Let’s Chat Markets Special Episode with Mike Brown

On this special Let’s Chat Markets episode, Eric Meyer welcomes Mike Brown, a featured speaker at HighGround Dairy’s second annual Global Dairy Outlook Conference next month in Chicago! The podcast can be found here, or wherever you listen to your podcasts. Subscribe so that you never miss an episode!

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[00:09] Eric: Welcome, everyone, and thank you so much for listening today to our third in a series of Special Edition Let’s Chat Markets podcasts, chatting with some of our Outlook Conference speakers and panelists. You’ve got Eric Meyer here, President of HighGround Dairy, and we have one month to go before the industry gathers back in Chicago, June 20th through the 22nd, for our second annual Global Dairy Outlook Conference at the Historic Union League Club. Have you still not registered for the event? It’s time to get on that by visiting our website at highgrounddairy.com/conference to learn more and register today!

Today’s podcast features one of the legends in the dairy industry, or maybe just a legend in my own mind since he’s someone I’ve known in the dairy industry for virtually my entire career: Mike Brown, Chief Economist for the International Dairy Foods Association, thank you so much for joining us. How has spring been up in Kenosha by the lake?

[01:08] Mike: Well, it’s finally beautiful and I have lots of weeds to weed so I’m getting my outdoor garden exercise. Things are great here!

[01:17] Eric: That’s awesome. So, Mike, I am personally thrilled to have you as a speaker-panelist at this year’s Outlook Conference. Our careers are somewhat intertwined—or perhaps just my memory of it—and let me explain. Back in 2001, I stumbled as a young dairy professional into this industry through a meeting that I had with Mike Downes and Joe O’Neill, who had, in the late 90s, this crazy idea of disseminating educational material on price risk management and market dairy analysis to the masses via a website, eDairy. And who was one of the early subscribers, who paid $159 each year to have access to the “premium content” on our two-page website, but a Mike Brown, then with National All-Jersey. After I left Downes-O’Neill in 2005 and spent some time at Sara Lee, managing dairy procurement and risk, I came back to the risk management brokerage world with FCStone, and one of the first business trips I had was back in August 2008 to the Idaho Milk Processors Association Annual Meeting in Sun Valley, Idaho, where—you guessed it—I had dinner with you and the Glanbia team. Then fast forward a number of years, and you had become a mentor at Glanbia to Lucas Fuess, who eventually went on to become HighGround’s first Director of Dairy Market Intelligence. And now in 2023, we have you speaking at our second annual global market outlook conference. Mike, any memories, good or bad, of the old days from the crew at Downes-O’Neill when you first began interacting with Mike and Joe, who were my mentors in this business?

[02:54] Mike: Yeah, I have one really special one. It was a Jersey herd in Wisconsin who was planning an expansion. This was right around the late 90s, early 2000s and as part of their process of growing their dairy, they were going to be purchasing more feed, they were adding cows and, of course, had cash flow concerns. So in 1999 they actually did some activity, found ways to work at getting some forward sales on milk and so when they expanded in 2000—which was a devastating year for milk prices—their cash flow worked and they told me many times after that, “if we hadn’t done that, we might not have been around in 2001.” So, yes, very special memory on that with one of my favorite dairymen, frankly, in the country. Very positive—they were innovators and they had the patience to jobe in those days—educating everyone, including me, and it’s been exciting to see the industry, of course, grow since that.

[03:49] Eric: Sure has. Let’s dive into the Way Back Machine and talk about your time at National All Jersey, where you spent 11 years in Ohio. Was that your first dairy role, Mike?

[04:00] Mike: Oh heavens, no. I have a long dairy background. My first job was really working with farmers on extension, feed rations, farm budgets. I have a degree in dairy science, which I call a degree in cow milk from Virginia Tech so it was really that farm-level stuff. I was raised on a small farm so it was a pretty normal extension because I’m the one in the family who really liked the industry. That was first and then I worked for National Milk Producers for 4 years and worked some for a private consulting firm before going to Jersey at the end of 1993 and that was basically to start working on growing component pricing simply because the growth of cheese was evident, it was strong and was going to continue and how do we move pricing to better serve not only farmers but their processes you get the protein and fat they needed to make their products. The timing was right and so I took advantage of that so I could work in milk marketing which I loved and at the same time represent my many, many friends in the Jersey industry so it was a great chance to do that. We had good success over those 11 years I was at Jersey, moving pricing toward components, away from skim for manufacturing which needed to happen anyway. I did a lot of private arrangements with companies as well. In the later years, after component pricing was becoming and the changes were happening, you need to spend a little more time in risk management strategy, which I’ve always had a strong interest in, not only with producers but we did a little bit of outside service work as well on some swaps on Class I back before anyone was doing that. It made for a very interesting life at Jersey—I really enjoyed my years there.

[05:40] Eric: That’s great. Then from Ohio to Seattle. So you were Darigold’s Director of Member Services for a few years, which I almost forgot about that step before I re-read your LinkedIn profile. Tell us a bit about that move and it seemed like it was a good one to stay close to the farmer for sure. But I’ve gotta ask—because Seattle is a love-it-or-hate-it town, how did you enjoy your time there?

[06:04] Mike: Well, I deal with seasonal affective disorder so, you guess! Seattle in the summer, in fact, the old CEO when I was there—and he’s a native to the Northwest—said you’re going to love Seattle in the summer, it’s glorious. By January, you need to escape for a few weeks because you’re going to be so depressed with the clouds.” There is some truth to that. It’s a very large city, it’s the first large city I’ve lived in—well, I lived outside DC for a while—the first large city I lived in where I was a homeowner for sure. It was culturally very different. I’m pretty open-minded but I learned things I never thought I would learn I guess when I was living there. The other thing is that it’s a rough business for manufacturing because you’re so far from customers unless it’s the dry product market, which exports. Of course, even then, had a lot of opportunity in the 2000s. So I found that it was very diverse, very interesting but in the end, the longer I’ve been in the industry, the more of a libertarian I’ve become and I was looking for chances where I could be even more creative in my job and get more involved with trade and export policy, those kinds of things. I had that opportunity with Glanbia which is why I was there.

[07:15] Eric: You had spent a number of years there working in Evanston, which is the hometown of Northwestern University, my alma mater, and you commuted from Kenosha while you were there, right?

[07:26] Mike: Part of the time. I started out living in the North suburbs of Chicago in a neighborhood called Andersonville. I rented a townhouse which I loved. I reached a point where I wanted to buy a home and my criterion when I was looking for a home was: where can I live in the suburbs, that is affordable and I could take a train into town? Kenosha, being the last stop on the Metra line North, was the logical place to go so that’s why I ended up there. I found Glanbia, a wonderfully creative company. Of course, Lucas joined me and my team when we were there and he was just great to work with, a really good writer. We had a great time and it was—Glanbia was a pretty creative company. I worked on all kinds of projects—everything from where in the world will milk growth be, how competitive are different markets, creative risk management strategies for our producer suppliers in Idaho—it was a very full plate and it was different every day and did a lot of work with strategy, which I’ve grown to really like. I had done it before but there, it was really a part of my job and I enjoyed that opportunity because they are a global company and, of course, dairy in the US has become global. It was a chance to be part of that growth and how a company with a big domestic footprint could fit in. It was a great time.

[08:43] Eric: That’s great. Perhaps it’s because I first met you when you were at Glanbia, but I figured that that was your career, right, you being the dairy economist and the policy and the strategy side but you pivoted later in your journey, taking a Director of Dairy Supply Chain role with the Kroger Company, packing up from Kenosha (at least for a while) and moving to Cincinnati. I know I enjoyed the time in dairy procurement during my tenure at Sara Lee, but that lasted three years and I felt like there were no shortages of fires that had to be put out on that side of the business. At a national retail grocery operation, I’m sure those challenges were something like 10-fold of what I had to deal with at Sara Lee but ultimately, you must have learned a ton from that experience.

[09:27] Mike: Well, I got hired because I understood the industry, understood markets, understood regulation. Pricing regulation is one of the reasons I was hired—they needed someone with that background. I inherited a team, we had a cheese bar that understood the business, other than that really talented people but didn’t have a lot of background in the industry so it was a chance to mentor which I enjoyed very, very much. But the bigger part is a lot of your large retailers are very traditional. They don’t really think about risk management—or they didn’t because that’s certainly changing. It was a chance to introduce some different ways to think, different ways to buy, different ways to price items. Kroger—full disclosure—has fourteen fluid milk plants, two cheese cut-and-wraps that are pretty significant in size, as well as all of the products that they don’t manufacture or package, which you buy in retail. We were responsible for everything that was under the Kroger brands—anything that was a store brand, which, at Kroger, that was a very big deal. It was a chance to get creative and think creatively, particularly with risk management—what are some things we can do that we can manage basis-risk? It was CME versus NDPSR pricing, for example. We came up with some good solutions. I was there for seven years and I’ll be honest, it’s a very, very large company and I decided that I was going to do some more fun projects and so I elected to retire last January. At that time, I was also chair of the Economic Policy Committee at IDFA and when I told them I was leaving, they asked if I wanted to work with them to help them through this current federal order process and I was silly enough to say yes. So, great years at Kroger, and I still have great friends there but it’s a very, very large company and it’s the first place I worked where dairy wasn’t the focus. It was important but it was far from the majority of the business. I really prefer working with a little more dairy-centric but it was a great company and I really admire them. It’s a tough industry and they’ve been pretty successful. Supermarkets is a tough business and they continue to be creative. As a former employee, I own some stock and I’m very proud that I do because in the last year, they’ve done much better than the market so that’s been a good thing too!

[11:38] Eric: Absolutely. So now let’s talk about IDFA. You’ve been a part of the organization for some time as a member and supporter, but now you work there as the Chief Economist and it’s coming at a time where it’s not just a Farm Bill but it’s a Federal Milk Marketing Order Modernization. There’s a lot going on. What are some of those initiatives or challenges that IDFA will be prioritizing this year as USDA and Congress work on these issues?

[12:07] Mike: Well, there’s really two set of discussions, Eric, but there are a lot of parts. One is manufacturing of milk prices. That’s, of course, manufacturing allowances, the money that they deduct from the cost of converting milk into products. There are discussions on barrel cheese and block cheese which are both part of that. There are discussions on how we have better cost surveys. We’re involved in all of those things and there’s also a big discussion on class I and a lot of interest in what class I can do to help make up the change it makes. At the same time as I think we all know class I sales have been declining and the one area where there is really growth in the extended shelf life of specialty products—I saw that at Kroger. That’s where the growth is, it isn’t in the gallons of HTST (regular old milk). So, how do we make the orders—if we are going to have them—how do we make them best accommodate growth, financial stability of manufacturers? For example, the makes haven’t changed. The last survey was completed in ’06 and ’07 and they haven’t changed since. It has really squeezed a lot of folks. Then, the block-barrel spread, which, if you go up to 2016, wasn’t an issue and then, Eric, we had five years where it got very wide. Some of that is trade-related and some of that is unregulated plants but a lot of that is simply consumer preferences have also changed. Some really weird things have changed, for example, the EU is requiring that white whey cannot be bleached for infant formula which affected the ability to make yellow cheese and sell the whey to that market. That made interest in white barrels basically a lot stronger. So, there are a lot of different parts and our industry has become more complicated and more sophisticated, I think it’s more and more difficult to make regulation work without basically crippling people. I’ve long held the belief: if you can’t be competitive because you aren’t efficient, you are making the wrong products—shame on you. But, if you’re having trouble because regulation is predicting a cost or is unfairly estimating a cost or using products that you don’t make, we need to address that because in our growing industry—as we all know—we’ve had across particularly cheese but also in the milk protein business, huge change in product mix that people are making whether it’s whey proteins, milk proteins, as well as cheese types and particularly cheese for export. We need to have a system that accommodates that growth. We have a lot of producers that are currently under quota programs and they can’t expand. If we are going to allow for expansion and allow for that growth, we have got to have a system that is flexible enough to allow it to happen and right now, we don’t really have that. So, that’s my real reason to come to IDFA: what can we do to enable our processes, our co-ops and their members, to experience growth moving forward? It’s more than just the algebra and make allowances, it’s a much, much bigger economic picture.

[14:58] Eric: Well I certainly applaud you for being a part of that process but I’m sure that it’ll create a few more grey hairs in the next couple of years as all of this gets pushed through.

[15:10] Mike: Well, I’ll give you a little piece on that. As you know, I’m a redhead and my hair has certainly gotten whiter. When I moved back to Wisconsin and, of course, the license is still there, so it’s really easy to change back. When I did that, she said, “Do you need to make any changes?” and I said, ” Well, you know, my hair really isn’t red anymore but I’m too vain to call it white.” She says “Well, let’s call it sandy.” So I—for the first time in my life—am not a redhead. I have sandy hair!

Eric: And that’s official by the state of Wisconsin, right?

[15:42] Mike: Yeah, and if the state of Wisconsin says it’s official, by golly, that’s the way it is. But it’s great to be back in the Upper Midwest. I love the Upper Midwest, Chicago and Wisconsin, and I’m really grateful to be back. Kroger was a great experience but I was not a big fan of living in Cincinnati—it doesn’t have that Midwest, Rust Belt and agriculture kind of feel that I like because I was raised with that in Western New York so it’s home for me and I’m delighted to be back and appreciate the opportunity to visit.

[16:11] Eric: You bet. Well, Mike, I enjoyed our time chatting today and am really excited to have you as one of our esteemed speakers and panelists at this year’s HighGround Dairy Global Dairy Outlook Conference, taking place here in Chicago from June 20th through the 22nd. Mike, thanks so much!

Mike: And thank you! I look forward to seeing you in a few weeks.

Eric: Listener, if you have not yet registered, or have not told all of your industry colleagues about this event, I would highly recommend that you—and your friends—visit our website at highgrounddairy.com/conference and take care of that today. More podcasts like this showcasing additional speakers are set to air in the next couple of weeks, so stay tuned!