June 1978

\0~c&~ n ( . Co~. ,'j) °ro~ ~

A. E. Res. 78 -9

AN ANALYSIS OF THE IMPACT ON FARM OPERATOR INCOME

OF MILK PRICE, DAIRY CONCENTRATE PRICE,

AND MILK PRODUCTION PER COW

J. Clarke Fowers

Department of Agricul tural Economics

Cornel l University Agricultural Experiment Station

New York Siale College of Agriculture and Life Sciences A Slolulory College of lhe Slole University

Cornell University, Ithaca, New York 14853

"

TABLE OF CONTENTS

Foreword . .

INTRODUCTION Causes of Income Fluctuations. Purpose of This Study. • Research Objectives. Methodology •...

EFFECTS OF PRICE AND PRODUCTION CHANGES ON INCOME •• Price Received for Milk. Dairy Concentrate Price. • Milk Production Per Cow ••

HERD SIZE AND EFFECTS OF PRICE AND PRODUCTION CHANGES. Effects of Price Received for Milk by Herd Size ••. Effects of Price of Dairy Concentrate by Herd Size Effects of Milk Production Per Cow by Herd Size. • •

INCOME LEVEL AND EFFECTS OF PRICE AND PRODUCTION CHANGES • Effects of Price Received for Milk by Income Level Effects of Dairy Concentrate Price by Income Level Effects of Milk Production Per Cow by Income Level •

CROSS ELASTICITIES OF FACTORS STUDIED. Cross Elasticities by Herd Size. • . Cross Elasticities by Income Levels ..

SUMMARY AND CONCLUSIONS .•

APPENDIX TABLES .....

i

1 1 2 3 3

6 9

11 13

14 15 17 18

19 20 22 23

24 26 28

30

33

Foreword

This publication is part of a research project supported by a special temporary grant to the Agri­cultural Experiment Station at Cornell University by Agway Inc. of Syracuse, New York.

Many economic and management factors affect dairy farm incomes. Data from the New York farm business records and dairy herd improvement records provide a basis for studying the impact of changes in prices and technology on dairy farm incomes. The author used the business records for the years 1974, 1975 and 1976 for this study.

J. Clarke Fowers, a candidate in the Cornell Graduate School for a Master of Science degree in Agricultural Economics, conducted this study under the supervision of C. A. Bratton, professor of farm manage­ment, and chairman of his graduate committee. H. R. Ainslie, professor of animal science, also a member of his graduate committee, offered valuable counsel.

The author wishes to acknowledge the encouragement given by Dr. Lewellyn B. Mix of Agway Inc. to pursue the investigation and publish the findings related to the impact of price and production changes on the incomes from New York dairy farm businesses.

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AN ANALYSIS OF THE IMPACT ON FARM OPERATOR INCOME OF MILK PRICE, DAIRY CONCENTRATE PRICE,

AND MILK PRODUCTION PER COW

J. Clarke Fowers.

Introduction

In recent years, dairy farmers have experienced large fluctuations in prices paid and prices received. From 1971 to 1976, prices paid for goods and services by New York dairymen increased by 66 percent, while prices received for milk increased 61 percent. For 1974, 1975, and 1976, operator incomes changed an avera~e of 63 nercent per year. This unstable situation has caused some farmers to abandon the dairy business and has resulted in financial problems for others. Both farmers and policy makers are concerned about the effects these changes have on individual dairy farm incomes.

eauses of Income Fluctuations

Fluctuations in farm incomes are caused by two general types of forces or variations, those external and those internal to the business. External variations are not directly controlled by the farm manager. They consist of policies or decisions made in the economy or general business climate that are virtually unchanged through the efforts of any single farmer. Some of these external factors are: farm prices, environmental-social issues, state of the technical art, and government agricultural policies. Milk price and feed price (dairy concentrate price) are two external variables, and the individual farm manager has little direct influence on them. This study focused attention on fluctuations in these two external factors, milk price and dairy concentrate price,

In contrast, internal variations are to a great degree controlled by the farm manager through his decisions. They consist of factors of pro­duction within the farm. Some of these internal factors include dairy management practices, crop management, use of capital, cost control, and labor efficiency. Milk production, or milk sold per cow per year, is a measure of the combination of many of the dairy management practices. For this reason, milk product i on per cow was selected as the internal factor for study in this investigation. It is believed a f arm manager with know­led~e of the effect s on income of chan~es in milk production can make better decisions with respect to his internal production factors and in particular the dairy management practices.

The three variables chosen for this study were milk price, dairy con­centrate price, and milk production per cow. These are not strictly inde­pendent variables. Moreover, most if not all of the factors present in today's dairy business are interrelated. This means the movement of any one variable can affect the movement of several other s. For example, milk production per cow is influenced by internal and external variables. Some of these include: breeding practices, weather, milk practices, genetics, and market conditions. Dairy concentrate price is influenced by such things

* Received M.S. degree f r om Cornell University in May 1978.

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as the general economic climate, composition of the ration, delivery costs, and the size of the feed grains supply. Similar dependencies exist with milk prices. All of the internal and external variables working together are evaluated by the individual dairyman to decide on his production pattern which in turn affects his income from the business.

Dairy farmin~, like most business ventures, is part of a dynamic economic system. Many variables found in the dairy business are not static but are constantly changing. Milk production is a good example. Milk production per cow has increased twofold in this century and it likely will continue to change. Much of the dynamics are brought about by new technological and scientific discoveries that eventually find application on the farm.

It has been stated that fluctuations in farm income fall into the general categories of external and internal variations. Oftentimes, it is difficult to determine which variable or group of variables caused the fluctu­ation, and it is impossible to identify all the reI event variables that have an effect. Even when specific variables have been identified, it is difficult to describe the portion of the total income fluctuation caused by them.

Purpose of This Study

The purpose of this study was to observe and quantify the impact of milk price, dairy concentrate price, and milk sold per cow per year on operator income, and to observe differences in these same variables by size of operation and by income levels. A secondary purpose was to aid the farm manager in understanding the changes he observes in his income. Knowledge of the relative effects of farm prices and milk production changes can provide the manager with a basis for understanding how his individual farm might be affected amid an uncertain economic climate. The farm manager also can use this information in deciding how to allocate his "tools of production" so as to minimize the income fluctuations on his farm.

The income changes and the relative amounts reported in this study can only be observed under the static conditions present at the time the data were collected. Furthermore, all other variables both internal and external are assumed to be held constant, a situation that would rarely exist in actual farming operations. The application of the findings from this study generally will be indirect and, therefore, must be used with discretion.

The ObJective was to quantify the relative changes in operator income under a static situation. Three equations were developed and applied to the data. The equations were designed to measure the effects in a static situation. The farm manager and those who work with him can use these relative amounts as guidelines. These calculated guidelines can be used in projecting the effects on income in the dynamic farm environment. The purpose was not to establish the exact amount of change but to get an indication of the direction and the range one might expect under the stated assumptions.

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Research Objectives

In order to quantify the impact of select ed price and milk production changes on farm operator income , the following research objectives were established:

1. Usinp; the "business inf ormat i on f r om Nev York Dairy Farm Summaries for the years 1974 ~ 1975, and 1976~ determine t he impact on oper­ator income of change s in milk price ~ concentrate price g and milk production per cow for the aver age of these farms .

2. Divide the New York farms into seven herd size groups and generate the mean values for each size . Using these figures and holding all other factors constant ? det ermine the impact on operator income of changes in milk price, concentrate pr ice. and milk production per cow for each of the seven size groups . The purpose here was to observe any differences i n e ffects of changes within the different herd size groups .

3. Divide the sample data into seven income levels and generate mean values for each level . Using these figures and holding other factors constant 9 determine the impact on operator income of changes in milk price g dairy concentrate price? and milk production per cow for each of the different income levels . This objective was designed to observe any di f ferences in the effects of price and production changes by lnanagement ability as measured by operator income levels.

4. Determine the cross elas t icity values or relative responsiveness of operator income to changes i n milk price , concentrate price, and milk production per cow .

Methodology

Many factors affect fa rm i ncomes . I n order t o study the effects of such things as price changes , i t is necessary to i dent ify certain cost and pro­duction var iables f rom t he farms under study . Tt1e following cost and pro­duction variables were cons idered rel evant for thi s study . They were used to model equations to determine i ncome changes .

1 . Average price received for mi lk sold dur ing the year (price received)

2. Average dai ry concent ?ate pri ce (pr ice paid)

3. Milk product i on per cow per year (rate of production)

4. Number of cows (herd s i ze )

5. Number of operators on t he farm (managers)

6 . Total pounds of mi lk sold (volume of busine ss)

7. Operato?' income for the year (results of management )

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For purposes of measuring the effects of changes in price and production levels on income, it was assumed that each variable operated independently. For example, it was assumed that if milk prices had changed, the level of feeding would have remained the same. In actual practice, this might not be true since managers tend to adjust inputs as prices change.

The seven variables listed above were used as basic components in the construction of the three model equations. By substituting the known values of the variables into these equations, the net change in operator income was derived. The three equations were designed to show the effects on operator income of changes in the three variables: milk ~rice, dairy concentrate price, and milk production per cow. The equations can be used with data from an individual farm, or average values from groups of farms. By using the averages from a cross section of farms, the equations can be used to determine the general effects for ~roups of farm operators.

It was not the purpose of this research to determine an exact dollar amount of change in operator income by the equations. Due to the dynamics and multi-collinearity involved with the variables, exact amounts are rarely observed. The results should be interpreted in light of relative changes and a range in which a given effect might be found. For example, no two farms will be affected identically by a given variable change. However, both operators may certainly be affected within a given percentage range. For example, a 50¢ per cwt. increase in milk price mir,ht result in a $500 increase in income for one farm manager, While this same 50¢ per cwt. increase might increase another's income by $1,500 because of size difference. There is a difference in the two dollar amounts, but if the dollar amounts are shown as a percent change in operator income, the relative amounts of change in operator income may be similar. Most of the material presented herein is shown first in the amount of change in dollars, and second in the relative percent chanr,e in operator income. The two should be evaluated together.

The three model equations and sample problems for each follow:

Equation 1. Income change from a milk nrice change

Income change = (chanRe in milk price) x (cwt. milk sold) number of onerators

Example \"That effect would a $.50 per cwt. change in milk price have on the income per operator? Using the 1974 farm averages of 954,900 Ibs. milk sold and 1. 21~ operators per farm, the calculation would be:

x = $ .50/Cl,-rt. x 9549 cwt. sold 1.213 operators

Solution ()pen-l.tor income would change up or down :B3 ,936 or by 1)6%

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Equation 2. Income change from a dairy concentrate price change

Income change = (change in concentrate price) x (cwt. concentrate purchased) number of operators

Example What effect would a $.50/cwt. change in feed price have on the income per operator? Using the 1974 farm aver­ages of 3 9 547 cwt . of feed purchased and 1.213 operators per farm g the calculation would be:

x = $.50/cwt. x 3 9 547 cwt. feed 1.213 operators

x = $1,462

Solution Operator income would change up or down $1,462 or by 32%

Equation 3. Income change from a change in milk sold per cow

Based on the 1974 farms 9 more purchased feed was fed as the production per cow increased . The added feed cost amounted to about $2.00 per cwt. of increase in milk sold ~er cow. This is the equivalent of a reduction in net price received for the added milk sold of $2.00 per cwt. The formula takes this into account.

(change in Ibs. (milk price Income change = milk sold/cow) x (no. cows) x minus $2.00)

number of operators

Example What effect would a change of 500 Ibs. of milk sold per cow have on the operator income. Using the 1974 farm average of 74 cows; $8.60 milk price and 1.213 operators per farm, the calculations would be:

x = (500) x (74) x ($8 .60 minus $2 . 00) 1.213 operators

x = $2,015

Solution Operator income would change up or down $2 , 015 or by 44 %

These thr ee f ormul as as desi gned , give the results of the variables acting independently upon operator income . No cumulative effects should be interpreted by adding the equations. These calculations assume the static situation on the farm at a given point in time . This means the effects of all other variables both i nternal and external are held constant. Because of this assumption, care must be used in applying the findings to actual situations which are ~Ynamic.

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Effects of Price and Production Changes on Income

The 19711, 1975, and 1976 farm business summaries of New York dairy farms were used to measure the effects of price and production changes on operator income. These farmers were cooperators in Extension farm business management proJects and had dairy herd improvement information on specific dairy manage­ment practices. These farmers represent a reasonable cross section of dairy farming in the State but are somewhat above average in production and ef­ficiency. The averages for selected farm business factors for these New York dairy farms are reported in table 1. These selected variables were used in the three equations previously described.

Table 1. AVERAGES FOR SELF.CTED FARM BUSINESS FACTORS New York Dairy Farms, 1974, 1975. 1976

1974 1975 1976

Number of farms 413 380 337

Number of operators 1.213 1.218 1.222 Number of cows 74 74 70 Lbs. milk sold per cow 12,762 13,457 13,694 Total cwt. milk sold 9,549 9,958 9,586

Avera~e price received per cwt. milk sold $8.60 $8.65 $9.91

Yearly dairy concentrate expenditure $24,826 $24,366 ~26 ,6114

Average dairy concentrate price per cwt. t7.00 $6.51 ·$7.01

C1vt . concentrate purchased 3,51n 3,743 3,801

Change in feed expense for each 100 Ihs. change in milk sold per cow $2.00 $2.00 $2.00

3 Yr. Av.

377

1.218 73

13,304 9,698

·$9.05

$25,279

$6.84 3,697

$2.00

The data from table 1 were substituted in the equations to calculate the amount of change in operator income due to preselected amounts of milk price, dairy concentrate price, and milk production changes. The equations 1, 2, and 3 can also be used in reverse. This makes it possible to calculate how much change in any given variable would be needed for a given change in operator income.

The analysis for 1974 data is listed below in equations 1, 2, and 3. This analysis shows how much independent change would be necessary in each of the three variables to increase operator income by a given amount or percent. The amount of increase preselected was $1,835. This amount represents a 40 percent increase and is strictly an arbitrary selection. The values usen in the equations are the averages for the 1974 farms. It is assumen all other variables would hold constant under these 1974 farm business conditions.

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Equation 1. Change in milk price required to increase average 1974 operator income 40% or $1,835

Income change = (change in milk price) x (cwt. milk sold) number of operators

Example $1,835 = (y) x (9549) 1.213 operators

y = $.23 per cwt. of milk

Solution $.23' $8 .60 = 2.7% change in price

Equation 2. Change in dairy concentrate price required to increase average 1974 operator income 40% or $1,835

Income change = (change in concentrate price) x (cwt. concentrate purchased) number of operators

Example $1,835 = (y) x (3547) 1.213 operators

y = $.63 per cwt.

Solution $.63 . $7.00 = 9.0% chan~e in price

Equation 3. Change in Ibs. milk sold per cow required to increase average 1974 operator income 40% or $1,835

Income change

Example

= (change in Ibs. (milk price milk sold/cow) x (no. cows) x minus $2.00)

number of operators

$1,835 = (1) x (74) x ($8.60 minus $2.00) 1.213 operators

y = 456 Ibs. milk sold/cow

Solution 456 - 12,762 = 3.6% change

This same analysis also was performed using 1975 and 1976 data. The results for the three years are reported in table 2. These changes represent the independent effect of each variable acting upon operator income. These should not be added to obtain an aggregate effect.

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Table 2. CHANGES IN MILK PRICR, DAIRY CONCRN~RATR PRICR, AND POlJNDS MILK SOLD PER COW PER YEAR TO INCREASE OPERATOR INCOt~ FORTY PERCENT

New York Dairy Farms, 1974. 1975. 1976

Change to Increase 0Eerator Income 40% 1974 1975 1976 3-Year Average

Factor Amount Percent Amount Percent Amount Percent Amount Percent

Average milk price/cwt. $.23 2.7 $.19 2.2 $.41 4.1 $.28 3.0

Dairy con-centrate price/cwt. $.63 9.0 $.35 5.~ $1.04 14.8 $.67 9.7

Pounds milk sold/cow 456 3.6 ~~ 2.0 713 5 . 2 478 3.6

The independent changes necessary to increase or decrease average operator income by 40 percent for the three years are shown in table 2. For the three year average, a 40 percent change in income was $2,215. A 3.0 percent change in milk price was shown to yield a 40 percent increase in the operator income, while a 3.6 percent increase in milk sold per cow, and a 9.7 percent necrease in concentrate price were needed to produce this 40 percent change. Change in milk price had the greatest relative change on operator income of the three factors studied for the three-year period. However, in 1975, the percentage change in milk production per cow was slightly lower than for milk price (2.0% vs. 2.2%).

One can conclude that the smaller the percent change in any given variable, the greater its total effect on operator income. In other words, milk price and milk soln per cow per year were approximately three times more effective in producing changes in income than was dairy concentrate price. Again, these conclusions are reached using farms under the assumed conditions and with the data reported from 1974 to 1976.

The relative effects of milk price and milk production per cow are nearly equal. Although both may appear to have similar numerical forces influencing operator income, to the farm manager milk price and milk production are two dissimilar variables. Milk price is primarily an external variable and the farm mana~er is limited in what he can do to change the price he receives for his milk. Milk production per cow, on the other hand, is an internal variable and is controlled by the farm manager through the use of effective dairy management practices. In actual operation of farms, managers do manipulate internal factors like milk production to buffer the effects of external factors such as milk price.

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Price Received for Milk

Extrapolations on milk price changes based on the previous analysis are presented in tables 3, 4, and 5. Data in these tablep were calculated using average values from the dairy farms for the three years. These figures were determined using equation 1.

The effects of milk price changes in increments of $.25 per cwt. are shown in table 3. If the average operator in this study could have increased the price received for milk sold by $1.00 per cwt., or 11 percent, within the stated assumptions, this would have generated $7,964 of additional income. This is an increase of 144 percent in operator income from an 11 percent increase in milk price. These results would be obtained under conditions present in 1974 to 1976 and if all other effects were held constant.

Table 3. COMPUTED EFFECTS ON OPERATOR INCOME OF MILK PRICE INCREASES New York Dairy Farms, 1974 to 1976

Increase in Price of Milk Per Amount Percent

$1.25 13.8% 1.00 11.0

.75 8.3

.50 5.5

.25 2.8 0 0

Cwt. Computed Income Per Operator*

$15,493 13,502 11,511

9,502 7,529 5,538

Computed Increases in Operator Income Amount Percent

$9,955 7,964 5,973 3,982 1,991

o

180% 144 108

72 36 o

* Average operator income for 1974, 1975, and 1976 was $4,589, $3,946, and $8,080 respectively, with ~5,53R the avera~e for the three years.

A similar extrapolation can be made for milk price decreases. Since table 3 is a linear extrapolation, the amounts are the same except in the opposite direction. A $1.00 per cwt., or a 11 percent decrease in milk price would mean a decrease of $7,964 in the operator income. In this example, the fi~ures are subtracted from average income instead of added. A $1.00 per cwt. decrease in milk price would result in the average New York dairy farmer having a loss of $2,426 (table 4). A milk price decrease of 60¢ to 70¢ per cwt. in 1974 to 197~ would have dropped the average dairy operator into the zero income level. Milk price is indeed a strong factor affecting operator income. Small fluctuations can cause serious problems, especially for operators with mar~inal incomes.

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Table 4. COMPUTED EFFECTS ON OPERATOR INCOME OF MILK PRICE DECRF~ES New York Dairy Farms, 1974 to 1976

Decrease in Price of ~1ilk Per Amount Percent

$ ° ° .25 2.8% .50 5.5 .75 8.3

1.00 n.o 1.25 13.8

Cwt. Computed Income Per Operator*

$ 5,538 3,547 1,556

-435 -2,426 -11,417

Computed Decreases in Operator Income Amount Percent

$ 0 1,991 3,982 5,973 7,964 9,955

o 36% 72

108 144 180

* This is an average of the three years as shown under table 3.

The calculated changes in operator income from milk price changes by year are shown in table 5. In 1076, operator incomes were generally much higher than the previous two years. This gave 1976 a higher base income from which relative fluctuations were measured, and the percent fluctuations in operator income for 1976 were smaller than the previous two years. In 1975, operator incomes were the lowest of the three years and percent fluctuations were the greatest in this year.

Table 5. COMPUTED EFFECTS ON OPERATOR INCOME OF MILK PRICE CHANGES New York Dairy Farms, 1974, 1975, 1976

Chanp';es in Pri ce Computed Change in Operator Income of Milk Per Cwt. 1974 1975 1076 Arrtount Percent* Amount Perc:ent Amount Percent Amount Percent

$+1.25 13.8 $9,840 214 $10,220 259 $ 9,805 121 +1.00 11. 0 7,872 171 8,n6 207 7,84 11 97 + .75 8.3 5,904 129 6,132 155 5,8()1 73 + .50 5.5 3,936 86 4,088 104 3,922 ll9 + .2') 2.8 1,968 43 2,044 52 1,961 24

0 0 () 0 0 () 0 ° - . 25 2.8 -1,968 ll3 -2,044 52 -1,961 24 - . 50 5.5 -3,9'3h 8G -4,0813 104 -3,922 h9 - .75 8.3 -5,904 129 - 6 ,132 155 -5,881 73 -1.00 11.0 -7,872 171 -8,116 207 -7,844 97 -1.25 13.R -9,840 214 -10,220 259 -9,805 121

* Average milk price received for 19711, 1975, and 1976 was $8. 60, ~8.65 and $9 .91, rAspective1y. The percent change listed here represents the average for the three vears. Average operator income for 197 b , 197 5 , and 197~ was $4,589, $3,94 6 , and $8 ,080, respectively .

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The tables are linear over the assumed range of $1.25 per cwt. Static conditions are further assumed with only milk price moving. By using pro­portions, a break even price for each year can be estimated. In 1974, average operator income was $4,589. From the table, in that year, a 50¢ per cwt. decrease in milk price would most likely decrease income around $3,936. Using these figures in a proportion equation, we can determine that a 58¢ per cwt. decrease in milk price would show approximately the point where average New York dairy operators would have a zero labor and management income. In 1974, aver age milk pr ice was $8.60. Subtract 58¢ and $8.02 becomes the breakeven price fo r 1974. Under conditions present in that year, the average dairy operator would have had a zero operator income if milk prices would have been 58¢ lower or $8.02 per cwt.

In actual practice, adjustments would be made by management throughout the year in attempts to off set such a decrease. Feed cutbacks, increased culling rate, use of less hired labor7 are a few examples of adjustments that might be made in the wake of falling milk prices.

Similar calculations can be made for each year and the average of all years. In 1975, income was lowest 9 thus a smaller breakeven point is indicated. A 48¢ per cwt. decrease in milk price or a drop to $8.17 per cwt. would have caused the average dairy farmer to have a zero income in 1975. Likewise, a $1.03 per cwt. decrease in milk price or a drop to $8.88 per cwt. probably would have meant a zero average income for the operators in 1976. The average for the three years combined was 67¢ per cwt. decrease in milk price to cause a zero or breakeven income. It is interesting to note that during the three years the average price received for milk varied by $1.31 per cwt.

Dairy Concentrate Pri ce

The calcul at ed changes in operator income from changes in dairy con­centrate price are shown in t able 6. For each 25¢ per cwt. decrease in concentrate price, income increased approximately $760. A $1.25 per cwt. decrease under the as sumpt i ons could raise income $3,800 or 69 percent on the average for the t hree years.

This same pr ocedure can be used in the opposite direction (refer to table 6-A in the appendix ) . A $1.25 i ncrease in concentrate price would cut income by 69 percent if all other fac tors remained unchanged. This would be disastrous to many farms.

The effects of dairy concent rate price changes for each year are shown in table 6-B in the appendix . The table is linear and is extrapolated $+1.25 from O. Notice t hat t he absolute changes in incomes for 1975 and 1976 are nearly equal , however, the relative or percent changes are different. This is because operator income in 1976 was more than double that in 1975. Therefore, a $778 change in operator i ncome was a relatively smaller percent of total income in 1976.

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A 25¢ per cwt. change in dairy concentrate price is about the same in percentage terms as a 25t per cwt. change in milk price. This is a 4.0 percent change for feed compared with a ~.8 percent change in milk price. The relative amounts differ only by 1.2 percent. Observe the significant differences each has on income as shown in tables 3 and 6. A 25¢ change in dairy concentrate price is certainly not equal to the same 25¢ change for milk price. Operator income would change about 36 percent (approximately $1,991) for a 25¢ change in milk price. However, for the same amount of change (25¢ per cwt.) in dairy concentrate price, income would move about 14 percent or $760. This means milk price changes have roughly 2 1/2 times greater effect on operator income than changes in dairy concentrate prices.

The absolute amounts calculated above would rarely be seen on any farm or group of farms. Farm operators generally try to buffer the effects of dairy concentrate price increases by manipulating other internal variables. Several alternatives are available; ration composition can be changed, cows can be grouped and fed according to their production, and cows can be culled at higher production levels. The above are just a few of many alternatives dairymen use to help circumvent increasing ration expense. It is important for a farm manager to have an idea of the relative effects of dairy concen­trate price fluctuations. He can then evaluate and adjust other controllable variables to maximize his income.

During 1977, grain prices were generally lower than in 1976. These lower grain prices are beneficial to the dairy operator because they are reflected in lower dairy concentrate prices. Farmers ~enerally are reportin~ a $1.00 to $2.00 per cwt. drop in purchased dairy concentrate for this 1977 period. Just how beneficial are these lower grain prices to the average New York dairy farm?

Assume for a moment a $2.00 decrease in concentrate price with conditions identical to those in 1974 to 1976, and assuming all other variables remained constant. This means as price decreases, feeding levels to the cow would remain constant. Under these assumptions average operator income would increase about $6,080, or 110 percent. Grain price decreases certainly benefit dairymen, especially those having high ration expenditures.

Table 6. COMPUTED EFFECTS ON OPERATOR INCOME OF 25¢/CWT.

Decrease Per ~Nt. in Concentrate Price Amount Percent

$ 1.25 18 1.00 15

.75 II

.50 7

.25 4 0 0

DECREASES IN DAIRY CONCENTRATE PRICE New York Dairy farms, 1974 to 1976

Computed Operator

Income*

$9,338 8,578 7,818 7,058 6,298 5,')38

* Averarr,e of the three years 197)1, 1975. 1976.

Computed Increase in Operator Income Amount Percent

$3,600 3,040 2,280 1,520

760 o

69 55 )11 27 14 o

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Milk Production Per Cow

The effect of milk production per cow increases are reported in tables 7 and, 7-A and 7-B in the appendix. These increases tak~ into account increases in concentrate expenditure normally associated with higher levels of milk production. It recognized that there are other cost increases but the equation accounts only for increases in concentrates fed. To make this adjustment it was assumed each change in pounds of concentrate fed would produce a 3.33 percent change in milk production on a yearly basis. This is approximately +0.1 lb. of concentrate per day, or $2.00 increased expendi­ture for every 100 pounds increase in milk production per cow. This figure was incorporated into equation 3 and the results are reported in table 7.

An increase in milk production per cow of 1,000 pounds may be unrealistic for some but 500 pounds increase per cow is certainly obtainable on most farms. From table 7, a 500 pounds production increase under conditions present from 1974 to 1976 would increase the average operator income about $2,105, or 38 percent. This means for every 3.8 percent increase in milk production, operator income goes up about 38 percent. These calculations are assumed to be linear within the given production ranges for the "average" New York dairy farm in the study.

The effects of decreases in production per cow are shown in table 7-A in the appendix. If production dropped 1,000 pounds per cow, or just 2.7 pounds per cow per day, annual operator income could drop $4,209, or 76 percent. Today most cows are bred and fed to sustain high levels of milk production. A 2.7 pounds per day decrease is easy to realize, especially among the better dairymen with higher producing animals. For example, improper milking practices over time could cause cows to drop earlier and remain at lower levels of production. If this situation persisted during the year, income would decrease about 76 percent. Again this situation would assume all other factors being held constant.

Table 7-B in the appendix shows the effects of milk production for each year separately. The year 1976 shows the smallest relative effects. Again this is due to higher average incomes in that year. The average income for 1975 was low which means the base on which percent gains were computed was lower and relative effects would have been relatively stronger.

Table 7.

Increase Sold Per Amount

1,000 500 400 300 200 100

0

* Average

COMPUTED EFFECTS ON OPERATOR INCOME OF INCREASES IN POUNDS MILK SOLD PER COW PER YEAR New York Dairy Farms, 1974 to 1976

in Lbs. Milk Computeri Computed Increase Cow Per Year Operator in 0Eerator Income

Percent Income* Amount Percent

7.5 $9,7118 $4,218 76 3.8 7,643 2,105 38 3.0 7,222 1,684 30 2.3 6,801 1,263 23 1.5 6,380 842 15 0.8 5,959 421 8

° 5,538 0 0

of the three years 1974, 1975, and 1976.

-14-

Milk production per cow is an internal variable. Comparing it with milk price, both variables have similar relative effects. In contrast, operator control over the two variables is distinctly different. Milk price is to a lar~e de~ree uncontrollable by the individual operator. There is little an individual dairyman can do to alter the basic price received for milk. Milk production contrastingly can be influenced by proper management practices.

Over the years, parity levels have dropped for the dairy industry. Some persons question how dairy farmers have survived economically over time with below parity prices. The likely answer is increased productivity per cow. Dairy operators realizing that they have little control over basic milk prices have sought other ways to maximize their economic position . This has been done through careful manipulation of the controllable internal dairy management variables. Generally, this management action has resulted in more efficient and higher producing cows. The data presented in this study point out the close relationships between milk price and milk production per cow.

It might be asked who has benefited by such management action. Certainly the dairyman has not reaped all the benefits of this increased productivity. He has reacted in an effort to maintain a reasonable income in times of falling parity levels. But the consumer also has reaped some benefits from the increased productivity as it is passed along through the market system.

Herd Size and Effects of Price and Production Changes

The material presented in the previous tables has used the average values for all farms in the study. An individual dairyman could expect similar results on his farm only if his farm were similar to the "average". Few farms are "average". Variation among the study farms in all variables is large. For instance, operator income has as large a standard deviation as does herd size and milk production per cow.

In order to minimize the problem of sample variations, the effects of price and production changes '''ere observed for di fferent herd size groups, and for various ~oups based on income level.

Herd size i s defined as the average number of cows on the farm during the year. There are many variations in dairy farming practices among different herd size groupings. Small farms generally employ different approaches to dairying than large farms. Small New York dairy farms are generally owner­operated with relatively little hired help, and with stanchion barns. Large dairy farms tend toward more operators and more hired labor, and with more freestall type barns.

The effects of herd size variation can not be completely eliminated by cross tabulation analysis but it can be minimized. In this part of the study the farms were divided into seven herd size ~roups, and each herd size group was studied independently.

-15-

A high degree of intercorrelation exists between the factors on a dairy farm. The attempt to account for herd size differences does not eliminate the intercorrelation effects. Farm operators large or small attempt to adjust variables to maximize their economic pOBition. The information by herd size should be interpreted with care since it reflects a static situation in the historical past. However, with these qualifi­cations in mind, one can use this information to better understand the effects of milk price, dairy concentrate price, and milk production per cow among the different sizes of dairy herds. If reasonable assumptions about the corollary nature of other variables are made, this information can be used as a guideline for making mana~ement decisions.

The farms were divided into seven herd sizes. Simple averages for the relevant variables for each herd size were determined and incorporated into equation 3. These averap,e values are shown in tables 8 and, 8-A and 8-B in the appendix.

The labor and management income per operator in general was higher for the larger size herds (table 8). For the three years, 1974-1976, the farms with 150 and over cows had average incomes of $13,176 compared with $2,345 for those with under 40 cows. In general, the larger the herd the greater the labor and management income per operator.

Table 8. SELECTED CHARACTERISTICS OF SEVEN HERD SIZE GROUPS New York Dairy Farms, 1974 to 1976

Herd Size Number Pounds Number of Dairy Average (Number of Milk Operators Concentrate Operator of Cows) Cows Sold Per Farm Costs Income*

Under 40 33 425,893 1.057 $1l,881 $ 2,345 40 - 54 47 613,913 1.128 16,115 3,765 55 - 69 61 798,461 1.182 20,626 4,331 70 - 84 76 1,000,994 1.350 26,145 4,073 85 - 99 92 1,235,240 1.243 30,872 5,497

100 - 149 119 1,634,236 1.388 42,228 9,585 150 & Over 185 2, 571~ ,297 1.424 68,491 13,176

* Labor and management income per operator.

Effects of Price Received for Milk by Herd Size

The computed effects of a 25¢ per cwt. increase in average price received for milk for the farms in the study over the three years is shown in table 9. The range by herd size in percent change is from 31 percent to 46 percent. Herd size groups with lower incomes would experience the greatest relative amount of increase. The three largest herd size groups generally would experience a smaller percent increase in income. However, these groups would have much greater absolute increases from the same 25¢ per cwt. increase. The computed increase would be $4,521 for the largest herd size group (Over 150 cows). This is more than four times the increase in income for the smallest group. Incomes of the larger farms increased less in percentages but in absolute dollar increases they were significantly greater.

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During the three year period from 1974 to 1976, the average price receiveo. for milk solO. increased ~1.31 per cm. for the New York farms in this study. By usin~ a nronortion eQuation, we can calculate the meaning of this increase for the herd size groupings. The effects on income are assumed to be linear over this range and all other variations are held constant.

If milk pri ce increases $1.31 per cwt., the smallest group (under ljO) would increase the average operator income to $5,277, or 225 percent. This same $1.31 would affect the largest herd group much differently. The cal­culated increase in income for the largest group (over 150 cows) lvould be $23,690. This is a significant amount. This percent increase would be about lElO percent which is less than that of the smallest herd group. Similar analysis can be done with all the groups.

The calculated effects of milk price decreases are shmffi in Table O-A in the appendix. The fourth herd size group of 70-84 cows would be affected the most. A 55 cent per cwt. milk price decrease could put this group into the negative income class. Similar breakeven points could be calculated for all groups. The larger farms are generally able to endure milk price decreases better. They have larger amounts of capital involved which means greater risks. The consequences of negative income for them would be much p:reater.

Table Ci.

Herd Size (Number of Cows)

Under )~O

4n - 5lj 55 - 6Q 70 - e4 fl5 - 99

100 - li~9

150 &. Over

COHPUTRD KFFP.CTS ON OPF.RATOR INCOtvffi OF A 25r1;/Q,rr. INCREASE IN MILK PRICr. BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Computed Income Average '\Hth a 25¢/cwt. Operator Increase in Income ~1ilk Price -_._--

$ 2,"345 ,<I; 3,) ,)2 '),7(;5 5,126 4,3-;L h,OlQ 4,074 5,928 n ,1):-) In,!)15 O,5 ,c\C, 12 ,528 U ,17 I~ 17 ,697

Change in Income With a ?5¢/cwt. Increase

in Milk Price Amount Percent

:+:L ,007 43 1,361 36 1, 613 B 39 1, '35 !! 46 ;:: , )~85 31 2,C)i!3 31 !1,5?l 34

- .-.- - ----.-- --_._-- -----.. -------------------

Trrb.Le 9-Tl shows each year ino.ependently. This time a Cjort per cwt. was arbitrarily selected. The relrrtive effects in 1976 are ~enerally smaller with the exception of two groups. The year 1075 had the largest relative increases.

In 1975, the fourth herd size group of 70-84 cows reported an average income of $l.15. This is exceptionally low. Any income chan~e for this p;roup becomes a very large relative change. The value is disnroportionate compared to other herd size nercentages and should he understood accordingly.

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Effects of Price of Dairy Concentrate by Herd Size

The computed effects of a 25¢ per cwt. decrease in dairy concentrate price by the seven herd size groupings are shown in tabl~ 10. A 25¢ per cwt. decrease in price of concentrates would give a computed change in income ranging from 12 to 18 percent for the seven herd size groups. Generally, over a three year period, dairy concentrate prices will change more than 25¢. A 25¢ drop in price would, under the stated assumptions, increase the income per operator in the largest group $1,935 a year. A $1.00 drop would increase the income ~7,740 for this group. Smaller farms would be effected much less in absolute dollar savings, however, their relative amounts would be slightly greater.

A computation of the effects of a dairy concentrate price increase of 25¢ per cwt. is shown in table 10-A in the appendix. The relative amounts of change are small. Over the seven groups, the amounts range from 12 per­cent to 18 percent of operator income. Multiply these amounts by four to show the effect of a $1.00 per cwt. concentrate price increase if all things remained constant over that range. This table shows the smaller farms would not be affected as much in absolute dollar savings when compared to the larger herds but relative amounts would be similar for all groups.

The effects of a 50~ per cwt. dairy concentrate price increase for each of the three years is shown in table 10-B in the appendix. In 1975, the smallest herd size would, under the static conditions of the model equation, decrease income about 60 percent. Much can be learned about the inherent relationships of concentrate price from year to year by studying this table.

In actual farm operation, many adjustments are made to counteract the effects of adverse situations. A dairy concentrate price increase, if large enough, warrents management attention, especially on the larger farms. It is difficult to determine from this analysis, if anyone group of operators makes more adJustments and makes them sooner than other groups. However, the tables indicate the approximate savings or losses sustained through the changes in concentrate prices. In terms of actual dollars, it is very important for the larB;er herds to make appropriate ad.1ustments in feeding practices during adverse prices.

Table 10.

Herd Size (Number of Cows)

Under )~O

ho - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & Over

COMPUTED EFFECTS ON OPERATOR INCOME OF A 25¢/CWT. DECREASE IN DAIRY CONCENTRATE PRICE BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Computed Income Change in Income With Average Wi th a 25¢/ cwt . a 251/Cwt. Decrease Operator Decrease in in Concentrate Price

Income Concentrate Price Amount Percent

$ 2,345 S 2,733 3; 388 17 3,765 11,276 511 14 4,331 4,962 631 15 4,074 4,802 728 18 8,130 q , 131~ 1,001, 12 9,585 10,737 1,152 12

13,176 15,111 1,935 15

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Effects of Milk Production Per Cow by Herd Size

The last variable studied in this section was milk nroduction per cow. The effects on income per operator of a 600 pound increase in milk pro­duction per cow using equation 3, ere shown in table 11. The 600 pound increase per cow was an arbitrary selection. By using these figures in a proportion equation, income changes can be shown for greater and lesser amounts. A 600 pound per cow increase means each day throughout the year every cow would produce 1.64 pounds more milk. If average milk production in a herd is 43 pounds, this is a 3.8 percent increase. If this increase could be sustained throughout the year, and no additional costs incurred except concentrate costs accounted for in equation 3, then income would increase approximately $1,294 to $5,596 depending on the size of the herd. For the largest group, a 1.64 pounds per day per cow increase would bring a $5,596 additional income per year or a 42 percent increase. A 1,200 pound increase, or 3.28 pounds per day increase, would double that figure.

The smaller herd groups would have less dollar amounts for the same 600 pounds but the percentage increases would be greater. The small group of under 40 cows could increase income by $1,294, or 55 percent, with this production increase. The largest percentage increase (59 percent) was for the 70-84 cow size group.

As milk production increases, more stress is placed upon the cow. This may mean more expenditure to maintain high production. The equation has only estimated a portion of that marginal expenditure which is concentrate expense. The total expenditure would also depend upon the original level of production from which the increase was obtained. Cows giving 20 pounds per day can sustain an increase easier than cows producing over 40 pounds per day. Milk production levels varied SOMe by herd size groups in this study. The 150 and over size herd sold 920 pounds more milk per cow than the herds with under 40 cows (table 8-c in the appendix). This suggests that it might be somewhat more difficult and costly to increase milk pro­duction per cow in the larger herds.

The computed effects of milk production increases on income per operator for each year are shown in table ll-A in the appendix. The total estimated amounts for each year in each herd group are similar. The percentage figures from year to year with the groups fluctuated considerably. This results from the differences in base income.

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Table 11. COMPUTED EFFECTS ON OPERATOR INCOME OF A 600 LB. INCREASE IN MILK PRODUCTION PER COW BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Computed Income Change in Income With Herd Size Average With a 600 Lb. a 600 Lb. Increase in

(Number Operator Increase in Milk Production Per Cow of Cows) Income Milk Production Amount Percent

Under 40 $ 2,345 $ 3,639 $1,294 55 40 - 54 3,765 5,445 1,680 45 55 - 69 4,331 6,592 2,260 52 70 - 84 3,074 6,465 2,391 59 85 - 99 8,130 11,236 3,106 38

100 - 149 9,585 13,239 3,653 38 150 & Over 13,176 18,772 5,596 42

Income Level and Effects of Price and Production Changes

It is assumed that the managerial ability of farm operators varies. This in turn would have an effect on incomes. There is a problem in choosing a measure that reflects managerial ability. The level of operator income was used in this study to reflect the level of management ability present on a farm.

Operator income over a period of years is a good measure of the dairy operator's ability to manage consistently. There was a large amount of variation in income among the farms in the study. This would suggest a wide variation in management ability. The purpose of this section is to group the farms according to management ability as measured by operator income, and observe price and production fluctuations within these groups.

This section shows both the relative and absolute amounts of change caused by milk price, dairy concentrate price, and milk production per cow for seven different income levels. The farms were divided into seven different operator income levels, and the means for selected variables for each level were determined. These are shown in tables 12 and, 12-A, 12-B, and 12-C in the appendix. These values were then incorporated into equations 1,2, and 3. Tables 13 through 15 report the results of these calculations.

The farms with operator incomes of minus $5,000 or more were relatively large. The average number of cows was 73 (table 12) and was larger than all but two other income groups. This suggests that the lowest income group of farms were large but poorly managed. For the other income levels, the larger the income per operator, the larger the business as measured by number of cows and pounds of milk sold.

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Table 12. SELECTED CHARACTERISTICS OF SEVEN INCOME LEVELS New York Dairy Farms, 1914 to 1916

Number Pounds Number Dairy Average Income of ~1ilk of Concentrate Operator Level Cows Sold Operators Costs Income

Below $-4,990 13 G15.000 1.140 ~2h,900 $-11,431 $-4,999 to $-1 hl 163, ? 51 1.185 20,152 -2,035 $0 to $ 4,9Q9 66 874,152 1.236 23,739 2,690 $ 5,000 to :1; 9,999 66 fl92,458 1.200 22,495 1,352 $10,000 to ~!a4 ,909 10 966,055 1.285 24,010 11,965 $15,000 to $19,999 81 1,126,681 1.268 21,851 11,413 $20,000 and over 121 1,129,1fl1 1.263 39,829 32,812

Effects of Price Received For Milk by Income Level

The computed effects on operator income of a 25¢ per cwt. increase in price received for milk by various income level groups are shown in table 13. · A ~5¢ increase in milk price is small but larger price increases can be estimated from the figures in the table. For example, for the lowest income group, a 25¢ increase in milk price would result in an increase in income of $2,001. Because the effects are assumed to be linear within a reasonable range, a 50¢ increase would be double the amount, or $4,0111. Similar extra­polations can be made from the other figures in the table.

The calculated amounts and their accompanying percentages can be used as general guideline s . Actual amounts would rarely be observed for a particular operator. The amounts represent a static situation with all variables being held constant except milk price. In the dynamic economic situation, other variables would tend to be mixed with the milk price factor.

Farms with the lowest income ner operator (i.e., below $-4,999) had relatively large increases in income, ~2,001, since they were sizable farms but poorly managed. For the other income level groups, the computed increase in absolute income due to a 25¢ per cwt. increase in milk price was pro­gressively larger as the income level or managerial ability increased. The group of farms with incomes of $20,000 and over had a computed increase in income of $3,!1~3, yThich was more than double the 1a,611 for those in the income level of $-1 to $-4,99G (table 11).

The percentage increase in operator income was the reverse of the absolute amounts. The increase for the group with incomes of $0 to $4,999 was 66 percent, while for those with $20,000 and over it ,,,as 10 percent. Operators at or near the marginal levels of income gain more proportionately from an increase in milk price than do the farmers with more managerial ability and at hi~her income levels.

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Table 13. COMPUTED EFFECTS ON OPERATOR INCOME OF A 25¢/CWT. INCREASE IN MILK PRICE BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Computed Income Average With a 25¢/ewt.

Income Operator Increase in Level I ncome Milk Pri ce

Below $-4,999 $-11,437 $-9,430 $-4,999 to $-1 -2,035 -424 $0 to $ 4,999 2,690 4,457 $ 5,000 to $ 9,999 7,352 9,211 $10,000 to $14,999 11,965 13,842 $15,000 to $19,999 17,413 19 , 635 $20,000 and over 32,812 36 , 235

Change in Income With a 25¢/cwt. Increase

in Milk Price Amount Percent

$2.007 • 1,611 * 1,768 66 1,859 25 1,877 16 2,222 13 3.423 10

* Percent increases not calculated for groups with minus incomes.

Table 13-A in the appendix shows the analysis by i ncome levels with a decrease in milk prices. The table illustrates the severity of a 25¢ per cwt. milk price decrease to the seven income levels. In the $20,000 and over income group, for each 25¢ drop in milk price, the operator income will drop $3,423 or 10 percent. The table is assumed to be linear. One can extrapolate the effects of larger price decr eas es by linear interpolation. For example, a $1.00 drop in milk price is four times l arger. This would cause income levels 3 and 4 to have negative i ncome unde r conditions in the years sampled. All other levels would likewise be affected severely. In actual application, such sharp changes would be modified in part through management act ion . However. the table does give an i dea of the seriousness of milk price dec reas es to various levels of management.

Table 13-B in the appendix shows the effects of a 50¢ per cwt. price increase by income level and year. The f our th gr oup ($5 , 000 to $9,999) had the largest total number of farms. I n 1974 , a 50¢ increa se would have increased operator income $3.444, or 47 percent for this group. In 1975 and 1976, the relative amounts would have been 56 perc ent and 49 percent, respectively. There s eems t o be no consistent pattern over the three years. The higher income levels due to the larger base income generally had smaller percentage increases over the t hree year period than did the lower income levels.

It is important for those working with milk prices and parity policy to understand that a set amount of change i n mi l k price does not give the s ame dollar amount each year nor does it yield the same amount to specific management levels . The t able illustrates thi s point. Each year i t received an identical 50¢ per cwt . milk pri ce i ncrease, but this amount gave t he highest management l evel approximately $7, 500 ext ra income under conditions present in 1974, but onl y $6,655 in 1975. Simi l ar di fferences are recorded for all income levels .

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Effects of Dairy Concentrate Price by Income Level

The computed effects of a 25¢ per cwt. decrease in dairy concentrate price by seven income levels are shown in table 14. A 25¢ per cwt. chan~e in concentrate price is relatively small. In recent years, grain prices have changed more than 25¢ and have had a marked effect on feed expenditures. Large changes can be calculated with linear interpolation. The table is de­signed to give managers an idea of the effect of concentrate price when com­pared among management levels.

The middle income levels (2,3,4,5) are similar in the absolute effects of price changes. The estimated dollar amounts for these four levels range from 6 percent to 31 percent. This is a comparatively wide range. It is important that management evaluate both the absolute amount and the relative changes together to better understand the total nature of the changes.

The largest income level is assumed to have the best management tech­niques. This group of farmers was feeding more total concentrates. A 25¢ decrease could save this group of operators about $1,240. This is almost double the savings of some of the other income levels. It is interesting to note the calculated $1,240 only represents 4 percent of the operator income for this group.

An increase in dairy concentrate price means larger feed expenditures and in turn lower net income to the operator. The effects of a 25¢ per cwt. increase in feed price for the different income level groups are shown in table 14-A in the appendix. The amount of change tends to be proportional to the size of the herd and the level of income or managerial ability. Those income levels closest to 0 have the strongest relative effects. If no other adjustments are made by management, small concentrate price increases could cause negative incomes for many of these groups.

Table 14-B in the appendix shows the computed effects on operator income of a 50¢ per cwt. decrease in dairy concentrate price by income level and year. There is no consistent pattern from year to year. Generally a price decrease resulted in more dollars in 1975 than in 1974. The table illustrates the dlfferences t hat exist between years and income levels for the same change. Those who establish prices need to understand the wide ranging effects of a given price change.

Table 14. COMPUTED EFFECTS ON OPERATOR INCOME OF A 25¢/CWT. DECREASE IN DAIRY CONCENTRATE PRICE BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Computed Income Change in Income With Average With a 25¢/~t. a 25¢/cwt. Decrease

Income Operator Decrease in in Concentrate Price Level Income Concentrate Price Amount Percent

Below $-4,999 $-11,437 $-10,611 $ 825 7 $-4,999 to $-1 - 2 ,035 -1,407 h28 31 $0 to $ 4,999 2 ,690 3,369 679 25 t 5,000 to $ 9,999 7,352 8,050 698 9 $10,000 to $14,999 11,965 12, 658 693 6 ::'15,000 to $19,999 17,413 18,217 804 5 .$20,000 and over 32,812 311,052 1,240 4

-23-

Effects of Milk Production Per Cow by Income Level

The computed effects on operator income of a 600 pound increase in milk production per cow for seven income levels are shown in table 15. As stated earlier, 600 pounds was an arbitrary selection. Larger and smaller production changes can be determined from the information in the table since it is assumed to be linear within a reasonable range.

The second income l~el in table 15 would benefit the most in relat ive terms from the 600 pound increase. It would be enough to bring the average operator in this group from a negative income to a positive income. The largest income level would be affected the most in actual dollar amounts. This group of farm operators had more cows so any production increase would be reflected in a greater increase in total milk production and larger labor and management incomes.

Many uses can be made from data in the table. For example, suppose one would like to know for the fourth income group ($5,000 to $9,999) approxi­mately how much production per cow would have to increase to bring the operator income to $10,000 in the sample year. The level for 1974 to 1976 was $7,352. If we assume conditions identical to those from 1974 to 1976, and fUrther assume all other factors remain constant, the calculation can be determined. The fourth income group would have to gain approximately $2,648 in additional income to reach the goal. The amount can be determined by substituting the values from table 15 into a proportion equation as follows:

600 Ibs. $2,347 =

(x) Ibs. $2,648

x = 677 Ibs.

If each cow gave about 677 more pounds of milk, the average operator in the group would receive a yearly income of about $10,000. Again this s implistic calculation is based on the static historical past. It does, however, provide a general idea as to the overall effect of production changes on operator income. Similar analyses can be done with the other management levels.

Table 15-A in the appendix is a detailed analysis of milk production decreases of 100, 300 and 600 pounds per cow for the seven income levels. The 100 pounds production drop would decrease the operator incomes for the different income levels from 2 percent to 18 percent. This is a difference of nine times in relative amounts even though the dollar amounts differ only by about $310. This is a wide variation in the results from the same change in produc"cion per cow. Management should be aware of the differing effects on farms of various sizes and levels of management. If left unattended by management, a production decrease could mean substantial losses over a period of time.

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The computed effects on operator income of a 600 pound increase in milk sold per cow for the years 1974, 1975, and 1976 are shown in table 15-B in the appendix. The ~eneral relationships hold for each of the years even thou~h the actual amounts differ somewhat.

Table 15. COMPUTED EFFECTS ON OPERATOR INCOME OF A 600 LB. INCREASE IN MILK PRODUCTION PER COW PER YEAR BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Computed Income Change in Income With Average With a 600 Lb. a 600 Lb. Increase in

Income Operator Increase in Milk Production Per Cow Level Income Milk Production Amount Percent

Below $-4,999 $-11,437 $-8,752 $2,685 23 $-4,999 to $-1 -2,035 129 2,164 106 $0 to $; 4,999 2,690 4,959 2,269 84 $ 5,000 to $ 9,999 7,352 9,699 2,347 32 $10,000 to $14,999 11,965 12,240 2,275 19 $15,000 to $19,999 17,413 20,133 2,720 16 $20,000 and over 32,812 36,839 4,027 12

Cross Elasticities of Factors Studied

The discussion to this point has centered upon the description of the relationships between milk price, dairy concentrate price, milk production per cow and operator income. To further understand the interaction, the cross elasticities of the variables were examined.

Elasticity analysis is a tool used by economists to describe price, income, and demand relationships. This tool can be used to measure the relative amount of change in a commodity or variable due to the relative changes in other variables. Por example, elasticity can measure relative change in the quantity of an input X purchased due to a one percent change in the price of input Y. This particular type of elasticity is called cross elasticity. There are other types of elasticity, but for the purposes of this study, a general understanding of the cross elasticities will be suffic ient.

Elasticity can be defined as "responsiveness". Therefore, if something is elastic it is responsive to a change around it. Likewise, cross elasticity can be defined as the relative responsiveness of a dependent variable to chan~es in an independent variable. The cross elasticity of operator income with respect to changes in milk price, dairy concentrate price, and milk production is discussed in this section.

-25-

The cross elasticities for the three variables and operator income are shown in table 16. The values are shown yearly together with the average of all years. The elasticities for dairy concentrate price are negative since an increase in feed price results in a d~crease in income. The absolute elasticities are all greater than 1. By definition this means they are elastic as opposed to inelastic. Values less than absolute 1 are inelastic.

The average elasticity for milk price and operator income for the three years is 13.9. This is considerably greater than 1 and indicates that income is highly responsive to changes in milk price. This reflects the elasticity for the average of all farms in the study for the three years 1974 to 1976.

Table 16. CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRICE, DAIRY CONCENTRATE PRICE, AND MILK PRODUCTION PER COW

New York Dairy Farms, 1974 to 1976

Cross Elasticitl Value* 3-Year Variable 1974 1975 1976 Average

Milk price 14.3 17.5 9.6 13.9 Concentrate price -4.4 -5.1 -2.7 -4.1 Milk production per cow 11.1 13.7 7.7 10.8

* Formulae for elasticities:

elastici ty '" (New income minus old income) : (New variable minus original value) Original variable value value Old income

Example of milk price in

X = $6,424 minus $4,589 $4,589

X = 14.3

1974:

$8.84 minus -. $8.60 $8.60

This value is relatively simple to interpret. It means that for each 1 percent increase in milk price, operator income increased 13.9 times as much, or 13.9 percent. Some economists refer to units rather than percents because it is actually a ratio. Either interpretation is appropriate. What does this mean in dollars to the dairy operator? A 1 percent increase in milk price is 9¢ per cwt. If the cross elasticity is 13.9, then operator income would /increase 13.9 percent, or about $769 for each 9¢ milk price increase.

- ?6-

Concentrate price is an expense variable. It is, therefore, a negative variable. As it increases, income decreases in proportion to the elasticity. Prom table 16, we observe an elasticity of -4.1 for concentrate price. This means operator income was observed to increase 4.1 percent for each 1 percent decrease in concentrate price. A 1 per­cent decrease in dairy concentrate price is about 7~. If concentrate price dropped 7~, then operator income would increase approximately $227. Again, this elasticity was observed for the average of all farms for the three years 1974 to 1976. It was further assumed the average operator would not change the total amount of concentrate fed as prices dropped.

The last variable shown in the table is milk production per cow. ~his

variable is the quantity of milk produced per cow per year. The elasticity represents the relative change in operator income from a relative change in the auantitv of milk sold per cow. ~rom the data on these farm businesses, the average operator had a 10.8 percent change in his income for each 1 percent change in milk production. Stated in dollar terms, this means a milk production increase of 130 pounds would increase income about $598.

Table 16 shows in quantative terms the relationships discussed through­out this text. It shows in economists terms for example, that milk price is probably the most influencial variable of the three. Over the three years, it remained slightly higher than elasticity of milk production (13.9 compared to 10.8). The elasticity of dairy concentrate price and operator income is consistently less than the other two variables. The same relationship holds for each year.

Table 16 describes the movement of operator income after anyone of the three variables has independently moved one unit. It says nothing about the effort required by the dairy onerator to change any of the three variables. True operator income is the most responsive or elastic to milk price. It is also probably the most difficult of the three to change. Any movement in milk price generally comes about gradllallv and through the efforts of many others besides the individual dairyman. Milk production, in contrast, can be changed by the farm operator. ~he prudent farm operator manipUlates his resources in ways that influence milk production greatly. Some dairymen are more successful than others in this area.

Cross Elasticities by Herd Size

~he cross elasticities of the three selected variahles with operator income by seven herd sizes are shown in table 17. This table shows that the elastic effects of three variables were different among the seven herd size groups.

The cross elasticities of operator income and milk nrice in general, were ~reater than for those for dairy concentrate price and for milk production per cow. This was true for all herd size groups except for the smallest size, those with under 1,0 cows, where milk produc tion was slightly more responsive (13.5 vs 13.0). The differences in cross elasticities ¥or milk price and milk production in general, Ifere not as large for all herd size groups as

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the difference between price and dairy concentrate price. For example, with the herds of 150 cows or more, the cross elasticity for milk price was 13.4 compared with 10.3 for milk production per cow, and 3.9 for dairy concentrate price. In general, income was most respoqsive to changes in milk price, followed rather closely by chan~es in milk production, and then with changes in concentrate prices being much less responsive.

In ~eneral, the de~ree of responsiveness as measured by cross elasticity tended to be greater for the smaller herds than for the larger herds. This was true for all three of the independent variables studied. This suggests that relatively improvements in milk price, dairy concentrate price, and milk production per cow in the smaller herds will produce more increase in income than they will in the larger herds. The importance of getting improvements in the smaller herds is probably greater than in the larger herds. However, it should be observed that the responsiveness of income to change in the three factors was definite for all herd size groups.

The elasticities for all herd sizes are well above absolute! This means all had an elastic potential effect on operator income. For example, suppose average operators of 150 cows and more believe milk price is a strong factor affecting their annual incomes. They would like to have a general idea about its strength compared to efforts to stimulate milk production per cow. Table 17 shows this comparison. Elasticity of milk production and operator income is 10.3. Stated in lay terms; an income change of 10.3 percent can be exnected for each 1 percent change in milk production. Elasticity of milk price with income is 13.4. This is a large elasticity. We can thus conclude that generally the average large New York dairy operator will experience income fluctuations of greater proport ions from milk price changes than from milk production changes.

Operator incomes for the 70-84 herd size group was exceptionally low in 1975 at $45. This value tends to distort elasticity analysis and its implications, the value has thus been eliminiated f rom the table. Tables 17-A, 17-B, and 17-C in the appendix show the elasticities by herd size for each year independentlY, These data can be used to compare the elasticities for the different factors for each of the three years for different herd sizes.

Table 17. CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRICE, DAIRY CONCENTRATE PRICE, AND MILK PRODUCTION PER COW BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Cross Elasticit~ Value For 0Eerator Income and: Herd Milk Dairy Concentrate t1ilk Production Size Price Price Per Cow

Under 40 13.0 -5.4 13.5 40 - 54 14.6 -4.3 11.4 55 - 69 17.1 -5.0 13.3 70 - 8h * * * 8') - oq n.8 -1.3 9.2

100 - 149 12.2 -3.5 9.2 150 & over 13 .4 -3.9 10.3

* Was not calculated because of irregular income figures.

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Cross Elasticities by Income Levels

Cross elasticity values for operator incomes and the three independent variables, milk price, dairy concentrate price, and milk production per cow were computed for each of the seven income levels used in the study. This provides an examination of the elasticities among the different levels of mana~erial ability as measured by operator income. The cross elasticity values are reported in table 18.

There appears to be a stronR relationship between the cross elasticity value and the level of income with the elasticity value decreasing as the income level increases. For milk price, the elasticity value for farms with incomes of $0 to $4,999 was 24, while the value for farms with incomes of $20,000 or over was 3.9. The income response to a fixed percentage change in a factor like milk price is relatively greater for the lower income groups. Part of this is due to the lower base from which the chan~e is computed. There also is an indication that price changes are relatively more beneficial to the less capable managers. Probably the more capable managers adjust more readily to situations and a fixed price change would, therefore, have relatively less effect on their incomes.

Cross elasticity values for each of the three variables, milk price, dairy concentrate price, and milk sold per cow by income levels for each of the three years 1974, 1975, and 1976 are sho'Nn in tables lS-A, 18-B, and 18-C in the appendix. The relationships for the individual years are con­sistant with those for the three years combined as shown in table 18.

Table 18. CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRICE, DAIRY CONCENTRATE PRICE, AND ~ULK PRODUCTION PER COl.., BY INCOME LEVEL

New York Dairy Farms, 1974 to 197~

Cross Elasticity Value For 0Eerator Income and: Income Milk Dairy Concentrate Milk Production Level Price Price Per Cow

Below $-4,999 6.5 2.1 5.1 $-4,999 to $-1 29.2 8.8 23.0 $0 to 1; 4,999 24.0 7.2 lR.6 $ 5,000 to $ 9,999 9.2 2.6 7.1 $10,000 to $14,999 5.6 1.6 4.h $15,000 to ~h9,(N9 4.6 1.3 3.6 $20,000 and over 3.9 1.0 3.0

It is important to understand a number of interrelationships that influence elasticity. The elasticity e~uation as defined here is the percent change in onerator income over the percent change in one of the three variables. The ma~nitude of the elasticity will, by definition, depend in part on the original income base from which the change occurs. That is why the same

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change in a given value can have different effects. The average income bases of herd size and management levels are different. This fact is especially true when quantifying elasticities for various income levels. The closer to "0" income a group becomes, the larger the resultant elasticity.

It is important for those who work with farm operators to understand the relative effec{s of price and production changes. Fixed price changes tend to provide relatively greater benefits for the smaller and lower income operators.

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Summary and Conclusions

Dairy farmers have experienced large fluctuations in their annual incomes in recent years. Cornell Farm Business Summary operator incomes increased over 100 percent from 1975 to 1976. Other years have shown similar decreases. Dairymen are interested in the causes of such income fluctuations and whether they could be avoided. These concerns were addressed in this study. The purpose of this study was to help dairy operators gain an understanding of the variables affecting income. With this increased understanding, the prudent manager should be in a better position to allocate bis resources in such a way as to buffer the effects of these fluctuations. Three important variables - milk price, dairy concentrate price, and milk production per cow were selected for investi­gation. The first two are external variables that affect farm income. Milk production is one of many internal variables over which the farm operator exercises control.

An equation was derived for each of the three variables. These equations measure the effect of changes in milk price, concentrate price, and milk production per cow upon op0rator income. The effects of the variables were considered independently by assuming that all other variables would reamin constant. In real life situations, the farm operator experi­ences the combined effects of all three variables plus many others. The combined effects of all the variables is beyond the scope of this study.

The effects on operator income of milk price, concentrate price, and milk production per cow were calculated using average data from the study farms. The results listed in the tables are assumed to be linear within the ranges presented, and extrapolations were made starting from given base points. Some tables present only the positive effects from a positive variable change, but the negative effects could be derived by simply sub­tracting from the base instead of adding.

The farms studied represent a cross section of dairy farm operations in the State but they are somewhat above average of all farms for size, production, and income. In order to conclusively reflect the true impact on operator income for the State of New York, a larger and more representa­tive sample would be necessary.

The first section of tables shows the results of milk price, dairy concentrate price, and milk production per cow on operator income for the average of the farms in the study from 1974 to 1976. New York dairy farms vary ~eatly in size and mana~ement approaches. Small owner operated dairys may look at income fluctuations differently from the large well­managed dairy farms. Because of these differences, sections two and three analyze the effects of the three variables first by herd size and second by manar,ement ability as measured by level of operator income. ~is gives an understandin~ of the variability of a given price and production change among different herd sizes and income levels.

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The cross elasticity values of milk price, concentrate price, and milk production with operator income is examined in the last section. Cross elasticity is a quantification of the effects of changes in the selected variables. The cross elasticity value is interpreted as the percent change in operator income for a one percent change in a given variable. The cross elasticities show the responsiveness or strength of the relationship between the variables and income. Elasticities are also calculated for herd sizes and income levels.

The information from this study should be useful to various groups of people. Dairy farm operators can use this information to gain a better understanding of the causes of income fluctuations. A better knowledge in this area should enable the operator to evaluate more effectively alternative management plans in the wake of economic fluctuations. Operators often over­look the importance of certain factors affecting their incomes. Agri­businesses and agricultural lending institutions should be able to use the information on the effect on income of changes in price and production levels. These factors play an important role in the payback ability on loans and on credit received. Businessmen will be able to study these effects and consider them in making credit management policies concerning dairy operations.

It is important for people in government to understand the ultimate effects on the dairy operator of price changes. Parity and support levels influence price directly and prices in turn influence operator income. The important point to understand is that not all operators are affected the same. As parity and support levels move, prices change and small operators are generally affected much more in relative terms than are the larger operations. The study illustrates the impact of price changes on various operator incomes. Policy makers should take into consideration the eventual impact both in dollar and relative amounts to the farm operator for any proposed agriculture pricing legislation.

In brief, milk price, dairy concentrate price, and milk production per cow, each had an important impact on the operator income of New York dairy­men for the years 1974, 1975, and 1976. Operator incomes were most responsive to changes in milk price, followed by changes in milk production per cow, and then dairy concentrate price. The average cross elasticity values for the three years for these three factors were 13.9, 10.8, and 4.1, respectively. The cross elasticity values provide a quantitative measure of the relative impacts of these variables on the operator incomes.

The impact of changes in the three factors varied by herd size and managerial ability of the operators. The total amount of change in operator income was greatest for the larger herds, while the proportionate change was greatest for the smaller herds. A similar situation existed for the differ­ence in managerial ability as measured by income level. The largest dollar increases in incomes were made by the operators with the greatest managerial ability, while the largest percentage increase in incomes were realized by the marginal managers.

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Quantitative measures of the impacts of the three factors also were obtained by computing the amount of change needed to increase the average operator incomes by $2,215, or 40 percent. Each factor was considered independently. The changes required would have been: an increase of $.28 per cwt., or a 3.0 percent increase in milk price; an increase of 478 pounds, or a 3.6 percent increase in milk production per cow; and a decrease of $.67 per cwt., or a 9.7 percent decrease in dairy concentrate price.

Price and technological changes do have an effect on dairymen's income. This study has examined the influence of three general factors on incomes. The empirical findings from this study can be used as guidelines in under­standing the effects of price and production changes on operator incomes. Farmers and policy makers who understand the nature of these changes can make necessary adjustments in their businesses or the policies made that affect businesses. Further studies of the effects of other important variables would be useful.

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APPENDIX TABLES

The Appendix Tables have a number and a suffix (A, B, or C), with the number corresponding to a similar table in the text.

List of Tables:

Table Page

6-A. Computed Effects on Operator Income of 25¢/Cwt. Increase in Dairy Concentrate Price . . . . · · · · · · · · · · · · 35

6-B. Computed Effects on Operator Income of Dairy Concentrate. Price Changes . . . . . . . . . · · · · · · · · · · · · · 35

7-A. Computed Effects on Operator Income of Decreases in Average Milk Sold Per Cow Per Year · · · · · · · · · · · · 36

7-B. Computed Effects on Operator Income of Changes in Pounds Milk Sold Per Cow Per Year · · · · · · · · · · · · 36

8-A. Selected Characteristics of Seven Herd Size Groups, 413 New York Dairy Farms, 1974 · · · · · · · · · · · · · · · · 37

8-B. Selected Characteristics of Seven Herd Size Groups, 380 New York Dairy Farms, 1975 · · · · · · · · · · · · · · · · 37

8-C. Selected Characteristics of Seven Herd Size Groups, 337 New York Dairy Farms, 1976 · · · · · · · · · · 37

9-A. Computed Effects on Operator Income of a 25¢/Cwt. Decrease in Milk Price by Herd Size · · · · · · · · · · · · 38

9-B. Computed Effects on Operator Income of a 50¢/Cwt. Increase in Milk Price by Herd Size · · · · · · · · · · · · 38

10-A. Computed Effects on Operator Income of a 25¢/Cwt. Increase in Dairy Concentrate Price by Herd Size . · · · · · · · · 39

10-B. Computed Effects on Operator Income of a 50¢/Cwt. Decrease in Dairy Concentrate Price by Herd Size • · · · · · · · · 39

U-A. Compted Effects on Operator Income of a 600 Lb. Increase in Milk Production Per Cow Per Year by Herd Size · · · · 39

l2-A. Selected Characteristics of Seven Income Groups, 413 New York Dairy Farms, 1974 · · · · · · · · · · · · · · · · 40

12-B. Selected Characteristics of Seven Income Groups, 380 New York Dairy Farms, 1975 · · · · · · · · · · · · · · · · 40

l2-C. Selected Characteristics of Seven Income Groups, 337 New York Dairy Farms, 1976 · · · · · · · · · · · · 40

13-A. Computed Effects on Operator Income by a 25¢/Cwt. Decrease in Milk Price by Income Level • · · · · · · · · · · · · · 41

13-B. Computed Effects on Operator Income by a 50¢/Cwt. Increase in Milk Price by Income Level . · · · · · · · · · · · · · 41

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APPENDIX TABLES contd.

Table

14-A. Computed Effects on Operator Income of a 2S~/Cwt. Increase in Dairy Concentrate Price by Income Level • • • • ~ • •

14-B. Computed Effects on Operator Income by a SO~/Cwt. Decrease in Dairy Concentrate Price by Income Level . • .

IS-A. Computed Effects on Operator Income of Decrease in Milk Production Per Cow Per Year by Income Level •••..

IS-B. Computed Effects on Operator Income of a 600 Lb. Increase in Milk Production Per Cow Per Year by Income Level

17-A. Cross Elasticity Values for Operator Income and Milk Price by He rd Size • . . 0 0 • • • • • 0 • • • • • • • • •

17-B. Cross Elasticity Values for Operator Income and Dairy

42

42

43

44

45

Concentrate Price by Herd Size . 0 • • • 0 • • • • • •• 4S

17-C.

IS-A.

IS-B.

IS-C.

Cross Elasticity Values for Operator Income and Milk Production by Herd Size . . . . • • . • .

Cross Elasticity Values for Operator Income and Milk Price by Income Level . • . • • • • • . •

Cross Elasticity Values for Operator Income and Dairy Concentrate Price by Income Level

Cross Elasticity Values for Operator Income and Milk Production by Income Level •...••

4S

46

46

46

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Table 6-A. COMPUTED EFFECTS ON OPERATOR INCOME OF 25¢/CWT. INCREASE IN DAIRY CONCENTRATE PRICE

New York Dairy Farms, 1974 to 1976

Increase Per Cwt. Computed Computed Decrease in Concentrate Price Operator in 0Eerator Income Amount Percent . Income* Amount Percent

0 0 $5,538 0 0 $ .25 4 4,778 $ 760 14

.50 7 4,018 1,520 27

.75 11 3,258 2,280 41 1.00 15 2,498 3,040 55 1.25 18 1,738 3,801 69

* Average of the three years, 1974, 1975, 1976.

Table 6-B.

Changes/Cwt. in Concentrate Price

Average* Amount Percent

$-1.25 18 $ -1.00 15 - .75 11 - .50 7 - .25 4

0 0

+ .25 4 + .50 7 + .75 11 +1.00 15 +1.25 18

COMPUTED EFFECTS ON OPERATOR INCOME OF DAIRY CONCENTRATE PRICE CHANGES

New York Dairy Farms, 1974, 1975, 1976

ComEuted Change in 0Eerator Income 1974 1975 1976

Amount Percent Amount Percent Amount

3,655 80 $ 3,842 97 $ 3,890 2,924 64 3,074 78 3,112 2,193 48 2,305 58 2,334 1,462 32 1,537 39 1,556

731 16 768 19 778

0 0 0 0 0

-731 16 -768 19 -778 -1,462 32 -1,537 39 -1,556 -2,193 48 -2,305 58 -2,334 -2,924 64 -3,074 78 -3,112 -3,655 80 -3,842 97 -3,890

Percent

48 39 29 19 10

0

10 19 29 39 48

* Average dairy concentrate prices paid for 1974, 1975, 1976 were $7.00, $6.51 and $7.01 respectively. This percent represents the average for the three years.

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Table 7-A. COMPUTED EFFECTS ON OPERATOR INCOME OF DECREASES IN AVERAGE MILK SOLD PER COW PER YEAR

New York Dairy Farms. 1974 to 1976

Decrease in Lbs. Milk Sold Computed Computed Decrease

Per Cow Per Year Operator in 0Eerator Income Amount Percent Income* Amount Percent

0 0 $5,538 0 0 100 .8 5,117 $ 421 8 200 1.5 4,696 842 15 300 2.3 4.275 1,263 23 400 3.0 3,854 1,684 30 500 3.8 3,4.33 2,105 38

1,000 7.5 1,328 4.209 176

* Average of the three years, 1974. 1975, 1976.

Table 7-B. COMPUTED EFFECTS ON OPERATOR INCOME OF CHANGES IN POUNDS MILK SOLD PER COW PER YEAR

Changes in Lbs. Milk Sold

Per Cow Per Year Amount Percent*

+1,000 7.5 +500 3.8 +400 3.0 +300 2.3 +200 1,5 +100 .8

o 0

-100 .8 -200 1.5 -300 2.3 -400 3.0 -500 3.8

-1,000 7.5

New York Dairy Farms, 1974 to 1976

1974 Amount Percent

$ 4,030 88 2,015 44 1.612 35 1,209 26

806 18 403 9

o 0

-403 9 -806 18

-1,209 26 -1,612 35 -2.015 44 -4,030 88

Computed Changes in Operator Income

1975 Amount Percent

$ 4,040 102 2,020 51 1.616 41 19212 31

808 20 404 10

o 0

- 404 10 -808 20

-1,212 31 -1 .616 41 -2.020 51 -4,040 102

1976 Amount Percent

$ 4.531 56 2.265 28 1.812 22 1,359 17

906 11 LI53 6

o 0

-453 6 -906 11

-19359 17 -1,812 22 -2,266 28 -4.531 56

* The average pounds of milk sold per cow per year for 1974, 1975. 1976 were 12,762, 13,457, 13.694 respectively . These percent change values are on average percent change for the three years .

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Table 8-A. SELECTED CHARACTERISTICS OF SEVEN HERD SIZE GROUPS 413 New York Dairy Farms, 1974

Herd Size Number of Dairy Number Pounds Average (Number Operators Concentrate of Milk Sold Operator of Cows~ Per Farm Costs Cows Total Per Cow Income

Under 40 1.171 $11,563 34 434,800 12,790 $ 2,754 40 - 54 1.218 15,412 47 587,200 12,490 2,861 55 - 69 1.200 19,688 62 775,100 12,500 2,196 70 - 84 1.208 25,934 76 961,700 12,650 2,830 85 - 99 1.100 27,920 92 1,198,572 13,030 11,144

100 - 149 1.233 40,892 118 1,562,052 13,240 6,661 150 & over 1. 333 67,386 195 2,571,912 13,190 15,517

Table 8-B. SELECTED CHARACTERISTICS OF SEVEN HERD SIZE GROUPS 380 New York Dairy Farms, 1975

Herd Size Number of Dairy Number Pounds Average (Number Operators Concentrate of Milk Sold Operator of Cows) Per Farm Costs Cows Total Per Cow Income

Under 40 1.000 $11,102 32 417,888 13,060 $ 1,348 40 - 54 1.091 15,142 46 621,920 13,520 2,479 55 - 69 1.157 19,673 61 793,793 13,010 3,590 70 - 84 1.432 24,381 76 987,772 13,000 45 85 - 99 1.310 29,422 92 1,231,328 13,380 5,347

100 - 149 1.418 38,823 120 1,656,360 13,800 8,870 150 & over 1. 375 62,654 170 2,466,992 14,510 8,548

Table 8-C. SELECTED CHARACTERISTICS OF SEVEN HERD SIZE GROUPS 337 New York Dairy Farms, 1976

Herd Size Number of Dairy Number Pounds Average (Number Operators Concentrate of Milk Sold Operator of Cows) Per Farm Costs Cows Total Per Cow Income

Under 40 1.000 $12,977 32 424,992 13,280 $ 2,932 40 - 54 1.074 17,790 47 632,620 13 ,460 5,955 55 - 69 1.190 22,516 61 826,489 13,550 7, 208 70 - 84 1 . 409 28,120 76 1,053,512 13,860 9 , 346 85 - 99 1 .318 35.274 91 1,275 ,820 14,020 7,898

100 - 149 1.514 46,968 119 1,684,326 14,150 13 ,223 150 & over 1.563 75,834 189 2,683,989 14,200 15,462

Table 9-A.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

Table 9-B.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

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COMPUTED EFFECTS ON OPERATOR INCOME OF A 25~/cWT. DECREASE IN MILK PRICE BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Change in Income With Average Computed Income With A 25~/Cwt. Decrease

Operator A 25C/Cwt. Decrease in Milk Price Income in Milk Price Amount Percent

$ 2,345 $1 9 338 $1,007 43 3,765 2.40'. 1,361 36 4,331 2.643 1.688 39 4,074 2.220 1.854 46 8,130 5.645 2,485 31 9,585 6.642 2. 943 31

13,176 8.655 4,521 34

COMPUTED EFFECTS ON OPERATOR INCOME OF A SOC/CWT. INCREASE IN MILK PRICE BY HERD SIZE

Amount

$1,857 2,410 3,229 3,981 5,448 6. 334 9,647

1974

New York Dairy Farms. 1974 to 1976

Computed Increase in Operator Income

Percent

67 84

147 140

49 95 62

Amount

$2 ,089 2,850 3.430 3, 449 4.700 5, 840 8, 971

1975 Percent

155 115

96 -::

88 66

105

Amount

$2 , 125 2,945 3.473 3,738 4,840 5. 563 8.586

1976 Percent

72 49 48 l:·O 61 l~2

56

* Average operator income for this herd size gr ouping was except i ona l l y low, thus any increase 1s relatively large.

Table 10-A.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

Table 10-B.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

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COMPUTED EFFECTS ON OPERATOR INCOME OF A 25¢/CWT. INCREASE IN DAIRY CONCENTRATE PRICE BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Change in Income With Average Computed Income With A 25¢/Cwt. Increase

Operator A 25¢/Cwt. Increase in Concentrate Price Income in Concentrate Price Amount Percent

$ 2,345 $ 1,957 $ 388 17 3,765 3,254 511 14 4,331 3,700 631 15 4,074 3,346 728 18 8,130 7,126 1,004 12 9,585 8,433 1,152 12

l3,176 11,241 1,935 15

COMPUTED EFFECTS ON OPERATOR INCOME OF A 50¢/CWT. DECREASE IN DAIRY CONCENTRATE PRICE BY HERD SIZE

New York Dairy Farms, 1974 to 1976

ComEuted Increase in 0Eerator Income 1974 1975 1976

Amount Percent Amount Percent Amount Percent

$ 705 25 $ 806 60 $ 860 29 903 32 1,060 43 1,131 19

1,172 53 1,271 35 1,340 19 1,533 54 1,342 * 1,499 16 1,813 16 1,890 35 2,035 26 2,369 36 2,229 25 2,279 17 3,611 23 3,673 43 3,950 26

* Operator income was exceptionally low in this herd size in 1975, thus a relative high change.

Table 11-A. COMPUTED EFFECTS ON OPERATOR INCOME OF A 600 LB. INCREASE IN MILK PRODUCTION PER COW PER YEAR BY HERD SIZE

New York Dairy Farms, 1974 to 1976

Computed Increase in Operator Income 1974 1975 1976

Herd Size (Number of Cows) Amount Percent Amount Percent Amount Percent

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

$1,151 1,529 2,048 2,494 3,315 3,793 5,798

42 53 93 88 30 57 37

$1,258 1,652 2,081 2,147 2,756 3,432 5,161

93 67 58

* 52 39 60

$1,482 2,069 2,430 2,553 3,277 3,749 5,819

*Operator income was exceptionally low in this herd size in 1975, thus a relative high change.

51 35 34 27 41 28 38

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Table 12-A. SELECTED CHARACTERISTICS OF SEVEN INCOME GROUPS 413 New York Dairy Farms, 1974

Number Pounds Number Dairy Average Income of Milk of Concentrate Operator Level Cows Sold Operators Costs Income

Under $-4,999 76 903,838 1.227 $26,860 $-12,585 $-4,999 to $-1 61 733,153 1.226 20,645 -2,367 $0 to $4,999 71 903,049 1.147 24,079 2,562 $5,000 to $9,999 64 821,868 1.193 20,698 7,368 $10,000 to $14,999 71 946,182 1.228 23,494 12,034 $15,000 to $19,999 88 1,174,961 1.333 27,728 17,503 $20,000 and over 129 1,839,132 1.226 40,769 31,330

Table 12-B. SELECTED CHARACTERISTICS OF SEVEN INCOME GROUPS 380 New York Dairy Farms, 1975

Number Pounds Number Dairy Average Income of Milk of Concentrate Operator Level Cows Sold Operators Costs Income

Under $-4,999 78 1,012,284 1.089 $26,640 $-11,105 $-4,999 to $-1 63 800,415 1.210 18,766 -1,926 $0 to $4,999 61 819,596 1.270 21,366 2,552 $5,000 to $9,999 71 970,002 1.185 24,102 7,264 $10,000 to $14,999 74 1,059,310 1.357 23,983 11,734 $15,000 to $19,999 85 1,184,475 1.207 28,650 17,347 $20,000 and over 127 1,794,256 1.348 37,559 35,997

Table 12-C. SELECTED CHARACTERISTICS OF SEVEN INCOME GROUPS 337 New York Dairy Farms, 1976

Number Pounds Number Dairy Average Income of Milk of Concentrate Operator Level Cows Sold Operators Costs Income

Under $-4,999 65 828,880 1.103 $27,201 $-10,622 $-4,999 to $-1 59 756,203 1.118 22.844 -1,813 $0 to $4,999 67 899,810 1.292 25,772 2,955 $5,000 to $9,999 64 885,504 1.222 22,686 7,425 $10,000 to $14,999 64 892,672 1.269 24,553 12,128 $15,000 to $19,999 71 1,020,625 1.263 27,194 17,39l $20,000 and over 106 1,555,974 1.216 41,159 29,546

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Table 13-A. COMPUTED EFFECTS ON OPERATOR INCOME BY A 25~/CWT. DECREASE IN MILK PRICE BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Change in Income With Average Computed Income With A 25~/Cwt. Decrease

Income Operator A 25~/Cwt. Decrease in Milk Price Level Income in Milk Price Amount Percent

Under $-4,999 $-11,437 $-13,444 $2,007 18 $-4,999 to $-1 -2,035 -3,646 1,611 79 $0 to $4,999 2,690 922 1,768 66 $5,000 to $9,999 7,352 5,493 1,859 25 $10,000 to $14,999 11,965 10,088 1,877 16 $15,000 to $19,999 17,413 15,191 2,222 13 $20,000 and over 32,812 29,389 3,423 10

Table 13-B. COMPUTED EFFECTS ON OPERATOR INCOME BY A 50~/CWT. INCREASE IN MILK PRICE BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Coml2 uted Increase in 0l2erator Income Income 1974 1975 1976 Level Amount Percent Amount Percent Amount Percent

Under $-4,999 $3,683 * $4,648 * $3,757 * $-4,999 to $-1 2,990 * 3,308 * 3,382 * $0 to $4,999 3,936 154 3,227 126 3,482 118 $5,000 to $9,999 3,444 47 4,093 56 3,623 49 $10,000 to $14,999 3,853 32 3,903 33 3,517 29 $15,000 to $19,999 4,407 25 4,907 28 4,040 23 $20,000 and over 7,500 24 6,655 18 6,398 22

* Percent increase not calculated for groups with minus incomes.

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Table 14-A. COMPUTED EFFECTS ON OPERATOR INCOME OF A 25¢/CWT. INCREASE IN DAIRY CONCENTRATE PRICE BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Change in Income With Average Computed Income With A 25¢/Cwt. Increase

Income Operator A 25¢/Cwt. Increase in Concentrate Price Level Income in Concentrate Price Amount Percent

Under $-4,999 $-11,437 $-12,262 $ 825 7 $-4,999 to $-1 -2,035 -2,663 628 31 $0 to $4,999 2,690 2,011 679 25 $5,000 to $9,999 7,352 6,653 698 9 $10,000 to $14,999 11,965 11,272 693 6 $15,000 to $19,999 17,413 16,609 804 5 $20,000 and over 32,812 31,572 1,240 4

Table 14-B. COMPUTED EFFECTS ON OPERATOR INCOME BY A 50¢/CWT. DECREASE IN DAIRY CONCENTRATE PRICE BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

ComEuted Increase in 0Eerator Income Income 1974 1975 1976 Level Amount Percent Amount Percent Amount Percent

Under $-4,999 $1,564 13 $1,823 16 $1,579 15 $-4,999 to $-1 1,202 51 1,22 l ) 64 1,351 75 $0 to $4,999 1,500 59 1,225 48 1,364 46 $5,000 to $9,999 1,239 17 1,516 21 1,433 19 $10,000 to $14,999 1,367 11 1,4L15 12 1,350 11 $15,000 to $19,999 1,486 8 1,736 10 1,616 9 $20,000 and over 2,375 8 2,522 7 2,537 9

Table 15-A. COMPUTED EFFECTS ON OPERATOR INCOME OF DECREASE IN MILK PRODUCTION PER COW PER YEAR BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Average 100 Lb. Decrease 300 Lb. Decrease 600 Lb. Decrease Income Operator Computed Income Decrease Computed Income Decrease Computed Income Decrease Level Income Income Amount Percent Income Amount Percent Income Amount Percent

Under $-4,999 $-11,437 $-11,885 $448 4 $-12,780 $1,343 12 $-14,122 $2,685 23

$-4,999 to $-1 -2,035 -2,395 361 18 -2,756 1,082 53 -3,116 2,164 106

$0 to $4,999 2,690 2,312 378 14 1,555 1,135 42 420 2,269 84

$5,000 to $9,999 7,352 6,961 391 5 6,179 1,173 16 5,005 2,347 32

$10,000 I

to $14,999 11,965 11,586 379 3 10,828 1,137 10 9,690 2,275 19 ..,... w

$15,000 I

to $19,999 17,413 16,960 453 3 16,053 1,360 8 14,693 2,720 16

$20,000 and over 32,812 32,141 671 2 30,798 2,013 6 28,785 4,027 12

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Table 15-B. COMPUTED EFFECTS ON OPERATOR INCOME OF A 600 LB. INCREASE IN MILK PRODUCTION PER COW PER YEAR BY INCOME LEVEL

New York Dairy Farms, 1974 to 1976

Com£uted Increase in 0Eerator Income Income 1974 1975 1976 Level Amount Percent Amount Percent Amount Percent

Under $-4,999 $2,453 19 $2,922 26 $2,811 26

$-4,999 to $-1 1.970 83 2,034 106 2,501 138

$0 to $4,999 2,451 96 1,912 75 2,461 83

$5,000 to $9,999 2,124 29 2,408 33 2,492 34

$10,000 to $14,999 2,292 19 2,130 18 2,388 20

$15,000 to $19,999 2,614 15 2,823 16 2,671 15

$20,000 and over 4,167 13 3,725 10 4,127 14

Table 17-A.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

* Not significant.

Table 17-B.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

* Not significant.

Table 17-C.

Herd Size (Number of Cows)

Under 40 40 - 54 55 - 69 70 - 84 85 - 99

100 - 149 150 & over

* Not significant.

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CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRICE BY HERD SIZE

New York Dairy Farms, 1974, 1975, 1976

Cross Elasticity Values For Operator Income and Milk Price 1974 1975 1976

11. 7 13.0 14.2 14.5 19.6 10.0 25.5 16.4 9.5 24.1 * 8.0 8.3 15.0 12.1

16.6 11.5 8.4 10.7 18.3 11.1

CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND DAIRY CONCENTRATE PRICE BY HERD SIZE

New York Dairy Farms, 1974, 1975, 1976

Cross Elasticity Values For Operator Income and Dairy Concentrate Price

1974 1975 1976

-3.6 -8.2 -4.4 -4.4 -5.6 -2.8 -7.5 -4.9 -2.6 -7.5 * -2.1 -2.2 -4.2 -3.4 -5.0 -3.2 -2.3 -3.4 -5.3 -3.1

CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRODUCTION BY HERD SIZE

New York Dairy Farms, 1974, 1975, 1976

Cross Elasticity Values For Operator Income and Milk Production

1974 1975 1976

8.9 20.3 11.2 11. 3 15.0 7.8 19.8 12.6 7.6 18.7 * 6.3

6.4 11.5 9.7 12.1 8.9 6.7

7.9 14.1 8.9

Table 18-A.

Income Level

Under $-4,999 $-4.999 to $-1 $0 to $4,999 $5,000 to $9,999 $10,000 to $14,999 $15,000 to $19,999 $20,000 and over

Table 18-B.

Income Level

Under $-4,999 $-4,999 to $-1 $0 to $4,999 $5,000 to $9,999 $10,000 to $14,999 $15,000 to $19,999 $20,000 and over

Table 18-C.

Income Level

Under $-4,999 $-4,999 to $-1 $0 to $4,999 $5,000 to $9,999 $10,000 to $14,999 $15,000 to $19,999 $20,000 and over

-46-

CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRICE BY INCOME LEVEL

New York Dairy Farms, 1974. 1975, 1976

Cross Elasticity Values For Operator Income and Milk Price 1974 1975 1976

5.0 21.6 26.2 8.0 5.5 4.3 4.1

7.4 29.0 22 .5 9.8 5.7 4.9 3.2

7.0 37.0 23.4 9.7 5.7 4.6 4.3

CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND D/\ 1RY CONCENTRATE PRICE BY INCOME LEVEL New York Dai r y Farms, 1974, 1975, 1976

Cross Elasticity Values For Operator Income and Dairy Concentrate Price

1974 1975 1976

1.7 7.1 8.2 2.4 1.6 1.2 1.1

2.2 8.0 6.6 2.8 1.5 1.4 0 . 8

2.3 11.3

6.7 2.5 1.6 1.2 1.1

CROSS ELASTICITY VALUES FOR OPERATOR INCOME AND MILK PRODUCTION BY INCOME LEVEL

New York Dairy Farms, 1974, 1975, 1976

Cross Elasticity Values For Operator Income and Milk Production

1974 1975 1976

3.9 5.7 5.6 16 . 7 22.4 29.5 20.4 16.8 18.6 6.2 705 7.7 4.2 4.3 4.6 3 . 3 3. 8 3.7 3 . 2 2 . 4 3.4