Agricultural Economics Mimeo Report 62-5

COMPARISON OF ESTIMATED COSTS AND RETURNS ON

WHOLESALE DAIRY FARMS

IN CENTRAL FLORIDA

IN 1958 AND 1960

by

R. E. L. Greene
Agricultural Economist

TABLE OF CONTENTS

Number of Farms Resurveyed and Method of Calculating
Changes . . . . .
Number of Cows and Total Production of Milk ..
Total Acres Operated . . . . .
Distribution of Operator's Capital . . .
Income, Production Costs and Returns . . ...
Rate of Turnover of Cows in Herd . . ....
Average Inventory Value, Purchase and Sales Price Per Head
for Cows in the Herd . .. ..... ..
Distribution of Total Production of Milk by Classes .

* 9

Department of Agricultural Economics and
Florida Milk Commission, Cooperating
Florida Agricultural Experiment Stations
Gainesville, Florida

_ ._ _~~_ __ ___ __ __ __

00

October 1961

COMPARISON OF ESTIMATED COSTS AND RETURNS ON WHOLESALE DAIRY
FARMS IN CENTRAL FLORIDA IN 1958 AND 1960

Members of the Department of Agricultural Economics of the Florida

Agricultural Experiment Station in cooperation with the Florida Milk Commission

made a study of costs and returns on wholesale dairy farms in Central Florida

for the 1958 calendar year. This study was based on records obtained from

34 producers. They were selected to represent various size dairy farms as well

as an average of all farms in the area. A disproportionate rate of sampling

was used in different size groups. To calculate averages for all farms,

records in each size group were weighted based on the proportion that the

number of farms for which records were obtained was of the total number of

farms in the size group.

In the Spring of 1961, representatives of tie Milk Comihission asked

members of the Agricultural Experiment Station if a second study could be made

in Central Florida to show changes in costs and returns between 1958 and 1960.

Since both time and funds were limited, it was proposed that such data might

be obtained by resurveying about half of the producers included in the study

for 1958. Changes on farms resurveyed would then be used as a base for es-

timating changes on all farms between 1958 and 1960.

Number of Farms Resurveyed and Method of Calculating Changes

Of the 34 farms in the 1958 study, four had changed hands or were not

being operated on December 31, 1960. An effort was made to resurvey about

half of the operators in each size group included in the earlier study but

the proportion was higher for farms in the large size group. In the study

for 1960, records were obtained for 18 farms 5 in the small farm group,

4 in the medium and 9 in the large farm group (Table 1).

Table 1.--Number of Wholesale Producers in 1958 and Number of Producers for
which Data were Obtained for 1958 and 1960 by 1959 Base Gallons per
Day, Wholesale Dairy Farms, Central Florida.

1959 Total Number : Number of Producers for
Base Gallons : o Producer :which Records were Obtained
per Day : : 1958 1960
Less than 224 53 13 5
225 449 41 9 4
450 599 9 3 3
600 899 11 6 4
900 or more 4 3 2
Total 118 34 18

The same method was used in summarizing the 1960 records as was used for

the 1958 study. On individual farms, the same land value was used in both

years unless the size of unit had changed or definite land improvements had

been made. In most cases the value of operator's labor was the same in both

years. The amount was different in a few cases where conditions had changed or

a considerably larger unit was being operated. In 1958 and 1960 in calculating

a cost for capital furnished by the operator, an interest charge was made

based on 5 percent of the average of the value placed on the assets at the

beginning and end of the year.

In both studies, production of milk on each farm was corrected to a

4 percent fat corrected (F. C. M.) basis to adjust production for variations

in percent butterfatl/. Costs and returns per gallon of milk were calcu-

lated on the basis of the number of gallons of 4 percent F. C. M. milk sold.

No credit was allowed for milk used on the farm or in the home. The average

number of cows in the herd for the year was based on an average of the

numbers at the beginning and end of the year. Amount of milk sold per cow

I/Four percent fat corrected milk is calculated as follows: (.4 x pounds
of milk) plus (15 x pounds of butterfat). If on Farm A and B, the average
production per cow was 800 gallons per year and the average butterfat test 4.3
and 3.9 percent, respectively, the production per cow in terms of 4 percent
F. C. M. milk would be 836 gallons on Farm A and 788 gallons on Farm B.

-3-

per year was obtained by dividing the total sales of 4 percent F. C. M.

milk by the average number of cows as calculated above. In each year the

amount of milk sold was the total as obtained from plant records adjusted to

a 4 percent F. C. M. basis.

Records for the 18 farms were summarized for 1958 and 1960 and averages

per farm calculated. Since records were obtained for a higher proportion of

the larger farms, they were weighted in each summary based on the proportion

the number of farms for which records were obtained in a size group was of the

total number of farms in the group in 1958. Averages per farm for 1960 for

the 18 farms were expressed as ratios of their corresponding 1958 figure to

measure changes between 1958 and 1960. The 1958 averages per farm for all

farms were then adjusted to estimated 1960 totals by multiplying the 1958

data by corresponding ratios as calculated for the 18 farms. Per gallon

figures on costs and returns were obtained for 1960 by dividing the total

sales as estimated into various items of income and expense.

Number of Cows aud Total Production of Milk

As indicated earlier, four of the farms for which data were obtained for

1958 had changed hands or were not operating at the end of 1960. Some of the

cows on these farms and also the milk bases were purchased by other dairy

farmers in Central Florida. This was a factor in the change in average size

of herd from 156.7 cows in 1958 to 169.7 cows in 1960 (Table 2). This was an

increase of 13 cows or 8.3 percent. Amount of 4 percent F. C. M. milk sold

per farm increased 20,490 gallons or 17.7 percent as production per cow was

also greater in 1960 than in 1958. This larger sales per farm is significant

because for items for which expenses per farm increased less than 17.7 per-

cent, the cost per gallon was less in 1960 than in 1958. As shown later this

was true for cost items which are more or less fixed in nature and do not tend

to increase in proportion to an increase in amount of sales.

Table 2.--Estimated Average Number of Cows and Amount of 4 Percent F. C. M.
Milk Sold, Wholesale Dairy Farms, Central Florida, 1958 and 1960.

Item 1958 1960 Percent Change,
1958 to 1960
Average number of cows 156.7 169.7 8.30

Amount of 4 percent F. C. M. Milk:
Sold per farm per year-gallons 115,767 136,257 17.70
Sold per cow per year:
Gallons 739 803 8.66
Pounds 6,355 6,908 8.66
Sold per cow per day:
Gallons 2.02 2.19 8.66
Pounds 17,37 10.83 8.66

Total Acres Operated

Total acres of land operated decreased slightly between 1958 and 1960

(Table 3). Average acres owned was up 3 acres but acres rented decreased ..

11 acres. Therefore average acres operated was 8 less in 1960 than in 1958.

Since there was an increase in number of cows, acres per cow decreased from

1.94 acres in 1958 to 1,74 acres in 1960 or .2 acres.

Table 3.--Estimated Total Acres Operated, Wholesale Dairy Farms, Central
Florida, 1958 and 1960.

Item 1958 1960 Percent Change,
1958 to 1960
Average Acres per Farm
Owned 257 260 1.29
Rented 47 36 -22.92
Total 304 296 2.63

Average Acres per Cow
Owned 1.64 1.53 6.71
Rented .30 .21 -30.00
Total 1.94 1.74 -10.31

Distribution of Operator's Capital

The value placed on real estate owned by operators increased 3.8 percent

between 1958 and 1960 (Table 4). This was an increase of slightly less than

$3,000 per farm. The value placed on all livestock was 25 percent more in 1960

than in 1958. This resulted both from an increase in number of cows and also

value per cow. The average value per cow for all livestock was $311 in 1958

and $358 in 1960. The higher value was partly a reflection of better quality

livestock. As indicated earlier, amount of 4 percent F. C. M. milk sold per

cow was 8.7 percent more in 1960 than in 1958.

Table 4.--Estimated Amount and Distribution of Operator's Capital, Wholesale
Dairy Farms, 1958 and 1960.

Item 1958 1960 Percent Change,
1958 to 1960
Average Amount per Farm
Land and improvements $ 64,469 $ 66,855 3.70
Buildings 8,957 9,378 4.70
Total real estate 73,426 76,233 3.82
Livestock 48,758 60,760 24.62
Machinery and equipment 11,971 10,226 8.54
Feed and supplies 190 260 37.01
Total $134,345 $147,479 9.78

Average Amount per Cow
Land and improvements $ 411 $ 394 4.04
Buildings 58 55 5.17
Total real estate 469 449 4.26
Livestock 311 358 15.11
Machinery and equipment 76 60 -21.05
Feed and supplies 1 2 50.00
Total $ 857 $ 869 1.40
Percent of Total Investment
Land and improvements 48.0 45.3
Buildings 6.7 6.4
Total real estate 54.7 51.7
Livestock 36.3 41.2
Machinery and equipment 88.9 6.9
Feed and supplies .1 .2
Total 100.0 100.0

The total value of all capital furnished by the average operator was

about 10 percent more in 1960 than in 1958. However value per cow was up only

1.4 percent increasing from $857 in 1958 to $869 in 1960. The proportion of

total capital in various items showed some change since value of livestock in-

creased more than other items.

Income, Production Costs and Returns

The estimated total income for the average dairy farm in Central

Florida was $70,252 in 1958 (Table 5). Estimated income amounted to $81,399

in 1960 or an increase of 15.9 percent. The average price received per gallon

for 4 percent F. C. M. milk was two-thirds of a cent less in 1960 than in 1958.

Appreciation and other miscellaneous expenses were also down on a per gallon

basis. The average total gross income per gallon was down nine-tenths of a

cent.

Various items of costs were summarized to give a subtotal for cash

operating expenses (including unpaid family labor) and then a gross cost

after depreciation and charges for operator's labor and capital were included.

Estimated average operating expenses per farm were $56,637 in 1958 and $69,705

in 1960 or an increase of 23.1 percent. This was an increase of 2.23 cents

per gallon resulting mainly from higher costs of labor and purchased feeds.

Gross cost per farm was up 19.9 percent but gross cost per gallon was up

only 1.14 cents. This was due to the fact that depreciation and charges

for operator's labor and capital itlicreased proportionatlylees

than the amount of milk sold. After adjusting for the value of minor products,

the estimated net cost per farm for milk sold was $70,038 in 1958 and $84,369

in 1960 or an increase of 20.5 percent. The net cost per gallon of milk sold

was estimated to be 1.42 cents more in 1960 than in 1958.

Table 5.--Summary of Estimated Income, Production Costs and Net Returns, Whole-
sale Dairy Farms, Central Florida, 1958 and 1960.

SAverage Amount per Farm :Average Amount Per Gallon
Item : : Percent :of 4 Pct. F.C.,M. Milk Sod
: : : Change, : :
: 1958 : 1960 :1958 to 1960: 1958 : 1960 :Difference
------------cents---------

Income:
Milk sales $ 68,309
Net appreciation on herd 1;22
Miscellaneous cash receipts 821
Gross income 70,252
Production Costs:
Labor other than operator 11,509
Feed purchased 31,835
Fertilizer, lime, seed, etc.1,728
Veterinary, medicine, and
breeding fees 1,094
Milk hauling 1,968
Dairy supplies 1,328
Operating costs for build-
ings and machinery 3,117
Utilities 1,312
Taxes and licenses 737
Insurance 376
Miscellaneous cash expenses 1,633
Total 56,637
Depreciation on building
and equipment 3,330
Total before charges
for operator's labor
and capital 59,967
Operator's labor and
supervision 5,297
Interest 6,717
Gross Costs 71,981
Less value of minor
products 1,943
Net Cost of Milk Sold 70,038

Returns:
Net returns:
Gross Income
Gross Costs
Difference
Returns to operator:

70,252
71,981
- 1,729

For labor and supervision 3,568
For average capital
owned 4,988
Percent returns on average
capital owned 3.7

'$ 79,493
975
931
81,399

14,425
40,026
2,020

1,135
1,975
1,682

3,742
1,516
932
509
1,743
69,705

16.37
-13.11
13.41
15.87

25.34
25,73
16.92

3.72
.04
26.67

20.07
15.54
26.43
35.36
6.75
23.07

59,00
.97
.71
60.68

9.94
27.50
1.49

.95
1.70
1.15

2.69
1.14
.63
.32
1.41
48.92

58.34
.72
.68
59.74

10.58
29.38
1.48

.83
1.45
1.23

2.75
1.11
.69
.37
1.28
51.15

73,428 22.49 51.80 53.89

5,473
7,374
86,275

1,906
84,369

81,399
86,275
- 4,876

597

2,498

3.32
9.78
19.86

4.58
5.80
62.18

4.02
5.41
63.32

- .66
- .25
- .03
- .94

.64
1.88
- .01

- .12
- .25
.08

.06
- .03
.06
.05
- .13
2.23

2.09

- .56
- .39
1.14

-1.90 1.68 1.40 .28
20.46 60.50 61.92 1.42

60.68
62.18
- 1.50

3.08

59.74
63.32
- 3.58

- .94
1.14
2.08

.44 -2.64

4.30 1.83 -2.47

1.7

-7-

-8-

When all costs are considered, including charges for the value of

operator's labor and management and capital furnished, estimated gross receipts

per farm in both 1958 and 1960 were less than gross expenses. The amount of

net returns was -$1,729 in 1958 and -$4,876 in 1960. On a per gallon basis,

net returns were -1.50 cents in 1958 and -3.58 cents in 1960, or a decrease

of 2.08 cents per gallon. This was a result of the 1.42 cents per gallon

increase in net cost and the decrease of .66 cent per gallon in the average

price received for milk. On a per gallon basis, returns to the operator for his

labor and supervision were down 2.64 cents in 1960 compared to 1958; returns

for average capital owned were down 2.47 cents per gallon.

Rate of Turnover of Cows in the Herd

In 1958 the estimated number of cows in the herd increased 7.3 head

between the beginning and end of the year (Table 6). The estimated increase

for 1960 was 11.2 head. In 1960 farmers replaced a larger proportion of

their herds than in 1958. The estimated rate of turnover was 23.7 percent in

1958 and 32.1 percent in 1960. This reduced the average years in the herd

from 4.2 to 3.1. Replacements raised accounted for 40 percent of the

additions to the herds in 1958 but only 34 percent in 1960.

Table 6.--Estimated Average Number of Cows on Hand at Beginning of Year,
Number Added to Herd, Number Taken Out of Herd, Number on Hand
at End of Year and Rate of Turnover, Wholesale Dairy Farms,
Central Florida, 1958 and 1960.

tem : Number of;HIead per Fam :Percent Change,
Item -:9*9-38- "' 1960 "' : 1958 to 1960
On hand at beginning of year 153.0 164.1 7.2

Additions:
Purchased
Replacements raised
Total

Subtractions:
Sold
Died
Total

On hand at end of year

Percent turnover

Average years in herd

28.5
16.0
44.5

33.6
3.6
37.2

160.3

23.7

4.2

43.3
22.4
65.7

49.7
4.8
54.5

175.3

32.1

3.1

51.9
40.0
47.6

47.9
33.3
46.5

9.4

35.4

-26.2

Average Inventory Value, Purchase and Sales Price
Per Head for Cows in the Herd

The average value per head for cows in the herd in 1958 based on the

value of the herd at the beginning and end of the year, was $270 (Table 7).

In 1960 the average value was $303 or an increase of 12.1 percent. The value

per head placed on replacements raised at the time they entered the herd in-

creased from $253 in 1958 to $289 in 1960. The average price per head paid

for cows and springers purchased increased from $252 to $291 while the price

received per head for culls sold decreased from $154 to $149. In both years

the average value per head placed on replacements raised was about the same as

the average price paid for cows and springers purchased.

-10-

Table 7.--Estimated Average Inventory Value, Purchase Price and Sales Price
per Head for Cows in the Herd, Wholesale Dairy Farms, Central Florida,
1958 and 1960.

Item: Average Value per Head Prcent Chanls
Item: 1958 : 1960 :1958 to 1960

Average value beginning and end
of year $270 $303 12.1

Value of replacements raised 253 289 14.3

Price paid for cows and springers
purchased 252 291 15.5

Price received for culls sold 154 149 3.3

Distribution of Total Production of Milk by Classes

Producers in Central Florida did a good Job of holding their produc-

tion in line with Class I sales in both 1958 and 1960 (Table 8). However, the

amount of milk in Class I sales was slightly lower in 1960 than in 1958,

dropping from 93 percent to 92.3. The proportion of milk in Class II sales

was slightly higher and the proportion in Class III and other lower. The

change in Class I sales was reflected in a slight reduction in the average

blend price which dropped two-thirds of a cent per gallon between 1958 and 1960.

Table 8.--Estimated Amount and Percent of Milk in Various Classes, Wholesale
Dairy Farms, Central Florida, 1958 and 1960.

Class 1958 1960 Percent Change,
1958 to 1960
Gallons of Milk
Class I 103,477 121,036 17.0
Class II 4,107 7,091 72.7
Class III and other 3,655 2,947 -19.4
Total 111,239 131,074 17.8

Percent of Total
Class I 93.0 92.3 17.0
Class II 3.7 5.4 72.7
Class III and other 3.3 2.3 -19.4
Total 100.0 100.0 17.8