Title: What 75 percent of parity for butter means to Florida dairymen
Full Citation
Permanent Link: http://ufdc.ufl.edu/UF00074545/00001
 Material Information
Title: What 75 percent of parity for butter means to Florida dairymen
Physical Description: Book
Creator: Smith, Eldon D.
Publisher: Department of Agricultural Economics, Florida Agricultural Experiment Station
 Record Information
Bibliographic ID: UF00074545
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 123896894

Full Text

1 Agricultural Economics
Series No. 54-12

/ By
/E. D. Smith
Assistant Agricultural Economist
Florida Agricultural Experiment Station

On February 15, an order was issued by Secretary of Agriculture Ezra T. Benson
lowering the Federal price support level on butter from 90 percent of parity to 5
percent of parity effective April 1954. This means that (if Congress does not ifter-
vene) the support price will be lowered by about 8 cents per pound. This order comes
as the climax to a long and bitter political struggle which saw dairy groups fighting
a losing battle in the face of mounting stored butter stocks held by the Commodity
Credit Corporation. These stocks were accumulated by the government in attempt to
maintain butter prices at 90 percent of parity or above.

Causes of the Surplus

Two things have been primarily responsible for the difficult butter surplus
situation. One is the rapid inroads made into butter markets by substitute fats.
United States per capital consumption of butter declined from 16.6 pounds to 8.7
pounds per year between 1938 and 1952. During the same period margarine consumption
increased from 2.2 pounds per capital to 7.7 pounds. Only a few states now restrict
the sale of colored oleomargarine, and these are fairly unimportant outlets for
butter since they comprise only a small segment of the total population. Even in
these states substantial amounts of margarine are sold despite restrictive licenses
and taxes./1 At the same time the quality of oleomargarine has been raised. Vita-
mins have been added which make oleomargarine more nutritious than before. Packag-
ing and flavor have been improved. In some states use of vegetable fats in frozen
desserts is now legal. Furthermore, some of the major dairy companies have perfected
iasty, inexpensive, low-fat, frozen desserts which have provided an opportunity for
bJth lowering the family food budget and reducing the bulging girth line of Mr. and
:ra. America.

The second important factor affecting the butter situation in recent years has
been substantial improvement in the efficiency of dairy production in the United
States. Production per cow has been constantly increasing, and better feeding and
management practices are being followed. Artificial breeding has been particularly
important. An agricultural extension specialist in a prominent dairy state has
stated that more progress was made in herd improvement during the first 10 years of
,artificial breeding than during the preceding 40 years. These changes have reduced
costs. They have made it possible to produce milk for a market supported at 90 per-
cent of parity while still maintaining enough profit margin to stimulate expanded
production. Thus, stored government stocks have accumulated at an increasing rate.

Effect on Income of Dairymen

Anticipation that the order will go into effect has given rise to a number of
estimates as to its effect on dairymen. Senator Humphrey of Minnesota has estimated

/1 Six and eight-tenths pounds is the annual per capital consumption of margarine in
Minneapolis, according to a recent report. See Cox, Rex; Competition of Butter and
Margarine, Minneapolis 1952; Minnesota Agricultural Experiment Station, Bulletin 417,
P. 3.


that the reduction in annual income will amount to as much as $600,000,000. The
actual drop in support price level is 8 cents per pound of butter. With about a
billion and a half pounds of butter produced annually, this would be equal to only
$120,000,000. But the entire price structure of the dairy industry is very closely
related to butter prices, and support levels for cheese and dry skim milk will be
lowered at the same time. Milk used by condensed and evaporated milk plants is
usually priced by a formula tied to butter prices. Many fluid milk markets also use
a formula system and this usually incorporates butter prices as one factor. There-
fore, the total effect will be much greater than the effect on butter alone.

There is the additional question of whether butter prices will actually fall
permanently-to the 75 percent of parity level. Secretary Benson has stated that he
thinks that some minor amount of support will be needed to hold the line even at
this reduced level. Since there will be deterioration of butter now in storage un-
less it is moved into consumption channels, it is probably reasonable to expect that
prices will not move much above the support level for some time. Nearly 300,000,000
pounds of butter, or nearly one-fourth of a year's normal production, is now held by
the government and must be disposed of.eventually. It has been obvious recently that
political opposition to disposing of the surplus in foreign markets at reduced prices
has been very strong.

If the total effect should reduce income from dairy production by $500,000,000,
this would amount to a reduction in price of 40 to 50 cents per hundredweight on the
average for all milk produced in the United States, or about 4 cents per gallon.

Florida fluid milk prices are somewhat unique. They are not tied directly to
butter prices or prices of other dairy products by any pricing formula. Therefore,
if the order goes into effect Florida dairymen will be affected less than dairymen
of some other areas. Milk prices in Florida will not be directly influenced by the
order. But Florida dairymen may expect to experience some indirect effects of the
lowering of Federal support prices.

Effect on Cattle Prices

The price of milk determines, in part, the demand for dairy cows. When dairy
cattle feeding is very profitable, dairymen build up their herds. In so doing they
bid up the price of dairy cows. When feeding is relatively unprofitable, they cull
their herds and the price goes down. Therefore, historically the price of milk cows
in this country has followed milk prices quite closely. Milk cows on farms on
January 1, 1954 numbered 24,735,000 according to U.S.D.A. figures. This number was
higher than at any time since 1947. Therefore, we may expect prices of milk cows and
heifers to drop even below the present low average of $146 per head for the country
generally which is the lowest average price since 1947. Possibly the drop will be
as much as $25 per head.

Since Florida dairymen buy more milk cows than they sell for use as milk cows,
this will result in some advantage to Florida milk producers. But it is also true
that many dairy cows will be culled out of herds and sold for slaughter. If the
market is flooded with low quality beef of this kind we can expect prices for canner
and cutter cows and all other utility and commercial grade beef to fall. Thus, the


salvage value of cows culled from Florida dairy herds will drop somewhat and offset
the advantage of low milk cow prices.

It will probably be wise to cull out low producers and old cows fairly soon
because cow prices will probably drop rapidly after April, when and if the order
goes into effect. In so doing, dairymen will take advantage of the fact that during
early spring, prices of lower grades of beef normally hit a seasonal high. It will
also probably be wise to postpone buying to replace any cows that are sold until the
full effect of the order is felt. Seasonal variation in dairy cow prices is general-
ly not very great. Therefore, after a few weeks following the support reduction,
cow prices will probably stabilize at a lower level.

Effect on Feed Prices

There is no reason to expect that feed prices will drop very much in response
to the drop in butter supports. Almost all important feed grain prices are supported
by the government, either directly or indirectly. Most have been at or near support
levels for some time.

Hay prices in major producing areas may fall somewhat. But this is of minor
importance. Florida dairymen feed rather little hay, and transportation of this
bulky product costs nearly as much as the cost of the hay in the area where it is

Effect on the Market for Fluid Milk

Prices of butter are very closely related to evaporated milk and dry skim
milk prices. Furthermore, the support price for dry milk will be lowered at the same
time the butter support is lowered. This will mean lower prices of these products to
consumers. There is reason to believe that somewhat more use of these products will
result if their price is reduced and if fluid milk remains at present price levels in
Florida. Because of this, somewhat less fluid milk will be sold if prices of fluid
milk remain at present levels.

Unfortunately, however, there are no facts available on the amount of dry skim
milk and evaporated and condensed milk presently used in Florida. We also do not
mnow how much effect an increase in the spread between price of fluid whole milk and
iry or evaporated milk will have on the amount of these products used. We do know,
however, that consumption of dry skim milk has about doubled in the United States
during the last 10 years.

EDS :gm-3/16/54
Exp.Sta., Ag. Ec.-100

University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs