E. M. Babb, Department of Agricultural Economics
Summary
1. Compared to earlier years, mini­ mum Federal order fluid milk prices were in better alignment in 1961-1964. But, markets with relatively high prices con­ tinued to be located in the Northeast and the Minnesota-Iowa-Dakota area. Those with relatively low prices continued to be found in the Missouri -Kansas -Tennessee area. Distance from Eau Claire, Wisconsin, ex­ plained almost 90 percent of the variation in fluid milk prices among markets.
2. Markets with relatively high fluid milk prices tended to have similar blend prices. About 80 percent of the variation in blend prices was associated with distance from Eau Claire.
3. Potential least-cost sourc es of milk were analyzed. When over -order rather than minimum fluid milk prices were con­ sidered' least-cost sources of milk for Federal order markets were changed appre-
ciably. Not only would producers in order with premiums gain income, but to a lesse extent producers in markets where no premiums were applicable also would re­ ceive higher prices. This would occur be­ cause the level of prices in the Federal . order system of markets was raised. When over-order prices were considered, least­ cost procurement of milk would involve les; milk movement from one market to another and distance of movement was much shorte:
4. The premiums negotiated added about $5 million monthly to the value of producer milk.
Introduction
This report updates two earlier studies of intermarket milk price relation­ ships, with particular attention focused on changes that have taken place . ij The prob- 1em of proper price alignment among mar­ kets continues to be one of vital interest to both milk processors and producers. Mis-
Helpful suggestions were given by C _ E. French and K. W. Kepner and by R . E . Freeman and R. W. March of USDA.
ij E . M. Babb, Intermarket Milk Price Relationships, Indiana Exp. Sta . Res. Bul . 760 Jan. 1963; and R. E. Freeman and E _ M. Babb, Marketing Area and Related Issues in Federa Milk Orders, Indiana Agr. Exp. Sta. Bu!. 782, June 1964.
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Table 1. Regression coefficients, standard errors and correlation coefficients from regres­ sion analysis of the relationship between Federal order Class I and blend prices in markets east of the Rocky Mounta ins and distance from Eau Claire, Wisconsin, 1961-1964. ~ ===================================================================================
Class I Price Regression Coefficients Q/
Year a b sb t r r2 s
1961 3.67 .0162 :00074 21.84 .935 .874 .220 1962 3.53 .0162 .00079 20.59 .925 .855 .235 1963 3.49 .0169 ;00069 24.71 .944 .892 .211 1964 3.57 .0166 .0070 24.28 .943 .889 .202
Blend Price Regression Coefficients c:J Year a b b t r y2 . s
1961 3.43 .0135 .00083 16.20 .890 .792 .247 1962 3.29 .0135 .00085 15.91 .882 .778 .255 1963 3.25 .0149 .00074 20.19 .920 .846 .228 1964 3.31 .0150 .00080 18.75 .915 .838 .228 ===================================================================:================
~ Where Y = Class I or blend price per hundredweight for 3.5% milk and X = distance in 10 mile zones from Eau Claire, Wisconsin.
!V These coefficients are comparable to those in Table 3, page 8, of Purdue Res. Bul. 760. c:J These coefficients are comparable to those in Table 5, page 10, Purdue Res. Bul. 760.
alignment of prices can cause serious com­ petitive handicaps for process ors, equity problems for producers, and shifts of production to areas that do not have a com­ parative advantage in dairying.
If the fluid milk price in a market ex­ ceeded that in other markets by more than transfer cost, an incentive would be created for handlers to seek the lower priced sources. Whether milk would move in re­ sponse to the price incentive depends on the existence of barriers (including economic, institutional, lack of knowledge, and the like) to the movement of milk. Of course there is some inertia in the system. Con­ versely , a market with a low fluid price relative to alternative sources would ex­ perience difficulties attracting or holding supplies , if needed.
The current basis for establishing fluid milk prices in most Federal markets in-
volves using competitive manufacturing milk prices in the heavy , low -cos t milk production region of Wisconsin and Minnesota as a base price. To this base price is add­ ed a differential which represents the cost of meeting Grade A requirements and a dif­ ferential reflecting transportation cost from the Wisconsin-Minnesota area to the specific market. Seasonal and supply-demand factors may further affect price.
This method of establishing prices is not an arbitrary one invented for Federal order usage. To some extent, this price pattern was in existence before Federal order regulation. Except for barriers to milk movements and imperfections in the marketing systems, th e same type of price relationships would prevail in the absence of Federal orders. Milk in New Orleans could still command the price at Chicago (or other intermediate markets) plus transporta­ tion costs.
>- '"" (J)
\I) If) « ~ u
5 .. 10 t Q"7.9 JI IPi "'. .108 4.90 , 10 'P'
4.70 • .So
Predicted price based on Y =
$3.49 + .0169 (X). Numbers are those used by USDA to identify markets and are lis ted in Appendix Table 1.
MILES FROM £AU CLAIRE, WISCONSIN (lO-NILE ZDNfS) X
Figure 1. Federal Order Class I prices (1963) for 3.5% Milk and Class I prices predicted on basis of distance from Eau Claire, Wisconsin.
Prices based on milk prices in Minne­ sota and Wisconsin plus transportation cost also correspond to production costs (with some notable exceptions such as the New York-Vermont area). Y That is, milk production costs tend to increase with dis­ tance from Chicago. The fact that milk prices increase in areas with higher produc­ tion costs undoubtedly makes the system of pricing more acceptable to producers.
Minimum Federal Order Fluid Milk Price Relationships
In the analys is which follows, Class I and blend prices in the various markets were related to their distance from Eau Claire, Wisconsin, by means of regression analysis . This analysis shows what the price-distance relationship was and which markets had rela­ tively high or low prices based on this price-
2/ M. M. Snodgrass and C. E. French , Linear Programming Approach to the Study of Inter-;::egional Competition in Dairying, p . 9, Indiana Agr. Exp. Sta. Res. Sul. 637 , May 1958.
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Eau Claire - base point $3.49 $6.00 $5.50 $6.00
Figure 2. Theoretical Minimum Federal Order Class I Price Zones 1963, Based on Class I Prices in Markets as Related to Distance from Eau Claire, Wisconsin. *
$5.50 $5 00 o $4.50
$6.00
Figure 3, Actual Minimum Federal Order Class I Price Zones 1963.*
-;:-l~unbers on map are those used by LO.lJA "(,0 identify Federal order markets
distance relationship. These results only describe the situations that existed and do not necessarily mean that prices are too high or too low. Under competitive conditions and with no barriers to the movement of milk among markets, the price-distance relation­ ship would become an upper limit on pric es if the rela tionship approxima ted transporta­ tion costs. That is, milk would tend to be attracted to markets with relatively high Class I prices. But prices in a market may be relatively low or below prices in surplus markets plus transportation because of lower production cost or for other reasons. In summary, use of regression analysis or actual transportation costs can be used only to establish what upper limit on Class I prices would be expected under competitive conditions. The lower limit on Class I prices, from a normative standpoint, can not be established by these methods.
If minimum fluid milk (Class I) prices in 1963 in Federal order markets had been perfectly aligned on the basis of transporta­ tion costs, using Eau Claire, Wisconsin, as the base pOint of the heavy milk produc­ tion region, the price structure would be that reflected by the rising line in Figure 1 and by the concentric equal price circles shown in Figure 2. Y Fluid prices in Federal order markets deviated from this perfect alignment as shown by the scattered dots in Figure 1 and the distorted circles in Figure 3.
The relationship between minimum Federal order Class I price (Y) and distance from Eau Claire, Wisconsin (X) for all Federal order markets east of the Rocky
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Mountains in 1961-64 is illustrated by the regression coefficients in Table 1. There is little change in these statistics from ear­ lier years, although the "b" value does ap­ pear to have declined slightly and is more in line with transportation costs.
There appears to have been some im­ provement in price alignment (in terms of deviations from expected prices) during the 1961-64 period, but relatively low and high markets are still found (see Appendix Table 1 and Figure 1 for individual markets). Markets with relatively high minimum Class I prices continue to be located in the North­ east and in the Minnesota -Iowa -Dakota area. The New York-New Jersey, Delaware Valley and Washington markets are in better align­ ment than before. Markets with relatively low prices continue to be found in the Missouri - Kansas -Tennessee area.
The improvements in price alignment resulted primarily from changes in the basic formula price, action of supply-demand adjusters, and suspension or actions of a temporary nature (compare Table 26 and Table 36 of Stat. Bul. 345 and Stat. Bul. 248, USDA, which show formula factors which determine Class I price). For example, from 1960 to 1963, the basic formula price in the New England orders was reduc ed 19 cents and the supply-demand adjuster re­ duced price 3 additional cents. The basic price was reduced 1 cent, the supply-demand adjuster reduced price 26 cents, and there was no suspension action which added 6 cents in 1960 for the New York-New Jersey order. The basic price was reduced 15 cents, the supply -demand adjuster raised
3/ For some similar studies of fluid milk price relationships see Agricultural Market­ ing S~rvice, Regulations Affecting the Movement and Merchandising of Milk, Mkt. Res. Rept. No. 98, USDA, 1955; A. S. Rojko, The Demand and Price Structure for Dairy Products, Tech. Bul. 1168, USDA, 1957; W. T. Butz, . Geographic Structure of Milk Prices, 1960-61, ERS-:-71, USDA, 1962; L. F. Herrmann and H. V. Smith, "Geographic Structure of Milk Prices, 1957- 58, " Marketing and Transportation Situation, USDA, July 1959.
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>-
~. 4.50 u ·
,Ii6 Til .98 .101 .Tot .2
"ot a: 8 3,90 l1..
3.70
3.50
3.30
o
Predicted prices based on Y =
$3.25 + .0149 (X). Numbers are those used by USDA to iden­ tify markets and are lis ted in Appendix Table 1.
120 140 160 180 MILES FROM EAU CLAIRE, WISCONSIN (lO-MILE ZONE/X
price 10 cents, and other fa ctors reduced price 18 cents in Philadelphia. Washington and Baltimore prices are tied to Philadelphia and New York-New Jersey so consequently declined.
The above fluid price relationships were a nnual averages. On a month -by­ month ba sis , price relationships are not a s good. The action of independent supply­ demand adjusters and seasonal pricing
arrangements in different orders may seriously distort fluid price relationships in a given month. For example, in 1963 the average Dallas price was only 2 cents below the Chicago price plus transportation cost on an annual bas is, but varied from 25 cents above to 17 cents below in individual months.
Distortions in fluid price alignment can have serious consequences for milk dealers and milk producers, whether on a month-by-month basis or annually. A 25- cent deviation is approximately 0.5 cent per quart and when One compares it to profits per quart on milk or possible cost savings in processing or distribution, it is easy to understand the milk dealer's concern over price alignment. The importance of month­ by-month alignment stems in part from the nature of bidding for military, school and some store business. Sales could shift from one market to another and cause needless dealer and producer problems, Distortions in fluid price alignment invariably create distortions in blend price alignment (because level of fluid prices is a major determinant of blend prices) and consequent producer prob­ lems discussed later.
Minimum Federal Order Blend Price Re­ lationships
The relationship between minimum Federal order blend (producer) prices and distance from Eau Claire, Wisconsin, in 1961-64 is shown by the regression coefficients in Table 1. Again, the "b" value appears to have declined somewhat, as would be expected with the decline in the comparable Class I coefficient. Pre­ dicted blend prices and deviations from ex­ pected values are shown in Appendix Table 1 and Figure 4.
In general, areas that have relatively high or low fluid milk prices have corre­ sponding high or low, blend prices. Blend price alignment has also shown impr ove­ ment in recent years. This may be due to greater uniformity of order provisions, al­ lowance of freer movement of milk among orders, increased mobility of milk with bulk tank farm pickup as well as better fluid price alignment. It is clear, how­ ever, that perfect alignment of fluid prices will not necessarily lead to proper align­ ment of producer prices. Differences in type of pooling, pool plant provisions, classification and aSSignment provisions, local health ordinances and uncertainty are only a few of the possible reasons for devia tions. Producers and their organiza­ tions must have considerable freedom in being able to shift markets in response to price incentives if blend alignment is to be achieved within the present framework of semi -independent orders.
The above does not mean that each separate market should have an identiCal percentage usage of milk for fluid purposes. Producers in the high -cost production areas, such as in Florida, Texas and
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Arizona, should not be encouraged to produce milk above fluid requirements. It is probable that milk from low-cost areas could be moved into these markets to sup­ plement local supplies so as to result in substantial economic savings. The orders must, of course, accommodate such move­ ments. Under this arrangement, fluid utilization in markets would tend to increase with distance from Eau Claire.
Where blend price misalignments persist, problems of producer equity arise and the cooperative may experience mem­ bership or marketing problems. Blend price misalignments may also result in procurement problems for milk dealers.
Competitive Sources of Milk Supply
As in the earlier price alignment study (Purdue Research Bulletin 760), the Chicago supply area was used as the com­ petitive source of supply. The Ozarks region would probably better serve some southern and southwestern markets, but Chicago is typically used where a single comparison is made. Both the minimum Chicago order Class I price and the Chicago superpool price adjusted to Eau Claire were used as competitive base prices.
Transportation costs to receiving markets were added to thes e prices. The earlier study used a transportation ra te of 1.7 cents per hundredweight per 10 miles, while 1.5 cents was used here. The 1.5 cents is more typical of costs where large tankers are us ed for regular long distance hauls. i! It is recognized that costs may be higher on some hauls. No consideration was given to plant handling charges in Chicago or comparable charges in effect for local milk in receiving markets.
i! F. W. Groves and H. L. Cook, Hauling and Transportation Cost Functions for Wisconsin Milk, Ag. Econ. 31, Wisconsin Agr. Exp. Sta., 1961.
6.50
6.30
6.10
5.90
5.70
>- 5.50
4.90
~ 4.70
3.90
3.70
3.50
5.50 UJ u ~ 5.30
~ 5.10 « (j 4 90 a: ~ 4.70 ~ .....I 4.50 ~ ~ 4.30 lJ.J lL.
4.10
3.90
3.70
o
o
20
.1:1
40
;Ul .
·72
,13
-8-
' •• &1 ~.
5 IOf I~~
,50
Figure S. Class I prices for 3,5% milk com­ pared with Chicago order Class I price.
60 80 100
Expected prices based on Y =
$3 .43 + .015 (X). Numbers are those used by USDA to identify markets and a re listed in Appen­ dix Table 1.
120 NILES FROM (AU CLAIRE, WISCONSIN Q(H1/LE ZONES) X
,aI . .-1 .1.904
tis ..a '1~ .7+
Figure 6. Class I prices for 3.5% mille com­ pared wih Chicago superpool Class I price.
Expected prices based on $3.95 + .015 (X). Numbers are those used by USDA to identify mar­ kets and are lis ted in Appendix Table 1.
60 80 100 120 140 160 MiltS FRON EAU CLAIRE, WISCONSIN OO-MILE ZONE) X
180
The two Chicago prices used as a base give an indication of the range in competitive prices. The Pure Milk Association, a major Chicago order supplier of milk to other markets in 1963, generally followed the policy of charging the superpool premium only to the extent that the Chicago order price plus their handling charge plus trans­ portation to the receiving market was less than the Class I price in the receiving mar­ ket. The minimum Federal Order price might be the appropriate basic cost of milk in some cases and the superpool price in others.
Potential competitive prices based on the two basic Chicago prices plus transporta­ tion are shown for individual markets in Appendix Table 2 and are illustrated in Figures 5 and 6. Where the Chicago super­ pool Class I price was used as the basic cost of milk, the minimum Class I price in all but seven markets was below the potential competitive cost. Under these circumstan­ ces, there would be less incentive for hand­ lers to import Chicago milk.
Effect of Over-Order Prices on Least-Cost Sources of Milk
One approach to the study of inter­ market price relationships has been through the use of a transportation model. This model is a mathematical procedure which allows the researcher to determine least­ cost dispositions of milk in all markets simultaneously when production, consump­ tion, prices and transportation costs are given. The indicated flows and dispositions of milk emphasize price alignment problems and show the consequences of whatever price structures is used. This provides a more complete solution than price comparisons alone, because prices indicate only potential cost advantages without relation to require­ ments and available supplies.
The total receipts of producer milk in each of the Federal order markets com-
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prised the quantity at each source and was valued at the local Class I price. The quantities needed at each market were equal to the fluid milk utilization at that market plus a 20 percent operating reserve. Costs from each source to each market consisted of the Class I price in the source market plus any transportation costs for the dis­ tances to the receiving markets. Thus, the least-cost solution would call for dealers in each market to draw on local supplies at the local Class I price unless this price was higher than the Class I price plus transporta­ tion cost from some other market. Other markets might also have to be drawn upon if local supplies were less than local require­ ments; such supplemental supplies would come from the cheapest available source but might cost more than local milk.
This application of the transportation model assumes that (1) all milk is of ac­ ceptable quality and is free to move from any source to any market in response to price incentives; (2) transportation costs are at a fixed rate per hundredweight per mile re­ gardless of distance and directions or exist­ ence of a part load; (3) perfect knowledge on the part of buyers and sellers; (4) dealers have no preference for local milk and will purchase supplies from the cheapest source available; (5) consumption requirements and milk production in each market are fixed, and (6) there will be no adjustment in price in any market in response to milk move­ ments indicated in the solution. The last as­ sumption probably departs from reality to a greater extent than do the others and implies an extreme short-run situation . Accordingly, the solutions indicated should not be taken as equilibrium dispositions. Rather, they in­ dicate the pressures of milk movements on a given price structure. It is quite probable that adjustments in price would be made in response to these pressures.
The transportation model was used to examine price relationships in Purdue Re­ search Bulletin 782. This part of the report
Table 2. Regional summary of optimum sources of flui.d milk for Federal order markets at 1961 over-order Class Iprices. V =====================================:============================================================================
Region and group
Western Group
East South Central
Mountain
Pacific
Totals
78
68
3,267
Dis pos i tion Local To other Manu- fluid markets factured
(million pounds)
Intraregional & Chicago Intraregional
Kansas & Missouri Missouri, Kansas & Intraregional
==================================================================================================================
V This table is comparable to Table 5 in Research Bulletin 782, Purdue University Agr. Exp. Sta., except over -order rather than minimum order Class I prices were used as the basis for milk cost.
I ..... o
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examines least-cost disposition of milk if over-order, rather than minimum Class I prices, had been used as the cost of milk in the transportation model. Over-order prices are applicable to a large volume of milk moved among orders, because most inter­ order movement is in the form of route sales from handlers' plants located in the origina­ ting market which is often subject to the premium.
Federal orders establish minimum prices handlers must pay for milk according to use, and prices paid to producers are consequently minimum prices. There are a number of markets that have maintained prices above the minimum prices establish­ ed by the order during one or more years. Usually these premiums over order prices have been obtained by milk producers through the process or bargaining with milk handlers. In 1961 there were 32 order markets with annual average over-order prices ranging from 2 to 78 cents (Appendix Table 3). In other markets, such premiums have been obtained, at least in part, by action on the part of a state agency which established a price above the Federal order price in the particular market.
Markets where over-order prices prevail tend to be found in clusters. These clusters are found primarily in the Middle Atlantic states, Ohio, Michigan, Illinois, Tennessee, Mississippi, and Arkansas. Because these markets are dispersed geo­ graphically, they do not alter price-distance relationships in the aggregate very much from those that exist for minimum prices. In some cases the amount of premium var­ ied from month to month, and in other
cases a uniform monthly premium was maintained. These different premium pat­ terns may have further intensified price alignment problems among markets on a monthly basis, as di~cussed elsewhere.
In the analysis presented, it was assumed that no change in production or
consumption would be associated with over­ order prices. In other words, the same market and total production and consumption figures were us ed here as in the earlier study where minimum order prices were used. Production and consumption in 1961 were probably more nearly associated with the over -order price structure than with the minimum order prices. Thus, changes in production and consumption associated with premiums would be measured in terms of a return to minimum order prices. It is very difficult to determine whether minimum or over-order prices should be the basic cost for milk moved to other markets. Both cases, as well as a mixture of the two, can be found in specific markets. Consequently, least­ cost intermarket movements and dispositions probably lie between the two cases presented.
If all fluid requirements in those orders with premiums had been purchased On the basis of the over-order price , the total value added by premiums would amount to approxi­ mately $5 million a month. Over time, some of this gain to producers would be los t due to consumers' response to higher prices and produc tion attracted by the gain.
The same transportation model used in the earlier study was used to examine price relationships and least-cost movements of milk among markets under the over-order price structure. The only difference in data in the two analyses was that negotiated Class I prices were substituted for minimum prices where applicable. For all markets combined, the October 1961 supply of producer milk was 4.1 billion pounds, and fluid requirements were 3.3 billion pounds (Table 2). This left an excess of 818 million pounds for manu­ facturing purposes, which was distributed over all regions. The least-cost solution utilized 2.7 billion pounds of local milk for fluid purposes, and 582 million pounds were received from other markets. Total cost to handlers would have been $194,207,460.
There were important changes in move­ ments and dispositions of milk when over-
Table 3. Regiona l summary of optimum sources of fluid milk for Federal order markets at 1961 Class I prices ~ ======================================================================================================:==========
Number Receipts Total Disposition Receipts of from fluid Local To other Manufac- from other markets
Region and group markets producers requirements fluid markets tured Quantity Origin
(million pounds)
New England 5 350 296 35 0 315 261 . East North Central
Middle Atlantic 2 1,002 790 675 0 327 115 East North Central and So. Atlantic
South Atlantic 8 264 247 199 55 10 48 East South Central Intraregional
East North Central: Eastern Group 10 642 506 341 286 15 165 lntraregional Western Group 10 721 484 462 259 ° 22 Intraregional
West North Central: Northern Group 11 235 200 166 37 32 34 lntraregional
I
Southern Group 7 201 165 156 45 ° 9 Intraregional >-' tv
I
East South Central 9 171 157 147 24 ° 10 Kansas City
West South Central: Northern Group 5 105 93 79 10 16 14 Kansas
Southern Group 7 198 183 135 12 51 84 Mo., Ark. Intraregional
Mountain 4 85 78 76 0 9 2 Kansas
Pacific 2 III 68 68 0 43 00 ------ -- --
Totals 80 4,085 3,267 2,539 728 818 728 =================================================================================================================
a/ For details of individual markets see Purdue Research Bulletin 782.
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order rather than minimum Class I prices were used (compare Table 2 with Table 3). There were three types of gains to producers which were traceable to the over-order prices. These were (1) higher payments to producers in the markets which negotiated the premiums, (2) higher payments to pro­ ducers in markets without premiums but who benefited from negotiated prices in that handler prices for alternative sources of milk were raised, and (3) higher payments to both types of producers due to substantial reductions in milk movements among markets which improved producer returns through lower transportation costs.
When over -order rather than mini­ mum Class I prices were used, handler pay­ ments for milk increased by $5,815,599. But, the increase in value of milk actually used for Class I purposes where a premium was applicable was only $4,502,885. This meant that in spite of substantially lower transportation costs on intermarket shipments
when premiums were considered (discussed later), and some displacement of local milk for Class I sales where premiums were in effect, handlers would have paid producers over $1.3 million more for Class I milk in markets where no price premium was ap­ plicable. In other words, producers in mar­ kets where no price premium was in effect would have benefited from the fact that such a premium was negotiated in other markets, or premiums had the effect of lifting the level of Class I prices paid by milk handlers in the whole Federal order system and not just in markets with premiums. An example will clarify this pOint. Under the least-cost solution where minimum prices were used, much of the milk in excess of Chicago's fluid needs would be shipped to Boston and displace local milk for C lass I sales there. When the over -order price in Chicago was cons idered,
Boston handlers would purchas e local milk so that Boston producers would realize higher blend prices and payments. In effect, some of the fixed amount of surplus in the system was transferred from Boston to Chicago.
Premiums in Chicago, Southern Michi­ gan and Northeastern Ohio appear to have triggered many of the changes in dispos itions and movements when over-order prices in­ stead of minimum prices were used (detailed market dispositions under the over -order price structure are given in Appendix Table 4). When minimum prices were used, milk from these and other nearby markets displaced large quantities of local milk in New England. When premiums were added, none of this milk would go to New England. Rather, a lesser amount of New York-New Jersey milk would be used there. Under the revised model, the Washington premium would at­ tract increased shipments from Ohio markets. All of Chicago'S excess milk would move to Southern Michigan and would displace about half the Class I sales of local producer milk. Changes in dispos itions in other regions were not as grea t .
In general, manufacturing of milk would be shifted from the Northeast to the Midwest when premiums were considered. There would be a smaller volume of milk moved from one market to another and average dis­ tance of movements was greatly reduced. As expected, where premiums pushed prices above competitive prices from other markets, there would be some displacement of local milk . There was no displacement of local milk in many markets with premiums, how­ ever. For example, Chicago would continue to find a Class I outlet for all local producer milk even when their negotiated price is taken into account.
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Appendix Table 1 . Minimum Federal order Class I and blend prices for 3.5 percent milk compared to prices predicted on basis of distance from Eau Claire, Wisconsin , 1963. ====================================================================================
Minimum Class I price Minimum blend price Dif - Dif-
Act- Pre- fer- Act- Pre- fer- No. Ma rket ual~ dicted !v' ence ual c:J dicted § ence
1 Boston (zone 21) $5.48 $5 .39 $ .09 $4.33 $4.92 $-.59 6 Springfield 6.00 5.58 .42 5.25 5.09 .16 7 Worcester 5.98 5.66 .32 5.38 5.16 .22
14 S. E. New England 6 . 00 5.71 .29 5.46 5.21 .25 15 Connecticut 6.02 5.61 .41 5.50 5.12 .38
2 N.Y. - N.J. (zone 21) 5.22 5.10 .12 4.11 4.67 -.56 4 Delaware Valley 5.33 5.31 .02 4.78 4.85 -.07 3 Washington 5.22 5.21 .01 4.56 4.76 - .20 8 Wheeling 4.68 4.77 -.09 4.32 4.38 -.06 9 Clarksburg :5.01 4.90 .11 4.71 4 .49 .22 5 Tri -State 4'.81 4.75 .06 4.54 4.36 .18
16 Upper Cheasapeake 5.22 5.17 .05 4.52 4.73 -.21 11 Appalachian 5.03 5.07 - . 04 4.85 4.64 .21 13 S. E. Florida 6.39 6.37 .02 6.05 5.79 .26 43 Upper Michigan 4.41 4.39 .02 3.82 4.04 -.22 42 Muskegon 4.37 4.35 .02 3.90 4.01 - .11 40 S. Michigan 4.09 4.50 -.41 3.70 4.14 -.44 41 Toledo :,4,;41. 4.44, -.03 4.12 4.09 .03 36 N. E. Ohio 4 ':'5i' 4.63 ..;; .,12 4.02 4.25 -.23 37 N. C. Ohio 4.23 4.42 -.19 3.98 4.07 -.08 35 Columbus 4.30 4.57 -.27 4.09 4.20 - .11 34 Da yton -Springfield 4.47 4.51 -.04 4.10 4.15 -.05 33 Cincinnati 4.73 4.55 .18 4.13 4.18 -.05 44 Mich. Up. Peninsula 4.03 3.95 .08 3.73 3.66 .07 45 N. E. Wisconsin 3.62 3.82 -.20 3.41 3.54 -.13 39 Milwaukee 3.75 3.92 - .17 3.65 3.62 .03 38 Rock River Valley 3.79 3.92 -.13 3.65 3.63 . 02 30 Chicago (55 m i. zone) 3.77 3.95 -.18 3.47 3.66 -.19 31 South Bend 4.16 4.19 -.03 3.86 3.87 -.01 47 Fort Wayne 4 . 30 4.31 -.01 3.99 3.97 .02 69 Duluth -Superior 4.01 3.76 .25 3.52 3.49 .03 68 Minneapolis -St. Paul 3.86 3.66 .20 3 . 62 3.39 .23 76 E. S. Dakota 4.50 4.00 .50 4.02 3.70 .32 72 Sioux Falls -Mitchell 4.41 4.04 .37 3.96 3.74 .22 75 Black Hills 5.25 4.63 .62 4.64 4.26 .38 78 N. C. Iowa 3.92 3.85 .07 3.83 3.57 .26 70 ' Cedar Rapids -Iowa City 3.93 3.91 .02 3.61 3.62 -.01 63 Quad Cities - - Dubuque 3.97 3.97 .00 3.67 3.67 .00 79 Des Moines 4.26 4.03 .23 4 . 00 3.73 .27 66 Sioux City 4.51 4.10 .41 4.02 3.78 .24 65 Nebraska - W . Iowa 4.50 4.25 .25 4.19 3.92 .27 32 Suburban St . Louis 4.21 4.38 -.17 3.91 4.03 - . 12 62 St. Louis 4.32 4.37 -.05 4.00 4.02 -.02 67 Ozarks 4.07 4.57 - .50 3.77 4.20 -.43 64 Kansas City 4.41 4.38 -.03 4.07 4 .04 .03
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Minimum Class I Price Minimum Blend Price Dif- Dif -
Act- Pre- fer- Act- Pre- fer - . No. Market ual al dieted bl ence ual cl dicted dl ence
71 Neosho Valley $4.44 $4.86 $-.42 $4.02 $4.46 $-.44 73 Witchita 4.62 4.74 -.12 4.20 .4.35 -.15 74 S.W. Kansas 4.64 4.90 -.26 4.14 4.50 -.36 95 Louis ville - Lex. - Evans. 4.59 4.55 .04 4.20 4.18 .02 99 Paducah 4.43 4.60 -.17 4.29 4.23 .06 98 Nashville 4.51 4 . 79 -.28 4.20 4.40 - .20 97 Memphis 4.98 4.87 .11 4 . 81 4.46 .35
101 Knoxville 4.53 4.96 -.43 4.19 4.54 -.35 90 Chattanooga 4.76 5.03 -.27 4.33 4.60 -.27
105 Mississippi Delta 5.10 5.09 .01 4.71 4.66 .05 103 Central Mississippi 5.27 5.23 .04 4.60 4.78 -.18 107 Mississippi Gulf Coast 5.36 5.45 - . 09 4.89 4.98 -.09 108 Central Arkansas 4.94 4.96 -.02 4.82 4.54 .28 102 Fort Smith 4.88 4.86 .02 4.70 4.46 .24 106 Oklahoma Metro. 4.85 4.98 -.13 4.34 4.56 -.22 104 Red River Valley 4.99 5.16 -.17 4.55 4.72 - .17 132 Texas Panhandle 5.16 5.32 -.16 4.72 4 . 86 - .14
96 North Louis iana 5.38 5.29 .09 5.04 4.83 .21 94 New Orleans (61 mi. zone) 5.49 5.44 .05 4.74 4.96 -.22
126 North Texas 5.19 5.23 -.04 4.68 4.78 - .10 128 C. West Texas 5.44 5.48 -.04 5.20 5.00 .20 129 Austin-Waco 5.58 5.57 . 01 5.46 5.08 .38 127 San Antonio 5.60 5.70 - .10 5.26 5.19 .07 130 Corpus Christi 5.94 5.90 .04 5.58 5.37 .21 135 Colorado Springs -Pueblo 5.20 5.14 .06 4.75 4 . 70 .05
48 Youngstown -Warren 4.62 4.70 -.08 4.30 4.32 -.02 49 Indianapolis 4.38 4.35 .03 4.07 4.01 .06 61 St. Joseph 4.31 4.34 -.03 4.09 4.00 .09 51 Madison 3.75 3.80 -.05 3.58 3.52 .06
120 Lubock - Plainview $5.28 $5.49 $-.21 $5.23 $5.02 $ .21 ==========================================~=========================================
~ Average minimum Federal order Class I price in markets east of the Rocky Moun­ tains for 3.5 percent milk, 1963.
!V Calculated Class I price based on regression coefficients from analysis of relation­ ships between Class I prices in markets (Y) and distance (10-mile zone) from Eau Claire, Wisconsin (X) where Y = 3.49 + .0169 (X).
c:J Average minimum Federal order blend prices in markets east of the Rocky Moun­ tains for 3.5 percent milk, 1963.
~ Calculated blend price based on regression coefficients from analysis of relation­ ships between blend prices in markets (Y) and distance (10-mile zones) from Eau Claire, Wisconsin (X) where Y = 3.25 + . 0149(x).
-16-
Appendix Table 2. Minimum Federal Order Class I Prices Compared to Competitive Chicago Mini- mum Order Class I Price and Superpool Price for 3.5 Percent Milk, 1963. ==========================================================================================
Actual Actual Price Price
Competitive Less Competitive Less Chicago Competitive Chicago Competitive
Order Order Chicago Superpool Chicago Class I Class I Order Class I Superpool
No. Market Price V Price b/ Price Price c/ Price
1 Boston (zone 21) $5.48 $5.11 $ .37 $ 5.63 $ - .15 6 Springfield 6.00 5.28 .72 5.80 . 20 7 Worcester 5.98 5.35 .63 5.87 .11
14 S. E. New England 6.00 5.40 .60 5.92 .08 15 Connecticut 6.02 5.31 .71 5.83 .19
2 N.Y.-N.]. (zone 21) 5.22 4.86 .36 5.38 -.16 4 Delaware Valley 5.33 5.04 .29 5.56 -.23 3 Was hington 5.22 4.95 .27 5.44 -.25
;. 8 Wheeling 4.68 4.57 .11 5.09 -.41 . ' 9 Clarksburg 5.01 4.68 .33 5.20 -.19 5 Tri -State 4.81 4.54 .27 5.06 -.25
16 Upper Cheasapeake 5.22 4.92 .30 5.44 -.22 11 Appalachian 5.03 4.83 .2:0 5.35 -.32 13 S. E . Florida 6.39 5.98 .41 6.50 - .11 43 Upper Michigan 4.41 4.23 .1 8 4.75 -.34 42 Muskegon 4.37 4.19 .18 4.71 -.34 40 S. Michigan 4.09 4.33 - .24 4.85 -.76 41 Toledo 4.41 4.27 .14 4.79 -.38 36 N. E. Ohio 4.51 4.44 .07 4.96 -.45 37 N. C. Ohio 4.23 4.25 -.02 4.77 -.54 35 Columbus 4.30 4.39 -.09 4.91 -.61 34 Dayton -Springfield 4.47 4.33 .14 4.85 - .38 33 Cincinnati 4.73 4.36 .37 4.88 - .15 44 Mich. Up. Peninsula 4.03 3.84 .19 4.36 -.33 45 N. E. Wisconsin 3.62 3.73 - .11 4.25 -.63 39 Milwaukee 3.75 3.81 - .06 4.33 -.58 38 Rock River Valley 3.79 3.81 -.02 4.33 -.54
;30 Chicago (55 mi . zone) 3.77 3.84 -.07 4.36 -.59
31 South Bend 4.16 4.05 .11 4.57 -.41 47 Fort Wayne 4.30 4.16 .14 4.68 -.38
69 Duluth -Superior 4.01 3.67 .34 4.19 -.18
68 MinneapCllis - St. Paul 3.86 3.58 .28 4.10 - .24
76 E. S. Dakota 4.50 3.88 .62 4.40 .10
72 Sioux Falls - Mitchell 4.41 3.92 .49 4.44 -.03
75 Black Hills 5.25 4.44 .81 4.96 .29 78 N. C. Iowa 3.92 3.75 .17 4.27 -.35 70 Cedar Rapids -Iowa City 3.93 3.80 .13 4.32 -.39 63 Quad Cities - Dubuque 3.97 3.86 .11 4.38 -.41
79 Des Moines 4.26 3 .91 .35 4.43 - .17
66 Sioux City 4.51 3.97 .54 4.49 .02
-17-
No.
65 32 62 67 64 71 73 74 95 99 98 97
101 90
105 103 107 108 102 106 104 132 96 94
126 128 129 127 130 135
48 49 61 51
120
Market
Nebraska-W. Iowa Suburban St. Louis St. Louis Ozarks Kansas City Neosho Valley Witchita S. W. Kansas Louisville- Lex. - Evans. Paducah Nashville Memphis Knoxville Chattanooga Mississippi Delta Central Miss iss ippi Mississippi Gulf Coast Central Arkansas Fort Smith Oklahoma Metro. Red River Valley Texas Panhandle
Order Class I Price a/
4.50.,. 4.21 4.32 4.07 4.41 4.44 4.62 4.64 4.59 4.43 4.51 4.98 4.53 4.76 5.10 5.27 5.36 4.94 4.88 4.85 4.99 5.16
N. Louis iana 5.38 New Orleans (61-mi.zone) 5.49 North Texas 5.19 C. West Texas Austin - Waco San Antonio Corpus Christi Colorado Springs -Pueblo Youngstown - Warren Indianapolis St . Joseph Madison Lubock - Plainview
5.44 5.58 5.60 5.94 5.20 4.62 4.38 4.31 3.75
$5.28
Competitive Chicago
Order Class I Pric e !:V 4.10 4.21 4.21 4.38 4.22 4.65 4.54 4.68 4.37 4.42 4.59 4.65 4.73 4.79 4.85 4.97 5.17 4.73 4.65 4.75 4.90 5.05 5.02 5.15 4.97 5.19 5.27 5.38 5.56 4.89 4.51 4.19 4.18 3.70
$5.20
Superpool Class I Price c/
4.62 4.73 4.73 4.90 4.74 5.17 5.06 5.20 4.89 4.94 5.11 5.17 5.25 5.31 5.37 5.49 5.69 5.25 5. I -
5.2.7 5.42 5.57 5.54 5.67 5.49 5.71 5.79 5.90 6.08 5.41 5.03 4.71 4.70 4.22
$5.72
Price
-.12 -.52 -.41 - . 83 -.33 -.73 -.44 -.56 -.30 -.51 -.60 -.19 -.72 -.55 -.27 -.22 -.33 -.31 -.29 -.42 -.43 -.41 -.16 -.18 -.30 -.27 -.21 -.30 - .14 - .21 -.41 -.33 -.39 -.47
$-.44 ==========================================================================================
V Average minimum Federal Order Class I price at market or zone location for 3.5 per­ cent milk 1963 for markets east of Rocky Mountains.
e! Average minimum Chicago Federal order Class I price adjusted to Eau Claire, Wisconsin, location for 1963 ($3.77 - .34 = $3.43) plus cost of transportation to receiving market (1.5 cents per hundredweight per 10 miles).
cd Average of reported Chicago superpool prices paid for Class I milk used in the Chicago area adjusted to Eau Claire, Wisconsin, location for 1963 ($4.29 - .34 = $3.95) plus cost of trans­ portation to receiving market (l.5 cents per hundredweight per 10 miles).
-18-
Appendix Table 3. Class I premiums in Federal order markets, 1961. ?J ============================================================
Market
Philadelphia Upper Chesapeake Bay Washington Upstate Michigan Muskegon Southern Michigan Toledo Northeastern Ohio North Central Ohio Columbus Milwaukee Rockford - Freeport Chicago South Bend - LaPorte - Elkhart Quad Cities Kansas City Nashville Knoxville Chattanooga Mississippi Delta Central Mississippi Mississippi Gulf Coast Central Arkansas Fort Smith Oklahoma Metro. Central Arizona Puget Sound Appalachian Michigan Upper Peninsula Northern Louisiana New Orleans Sioux City
Average
Ave. premium
$ .28 .06 .33 .33 .41 .78 .23 .31 .24 .03 .46 .40 .43 .06 . ..
.19
.06
.36
.47
.35
.06
.04
.09
.07
.06
.37
.02
.15
.04
.04
.02
$.23 ===========================================================
al Source: Table 1 and 7, Fluid Milk and Cream Report, USDA.
bl Oklahoma City only. cl Tucson only.
- AppendL able 4. Least-cost source and disposition of Federal order Class I milk, October 1961, where over-order pri< paid are used (10,000 pounds). ~ -----=================================================================================================================
Order no.
Total
Total
Wheeling Clarksburg
Total
Muskegon* Southern Michigan *
17 , 793 1,592 1,891 4,895 8,823
34 , 994
87,717 12,478
29,589
24,669
15 , 784
382 789
10,835 o
9,015 New York 10, 835
o 7,221 Chicago, 3,384 Northeastern! Ohio, 327 Ft. Wayne, 107 North Central Ohio, 420 Wilmington
11 , 459
903 Cincinnati, 2 Clarksburg, 284 Northeastern Ohio, 544 Dayton -Springfield,
1 , 663 Ft. Wayne, 550 Wheeling , 2, 742 Toledo
113 Columbus, 477 Indianapolis o
91 Louisville o
19, 384 11, 366 Chicago
I f-' ~
Total Disposition c/ fluid To
Order Producer require- Local other Manu- no. Region and market receipts ments b/ fluid markets factured Receipts from other markets
41 Toledo* 2, 742 2,767 0 2, 742 0 2,767 Chicago 36 Northeastern Ohio* 14,432 10, 747 10,747 3,685 0 0 48 Youngstown -Warren 2,013 2,030 2,013 0 0 17 Northeastern Ohio 37 North Central Ohio * 2,238 2,131 2,131 107 0 0 35 Columbus* 2,963 2,850 2,850 113 0 0 34 Da yton -Springfield 3,898 3,354 3,354 544 0 0 33 Cincinnati 5,252 4,349 4,349 903 0 0
Total 64,235 50,578 36,422 8,094 19, 719 l4,156
East North Central-West Group 44 Michigan Upper Peninsula * 942 936 936 6 0 0 45 Northeastern Wisconsin 3,572 2,812 2,812 760 0 0 39 Milwaukee * 6,088 5,892 5,132 956 0 760 Northeastern Wisconsin 38 Rockford - Freeport* 597 574 574 23 0 0 30 Chic~go* 46,206 24,379 23,400 22,806 0 956 Milwaukee, 23 Rockford-
Freeport 31 South Bend* 1,663 1,452 0 1,663 0 1, 452 Chicago I
47 Fort Wayne 1,574 1,515 1,247 327 0 268 Quad Cities N 0
46 Ohio Valley 1,640 1,539 1,539 101 0 0 I
49 Indianapolis 7,243 6,766 6, 766 477 0 0 32 Suburban St. Louis 2,573 2,560 2,560 13 0 0
Total 72,098 48,425 44,966 27,132 0 3,459
West North Central- North Group 69 Duluth -Superior 1,237 922 922 0 315 0 68 Minneapolis -St. Paul 8,176 6,487 6,487 1,689 0 0 76 Eastern South Dakota 321 324 0 0 321 324 Minneapolis -St. Paul 72 Sioux Falls -Mitchell 806 795 795 11 0 0 75 Black Hills 395 369 0 0 395 358 Minneapolis -St. Paul,
11 Sioux Falls 78 North Central Iowa 2,202 1,806 1,806 396 0 0 70 Cedar Rapids-Iowa City 1, 610 1,294 1,294 316 0 0 63 Quad Cities -Dubuque* 1, 805 1,537 1, 537 268 0 0 79 Des Moines 2,538 2,312 1, 916 622 0 396 North Central Iowa 66 Sioux City* 511 439 0 0 511 439 Minneapolis -St. Paul 65 Nebraska -Iowa 3,887 3,687 2,514 0 1, 373 551 Minneapolis -St. Paul,
622 Des Moines --
Appendix Table 4. ( continued)
West North Central-South Group 61 St. Joseph 1,203 1, 029 1,029 174 0 0 62 St. Louis 6,041 5,878 5,878 163 0 0 67 Ozarks 2,012 1,428 1,428 584 0 0 64 Kansas City* 6,325 5,012 5,012 1,313 0 0 71 Neosho Valley 1, 336 942 942 394 0 0 73 Wichita 2,632 1,743 1, 743 889 0 0 74 Southwest Kansas 590 480 480 110 0 0 --
Total 20,139 16,512 16,512 3,627 0 0 East South Central
95 Louisville- Lexington 4,617 3,960 3,960 657 0 0 99 Paducah 803 888 803 0 0 13 Suburban St. Louis, 72 Ohio
Valley 98 Nashville* 2,642 2,362 2, .362 280 0 0 97 Memphis 2,356 2,538 2,059 297 0 316 Cedar Rapids, 163 St. Louis
101 Knoxville)~ 1,664 1, 615 1,615 49 0 0 90 Chattanooga * 1,501 1,332 486 1,015 0 566 Louisville, 280 Nashville
105 Mississippi Delta * 948 860 860 0 88 0 103 Central Mississippi * 1,797 1,561 1,264 0 533 297 Memphis 107 Mississippi Gulf Coast* 710 570 570 140 0 0
Total 17,038 15,686 13,979 2,438 621 1,707 I N
West South Central-North Group f- I
108 Central Arkansas * 1, 883 1,799 1,799 84 0 102 Fort Smith* 403 420 403 0 0 17 Neosho Valley 106 Oklahoma Metropolitan* 5,062 4,182 2,414 0 2,648 772 Kansas City, 107 St. Joseph,
889 Wichita 104 Red River Valley 1,544 1,611 1,544 0 0 67 St. Joseph 132 Texas Panhandle 1,585 1,342 1,232 0 353 110 Southwest Kansas
Total 10,477 9,354 7,392 84 3,001 1,962
West South Central-South Group 96 Northern Louisiana * 1,517 1,586 0 0 1,517 377 Neosho Valley, 541 Kansas
City, 84 Central Arkansas, 584 Ozarks
94 New Orleans * 3,606 2,862 2,693 0 913 140 Mississippi Gulf Coast, 29 Ohio Valley
126 North Texas 8,700 7,471 7,471 1,229 0 0 128 Central West Texas 1,523 1,587 1,523 0 0 64 North Texas 129 Austin -Waco 1, 250 1,232 1,232 18 0 0 127 San Antonio 1,899 2,098 1,899 0 0 199 North Texas 130 Corpus Christi 1,341 1,524 540 0 801 ~ Austin -Waco, 966 North Texas --
Total 19,836 18,360 15,358 1,247 3,231 3,002
Appendix Table 4. (continued) =======================================================================================================================
Total Dispos ition U fluid To
Order Producer require- Local other Manu- no. Region and market receipts ments bl fluid markets factured Receipts from other markets
Mountain 136 Great Basin 3,407 2, 766 2,766 0 641 0 134 Western Colorado 319 309 309 0 10 0 135 Colorado Springs -Pueblo 959 976 959 0 0 17 Minneapolis -St. Paul 131 Central Arizona * 3,862 3, 765 3,765 0 97 0
. -- Total 8,547 7,816 7,799 0 748 17
Pacific 125 Puget Sound* 9,785 5,587 5,587 0 4,198 0 133 Inland Empire 1,285 1,199 1,199 0 86 0 -- -- --
Total 11,070 6,786 6, 786 0 4,284 0
Grand Total 408,486 326, 705 268,522 58,183 81,781 58,183 ======== ======= ======= ====== ====== =======
Total Cost to Handlers $194,265,935 ======================================================================================================================
§j Available supplies and fluid milk requirements based on data for October 1961, a month when supplies are seasonally low in relation to Class I needs.
~ The "fluid needs" quantities are the total disposition of fluid milk products (whole, skimmed, and flavored milk and cream and cream mixtures) from the fully regulated plants under each order during October 1961 as shown on line 994 of the Product Report submitted monthly by the market administrators to USDA. This quantity differs from the Gross Class I sales as published monthly in Table 5 of Federal Milk Order M;~:Fket Statistics in the following respects: (1) Class I sales of milk outside the market­ ing area, in bulk form, are excluded, since these do not usually constitute a regular outlet for milk; (2) in some orders fluid cream and similar fluid milk products are not in Class I; and (3) gross Class I includes some sales by partially regulated handlers and by producer -handlers. The quantities from line 994 were increased by 20% to cover the operating res erve.
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