May, 1955 Agr. Econ. Series No. 55-9
ILFK PO)CT ON CO T'- I ENDS T THE
FL O iD/ PE NiNSUL A
A -S. PEC i AL PRiLM tL. llVNARY > VIPOR T
Eldon D. Smith, N. K. Roberts and Wm. G. O'Regan
Per Gallon Per Gallon
.1...... 7--.. 50
50. ....... ...9....4...
... I I- I .4
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Fig 1-TOTAL CASH COSTS AN. CO -,EPPEIATION, FLORIDA PENISU.A,
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1950* 1951* 1952* 1953 1954* 1955
1953 Cost items adjusted for difference in prices.
Department of Agricultural Economics
Florida Agricultural Experiment Station
The writers wish to acknowledge the assistance of several people in
collecting and processing the data used here, and for helpful criticism
We wish to express particular appreciation for the cooperation of
dairy farm operators in supplying us with data. Several county agents
provided assistance of various types, and several feed dealers and dairy
plant personnel supplied additional information.
TABLE OF CONTENTS
ACKNOWLEDGMENTS ...................................... i
INTRODUCTION ......... ............ .................... ... 1
GENERAL CHARACTERISTICS AND ORGANIZATION OF DAIRY
FARMS IN PENINSULAR FLORIDA ................................. 4
Size of Dairies .... ... ..... ...... ........ ...... .. 4
Trends in Size of Dairy Herds .......................... 6
Rate of Turnover of Milking Herd ............................. 6
Source of Dairy Herd Replacements .. ......................** 8
Pastures ....9... ... .. ...... ... .. ... .......... ........... 9
Production Per Cow .... ............... ......... ... .... 11
1953 CASH COSTS AND HERD DEPRECIATION *..*............... 11
CHANGES IN CASH COSTS AND HERD DEPRECIATION ............ 16
Method of Measuring Changes ..................... ...... 16
How Costs Have Changed ................. ...*****. ****..*.. 20
SUMMARY ........ ............... ............................ 24
APPENDIX I SOURCES OF DATA. AND METHODS OF ANALYSIS.. 26
Primary Data .......................................... 26
Methods of Analysis of Primary Data ................... 28
Index Numbers and Their Use .......................... 29
APPENDIX II RELIABILITY OF COST AND DEPRECIATION
ESTIMATES ........ ................ ........... ... ..... .... 32
Average Costs Excluding Miscellaneous Cash Costs ......... 32
Average Costs Including Miscellaneous Cash Costs .......... 33
Use of Estimates of Standard Deviations ................... 33
Bias ....... .... ............. ........ ....... ..... 34
APPENDIX III DATA USED AND METHODS OF CONSTRUCTING
PRICE INDEX NUMBERS ........................................ 35
Feed Price Index Numbers ... ....................... 35
Wage Rate Index Numbers ............................ .. 35
Index of Prices of Miscellaneous Cash Cost Items ........... 38
MILK PRODUCTION COST TRENDS
IN THE FLORIDA PENINSULA
A Special Preliminary Report
Eldon D.Smith*, N.K. Roberts*, and Wm. G. O'Regan**
A study of dairy farms in the peninsula of Florida was conducted by the
Department of Agricultural Economics during 1954. The survey covered 105
farms in four different areas of the state and four different size groups (See Figure 2).
This special preliminary report contains a part of the data collected.
The main purpose of this report is to analyze cash costs and dairy cow
depreciation costs incurred by dairy farmers in the survey area. Descriptive data
concerning characteristics of dairy farms are also included so that the reader may
obtain a picture of the farms to which the cost data pertain.
The period covered was the calendar year 1953. Comparisons are made among
the various areas and size classes on the basis of 1953 costs. Later, an analysis is
made of the estimated cost of these same production items if purchased under 1950,
1951, 1952 and 1954 price conditions.
The cost items analyzed represent only the major costs of milk production.
No charge is made for depreciation on machinery, buildings, fences and other
*Assistant Agricultural Economists, University of Florida Agricultural Experiment
Station, Gainesville, Florida.
**Consultant, University of Florida Statistical Laboratory, Gainesville.
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capital assets. No allowance is made in the cost analysis for unpaid labor such as
labor of the operator and his family or for the managerial services supplied by them.
Neither is any allowance made for interest on owned capital invested in the dairy
business. In all but a few cases, cash costs include the costs of delivering milk to
the handler's platform. There is reason to believe that the items analyzed account
for between four-fifths and to nine-tenths of the total costs.1 The trends in total
costs probably are not affected materially by the non-cash costs except when
relatively long periods are considered. For a detailed discussion of the sources of
data and methods of analysis see Appendix I.
Costs are influenced by many factors, including the laws and regulations
under which the industry operates. But this report takes no definite position with
regard to the appropriate use of the data reported.2
1. A. H. Spurlock, et al; Cost of Producing Milk in Selected Areas of Florida,
Agricultural Economics Series 51-4, Florida Agricultural Experiment Station, 1951.
2. The price received for the product sold usually affects the level of production
that is profitable. Hence, the costs of production are normally affected somewhat by the
price received for the product. It is left to the reader to decide whether milk prices in
Florida are fixed at approximately the competitive level. The extent to which costs are
affected by non-competitive price levels, if they do exist, is also left to the readers
GENERAL CHARACTERISTICS AND ORGANIZATION
OF DAIRY FARMS IN PENINSULAR FLORIDA
Size of Dairies
One of the unusual features of dairy farming in Florida is the number of
extremely large herds. Although in all areas the average number of cows per farm
is very large, important differences exist within the state.
Table 1 shows the approximate number of farms in each size-of-herd group
during 1953 for each of the four areas surveyed. The estimated average number of cows
per herd was 130 in Area I, 95 in Area II, 137 in Area III, and 259 in Area IV. For
the entire survey area, the average was 152 cows per farm.
The size of the dairies in the southeast Florida area (Area IV) differed mar-
kedly from those of the other areas. Over three-fifths of all the dairy farms in the area
had 200 cows or more. The dominant milk producing section in this area of the state
surrounds Fort Lauderdale, Palm Beach and Miami. In this section for practical purposes,
the dairy of less than 100 cows has ceased to exist. Less than one-tenth of the dairies
in these three counties had fewer than 100 cows; only one-fourth had less than 200 in
1953. More than half of the dairy farms in Area IV with less than 100 cows were
located in Glades, Hendry, Okeechobee and St. Lucie counties.
In the other three survey areas, farms with less than 100 cows out-numbered
those with more than 100 cows. However, even in these areas, less than one-third of
the total milk production was accounted for by farms with less than 100 cows. In the
entire area covered by the survey, approximately 46 per cent of all milk was produced
NUMBER OF DAIRY FARMS BY SIZE OF MILKING HERD AND AREA, 1953*
Cows on farm)
Area I : Area II : Area III Area IV Total
No.of Per: No.of: Per : No.of Per :No.of Per :No.of: Per
Farms: cent:Farms :cent: Farms :cent :Farms: cent :Farms: cent
4-49 : 37 25.0.44 .38.6 65 .26.4 6 4.8 .152 :24.0
50-99 44. 29.8: 31 :27.2 86 :35.0 :16 :12.8 177 :28.0
100-199 : 52: 35.1.29 :25.4. 77 .31.3 .24 19.2 :182 :28.7
20) and over 15. 10.1 10 8.8 18 : 7.3 :79 63.2 :122 :19.3
Total 148 100.0:114 100.0 j246 100.0 :125 :100.0 633 100.0
* Based on size estimates of county agricultural agents for dairy farms listed in their
respective counties; list provided through the cooperation of a state agency.
ESTIMATED TOTAL PRODUCTION OF ALL DAIRY FARMS
IN AREA AND SIZE GROUPS, 1953a
Size Class : Area I Area II Area III Area IV Total
(Avg.number : 1000: Per :' 1000 Per .:1000 :Per 1000. .Per :1000 :Per
Cows on farm) : Gallons cent :Gallons'ent Gallons cent Gallons cent Gallons.cent
3 70n9 0n 0A
Total 12,363 100.0:
Total ; 12, 363 ; 100,0:
802 '11.3:1,682 7.5 36 : .2b:3,373:
1,362 :19.2 5068 :22.6 691 :3.8 :9,087:
2952 41.6 9,395 49 1,8:10.0 20,000:
1,980 27.9 6279 :280 '15634: 86.0 27,62 :
7, 096. 100.0: 22424:1 O.0:1 4 1 9:100.0 :60,062:
a Proportion of total area production in each size class based on nu'nber of farms
shown in Table 1, and average production and number of cows in sample herds in
each size class. Total area production estimates based on technique described in
Appendix I, footnote 6. Total production in each area size class is computed from
the estimated total for the area and the proportion in each size class.
b Based on assumed production per cow of 700 gallons per year.
n0 ,)nrA o, ar
on farms of more than 200 cows. About 79 per cent was produced on farms with
100 cows and over (See Table 2). If the production estimates shown are reasonably
accurate, commercial dairy farms in the peninsula produced about four-fifths of the
74 million gallons of milk produced in Florida during 1953.3
Trends in Size of Dairy Herds
In 1953 dairy herds in the Florida peninsula were very large compared to
most other areas of the United States. However, evidence obtained in this study indi-
cated that dairies in all size groups were increasing the number of cows in their herds
during 1953 (See Table 3). A single exception was noted in the 50-99 cow size group
in Area III. In Area III the average change was small. Even in the largest size class
substantial increases may be noted except in Area II. With this exception, the
largest average increase in size of herds was in the group with 200 cows and over.
We may conclude that there is no apparent tendency for the size of herds to stabilize
at less than 200 cows. How much more herd size will increase is problematical; it may
well depend on market growth and the number of new producers entering the industry.
Rate of Turnover of Milking Herd
The rate of turnover of the milking herd determines the expense that must be
borne in maintaining the milking herd at a given size.4 A high rate of turnover means
3. U.S.D.A., A.M.S., Farm Production, Disposition and Income from Milk
(Table 6). Poundage converted to gallons at the rate of 8.6 pounds per gallon.
4. In computing the rate of turnover, sales, deaths, and thefts of cows were
totaled and the total divided by the average number of cows in the herd during the year.
This computational procedure probably slightly under-estimates the actual rate of turnover
since the size of herds was increasing during the year. Under such a situation the pro-
portion of young cows would be higher than if the herds remained at the same size level.
Hence, the proportion of deaths and disposals would be lower than in herds which
remained at the same size year after year.
CHANGE IN NUMBER OF COWS PER FARM
DURING 1953, BY SIZE AND AREA
S Area I : Area I : Areao4-l I Area IV
: Farms : Change: Farms :Change: Farms :Change: Farms : Change
: Sur- in cows: Sur- :in cows: Sur- in cows: Sur- : in cows
: veyed per herd: veyed :per herd veyed:per herd: veyed : per herd
-- -nurbe -------- - -
4-49 :6 : +6 6 :+4 :6 :+4 :
50-99 8 +9 8 :+9 66 6 :5 +6
100-199 :7 :+23: 8 +19 8 :+2 :8 :+11
200 and over: 6 : +26: 6 +2 :7 :+11 :10 :+29
All Sizes :27 : +16: 28 +11 27 :+3 :23 : +13
All Sizes : : :105 :+9.5
ESTIMATED RATE OF TURNOVER AND PRODUCTIVE LIFE EXPECTANCY
OF DAIRY COWS BY AREA AND SIZE OF HERD, 1953
Average : Area I Area II Area III Area IV
Size Rate of Expected Rate of :Expected: Rate of :Expected :Rate of :Expected
of *Turn- life : Turn-: life : Turn- life Turn- life
Herd :over (years) : over :(years): over (years) : over (years)
(per cent) : (per cent) :(per cent) (per cent)
4-49cows :13 7.7 : 14 7.1 : 18 :5.6 : -
50-99cows :12 8.3 : 16 6.2 : 17 : 6.2 : 17 : 5.9
100-199cows: 15 :6.7 : 19 :5.3 : 23 :4.5 : 26 :3.8
200+ cows :26 :3.8 : 18 : 5.6 : 25 :4.0 : 22 : 4.5
All Sizes :18.1 :5.5 : 16.7 : 6.0 : 22.5 : 4.4 : 22.5 : 4.4
All Areas : :
All Sizes : : :20.9 4.8 :
that each year it is necessary to buy a relatively large number of cows or buy more
feed, labor, etc., to raise calves and heifers as replacements. It means that the
cost of purchased or raised replacements is spread over fewer years of productive life.
Productive life expectancy is the average number of years each cow would remain in
the milking herd if a constant given rate of turnover were maintained.5
The estimated rates of turnover of cows in the various areas and size groups
are shown in Table 4. In general, the larger herds of over 100 cows had a higher rate
of turnover than the smaller herds. Herds in Areas III and IV had substantially higher
rates of turnover than in Areas I and II.
Apparently in Areas I and II, farmers were doing a better job controlling
mastitis and other diseases or were culling their herds less severely than in the
other two areas. However, if severe culling of low producers in Areas I! and IV was
responsible for the high rate of turnover, it did not show up in significantly higher
production per cow than in the other areas. In fact, Area IV had a substantially
lower production average than in Areas I and II; Area III production was only a few
gallons above the first two areas. If cows have a purchase price of $150 and salvage
value as dairy beef of $80, this higher rate of turnover would mean an increase in
costs of about two-thirds of a cent per gallon.
Source of Dairy Herd Replacements
The replacement of cows which leave the herd may be made through pur-
chasing cows or raising heifers. In the survey area as a whole, only one-third of all
5. Computed by taking the reciprocal of the rate of turnover.
cows entering the milking herd were home raised heifers (See Table 5).
ESTIMATED PROPORTION OF REPLACEMENTS RAISED BY
AREA AND SIZE OF HERD, 1953
Average Size Area I Area II Area III Area IV
"------ -- per cent--------------
4-49 Cows 57 58 : 31 a
50-99 Cows : 40 38 54 90
100-199 Cows : 40 : 49 : 38 : 27
200 and Over 29 63 : 13 35
Entire Area 33 54 : 26 39
All Areas 34
a Not available.
Very distinct differences are noted in the various areas and size classes. In
the 50-99 cow group in Area iV, almost all replacements were raised. This group
was heavily dominated by farms in the Okeechobee Glades Hendry Counties
region. In the largest size groups of Area III, almost no herd replacements were
raised ( 13 per cent).
Area II led in the practice of raising replacements by a substantial margin.
Area III raised a small proportion relative to all other areas. There was no consis-
tent relation between size of herd and proportion of replacements raised.
Feed is the largest item of cost involved in milk production. It comprises well
over half of the total costs in most cases. In recent years, however, there has been "
a trend toward greater dependence on posture s a source of feed. Estimates by
a trend toward greater dcpender:ce on pasture as a source of feed. Estimates by the
U.S.D.A. based on reports of farmers in Florida indicated that dairy farms obtained
about 18 per cent of their feed supply from pasture in 1950. In 1953 and 1954, this
had increased to about 25 per cent (See Figure 3). However, preliminary analyses
of data obtained in this survey indicate that dairy farmers were obtaining only about
15 per cent of their feed supply from posture in 1953. In Area II the proportion was
19 per cent; in Areas I and IV about 16 per cent, and in Area III only 11 per cent.
24 I i -24
22 I 22
I I I
18 t 18
Source: Florida Milk Production Report, USDA, AIIS,
Fig. 3-FARI.RS' ESTILIATES OF PERCENT OF FEED DERIVED FROM PASTURi,
For the dairy farms in the survey area as a whole there were about two acres
of pasture land for each milk cow. A little less than half of the pasture land was in
improved grasses, including temporary pasture crops such as millet and oats. Area II
had more pasture land than the other areas (about 3.2 acres per cow); Area III had
the lowest acreage per cow (1.6 acres). The acreage of improved pasture was more
uniform, varying from .65 in Area III to .91 in Area IV.
Production Per Cow
Very little milk is fed to calves in Florida. The herds are large and therefore
home use is proportionately very small. Milk sold constitutes almost 100 per cent
of all milk produced.
Sales of milk per cow varied widely from farm to farm in 1953. The lowest was
less than 350 gallons; the highest over 900 gallons. As a result, for the individual
size groups within the various areas, the likelihood of substantial sampling error is
quite high. However, for each area as a whole and for the four areas as a whole
the estimates are likely to be reasonably accurate.
Only relatively small differences in average production per cow were observed
between Areas I, II, and III (See Table 6). However, Area IV had an estimated
average production which was about 100 gallons per cow (17 per cent) below the
average for the other three areas.
1953 CASH COSTS AND HERD DEPRECIATION
Cash costs of milk production in this analysis, were divided into three broad
categories. These were feed costs, hired labor costs andmniscellaneous costs''
In addition dairy cow depreciation, which is not entirely a cash cost, was included.
Feed Cost is the total expenditure for feed used by the dairy herd in 1953. In
,only a few instances was there sufficient storage space on the farm so that more than
ESTIMATED AVERAGE NUMBER OF GALLONS OF MILK SOLD PER COW,
BY AREA AND SIZE OF MILKING HERD, PENINSULAR FLORIDA, '.
: Area I
: Area II
Dairy :No.of : Avg.gals. No.of : Avg.gal:. No.of :
S Area III : Area IV
:Farms : per cow : Farms :per cow : Farms : per, cow : Farms : per cow
Surveyed: (per yr.) :Surveyed (per yr.):Surveyed (per yr.) :Surveyed: (per yr.)
4-49 cows 6 547 6 : 586 6 : 676 : -
50-99cows 8 515 8 : 560 6 : 502 :5 706
100-199cows 7 : 694 : 8 :636 : 8 :692 : 8 : 612
200 cows : :::: :::
and over : 6 : 661 : 6. 763 : .'7 :710 :10 :525
All Sizes :27 : 641 : 28 :655 : 27 :664 23 :561
S: Al Areas : :
All Sizes 105 : 624
* Use was made of ratio estimates. See Appendix I.
a small supply could be carried over from one year to another. In most cases the
feed cost item represented the amount of feed purchased during the year without
adjustment for change in inventory.
Feed used for both milk cows and young stock raised as dairy replacements was
included. Feed for beef cattle, hogs, and poultry was excluded in the few cases
where these enterprises were of commercial size. Where a single beef animal or
a few hogs were raised for fcarm slaughter or a few hens for the family egg supply,
no attempt was made to exclude these items. Some supplies and animal medicine
purchased at feed establishments were probably included in feed cost but the
inclusion of these costs in feed costs did not affect total cash costs.
Hired Labor Cost was the cash cost of hired labor used in milk production,
pasture and dairy feed production and routine maintenance of fences and dairy
facilities. Family labor or other unpaid labor was not included. Managerial labor
except hired managers or barn foremen was excluded. Costs of perquisites furnished
were also excluded from this figure. However, most of the perquisite costs appeared
in the "miscellaneous cash costs" item, But, interest on investment in worker homes
and depreciation of these facilities were not included. The amount that would be
added to labor cost by including family labor and the operators labor and managerial
services would depend on a somewhat arbitrary method of valuing their labor. Some
of this labor, such as that of school children and housewives, has little possibility
of alternative employment.
Miscellaneous Cash Costs include all other items of cash outlay connected
with milk production or pasture and dairy feed production. Utilities, repairs and
maintenance, veterinary medical costs, fertilizer, seed, lime, taxes, insurance,
licenses, expendable supplies, etc.,were included. Noitem customarily classified
as investment was included.
Herd Depreciation is the computed total of dairy cattle purchases minus dairy
cattle or dairy beef sales and increase in cow inventory. Cattle purchases were
valued at purchase price and cattle sold at sale value. Increase in inventory was
valued at the average purchase price of cattle purchased during 1953, or in the event
none were purchased, the farmers estimate of the average value of his milk cows was
used. Since memory of going values for the previous year was likely to be inaccurate,
1954 values estimated by the farmer were deflated to 1953 equivalent values using
an index of milk cow prices per head.6
No allowance was made fr increase in the value of heifers being raised unless
they entered the milking herd through freshening. Negative depreciation occurred
when the value of home raised replacements plus value of cows sold was greater than
the value of animals purchased.
The cash cost and depreciation estimates presented in Table 7 are based on
weighted averages of the data reported by dairy farmers. Area IV had the lowest
estimated total cash cost plus depreciation and Area III, the highest. For the four
areas as a group the average in 1953 was 52.4 cents per gallon. The average
6. Florida Farm Price Report, U.S.D.A., Orlando, Florida, published monthly.
The index is a simple average of monthly average dairy cow prices stated as a proportion
of the 1953 average.
ESTIMATED CASH COSTS AND HERD DEPRECIATION
PER GALLON, BY AREA AND SIZE OF HERD, 1953a
4-49 Cows .50 99 Cows : CO-199Cows 200-cows-over All Sizes
No.of: Cents : No.of Cents : No.of.: Cents.:Nb.of:.Cents'tNb..oft.Cents
Farms per Farms: per :Farms : per :Farms: per :Farms: per
gallon :Gallon: Gallon : Gallon: Gallon
Feed Cost :6 31 :8 36 6 34 6 36 :26 :34.7
Hired Labor Cost :6 3 8 6 6 8 6 11 26 8.5
Misc.Cash Costs :4 : 15: 4 14 6 9 5 9 19 .10.1
Herd Depreciation 6 -2 : 8 1 6 -1 6 26 .3
Total Cash Cost and
Depreciation 47 57 50 56 53.6
Feed Cost 6 36 : 8 29 8 35 6 32 28 .33.4
Hired Labor Cost 6 1 : 8 7 8 10 6 10 28 8.7
Misc. Cash Costs 3 8 : 12 6 10 5 11 22 .10.8
Herd Depreciation 6 -2 8 -1 8 -2 6 1 28 .-1.0
Total Cash Cost and
Depreciation 43 47 53 54. .51.9
Feed Cost 6 32 6 33 9 30 7 30 28 31.3
Hired Labor Cost 6 :4 : 6 6 9 10 7 9 28 8.6
Misc. Cash Costs 4 : 11 2 b :7 : 8 6 11 19 10.2
Herd Depreciation 6 1 6 2 : 9 : 5 : 7 5 28 4.1
Total Cash Cost and .
Depreciation 48 c 53 : 55 :54.2
SAKR tA IV
Feed Cost .c 5 25 7 31 9 33 21 33.0
Hired Labor Cost c 5 4 7 9 9 8 21 7.9
Misc. Cash Costs : c :3 11 4 9 8 8 15 8.2
Herd Depreciation : c :5 -3 7 2 9 21 .9
Total Cash Cost and : :
Depreciation : c 37 ; 51 :- 49 :50.0
Feed Cost ----------------------------------------- 32.8
Hired Labor -------------- ---------------------------- 8.4
Misc.Cash Costs ------------------------- ---- ------- 9.6
Herd Depreciation ------------------------------------- 1.7
Total Cash Cost and
Depreciation -------------------------------------- 52.4
a Total cash cost plus depreciation is a simple summation of the estimates for each item. See
discussion of data in Appendix I for explanation. All estimates are "ratio estimates." See
Appendix I for discussion of methods of analysis.
bTwo observations only. Insufficient for purposes of averages.
c Not available.
cash costs plus herd depreciation per gallon for the sample farms varied considerably.
Of the dairies which provided complete data on all cash cost items (see Appendix I
discussion of data), about 10 per cent had total cash costs and herd depreciation
of less than forty cents per gallon, and about 10 per cent totaled more than 65 cents
per gallon. Therefore, the estimates we have made are not necessarily precisely
accurate. Due to chance in selecting a random sample one would expect some
variability in the estimates if several different samples were taken by exactly the
It is not possible to state exactly the reliability of these estimates. However,
based on the consideration discussed in Appendix II, we feel reasonably confident
in stating that the average per gallon cash costs and herd depreciation for farms in
the Florida peninsula were not less than 50 cents nor more than 55 cents.
The estimates for individual areas are not as reliable as for the peninsula
as a whole. Statistical measures of reliability (standard deviation of the estimates)
are also shown for each of the four areas in Appendix II. Although cost estimates
have been shown for individual size groups within areas, they are quite unreliable
due to the small number of observations on which they are based.
CHANGES IN CASH COSTS AND HERD DEPRECIATION
Method of Measuring the Changes
Since the prices of items used in milk production vary, the cost situation is
in a more or less constant state of change. In almost any problem to which average
cost data might be applied, it is important to understand the pattern of change that
takes place. However, it is not necessary to do repeated cost surveys in order to
obtain a reasonably reliable picture of the year-to-year or even month-to-month
changes in costs. By the application of suitable price index numbers the costs of a
given year can be periodically adjusted to account for differences in prices. The
reasoning on which this technique is based is outlined in Appendix I. At best,
however, these adjusted cost estimates are no more reliable than the data for the base
Index numbers used in this analysis were based on what was thought to be the
best available price data. However, some of the price data were not completely
satisfactory. Index numbers of wage rates, miscellaneous cash costs, milk cow
prices and beef prices were developed and applied to cost and depreciation figures
of all areas. However, the composition of the dairy rations among the four areas
was sufficiently different so that index numbers of feed prices were constructed for
each area individually and for the four areas taken together.7 The index numbers
which were developed are shown in Table 8. The methods by which they were
computed and the price data used are discussed in Appendix III.
7.. Acknowledgement is made of the helpful cooperation of the following feed
dealers in supplying data regarding feed purchased by dairy farmers in the sample.
Apologies are hereby tendered if any cooperating dealer has been omitted.
Eustis ............... Wm. Igou and Company
Fort Lauderdale ...... Broward Grain Company
Jacksonville .......... Howard Mills, Florida Mills, General Mills, Williamson FeedCo.
Lakeland ............ Lakeland Cash Feed Company
Leesburg ............. Purina Mills
Miami .... .......... General Mills, Hector Supply, Purina Mills
Orlando ............. General Mills, Pillsbury-Ballard, SecurityMills, Purina Mills
Tampa .............. Jackson Grain Company, P.C.Martino, Security Mills, General
Mills, Pillsbury-Ballard, Purina Mills
PRICE INDEX NUMBERS FOR CASH COST ITEMS INVOLVED IN MILK PRODUCTION
AND FOR ITEMS INVOLVED IN DAIRY COW DEPRECIATION, 1950-54
1950 : 1951 1952 1953 : 1954
Area I 89.1 99.6 106.6 100.0 92.2
Area II 88.1 98.5 105.8 100.0 92.1
Area III 87.0 97.5 105.4 100.0 90.3
Area IV 86.8 96.5 105.2 100.0 89.0
All Areas : 87.5 :97.9 105.6 : 1CO.0 90.4
Wage Rates (All Areas)a 78.9 93.7 94.7 100.0 97.9
Prices of Miscellaneous
Cash Cost Items, All Areas 94.2 99.6 100.0 100.0 101.1
Dairy Cow Prices (All Areas)b 95.5 124.7 131.3 100.0 79.6
Beef Prices (All Areas)c 156.8 209.9 164.2 100.0 91.4
a Wage rates per hour, with house.
b Prices received by Florida farmers.
c Florida average (all grades), which approximates the price level of utility grade.
The general movement of prices was upward between 1950 and 1952, probably
as a result of the war in Korea. However, beef prices reached a peak in 1951
when they were more than twice as high as in 1953 and 1954. The most stable
item was miscellaneous cash costs which remained practically unchanged after
1950. The wage rates moved upward sharply between 1950 and 1951, moved upward
less rapidly between 1951 and 1953 and declined slightly in 1954.
The total effect of these changes in prices is difficult to see, except in a
general way, by merely looking at the individual price indexes. By applying the
index numbers to the individual cost components the effect of each change in price
may be tran.'ated into cents per gallon. The total effect of changes that have taken
place in all prices can be measured in a similar manner. In general, this is done
in exactly the same manner as in the example of a simple index number given in
Appendix I. The index numbers express the percentage change in costs that would
have occurred as a result of changes in prices if exactly the same amounts of each
cost item were used as in the base year, 1953.
In the case of dairy cow depreciation, the initial estimate was based on value
of dairy cattle purchases, value of sales of cattle and value of increase in inventory.
Since most cattle sales were cull animals sold for beef, the appropriate indicator
of changes in the price of cattle sold is the index of beef prices. For value of
cattle purchased and increase in inventory the appropriate index is dairy cow prices.
But beef prices do not follow dairy cow prices very closely. Therefore, the value of
each of these items under the price situation of the particular year was computed and
combined into the depreciation figure in exactly the same manner as for the 1953
The resulting depreciation figures for years other than 1953 express what the
depreciation figure would have been, under price conditions for these years, if
the number of cows purchased, the number sold, and the change in inventory had
been the same as during 1953.
How Costs Have Changed
The derived cash cost and depreciation estimates for the years 1950-1954 are
shown in Table 9. A graphic summary for the Florida Peninsular taken from this
table is shown on the cover page (Figure 1).
A sharp increase in costs was experienced during the years 1951 and 1952. In
1952 total cash costs and depreciation reached a peak. In 1953 there was a
slight decline of about 1.5 cents, and in 1954 a sharp decline of about 5 cents
per gallon. The 1954 level was about 6.3 cents below the high of 1952. In 1952
there had been an increase to about 9 cents above the 1950 level.
Small differences in the amount of change may be noted among the four areas.
This is due to differences in the proportions of various cost items which were used.
But the general pattern of changes was much the same throughout the four areas.
The significant thing to be noted here is that the cost situation facing Florida
milk producers has fluctuated considerably during the past five years. In the area
covered by the survey, the estimated decrease of 6.3 cents per gallon between 1953
and 1954 would reduce costs and cow depreciation by a total of nearly $3, 800,000
ESTIMATED CASH COSTS AND HERD DEPRECIATION,
PER GALLON, 1950-54, BY AREAS*
1950 : 1951 : 1952 1953 : 1954
Feed Cost 30.9 34.6 : 36.6 34.7 : 32.0
Hired Labor Cost 6.6 7.9 8.0 8.4 : 8.2
Misc. Cash Costs 9.8 10.3 10.4 10.4 10.5
Herd Depreciation -1.4 -2.0 .8 + .3 .3
Total Cash Costs and
Herd Depreciation 45.9 .50.8 54.2 53.8 50.4
Feed Cost 29.4 32.9 35.3 33.4 30.8
Hired Labor Cost 6.9 8.2 8.2 8.7 8.5
Misc. Cash Costs 10.2 10.8 10.8 10.8 10.9
Herd Depreciation 1.9 -2.6 1.7 -1.0 .9
Total Cash Costs and
Herd Depreciation 44.6 :49.3 52.6 51.9 49.3
Feed Cost 27.2 :30.5 33.0 31.3 28.3
Hired Labor Cost 6.8 : 8.1 : 8.1 8.6 8.4
Misc. Cash Costs 9.6 10.2 : 102 10.2 10.3
Herd Depreciation +2.0 +2.4 +4.4 +4.1 +2.9
Total Cash Costs and
Herd Depreciation 45.6 51.2 55.7 54.2 49.9
Feed Cost 28.7 : 31.8 34.7 33.0 29.4
Hired Labor Cost 6.2 7.4 7.5 7.9 7.7
Misc. Cash Costs 7.7 : 8.2 8.2 8.2 8.3
Herd Depreciation .4 : .6 + .5 + .9 + .5
Total Cash Costs and
Herd Depreciation 42.2 46.8 50.9 50.0 45.9
Feed Cost 28.8 32.0 : 34.6 32.8 : 29.7
Hired Labor Cost 6.6 7.9 8.0 8.4 8.2
Misc. Cash Costs 9.0 : 9.6 9.6 9.6 8.3
Herd Depreciation : +1.3 :+1.3 +1.0
Total Cash Costs and :
Herd Depreciation : 44.4 : 49.5 53.5 : 52.1 47.2
Original data for the calendar year 1953. Estimates for all other years made on the
basis of 1953 costs with adjustments for differences in prices between 1953 and the
respective years. All estimates are "ratio estimates."
or an average of nearly $6,000 for every milk producer in the area. On the other
hand an increase almost half again as great took place between 1950 and 1952.
It has been noted before that these estimates do not include interest charges on
invested capital, or depreciation on buildings and equipment. Some idea of the
magnitude of these values may be obtained by determining what they would be
under some assumed valuations for investment items. For this purpose let us assume
Annual production per cow 625 gallons
Investment in dairy herd, per milk cow $150
Investment in land:
1 acre per cow, unimproved 50
1 acre per cow, improved 100
Investment in buildings and equipment 100
Total investment per cow $400
Interest at 5 per cent 20
Depreciation of buildings andequipment
10-year depreciation basis 10
Tot-il annual charge for interest on
inre'-stment and depreciation of
buildings and equipment
per cow $ 30
per gallon 4.8 cents
Adding'4 8_centspergalon to the 1954 estimated total of 47.2 cents for all
areas (Tablb 9), the total costs other than unpaid labor and management would be
52.0 cents per gallon. If the annual blend price average was 57 cents per gallon,
a dairyman with 150 cows would receive about $4,700 for his labor and manage-
ment and for the unpaid labor of his family. With a blend price of 60 cents per
gallon this figure would increase to $7,500.
His total income from the business would be this amount plus the interest
on his owned capital which was invested in the dairy farm and its equipment.
The writers wish to emphasize that these values are based on hypothetical
data and do not necessarily represent actual conditions. They are included to
give the reader a crude idea of the relation of total cash costs and herd depreciation
to the cost items which were not analyzed in the preceding pages.
This report is of a preliminary nature. It is based on survey data primarily
designed for other purposes (See Appendix I). The main purpose was to analyze
dairy farm organization, particularly the economic possibilities of improved pasture.
As a result, the writers urge that caution be exercised in its use. However, it is
felt to be reasonably indicative of actual conditions inrthe period discussed.
The dairy farms in the areas surveyed are now predominantly very large com-
pared to most milk producing areas. The average herd has about 150 cows. Almost
half of the milk produced in these areas in 1953 was produced by herds with more
than 200 cows. In the metropolitan milk sheds of southeast Florida the herd of less
than 50 cows is now almost a thing of the past. Indications are that the size of herds
in the survey area was still increasing at the rate of about 9.5 cows per herd per
year during 1953.
The rate of turnover of dairy herds was relatively high. In the survey area
the expected productive life of dairy cows average a little less than five years.
The rate of turnover was relatively higher and the life expectancy shorter in
Area III and Area IV than in Area I and Area II. Only about one-third of the total
number of herd replacements was provided by home-raised heifers.
Although there has been a trend toward increasing use of pasture as a source of
dairy cattle feed, it appears that in 1953 only about 15 per cent of all feed
consumed by dairy herds was derived from pasture. In the survey area there was an
average of about two acres of pasture for each dairy cow, about half of which was
The average annual production for cows in commercial herds in the survey area
was estimated at about 624 gallons during 1953. The estimated average was 641
gallons in Area 1, 655 gallons in Area II, 664 gallons in Area III, and 561 gallons
in Area IV.
The total of 1953 cash costs and herd depreciation varied considerably from
area to area. They were highest in Area III, totalling 54.2 cents per gallon, and
lowest in Area IV, totalling 50.0 cents per gallon. In the entire survey area
cash costs plus herd depreciation averaged 52.4 cents per gallon. These estimates
did not include an allowance for unpaid labor and managerial services, interest in
investment or depreciation of buildings and equipment. According to past surveys
these excluded items comprise one-fifth to one-tenth of total costs.
Between 1950 and 1954 significant changes in costs resulted from changes
in feed prices, wage rates of hired labor, dairy cow prices, dairy beef prices and
other items involved in milk production. From 1950 to 1952 costs increased by
about 9 cents per gallon. Between 1952 and 1954 they decreased by over 6 cents
per gallon according to the best data now available.
Although this probably presents a fairly accurate picture of general trend in
cash costs more precise data regarding prices and amounts of goods and services
used in milk production are needed.
SOURCES OF DATA AND METHODS
Insofar as possible, the dairies covered in the survey represent a disproportionate
stratified random sample of the dairy farms producing milk throughout 1953. Using
a list of dairy farms, and the best information then available regarding the number of
cows on each farm, a randomly selected sample was drawn from each size class In
each survey area.
Since the analysis of costs of production was somewhat incidental to other
purposes of the survey, farms covered included both wholesale producers and farms
operated in connection with distribution and processing establishments The main
purpose was to analyze dairy farm organization, particularly the economic possi-
bilities of improved pastures. In some cases a single bookkeeping system covered
both. the production, and processing and distribution aspects of the business. Also
several dairy farm operators provided all other data but felt that they should not
supply a statement of their costs and returns.
Most farms operated in connection with a disritbuticn business provided
accounting data on all items except miscellaneous cash costs. When not available
from accounts estimates of feed, labor and depreciation costs were made, when possible
from data regarding amounts of various feeds used, hired labor used and wage rates,
and information on cattle soles, purchases and change in dairy cow inventory
during the year. However, it was impossible to estimate "miscellaneous cash costs"
from supplementary dota, Therefore, no such miscellaneous cost data were
obtained for several farms whose records were not available or were kept in
conjunction with a processing and distribution business.
By increasing the number of farms included in the analysis of feed cost, labor
cost and cow depreciation, in the above manner, the accuracy and reliability of
estimates for these individual items is probably improved. But this procedure
introduces a possible source of error in the estimates of average total cash costs
plus depreciation per gallon. For example, if farms with useable cost records were
farms with unusually high acreage of improved pasture per cow, feed costs would be
lower and "miscellaneous cash costs" higher than for those without useable cost
records. Fertilizer, lime seed, fencing costs, tractor expense, etc., would be
greater than for the other dairies. The high feed costs of the farms with little pasture
would be included, but the corresponding low "miscellaneous cash costs" would not
be included as an offset to the high "miscellaneous cash costs" of the dairies with
cost records. Hence, the total computed cash costs and depreciation would be
higher than if all the data were available. The opposite result would occur if the
farms with cost data were the low pasture acreage farms.
As is usually the case, a few farmers refused to supply any information, and
some had gone out of business after the end of 1953 and before the survey was
conducted. The estimates pertain to only those farms which would and could supply
the necessary information. How dairies not supplying information differ from those
that did supply information cannot be ascertained at this time. But the possibility
that they do differ in important ways should be noted.
The primary data presented in the analysis which follows were derived from a
survey primarily designed for other purposes. As a result, several weaknesses in
the cost data have been noted above. Although these data provide some evidence of
the cost situation of Florida dairy farms, the above mentioned factors should be
kept in mind in interpreting the results.
Methods of Analysis of Primary Data
Because the size classification of dairies on the list from which the sample was
drawn was inaccurate, some sample observations which were expected to be in one
group were found to actually occur in some other size groups. Therefore, since
disproportionate sampling was employed, not all observations in a given size group
had the same probability of being drawn and possible bias resulted.
In making estimates for individual areas or for the four areas as a group,
each observation was classified in the group from which it was originally drawn
and the weight assigned to each average was based on the original number in each
of the respective groups. Thus, the weighted average becomes a weighted average
of a "group" which does not necessarily correspond to a specific size class. Each
observation classified in a particular "group" had equal probability of occurring and
an unbiased estimate could then be made. This technique was employed in making
every estimate pertaining to individual areas or the four areas as a group, unless
In making several estimates use was made of "ratio estimates." Ratio estimates
involve the use of two statistics taken from the same set of observations in estimating
a third statistic. It can be shown mathematically that such estimates introduce the
possibility of bias. However, they are commonly used and in this case there is
no alternative means available.
Index Numbers and Their Use
The cost data collected in.'the survey pertain to the calendar year 1953. So
that we may obtain a picture of the cost situation in other years we employed
indicators of trends in the prices of goods and services used in milk production. If
the approximate relative importance of each item of cost is known and a reliable
indicator of price changes of each cost item is available, fairly good estimates
of costs can be made for years other than those in which the primary data was collected.
For example, let us suppose that feed cost amounts to 35 cents per gallon.
Suppose also that half of the ration is composed of citrus pulp and half of 20 per cent
dairy feed, and that the price of citrus pulp has increased by 40 cents per hundred
weight while the price of 20 per cent dairy feed has increased by twenty cents.
Initially, they cost $2.00 and $4.00 respectively. A hundred pounds of dairy ration
composed of half citrus pulp and half of 20 per cent dairy feed would then cost $3.00.
The change in prices of the two feeds would increase its cost to $3.30. The cost of
the feed expressed as proportion of its original price would be 110 per cent. This
percentage is called a price index number.
Using this index number, it can be seen that if the farmer fed exactly the
same amounts of each feed to his cows as during the previous year, the cost per
gallon would go up. It would be 10 per cent greater than in the first year. Mul-
tiplying the initial cost of 35 cents by 110 per cent, we arrive at the cost estimate
of 38.5 cents per gallon for the second year. This simplified illustration shows
how index numbers may be constructed and applied.
The index numbers derived in this manner have some weaknesses. Perhaps the
most important is the possibility that farmers may substitute one item for another
if their relative prices change. In Florida, prices of most concentrate feeds have
remained relatively more stable than citrus pulp prices. It is possible that when
citrus pulp is cheap relative to snap corn or some other substitute, that the proportion
of citrus pulp in the ration may be higher. If the feeds are at all substitutable one
for the other, this would be economically desirable.
If such a substitution is made, the index of feed prices will overstate the
relative cost of feed used per gallon of milk produced for years when citrus pulp
is relatively cheap. It will understate it for years when citrus pulp is relatively
Reports'of percentage of citrus pulp in the ration fed to dairy cows published by
the U.S.D.A. tend to indicate that this has not been an Important factor. These
reports indicate that there was less than one-half of one per cent difference in the
average proportion of citrus pulp fed in 1953 and 1954, although the price of
citrus pulp dropped from about $2.80 to less than $2.00 and the price of grains
and other concentrates dropped only about 20 cents per hundredweight. However,
this does not preclude the possibility that other substitutions might have been made
in response to changes in relative prices. (Florida Milk Production Report, U.S.D.A.,
RELIABILITY OF COST AND DEPRECIATION ESTIMATES
Average Costs Excluding Miscellaneous Cash Costs
The estimate of this component of average cost of milk production is obtained
by dividing the estimate of total costs (excluding miscellaneous costs) by the
estimate of total production. Only an approximate method of estimating the variance
of this estimate exists. In addition, this approximation depends upon the correlation
between the estimate of total cost and the estimate of total production. Unfortunately
time did not permit a rigorous estimate of this correlation. However, preliminary
work indicates that the correlation in question is rather large. Estimates of the
standard deviation of average costs, (excluding miscellaneous costs) are given for
two possible values of the correlation coefficient, 0.5 and 0.8 (See Table 10).
The writers lean toward the 0.8 figure as being the more appropriate of the two.
COMPUTED STANDARD DEVIATIONS OF AVERAGE TOTAL FEED COST
PLUS HIRED LABOR COST AND HERD DEPRECIATION, PER GALLON
BY AREAS, ASSUMING CORRELATION COEFFICIENTS BETWEEN
ESTIMATED TOTAL PRODUCTION AND ESTIMATED TOTAL FEED,
LABOR'AND DEPRECIATION COST of 0.5 and 0.8.
SAverage Total of : Standard Deviation Standard bevialion of
Feed, Labor, and of Averagu Cost Average Cost Assummin:
Depreciation Cost: Assuming Correlation : Correlation of 0.8
(Cents Per Gallon)
Area I 43.4 5.2 3.4
Area 11 41.1 3.8 2.4
Area III 44.0 4.8 3.0
Area IV 41.8 5.7 3.6
All Areas 42.8 2.7 1,7
Average Costs Including Miscellaneous Cash Costs
Estimates of total average cash costand herd depreciation per gallon of
producing milk are obtained by adding estimated average costs excluding miscel-
laneous costs and estimated average miscellaneous costs. The variance of this
estimate depends upon the variance of the two terms in the sum and upon the
correlation of these two terms. Preliminary work indicates that the sum of these
two terms will have a variance smaller than the variance of the first term (average
costs, excluding miscellaneous costs). This somewhat surprising outcome is due to
the probable negative correlation between the two terms in the sum and to the fact
that the first term seems to have a variance several times as large as the second term.
Therefore, the estimates of standard deviations given in Table 10 are considered
to be conservative estimates of the standard deviation of the average total cash
cost and depreciation per gallon of milk produced. They are considered conservative
in that it is felt that they are larger than would be the case if time and available
methods had permitted the computation of straight-forward estimates of the
standard deviations of average costs.
Use of Estimates of Standard Deviations
Given that 1.7 cents is an acceptable estimate of the standard deviation of
the estimate of average cost of producing milk, the statistician states that he has
68 per cent confidence that the actual average cost of producing milk lies not more
than 1.7 cents away from his estimate. This statement of degree of confidence
needs, perhaps, to be explained. The development has a sound mathematical base.
The statistician assumes that he could take repeated randomized samples identical
in size and stratification to that sample actually drawn. If he then computed an
average and a standard deviation of the average in each case, and that if he were
to state in each case that the true average lies within one standard deviation of the
sample average, the statement would be true in 68 per cent of the cases. In 32
per cent of the cases, it would be false. The computation of a confidence interval
in a particular case (in this case plus or minus one standard deviation) gives the
statistician a measure of the confidence he has in his statement about average costs.
Consideration of the confidence interval and the degree of confidence attached
thereto should not becloud the fact that the best existing estimate of average cost
is the average cost obtained from the sample.
The existence of bias when ratio estimates are used was mentioned in Appendix I.
Computations indicate that for the estimates of average cash costs and bad depreciation
for the peninsula as a whole, the bias is not serious. It is probably about 0.1 cent
DATA USED AND METHODS OF CONSTRUCTING
PRICE INDEX NUMBERS
Feed Price Index Numbers
Most price data used in constructing feed cost index numbers were available
directly from published reports of the United States Department of Agriculture.
The price series used as an indicator of price changes for each type of feed, and
the publication from which it is taken, is shown in Table 11.
The quantity weights used were the estimated proportions of each type of feed
consumed by the dairy herds in the respective areas during 1953. This information
was obtained from the survey, and in most cases was tabulated from invoices of
actual purchases. (See Table 12).
To compute the index, the proportion of each type of feed was multiplied by
the average price of the item (or an indicator of that price) for each of the five
years, 1950-1954. The sum of these products is the weighted average price of
100 pounds of a ration composed of the proportions of feeds fed by the average dairy
farm in that area. This price was expressed as a per cent of the 1953 average price.
This percentage is the feed price index number.
Wage Rate Index Numbers
There is no published statistical series on wage rates paid to workers employed
on dairy farms. Although it would be relatively easy to develop such a series, for the
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present it is necessary to use other data. (Wage rates paid for dairy labor during
1953 are available from the survey data.)
Since laborers have the possibility of changing jobs if the wages they receive
are lower than they could obtain elsewhere, wages of the various types of farm
workers generally follow a similar pattern of change from year to year. However,
in some cases short deviations of a few months or a year may occur. In general,
it is felt that the closer the method of payment and type of work approximates
that represented by the labor cost item being analyzed, the more likely it will
be that the series will represent actual conditions.
Since most dairy labor is furnished some perquisites such as a house, the
U.S. Department of Agriculture series on "wage rates of farm workers, per hour,
with house" was used in developing the index numbers. (This complete series was
made available by special arrangement with the U.S. Department of Agriculture,
A.M.S., Orlando, Florida. The series is now published in Crops and Markets,
U.S.D.A., Washington, D. C., annually). A considerable amount of itinerant
labor used in vegetable crops and fruit, is represented in this series. Therefore,
the relation between this series and actual wages of dairy farm workers may not be
as close as one would like. However, it appears to be the best data available for
Index of Prices of Miscellaneous Cash Cost Items
This category of cost items is composed of an extremely varied class of goods
and services. The quantity weight attached to each series of relative prices was
based on the approximate proportionate breakdown of such items in the cost
analysis of Spurlock and others.l Within the categories of cost shown by Spurlock
an element of judgment was involved in assigning weights to the indicators. (As an
example, for auto and truck expense, gasoline, motor oil, and tire prices were
used. Weights of 9, 3, and 1 respectively were assigned to each series, mainly on the
basis of experience and judgment.)
It must be emphasized that satisfactory price indicators were not available
for some items. Prices of repair items of field machinery and tractors were believed
to follow trends in new machinery costs (tractors), but how closely they are
correlated is not known. Similarly repairs of dairy equipment might be expected to
follow the price trends of tinned dairy equipment (milk cans). But again, we do not
know how closely they are correlated. However, since general economic conditions
influence all prices more or less we feel that the index is reasonably accurate. There
was considerable uniformity in the general trend among these price series. In all,
18 items were included in the index. Table 13 shows the price series that were used,
the weight assigned to each, and the cost item each series is related to.
Herd Depreciation: Methods of computation are explained in the text. Dairy
cow prices received by farmers in Florida may be somewhat lower than prices paid
due to commissions paid to dealers and transportation. However, the trend in relative
1. A. H. Spurlock, D. L. Brooke and R.E.L. Greene, Cost of Producing Milk In
Selected Areas of Florida, Ag. Economics Series 51-4, University of Florida, Agricul-
tural Experiment Station, January 1951.
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prices will, in our judgment, be much the same. Data were obtained from the
Florida Farm Price Report.
Florida average beef price data are probably somewhat above prices of
salvage dairy animals. Average beef prices in Florida correspond almost exactly
to prices of utility grade beef on Florida auction markets.2 Most dairy animals
in Florida are not fattened and will grade canner or cutter. However, this
series will give a reasonably good indication of the pattern of relative price
2. W. K. McPherson, "Beef Outlook." The Florida Cattleman, August, 1953.
EDS/dc 5/25/55 300