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So the other day I was reading about a Ponzi scheme that had gone wrong and it got me to thinking whether the rapid increase in the value of high index genomic females was nothing more than a big Ponzi scheme?

First let’s look at what the definition of a Ponzi scheme is.  A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the players by new investors, rather than from profit earned by the player. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.

Now first let’s be clear that I am not directly implicating anyone as intentionally setting up a Ponzi scheme in the sale of breeding stock.  However, when I look at how the prices of high genomic heifers kept going up and up, yet the actual income from these animals had not yet been realized, it certainly does have some similarities.  In less than a two-year period, we saw the price of a high-end heifer go from $30,000 to more than ten times that.  All of this in a period where those animals would not have had the time to realize that level of income.  So these operations that were brokering these purchases had to keep flipping more and more animals in order to keep the cash flowing.  The challenge was that eventually the amount of new money coming in to fund the level of return that the early investors were expecting was not enough. Some of the early investors started wondering if they would ever see their money back.  This led to a mass panic among those who were in it for the short term as their confidence began to crumble. When this took place, we saw the prices paid for these top animals drop significantly.

It’s important to understand the business model that many of these investors were following. There were really only two sources of revenue for them: A) producing high genomic females and selling them and B) Semen royalties from AI companies.  The challenge is that, in order to play the game, they could not sell off their top genomic index females. Furthermore due to no new money in the marketplace, there was no one willing to buy the 2nd tier females that they wanted to sell.  At one point, some of these genetic programs were selling off very high, but not topper females, at $2,000 or $3,000 less than the cost of producing them.  Thus, they were actually losing money on them.  Then came the second part of the equation.  Instead of realizing insane royalties from selling semen from the sires in their programs, many of these companies did not get enough in royalties to even cover their own expenses. On top of that they were not even getting enough return to cover the cost of producing the 6-7 other progeny that, unfortunately, would never be profitable.  Combine these factors with the high cost of IVF and these companies found themselves losing money. The expected profits promised to investors were non-existent. Interestingly, along the way, as those who were looking for a short term get rich plan started to  took  their losses and cashed out, , other players came into the market to buy these animals at pennies on the dollar.  Most notably among these other players were many of the large AI companies. Unlike the investor money that started the speculation, the AI companies did have a direct line to long term return through semen sales. They were more than happy to acquire these females at significantly less than the cost it would be to buy the bulls.  This not only caused losses from the sale of females, but also led to even lower royalties being paid out by the AI companies/  AI companies could now  produce their own bulls at a fraction of the cost.  Sure they may not be getting the #1 TPI sire, but they were able to produce sires that were high enough for the commercial producer and do it at a fraction of the cost.

The Bullvine Bottom Line

I sincerely don’t believe that anyone ever started out on this genomic investment boom with the plan of initiating a Ponzi scheme. However, based on how the events unfolded, and the way the market responded, that is exactly what happened.  When they first started the business model seemed sound, but with one crucial, and ultimately incorrect assumption.  That assumption was that the money would come from semen sales.  That never happened and the significant investment in high genomic index females, combined with  the high costs of producing  the next generation of high index females, led to greater and greater cash outlays with no money coming back.  Eventually, when the money runs out, investors come looking for an answer.  The problem is the only answer “Oops we did not see that coming”.  Those are words no investor ever wants to hear.

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Attention Deficit Disorder (also known as ADD) and Attention Deficit Hyperactivity Disorder (ADHD) are terms used to describe patterns of behavior that appear most often in school-aged children.  Children with these disorders are inattentive, overly impulsive and, in the case of ADHD, hyperactive.  They have difficulty sitting still or attending to one thing for a long period, and may seem overactive.  When I talk to many breeders about their breeding strategies, I see many of these same characteristics. They have difficulty attending to one thing for a long period, are overactive in thinking about just what sires to use and often end up making impulsive decisions.

There is No Quick Fix

As a young child, I had many teachers wanting to tag me with those three magic letters, ADD, to explain my behavior.  You see I was not engaged with my schoolwork.  I would get bored and decided to be loud and disruptive.  It was not until I found a teacher who recognized this behavior in me, and knew that they needed to engage me more that I began to realize my full potential.  The same is true for your breeding program.  Instead of looking for a quick fix or making an impulsive decision, in order to gain maximum results you need to have a clear plan, with achievable goals.

Over the years, there have certainly been some major trends in the dairy cattle breeding world.  First, it was breeding for production, then for component/protein yield, followed by longevity.  More recently, the trend has moved more towards health and fertility.  Moreover, while all these traits are important factors in any breeding strategy, you need to understand that you cannot achieve your breeding goals overnight, and even with the introduction new technologies such as of genomics and IVF, it still takes years to achieve the results of your breeding decisions.

The Opportunity Cost of Your Breeding Strategy

Often, what sire to use comes down to, “What sire I have in the tank?”, or “Who is hot just now?” or “What sire could I buy the cheapest?”  The problem is all of these factors end up costing you much more money than you could ever realize.  You see what sire you have in the tank or who is cheapest may look like economical decisions, but that is just looking at it from the cash out of hand today and does not consider the long-term opportunity cost.  The impulsive decision you make today will affect your herd for generations to come.  That is why there is no such thing as semen that is too expensive.  (Read more:  Semen Prices Are Never Too High).

The time and effort it takes to develop a sound breeding strategy may be the most effective use of time you will ever make in your herd.  You see you can never take back a breeding decision.  So every day that you are operating without a solid breeding strategy that compliments your management style, you are costing yourself money.  (Read more: Let’s Talk Mating Strategies and gAa® – Genetic Animal Analysis – Dairy Cattle Breeding Made Simple)

A World of Constant Change

Just like how video games took children’s focus challenges to completely new levels, genomics has caused breeders heads to spin.  It does seem like monthly there are new sires to use.  Yes, official lists are only available 3 times a year, but the second an A.I. unit has a new hot sire, they are quick to let the world know.  Either through official channels or through the unofficial network that is the semen salesmen.  The challenge is that you can barely get the semen in the tank before there is a new hot sire that everyone tells you that you should be using instead of the one you just purchased.  Sure, this is great for driving up semen sales, but what is it doing to your breeding strategy, and your pocket book?  (Read more: Are There Too Many Semen Salesmen Coming in the Lane? )

The Bullvine Bottom Line

Instead of worrying about always following the latest fad, or using the hottest new sire, you need to have a sound breeding strategy that you can stick with over a prolonged period.  That does not mean that you cannot adjust the strategy as you go along.  You need to remember that, even with new technology, realizing the results of breeding decisions takes years.  Stop daydreaming about what the future may hold and start focusing on what you can do today.



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Not to sound like a Jane Austin novel, but the pride and prejudice of purebred dairy breeder’s are leading to their own downfall.  It’s human nature for people to have pride but when that pride leads to prejudice against others that leads to trouble.  Unfortunately, pride and prejudice are preventing many purebred dairy breeders from facing the truth in the current dairy genetics industry.

Recently I wrote an article, Dairy Breeders vs. Genetic Corporations: Who are the True Master Breeders? explaining how it is only good business sense that is leading to less and less genetic sales for many dairy breeders.  Their future is not looking bright as larger genetic corporations are investing heavily in the very top 0.1% genomic animals and In Vitro Fertilization (IVF).  Their significantly greater capital is giving these genetic corporations a distinct advantage over the average breeder.  As expected, this article got diverse reactions.  They covered the  full range from those in A.I. organizations and on the industry side  that quickly acknowledge that this is happening  to those “traditional” breeders who   bury their heads in the sand and deny that it could ever happen.

It is that latter head-burying reaction that has led us to today’s situation.  You see it’s exactly because breeders have so much pride in what they do that they are not able to accept the truth.  This has led to a severe bias for the capabilities of the great breeders from the past and prejudice against the new age geneticists who arm themselves with numbers, genomic tests and formulas.  The resisters site situations from the past where breeder’s outperformed the A.I. companies with sires as Goldwyn, etc. that would have never been selected by A.I. geneticists.  However, as we have said many times before here on the Bullvine, you can always find the odd case to prove your point but you have to look at the big picture across the whole industry to see what the true trends are.  When you do that, the picture painted by the current situation, with the introduction of genomics and significant corporate dollars does not look so rosy for the breeders.

Now don’t get me wrong, pride is not a bad thing.  There is such a thing as possessing positive pride, meaning to have self-respect, confidence, honor, and integrity.  On the other hand, negative pride is defined as showing arrogant or disdainful conduct and haughtiness.  Unfortunately, I have been seeing that pride from many pedigree breeders.  They arrogantly think that the industry will survive because they are better than or smarter than someone else is.  That arrogance has led us to this situation, where top end cattle prices went from record numbers just a year ago to a place now where many high-end genomic index heifers are not selling for much more than commercial cattle.

The Bullvine Bottom Line

We are all guilty of being quick to judge something.  However, when we let that quick judgment affect our lives in a negative way, and are too proud to admit and change our prejudice, we are leading to our own downfall.  Such was the case with many dairy breeders who were too quick to write off genomics as a fad or declared that it was not going to work.  Yes, it is not a perfect science.  It is a tool that, when used correctly, can greatly accelerate the genetic advancement in your herd.  By letting prejudicial judgments and misunderstandings affect breeding programs, breeders have allowed the large A.I. companies and genetic corporations to get so far ahead that it is almost impossible to catch them or to prevent the inevitable.  While many purebred breeders have sought the wealth and esteem that comes with producing the next great sire, the tragedy of it is that their pride and prejudice could completely derail such a happy ending.  Pride and prejudice makes an enduringly successful novel because readers never lose hope that good sense will prevail in the end.  Let’s hope that in 200 years, the purebred dairy industry will look back on commercial success that survived its own too quick rush to judgment.



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IVF: Boom or Bust for the Dairy Industry

Monday, December 17th, 2012

With the introduction of Genomics to the dairy industry the marketplace has greatly changed.  And while this may be true, the silent factor that many don’t consider is in vitro fertilization (IVF).  While Genomics is changing what the marketplace is looking for (Read more – An Insider’s Guide to What Sells at the Big Dairy Cattle Auctions), IVF has changed who in the marketplace are actually able to make money.  Causing boom for a select few but a bust for many others.

Through IVF we can get way more progeny/genetics from the top cattle.  This causes an abundance of supply in the marketplace.  With greater supply at the top end but not equally greater demand, the prices for all sectors in the marketplace are forced downward.

In the past, when embryo exporters were looking to fill orders, they may be held to a threshold of +2500 LPI or +1,900 TPI.  Now since there is so much more supply at the top end, their threshold has risen to +3,200 LPI or +2,500 TPI.  Have a look at our recent analysis of the public auction of live cattle.  You will see that the very top cattle draw the high prices and then the prices drop significantly (Read more – Who Killed the Market for Good Dairy Cattle?).

No big deal you say? 

Well actually it is.  When the threshold gets that high you are talking about less than the top 0.5% of the breed.  This means that those at the very top who have that base can supply this market.  All those others who used to do embryo transfer work, partly for genetic advancement of their herd and partly for profit,   now have no market for their embryos.  They are having to rethink whether they can even afford to do the embryo work in their herd, without the added revenue from embryo sales, it’s hard to justify the expense.

As pointed out in a recent Holstein International article, Genomics has certainly created a gold rush, but not for the breeders, but rather for the embryo transfer companies.  During the gold rush, a few diggers struck it rich, while many others strike out (Just like those in the genomic market).  The one sure way to have made money during the gold rush was to be a supplier of equipment, food, or clothing to the diggers.  As Holstein International points out, the service provider in the Genomic gold rush is the embryo transfer industry and its range of advanced technologies.

These are Big Changes.  Are they Good or Bad?

In our interview earlier this year with Mark Allen PhD, Director of Marketing and Genomics for Trans Ova (Read more – Fast Track Genetics: More Results in Less Time), a company that has performed ovum pickup aspirations on 8,668 in the first 8 months of this year alone, we asked Mark if these changes were good or bad for the industry.  The following was his response:

“It is human nature, when presented with the latest greatest technology to look for the downside.  You ask yourself, “What is the worst case scenario?” Some breeders may be concerned that the market is being flooded, leaving no room for the middle market cattle.  To that comment, Dr. Allan gives this well-considered response, “Many technology improvements have led to dramatic increases in genetic improvement.  One of the early changes that led to a giant leap in genetic gain was implementation of artificial insemination (AI) in the dairy industry.  This technology is widely accepted today and used by producers large and small.  Historically, each time a new technology has been introduced to the reproductive technology continuum, there has been some resistance and trepidation about how it will affect breeders.  Changes in the marketplace may require that producers have to make a change in how they utilize their animals coupled with available technology.  This may mean changing the current paradigm that exists for some segments of the industry.”

Are you ready to change?

One person who has seen this coming is the forward thinking David Dyment.  While David is very well known for his work with Glen Drummond and Dymentholm Genetics, (Read more – Marketing Lessons from Glen Drummond Aero Flower) as well as being the Associate Judge at the 2012 World Dairy Expo (Read more – World Dairy Expo 2012 Holstein Show – A Battle for the Ages). David saw where the market was heading and in 2009 formed a partnership with Mike and Julie Ducket and established Genetic Futures.  A 300-acre farm in Wisconsin that has became a satellite base Trans Ova, housing top donors and recipient services are provided.

I think it’s significant when a person like David Dyment, who has worked with   high-end show cattle, high-end index animals and, as well, has run the roads filling commercial orders, is now focusing on being a supplier of the service and not the product.  The market has changed drastically.  Breeders are only left with three options:

  1. You can either purchase and be the supplier of those top genetics, which is extremely costly to buy and almost equally as costly to produce;
  2. You can do traditional embryo for personal use only and avoid the high cost of IVF;
  3. You can go broke trying to compete in a market that is just too saturated.

The Bullvine Bottom Line

As long as breeders of the top genomic index animals continue to over supply the marketplace through technologies like IVF, there will only be a market for the very select few.  So next time you decide to do a flush, make sure you are doing it for the right reasons.  If it’s to advance the genetics in your own herd?  Great!  If it’s to get rich from embryo sales?  Maybe you should think again.



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