from real milk. Why? Because of savvy marketing. Plant beverages tout health, environment and animal treatment claims.
I’ve been critical of the industry for not being more innovative. While Monster Energy and Coca-Cola fuse marketing muscle to sell more ounces of beverage, dairy focuses on production over promotion. The “Got Milk” ads were clever. For a while. Dairy stuck with the campaign for 21 years!
So the question is: would brilliant marketing reverse the trend? I believe it would. Although we’ll never drink 47 gallons again. There’s simply too much trend working against milk. But there’s room for growth. Eggs fought back from declining consumption and unsubstantiated health claims. We ate only 230 incredible edible eggs per American in the mid 1990s. Last year we surpassed 280 eggs each.
When the trend stops being your friend, savvy investors change strategy. For the business of agriculture there are three strategies to succeed when the food trend stops being your friend:
- Adjust production up or down to accommodate the trend.
2. Create new products that capture the trend.
3. Change promotional methods to appeal to the trend.
The first option generally happens automatically and often involuntarily. The second two options happen through commitment and creativity. As a dairy farm boy and devoted drinker of chocolate milk, I wish the trend was better for dairy. More importantly, I wish the industry would call on me to help implement those second two strategies.
