My last blog posting was two weeks ago, concerning the big news that Monsanto was going to divest itself of its Posilac™ product.  Today, the other shoe dropped, with the announcement that the rBST ball is being handed to Eli Lilly and Co., a global pharmaceutical company whose animal products business is referred to as Elanco.

Elanco already has a marketing inroads to dairy producers through sales of its Rumensin product, and others.  If memory serves, Lilly also developed a product similar to Posilac some years ago, but never brought it to market.  Now, for $300 million, the company is buying the patent, manufacturing plant, and marketing rights for rBST.

As today’s announcement clarifies, the two companies have had a relationship already, with Elanco handling international sales and distribution of Posilac.  Now they have the whole ball of wax.  It will remain a sticky one.

What’s interesting is that Elanco is well aware of the controversies concerning the use of rBST.  That they decided to purchase the product already fully having done due diligence is certainly a vote of confidence that they can make it work profitably for them – and, most importantly, their shareholders.  Just as I noted earlier this month that Monsanto selling Posilac was a huge verdict after all the marketing challenges of the past 20 years, Elanco’s purchase of it is also a huge verdict that rBST is still a horse worth betting on.

It’s been well-documented that an increasing number of dairy processors and retailers have asked their farmers not to supply them with milk from cows treated with Monsanto’s recombinant bovine somatotropin, or rBST, marketed as Posilac™.  The trend has picked up steam in the past two years, and in most major markets across the country, at least one fluid milk supplier (if not all of them) displays a “no artificial growth hormones used” pledge on its products.

The question in my mind, lately, is whether this trend would inexorably make its way from the fluid milk business, to where the real volume is in the dairy industry:  cheese.  Cheese represents more than 40% of where the nation’s milk supply goes, while bottled milk is only about 25%.  Cheese also differs in that it’s more often a commodity product, frequently served as an ingredient in a foodservice item (pizza, cheeseburgers, Tex-Mex).  So I’ve been wondering if the “BST-free” label will have much traction in the cheese category.

That question was answered, in part, by this announcement earlier this summer that Glanbia, an Irish company with a big presence in high-volume cheese production in Idaho and New Mexico, is going rBST-free in 2009.  If Glanbia is joined by other cheese processors in its decision – and this also appears to be a trend – then my question won’t have to wait long for an answer.

As it turns out, however, regardless of what individual processors or retailers decide further down the road, the sole manufacturer of rBST, Monsanto, has asked the same questions, and has already arrived at a logical conclusion:  selling dairy growth hormones isn’t a very good business to be in any longer.  And Monsanto announced today it plans to “divest” itself of Posilac.

Now, the announcement is rather cryptic.  I put parentheses around divest because that is a verb open to interpretation about the marketplace implications.  Does Monsanto wish to divest itself solely from manufacturing the product?  From also selling and/or distributing it?  From the patent itself?  Time will tell, but the terse statement didn’t (although it did mention that farmers will still have access to the product; how and from whom remains the question).

But because the trends I mentioned earlier are clear, and because the real money these days (and it is really, really big money, even with the recent downtown in corn and soy prices) is in agronomy inputs, it’s obvious that to keep its shareholders happy, Monsanto wants to focus on a field that is green and growing, not one that is stressed by drought.  So the company has made a clear strategic decision to disassociate itself somehow, to some degree, from a product that it has worked hard over the past 20 years to bring to market.  This is a huge verdict.

There will be much more to write about this in the future, but it’s clear that we have turned a significant page with this decision, and a new chapter in dairy will be written from here out.

I titled my blog “On the Udder Hand” to reflect – through the obvious pun – the fact that I work in the dairy business.   However, I also like that title because this blog, just like life, contains occasional reminders of the contradictions and paradoxes of life.

What am I talking about?  Here are some great examples, pulled from current headlines, that were posted in another blog on personal finance.  I thought these were all apt illustrations of how life so often presents us with a “one hand, but on the other” paradox that borders on absurdity:

Mortgages are too easy to get (evil lenders loaning to those who can't afford)
BUT

Mortgages are too hard to get (credit is too tight, especially for deserving populations who may be redlined out of the housing market)

Homes have risen in value too much (we need more affordable housing but the middle class is priced out of many metro areas)

BUT
Homes have dropped in value too much (foreclosures are wiping out people’s nest eggs)

Subprime lenders charging extremely high rates (people with poor credit shouldn’t have to pay more to borrow)

BUT
Subprime lenders charging too low a rate (people were given teaser rates that were unrealistically low)

Gas prices are too low (we consume too much, import too much, and it pollutes the environment)

BUT
Gas prices are too high (the price is crushing folks in this country even as we send billions to OPEC’s members)

And this paradox that AgWeb readers know all too well:

Corn prices are too low (we need higher prices to reinvigorate rural America and stimulate additional plantings)

BUT

Corn prices are too high (it’s killing the livestock sector and spurring inflation)

I’m sure there are plenty more illustrations of this phenomenon, but I thought these were right on target.