Producer Opinions on Seasonal Milk Production Costs

and Prices

Bulletin 445 September 1960

WEST VIRGINIA UNIVERSITY AGRICULTURAL EXPERIMENT STAT inN

THE AUTHOR

James H. Clarke is Agricultural Econo­mist in the Agricul tural Experiment Station and Professor of Agricultural Economics in the College of Agriculture, Forestry, and Home Economics.

'NEST VIRGINI;\ UNIVERSITY

AGRICliLTURAL EXPERIMENT STATION

COLLEGE OF AGRICULTURE, l~ORESTRY, AND HO:'lm ECONoi\HCS

A. H. V /\NLAND1 NGHAYl, DIRECTOR

Tv10RGANTOWN

Summary

fALL shortages o{ milk occur in many fluid milk markets. Insufficient seasonal price adjustments sometimes appear to be one of the reasons for these shortages. To determine producer opinions on season'll

(,()SL and price variations, those producers selling milk to fluid milk di stributors in the Charleston, 'West Virginia market during the fa ll of 1956 were interviewed. These producers ind ica ted tha t LO produce one· ten th more 111 i lk than tltey had prod uced the preceding fall they would require approximately 86 cents more per hundredweight than they had received in July 1956. Also. they would require an additional $1.0'1- and $ J .30 per hundredweigh t to prod uce one-fifth and o ne-th ird more milk, respectivel y, Lhan they h ;,d produced during the preceding; tall. Tltese pri ces were 17 , 21, and 26 per cent higher, respectivel y, than the market average price pe r hundredweight for milk o[ average lest duri.ng July 1956. They were a lso 'J, 8, and 12 per cent higher, re­spectively, than the prices which subsequenLly were paid for milk or ;lverage test during the months of October, November, ;md December Lh e same year.*

The prod ucers also believed produclion COSLS V;lI'Y WiLh the seasons. They estimated that their ('()sLS per hundredweight were $3 .LI9 in the spring, $3.0'1- in th e summer, and $4.50 in lhe btl I and winter. Since prodllcers believe Lhat producti on cos ts are higher in th e fall , they expec t higher prices during the fall months.

Among the more important obstacles l{) fall production given by prod !lcers were breeding di Hi cul ties, deFi ciencies in rough ages and pasture, and inadequilLe prices for added plOtluction .

'~ In the Cha rl vsloll market. m ill;: ,Producers were pa.id ullde)' <1 base-surplus pricing sy .. "tem and hen ce e,H,; h producer's price might diHe l' frOlll th Ul of. oUl e r prod llcers, dep en ci­ing on the amounts of his base and surplu $; milk and th e prices es labli ~ hed (or these (' lasses o( mill\.

3

ACKNOWLEDGMENTS This report is based on repl ies to q lIes­

tions asked milk producers who shippe(1 milk to the Charleston, -West Virginia Illilrket during September ] 9.56. Their cooperation in providing answers is greatly appreciated. Mr. Owen 'Williams <1n(1 the staff of Lhe

Ch<lrl es ton office 01 the Dairymen's Coopera­Live Sales Assoc:iCltion ClIso gave valuable

ilssistance in contacting producers. Norman Nybroten, formerly 01 the 'West Virginia Uni­versity Agricultural Experiment Station , pro­vided valuable assistance in planning and analyzing the s tudy. Stuart Forstall conducted Lhe interviews with producers, anc1Mrs. iVIary Templeton assisted with the (;,bulations. Their help is gratefullv acknowledged.

Producer Opinions on Seasonal Milk Production Costs and Prices

JAMES H. CLARKE The Problem

MILK producers clistomarily produce llJOre milk during the spring months than at other times o[ the year. Production during the fall months is frequently low in contrast to production in other sea­

sons of the year. Natur"l influences "Hect this variable milk production. iVIarket demands for fluid milk are much more lIniform throughollt

the year than is milk product ion . These conditions of relatively variable produ ction and relativel y uniform demand o ften result in a fall shortage of milk for many fluid milk markets. To encour"ge a more even sea­sonal production, prices often are adjusted seasonally, with higher prices established for the fall months than for other months. This is done, in part, because milk production costs are tbought to be highest in the lal1 months.

Inasmuch as faJJ shortages of milk continue to exist in many Jllarkets , it is believed that sufficient seasonal price adjustments have not been made. Also, milk production cos ts during different seasons are difficult to determine because of inadequate records and the ar­bitt'ary decisions in accounting which are required.

It seems logical that a milk producer's ideas or opinions have <[H

important bearing on his readiness to adjust production to market prices and costs-and consequently to market demands . Such ideas and o pinions may have a more important influence on producer actions th <lD pertinent pri ce relationships. which are often obscure or slow to become known.

Procedure In orcier to discover how producers would respond to pos tulated

price conditions, (armel's shipping milk to the Charleston market in September 1956 were asked to give their estimates o n production costs in different seasons of the year and on prices requirecl to induce speci. fied increases in fall production.

Two "ppro<lci1es were lIsed in obtaining this information . In one, producers were asked their opinions on seasonal production cos ts. In

5

lile olher, producers were asked what price iucre<lses would induce lhem lO increase fall product ioll by specified amounts. To reduce bias, th e produ cers were divid e(i aL random into two groups. One group received <I qu es tionnaire on seasonal [)l'oduction costs ami the oLher a quesLion­naire on price increases needed to indu ce spec ified increases ill fall produ ction . That part of the questionnaire pertaining Lo seasona l variation in costs will b e referred to as "cost questio ns" and that part ol the questionn;;ires pertaining LO prices fo r incre,tsell fall produ ction will be referred Lo as " pri ce questions." In each case, the questionnaires included other questions dealing with the volume o[ milk marke ted daily in September 1956 and with the butterfat test of the milk during Lh e spring, summer, and L1l1 ;11l(/ winter. Al so in cl uded was a question ,tsking whaL ,voltld be the mos t illiponallt obstacles or probl ems cllutiled ill increasing btll milk product ion.

The two produ cer groups were selected from ,til alpllabcLictl pay­roll list mad e av ai lable by the Dairymen 's Cooperative Sales Associa tio n , which supplied virtually a ll of the producer milk received by distributors in the Charles Lon market. On September 4, 1956, 519 questionnaires were mailed. A flip of a coin determin ed that the producers with odd Ilumbers would receive price questionnaires and those with even num­bers cos t questionnaires. To ass ure the identification of the replies, a stamped self-addressed return envelope marked with the correspond ent'S name and address was includ ed with each qu es tionnai re. R eturns of Lh ese g uestionnai res incl uded 39 answers to cos t questionnaires and 54· allswers to price questionnaires, or a to tal of 18 per cent of those mailed. On October 4, 1956, after r eplies had apparently ceased to arrive, second qu es tion naires were m ailed to those who had not respo nd ed LO

Lhe first mailing. The "price qu es tions" were rephrased because replies had not bee n complete in all cases and the "cos t qu es tions" were re­pea led in LIle seco nd quesLionnaires. Follow-up lel ters ;;lso were sent to those not responding in lull or clearly to tlte first " price questiolls." The second m a il ing resultell in rep l ies LO 27 more cost q uesLionn a ires a nd 35 more pri ce qu es tionnaires, or an additional 12 per cellt. Thus, in all, repli es were received from 30 per cent of the producers on the original m a iling li st.

Significance of Response to Different Types of Mail Questionnaires

It was ass umed Lhat if milk producers we re equall y will ing to repl y either LO the pri le or to the cost qu es tionnaires, th e Ilumber of

(i

replies to each would be approxima tely the same .. because 260 re­ceived the price questionnaires and 259 received the cost questionnaires . The replies were not equal, however, with 66 being received for the cost questio nnaires and 89 [or the price questionnaires. Thus, signifi­cantlyl more produ ce rs replied to the price questionnaire than replied to the cost questionnaire. Nevertheless, usable replies on cost and price opinions were approximately equ al, with 60 replies to the "cost ques­tions" and 58 to the "price ques tions." H owever, some returned ques­tionna ires did not provide complete answers to all CJuestions and could not be included in all tabulations.

It is probable that producers were more willing to answer price questionnaires than cost qu es tionnaires because market prices are fre­quently reported and discussed, are generally applicable to a large number of producers and because their effec t on producer incomes is quickly apparent. Costs, on the other hand , are less widely discussed . vary from producer to producer, and are composi tes of several items . The accura te computation of cos ts is difficult and tedious, and their dfect on producer inco mes freq uently is not readily discerned . It should be notee!, however, that producers ' opinions, rather than computations, were req uested.

Interviews Because 70 per cent of the producers did not reply to the m ailed

questionnaires, it was decided to interview a sample of non- res ponden ts to learn whether their opinions would be similar to those of producers who had responded by mail. In an a ttempt to ge t a sample of one-sixth of the no n-respondents, 66 names were drawn, il lIowing a margin for those whom it might not be possible to interview. After the second name had been drawn by chance from tlte first six as the starting po inL. subsequent names were drawn systema tically. Of the 66 producers selected, interviews were obtained with 51. The remaining 15 were not located, were eliminated by restri ctions on travel ," or were not at home when calls and return ca ll s were made.

Of the 51 producers visited, 4 hac! gOlle out of business and dic! no t furnish satisfactory repl ies. The remain ing 47 prov ided rep] ies to 4')

"cost questions" and 46 " pri ce questions." After the first three inter­views," each producer was asked bo th the "cost quest ions" anc! the "price

JThe chi -square test jn dieatecl n pl'ol.labilily of a dHfel'enec a~ gl'ca t as tu is, dU E: to chance, in only abou t 4 pel' cent o( t he CH:O;('S.

~Not Lo trave l more tl.la n 40 miles, round t l'ip, to oblain a sin gle scbedule 01' to mal!:c n return ea ll all on e pl'odu/.'er.

;;On the basis of experience ga ined in the first three inler views it ~e0 lll ed fe asib l e to <'I sk both " price and ('ost questions" o[ each ill tcl'vi ewc"e.

·7

qu es lion.). " The order or asking the "cost" and "I)ri("e" queslions was ,illernated as producers were inlerviewed . Queslions COJlltnon to bOl'h

were ;I skeel only from the one take n first. As might be expected, repli e:> were lTl o re complele from questionnaires originaling with persoD,iI interviews than from those obtained through the mail.

Analysis of v<lt'iance of the quantities 01 Illilk marke ted (bil )' b y

lhe producers receiving the o riginal questionnaires, by those who re­ceived the [olloll'-up quest ionnaires, or by those who were intervi ewed o n their farms showed no sig nifi cant differences in ave rage quantilies of milk m <lr ke ted by the dilferenl groul)s. Average bUlterial leSlS among produce rs in the several groups vari ed liltIe lor the same season , alltl were 3.B I per cent ill Ihe spring, )).B)) per cellt in the S Unlnl(~r , and 4.0\). I)er cem in the bill and wi nter. Beca use procilicers replying to mail ed questionnaires had milk marketings and butterfat tes ts simil ar to those in the sys temalic sam ple interviewed , il is assumed that in other respects lhe producers answering maiJed '1uestionnaires also were represenl,llive of p roducers se lling on the Charl es ton markel.

Producer Opinions on Seasonal Costs A n a na I ys is of prod li ce)' o pi Il iOlls Oil seaso n ,d produ ct ioll COSb

was made [rom eacll of ti le three SOIlI'Ces of informa lion, namel y, the

Spring production

cost - $3.49

per hundredweight

Summer production

cost - $3.64

per hundredweight

Fall and Winter

product ion

cost - $4.50 per hu nd redweig h t -

-:-'.~~ . - ~

~ .

PRODUCER opinions indicated they believed the cost of producing a hundred­weight of mi l k in the various seasons to be as indicated above. Since they believed costs to be substantially higher in the fall and winter months, it is logical that they expect higher prices for milk produced in the fall months.

8

Which Way will He Go?

Lower Fall

'~--------------PRODUCER opinions on milk production costs and prices are believed to be more important determinants of producer action with regard to fall milk pro­duction than the facts which are often obscure or are made known only after production.' has been completed.

origi naJ nl<liled q uestionna ire, the l:oJlow-u p mailed y ueslionna ire, and the personal interview. The summary of the data from these three sources is given in Table 1. ~rhe producers' opinions concerning their

<l\'e rage (inean) production costs during the spring, summer, ancl fall and winter differed suffirielllly lo be highly significant. This vvas lrue for each of the three sources of information. It does not mean that the costs shm.i/n are true estimales of actual costs during these seasons but it docs show that producers believed production COSlS in the several seasons to be diUerent. The opinions of all producers replying showed an average cost of $3.49 [or producing a hundredweight of milk in the spring, $3.64 in tlle summer, and $4.50 in the fall and winter!

·'The}" .:! were 1)0 signifi(;alll di[(ere ll t:(!s ill lbe opinions con cerning mean co:-;ts (or a part iulia!' sca~on amon g t.he threE' :-;ourtes of (iata.

9

TABLE l. PRODLICER OPINIONS OF COSTS PER HUNDREDWEIGHT Of' PRO­

DliCING .MILK , Cl-li\RLESTON, ,'\11::ST VIRGINIA jVIILl,SHED, 1956, BY SOURCE

Of' J NFORiVf i\ TlON

SOln; C f'; 01"

TNFOr.?JATIO N

Ori g- in ,li }lail e c1 Qu estionn a ire

li'o JJow-up iVfa.iled

1\ IT;\lr.f·;n

HEPOI:TI NG

Qu cs tionUH i l'e . . 2,,[

Pe rsonal Inte nriew of Snlllple of NOIl­J'( ' :-"pond(' ll[~

Av e l':'I ~e ,

45

All Sources 10"

A VEnAG £. PROO t1 l':"TIO.N C O STS STATED By PnOD tJ'c£ U.<;, I?ALL. 1956

TYPE OF S I':A S O:\, • •

A Y EHAGG SPRING I S ~ l ;o. (Jo,1J~ 11 I FA t4L &. WI N'l'I::l-:'

DOLCARS PEl: C WT.

Menn :3.3-1 ~~ . :j ,. -I. 3~

}[edillll 3.35 :{.7G:j 4 .:30 Mode T 4.1)0 5 .00

;\lenll ~ . ::t t :-1.57 4.9 3 M.edial1 :-:.275 ~. 71!) 4. 9 0 Mode -1.00 5 .00

,'·Iean :·:Jif) :-:.7 :1 -1.4·G Me diall :-: ,!l(l ·1.1)0 4 .. 5 (1

\\Io<l e -1.(11) -1.00 !l. OD

i\l eau ;·:.·-I!J ~.G4 -I.GO

M edian ~.50 :~. 7:; :( .SO

Mode -I.O Q 'j r o .UO

"' The number reporting (or sl)I'ing, summer, and fall and winter varied slig·htly, but lhc number" shown h ere is th e minimum for eaeh :source o( in (ormation .

·· SeiJ sons "tvere defined as foJlows : spring (first three months of pasture, about April l G to July 15) . summer (second tbree months of pasture. about July 16 to October 15 or (~Il(l of pasture ~e:1 son), fall and winter (bcH'Jl (eedilJg period , October I G to April 15 ) .

';- Di-modal ~~ _ OO anel $ -1.00. t ni-ruo<lal $2.00 and $4. 5 0_ i'-j' B i-moclal $.3.50 and $4.00 .

Producer Opinions on Price Increases Necessary to Induc·e Increased Fall Production

Analysis of the replies to the "price questions" was made from each of the Lhree sources of information_ A summary of this analysis is given in Table 2. Producers were asked what increase over their July 1956 price was needed to incl uce them to produce one-ten th, one-fi £th, or one-third more milk in the fall months than had been produced the preceding fall (1955) _ The mean price increase for all producers reply­ing to these questions , clisregarcling marketings among individual pro­ducers, indicated that 86 cents per hundredweight would be needed to induce them to produce one-tenth more fall production, and that $ 1.0'1-and $ 1.30 per hundredweight would be needed to induce one-fifth and one-third more, respectively_

Producers replying to both the original and follow-up question­naires indicated that they would require significantly greater price in­creases to produce progressively brger ljuantities of milk in the fall than

10

TABU:: 2. PRODUCER OPINIONS OF PRICE INCREASES N£CFSS ,\RY TO INDUCE

SELECTED L\LL PRODUCTION 1 NCREASES, CHARLESTON, \ ,VEST V IRG1NL,\

]vI1LKSHED, 1956, llY SOURCE OF INFORM!\T[ON

SOI ; nCE 0[,'

fNt<~ORlo-rATION

Ori g jnn I "M<I il eel

Qu es tioJlIt<l i l' e

l"i'oliow-llp 1\railed Questionnaire

P e rsollal Intervi e w or Sample o[ N OIl­

r espond ents

Av e r.,gc ,

NI I MBER

AVE HAGl': PUlr s JNrIO-:ASES S TATED As NECES SAHY To INDUCE PRODUC'! '101\ INCREASES IN FALL **

~1,()NTHS AnOVE 1955 FALL PnODUCTION HJ';PORTI NG 1-;;:----,-----",----::------.,.--- --- --

21

3G

All SOllrces 9"

~~ TlJe Dumber reporting for production increase!::) oE oue-tenth , one-fifth , and oue-tbird varied sligbtly, but the numbe)' slJowll in this columll was tl1e min.imull1 for each source o[

inrofTllaUoH.

*'" Fall cte[ined a s October, Nov cm·ber, and Decembe r. tBI-modal $.00 and $1.00 .

they had produced in the precedi llg fall. -' In the case of the personal interviews, the price increases given, although progressivel y higher for greater production oj milk, did not cliffer sufficiently to be statistically significant.6 Pooled clata from the three sources showed that the prices stated as needed for the three stipulated production increases differed enough to be considered highly significant.'

Inferences Because producers' op1l1ions indicate that they believe their fall

;Jnd winter production costs are .$1.01 per hundredweight higher than in the spring and 86 cents per hundredweight higher than in the sum· mer, it is logicaJ to conclude that they expect higher prices in the fall months. Although normal prices received by producers in this market

!:.Diffcl'ell C: l:::-i o[ IJri ces 011 Ihl' origillal quc!-; lioHnairc gave all Ji' ratio o[ 4.r.Z wh ere ralios of 3.08 were l'E"qujre<l foJ' :-;i g llifj C" 41u(; (>- at the 5 PCI' cellt l evel and 4.80 a. t the 1 per cent level. Differences oC prices on lhe fo·J\ow-up cluesLionllail'e gave a u F ratio o[ 5.01 wheJ'e a ratio of 5 .01 \Va!5 requin:" l al tlH' 1 l)eI" cellt le vel.

iiI" ratio w~s 1.72 with ::1 ralio o f : ~ .09 n eeded fol' ~igllifi cance at the 5 per cent level. 7Am()llg the threp ~ Ollr("c~ of data, there were nO" significant differences in th e meaD

prices n eed p. d to in( ' I'(,;l ~ I ' fall pro(luction (eithel' by on e -te nlll or one-fift.b) over IH'oduction of the proc(-ding fall. Ho,vc\'er. t ::> illCI'c'lse (all production one-third ov e r the previous fall, Lhe mea u <1ill't 'rencc <.l1l101lg llll! Llll'( '(' .... nure".:-· w ere signifkant OIL the G P~l' cent l evel.

II

Normal Fall Production

If paid 86¢ per/ cwt. over July price

c-:. Q C ' G Q Cd Q G;;. Q Q . ':---::::1.:./........:..;.. : .;'::::'; .:./(~x-.. t'~",;,·· ::......-:. r~ ___ ......,.< .:--'--'\.' <.l-.,....' .~ ; (..--J( .

r~ j"----i (-----"I H I~I K--'I f---..--"i ."---1 ·1

1 : I' I , I : i I I I

GU0uLu0U"-J~ If paid $1.04 per/ cwt. over July price

If paid $1.30 per/ cwt. over July price

Would

Increase

Production

+10%

+20% <8G> /~"~:j

II +33 1/3% G©~ g·

BII~ PRODUCERS' opinions regarding prices they would require to induce them to increase their fall milk production.

actuillly are higher .in the fall than ill the spring and summer, pro· tll/cen;' opinions indicate tlial even higher prices wOlild be need ed to indllce lhem lo produce more milk in the £all. It should he nOled thal lhis conclusion is based only on producers' opinions. In aeLUal pr<l ctice . Iilrger or smaller price in creases may be necessa ry to bring abollt lhe needed in creases in fall milk production. Nevertheless , these producer opinions sbould serve as a guide to producer association price comm it­lees, milk handlers, government agencies, and others \vho <Ire cOllcerned with esta bl ish i ng prod ucer prices for flu iel mi I k.

Deterrents to Increasing Milk Production in Fall Months In ilddition to the "cost" and "price" ques tions, produce rs ,II so

were asked: " \tVhat are the most important problems or obstacles to in­creased lall (October, November, and December) milk production on your farm?" Replies to lbis yuestion were classitic<l and are shown in Table 3. The obst<lcle most frequ enLly mentioned was regulation of

l~

TAIIfY 3. OUSTACLES TO OR PROJ:H..EMS WITH INCREASING MILK PRODUCTION

IN L\LL JVIONTHS" LISTED BY PRODUCERS SELLlNG !VIILK ON THE

CHARLESTON, \'VEST VIRGINIA iVIARKET, FALL, 1956

~l1M Bg n

L1STJN(; * '"

- - - --------------1--- --HI"('etiilJg rotatiau not properly regulated and olhel'

breeding troubles, ine!uding lhose ('o llnef:led with a.I'lifidal insemillation.

Shortage , poor qUel-lity , or lad, o[ hay and si lage. Shortage, poor CJllality, or la ck of fall paslure. Prj ('e (or added production inadequaLe.

Higb cost of feed. Lack of capila.! ror improv ement 01' expnnsioll oC

buildings and equipment or the lac \, of sufficient buildings and equipment.

Short,lge , hi g h cos t, or lack of labor . Lack o( land on whi ch to I'n ise feed or gl'a ~e caltle. Already producing heavily in fall. ?\'o obstaC les 01' problems. rn suCCicieut {;OW5.

Didu ' t want LO increas(' in fa ll. Other l'eason s, ~o cOl1uneot.

TOTAL

·IS ,;4

~O

2 1

lS , , 7

G 5

G ::I

35 25

327

"'Fall monlhs defined ;1 S Oeto\.)el', November, and Decembe,".

22 .:~:

1-1.7

11 ' .4 n.2 (i. -I

I .:' ].:-, 1.G

~

] ( I.,

7.G

100.0

*>t'J'o(ai exceeds nUlllbcl' of repli es (20 '1) since !-;evenl.! pl'odu cel's li s t~(l morc tllan one obs lacle or problem.

the breeding schedule and related problems; next were deli ciencies in hay, silage, and pasture. Either inadequate prices for added production or higher cost of feed were listed by 15.6 per cent of the responden ts as obstacles to increased fall production. Producers in these latter groups, at least, might be ready to make productio n adjustments if given the proper price incentives because the obstacles they list are price oriented. It should be kept in mind that producers find it necessary to make production adjustments by adding additional cows, additional labor, or units of other production factors which frequently cannot be added in small qua ntities. Incluci ng some prod ucers to make these larger shifts in their production co uld be effective in bringing about smaller relative changes in the supply for the entire market. Many o f tile obstacles to increasing fall milk production, as listed in TabJe 3, might be overcome jf producers had either adequate in comes or more resources.

Most of the obstacles to increased [all production, as melllionecl by producers, are not new, but a knowledge of their relative importance to producers is vaillable either in tbe determining or forecasting supplies of mark.et milk-seasonaJ or otherwise. Producers have jndicated that

l3

Lhe y ;Ire willing to cope with Lh ese obstacles i1 given suiLable pri ce incen t ives. The lon g-run validiLy of these indica tions will d epend upon the accuracy of producers in determining the na ture a nd inten sity of Lhe o bstacles 10 increased fall production. The short-run shifts in pro­dll ct ion mil (le by producers are depe ndent on tbeir willingness to m ake prodnctio n shihs as a result of the in cent ives offered , without rega rd to the lo ng-run econo mic ra tionality o f th e shifts m ade.

It