University of California College of Agriculture Agricultural Experiment Station Berkeley, California FACTORS AFFECTING THE PRICE OF MARKET MILK IN SAN FRANCISCO A statement prepared, for presentation at the hearing on September 30 on the proposed Stabilization and Marketing Plan for Fluid Milk, San Francisco, California Marketing Area 1935 by J. M. Tinley Associate Agricultural Economist on the Giannini Foundation LIBRARY DIVERSITY OF CALIFORNIA DAVIS Contribution from the Giannini Foundation of Agricultural Economics Mimeographed Report No. 43 UNIVERSITY OF CALIFORNIA BRANCH OF THE COLLEGE OF .AGRICULTURE Digitized by the Internet Archive in 2014 https://archive.org/details/factorsaffecting43tinl Factors Affecting the Price of Market Milk in San Francisco There is no simple, purely mechanical, means of determining the prices which can be paid for market milk at any particular time. Within certain broad limits these prices can be determined by giving consideration to several fac- tors. The individual factors do not always have the same degree of importance so that it is necessary to consider these factors individually as well as col- lectively. The basic material on prices, furthermore, do not always reflect the same picture. It is thus important to give some consideration to what is included in or may modify the quoted prices. In general it may be said that the following factors affect the prices paid to producers of market milk shipped to San Francisco: 1. Prices paid for manufacturing milk. 2. Cost of labor, feed, and transportation. 3. Demand for market milk. Each of these three factors may be further subdivided. 1. Relation Between Market Milk and Manufacturing Milk Prices Milk Shed .-- In 1930 the milk shed of San Francisco included Alameda, Contra Costa, Marin, Monterey, Napa, San Francisco, San Joaquin, San Mateo, Santa Clara, Santa Cruz, Solano, and Sonoma counties. About 47 per cent of San Francisco's total supply of milk came from Marin and Santa Clara counties (see table 12, Exhibit A). The milk shed has undergone some modification since 1930 but these counties still constitute the potential milk shed. Included in the San Francisco milk shed are several counties which pro- duce large quantities of manufactured dairy products. In fact less than one- third of all milk fat produced in the combined San Francisco and East Bay cities milk sheds in 1930 was used as market milk (see table 11, Exhibit A). The balance was utilized in miscellaneous manufactured dairy products. This consti- tuted a vast potential supply of milk which can be diverted into market milk channels if economic conditions are favorable. It is apparent that prices paid to producers of me»rket milk shipped to San Francisco are basically related to prices paid to producers in the milk shed for milk fat utilized in manufactured dairy products — referred to as manufacturing milk. Manufacturing Milk Prices . — > The bulk of manufacturing milk produced in California is processed into butter — other important manufactured dairy products are evaporated milk and cheese. All three of these products move in interstate and even in international trade. Prices of these products in the different markets of the United States are closely related and there is some relationship between domestic prices and prices in a world market like that of London. Prices paid to producers of manufacturing milk in California are thus determined by national and even world conditions of demand and supply. They are generally regarded as being extremely sensitive to changes in either demand or supply conditions. Manufacturing milk prices exhibit a distinct seasonal movement -- prices are high in the late fall and winter months when production is low and decline in the spring and early summer when production is at a high level. There is usually a wide seasonal fluctuation in production as manufacturing milk pro- ducers tend to allow their production to fluctuate with pasture and feed condi- tions. Manufacturing milk producers as a general rule purchase very little feed — but rely chiefly upon pasture and, in some parts of the country, upon home-grown alfalfa and other hay. Prices paid for manufacturing milk are usually based on butter prices in the nearest wholesale market. During the years 1925 to 1929 wholesale prices of 92-score butter in San Francisco fluctuated seasonally between 40 and 54 cents a pound, the annual prices during these years averaging about 45.5 cents. During the same period prices paid to producers of manufacturing milk in Stanislaus County fluctuated seasonally between 52 and 70 cents per pound milk fat, the annual prices aver- aging around 58 cents. The higher level of prices for milk fat than for butter is due to (l) the fact that butter contains on], 80 per cent of milk fat, and (2) the fact that the price for milk fat included an allowance for skim milk. Between 1929 and 1933 prices of butter and manufacturing milk declined annually, wholesale prices of 92-score butter in San Francisco averaging only 21.1 cents per pound in 1933. Prices of manufacturing milk averaged only 27.4 cents per pound of milk fat. Prices of butter and manufacturing milk have in- creased greatly from the low point of 16,6 cents in November 1933. The average wholesale price of butter (92-score) in San Francisco in 1934 was 25.1 cents per pound. The monthly prices in 1935 have averaged consistently above those for the corresponding months of 1934. Prices paid to producers for manufacturing milk have shown a similar increase. (Table 1 and fig. 1. ) Di fferential Between Market Milk and Manufacturing Milk Prices . — ■ Pro- ducers of market milk have to comply with sanitary regulations which entail some additional cost of production. They are also usually located further from their market than manufacturing milk producers and thus have to meet higher trans- portation costs. In addition they have to produce a more uniform supply of milk throughout the year, which entails heavier feeding expenses. Much of the feed has to be purchased. There are two general methods of ascertaining these additional costs, (a) the cost of production method, and (b) the historical method. (a) Cost of production method . This method involves making a study for all or a representative group of dairymen of the additional cost of producing market milk. This method, however, is open to several grave difficulties. In the first place accountants are divided in opinion as to just what items should be included as costs. In the second place, the additional costs of production will be found to vary considerably from farm to farm depending upon such factors as the size of the farm, the original investment in farm and equipment, the efficiency of the individual farm operator, and the distance of individual farms from a market such as San Francisco. A considerable range in the additional costs will be found to exist and the problem then arises as to just what costs to use -- high, low, or average, or some other cost. In the third place, cost factors themselves fluctuate. Labor rates, cost of equipment, and feed costs change considerably from time to time and are used in different proportions from time to time. For example, high wages of milkers may induce a dairy farmer to install a milking machine which enables him to use less labor. Continuous cost studies would thus have to be made in order to keep such information up to date. This is a very costly undertaking, ( b ) The historical method . This involves studying the difference between market milk and manufacturing milk prices over a period of time and observing closely the tendency for movement of producers from the production of the one to the other type of milk. This method has the merit of being simple and not greatly subject tc bias. Data on prices paid for market milk and manufacturing milk are obtainable from various sources. Data on movement of producers can be obtained from health departments and from dealers. This method, however, must be used with a great deal of caution. Prices quoted for market milk are usually the prices for that proportion of each pro- ducer's supply that is bottled and distributed as market milk. The proportion varies greatly from time to time. Prior to 1929 producers in San Francisco carried very little surplus so that the prices received for market milk repre- sented very nearly the average price received by them for their milk. Since 1930, however, a considerable surplus has developed. This has to be sold as manufacturing milk at lower prices. As a result, the average prices received by producers may be, and probably are, several cents below the basic or quoted prices . In most markets there was a distinct monopoly element in prices paid to producers of market milk prior to 1930. In other words, various devices were used to make it difficult for new producers to get into the market; health de- partments were unwilling to issue new permits, distributors had agreements with producers' associations or individual producers. Under monopoly conditions prices are maintained at higher levels than if prices were determined on a competitive basis. These monopoly conditions continued into 1930 and 1931 and even to 1932, in both the East Bay cities and San Francisco. They broke down as a result of a growing surplus, due to the entrance of new producers, some in- crease in production on the part of old producers and a decline in the volume of consumption. There was undoubtedly a monopoly element present in prices in both these markets prior to 1930, but just how much is impossible to say. The monopoly element was somewhat higher for San Francisco than for the East Bay cities. In San Francisco prices were maintained several cents higher per pound of milk fat up to 1931. (See fig. 4, Exhibit A.) Since June, 1932, prices to producers shipping milk to the two markets have, except for occasional distur- bances, been on about the same level. Because of a somewhat greater monopoly element in the San Francisco market milk prices prior to 1930, the trend of prices in the Oakland market (East Bay) gives a more representative picture of the competitive relationship between market milk and manufacturing milk prices. During the years 1925 to 1929 there was little movement of producers into or out of the East Bay milk market. The monopoly element was probably not very pronounced. 4. A third difficulty in an historical analysis of prices is the fact that prices of the cost factors, which compose the additional cost of producing market milk, themselves are subject to change. Feed costs are a more important element in producing market milk than for manufacturing milk. Transportation costs also are an important constituent of additional costs. Because market milk dairies are usually larger than dairies producing manufacturing milk, more hired labor has to be used. Changes in wages of hired labor thus need consider- ation . Bearing these limitations of the historical method in mind, it is found that during the predepression period (1925 to 1939) the differential of market milk prices in San Francisco over those of manufacturing milk ranged from 28.6 cents per pound of milk fat in 1929 to 35.5 cents in 1926. The average for the five years was about 31 cents. (Table 1, figures 1 and 2.) However, the differential for the East Bay cities ranged several cents lower, from 16,1 cents in 1925 (when there was a milk war in these cities) to 26.3 cents in 1928. (Table 2, figures 1 and 2 .) The average for the four years 1926 to 1929 was about 24.3 cents. It is probable that there was some monopoly element even in the prices paid for market milk going to the East Bay cities so that a differ- ential of 22 or 23 cents may more accurately represent the competitive differ- ential in additional costs. These figures can be regarded as reflecting the competitive position in San Francisco as well, The differentials increased in both markets from 1930 to 1932, due to the fact that prices paid for market milk declined less rapidly than prices paid for manufacturing milk. Since 1933, however, the differential has declined in both markets. In 1934 the differential was 24.6 cents in Oakland and 21.6 cents in San Francisco. During the first six months of 1935 the differential in both markets averaged 21.7, which was below the average differential in Oakland dur- ing the predepression period, even allowing for some monopoly element. 2. Cost of Feed, Labor, and Transportation Changes in Feed Costs. — Feed costs constitute approximately 50 per cent of all costs of producing market milk, (Exhibit A, table 19.) Feed costs have fluctuated violently both seasonally and from year to year. A pound of market milk in San Francisco bought in excess of 82 pounds of feed during the years 1925, 1926, 1930, and 1932; between 7$ a gnd 80 pounds during the years 1928, 1931, and 1933. Buying power of market milk A below 70 pounds of feed during the years 1929 and 1934. During the first eight months of 1935 buying power averaged only 71.3 pounds. Prices of feed usually increase during the fall and winter months, and buying power in terms of feed will probably decline somewhat during the balance of the current year. It is improbable that the average buying power in terms of feed for the year 1935 will not exceed 73 pounds. (Table 3 and fig. 3. ) Buying power of market milk in terms of feed during 1935 will thus be somewhat unfavorable. This would justify a somewhat higher price for market milk than if the ratio of feed prices to market milk prices were more favorable. Transportation Charges . — Transportation charges on market milk to San Francisco were reduced approximately 20 per cent as from January 1, 1934 (table 5), whereas transportation charges for manufacturing milk have remained practically 5. TABLE 1 Prices of Market Milk at San Francisco, Manufacturing Milk at Country Point (Gustine and Los Banos) and Wholesale Prices of Butter at San Francisco (January, 1925 - August, 1935) Differential between V o o v\ iear ana Market milk Manufacturing 92 score butter market milk and manu- vm f~\ Y*\ T montn price at San milk at ax facturing milk Francisco country point San Francisco Monthly Quarterly cents per pound cents per pound of milk fat cents por pound of milk fat 1925 .Tp nnfl v* it \) Clll U CM V QP 0 D O » 0 A^ 7 ?R A r cui uai v set, u DO »U 4P * ! • O XP. Pi JO , U March qp n oo.o 42,5 P vJO • *V ^ Q 03 , V April qp n jO,U 39.9 ■2,0 n qp n P ^Q Q XR 9, OO t 0 June 92 0 S3 M 0 S3 44. 0 7 i4 4 ^7 4 .Tl 5 1 V 92 D 60 Q 4R 3 ox . X 92 0 •/■.ft/ • w 64 0 2fi 0 S e d t e mb e r 92 0 i 65 ft 51 7 26 2 28 4 Octobe r 92 0 69 0 54 0 23 0 Wovembe r 92 0 69 8 54„ 3 22 4 December 92.0 65.0 48*7 27.0 24.1 Average 92.0 60.6 46.6 31.4 1926 January 92.0 58. 5 43.8 33, 5 February 92.0 57.9 45,8 34.1 March 92.0 53.2 42,8 38.8 35 . 5 April 92.0 52.0 40,8 40.0 May 92.0 52.1 40.1 39.9 ■ June 92.0 52.5 40,5 39.5 39.8 July 92.0 53.6 40.7 38.4 A \ 1 2"1 1 R t 92.0 57.4 43,6 34,6 Se p t embe r 92.0 58.2 44.3 33.8 35.6 October 92 0 5ft 5 44.5 33 5 November qp n en A OU • O 45.2 7,1 A ox . L ± December no r\ . U 47.7 OQ A 7.1 1 01 . 1 Average 92.0 56.5 43.2 35.5 1927 To V) 1 1 p» VMr 92.0 63.6 47 5 28.4 92.0 63,8 47 7 28.2 Mar c n 92,0 62.4 29^6 28,7 April 92.0 59.2 42.4 32.8 May 92.0 58.2 41,7 33,8 Juae 92.0 58.8 41,8 33.2 33,3 July 1 92.0 58.6 41,6 33.4 August 92.0 60.7 44.1 31.3 September 92.0 62.6 46.7 29.4 31.4 October 92.0 63.3 48.4 28.7 November 92.0 63.4 48.9 28.6 December 92.0 62,3 48.5 29.7 ! 29.0 Average 92.0 61.4 45.3 30.6 Table 1 continued on next page . / " - ■■:*■} ■' / i) / 6 Table 1 continued. Year and Market milk Manuf a c tur ing 92 score butter Differential between month price at San milk at at market milk and manu- Francisco country point San Francisco facturing milk Monthly Quarterly cents per pound of milk fat cents per pound cents per pound of milk fat 1928 January 92.0 60.0 46.4 25.8 February 89.0 58.7 45.2 30.3 March 89.0 57.0 43.4 32,0 29.4 April 89.0 53.4 39.9 35.6 May 89.0 55.1 41.7 33 ,9 June 89.0 56.4 43.0 33.6 34.4 July 89.0 58.9 45.6 30.1 August 89.0 60.9 47.6 28 .1 September 89.0 64.2 50.3 24.8 27.7 October 89.0 64.8 . 50.9 24.2 November 89.0 63.2 49.2 25.8 December 89.0 64.0 49.7 25.0 25.0 Average 89.2 59,7 46.1 29.5 1929 i January 89.0 59.8 29 .2 February 89.0 61.7 47,5 27.3 March 89.0 59.0 44.6 30.0 28,8 April 89,0 57.4 43.1 31,6 May 89.0 59.3 45,0 29-7 June 89.0 59.3 44.8 29.7 30.3 July 89.0 60.0 45.0 29 .0 August 89.0 60.9 46.1 28.1 September 89.0 63.6 48.7 25.4 27.5 October 89.0 63.3 48.3 25.7 November 89.0 63.0 48.0 26.0 December 89.0 57.0 ■ 41.7 32.0 27.9 Average 89.0 ' 60.4 45.7 28.6 1930 January 89.0 51.4 36.5 37.6 February 89.0 52.7 37.6 36.5 March 89.0 50.5 37.7 38.5 37.5 April 89.0 51.8 38.8 37.2 May 89.0 49.8 36,7 39.2 June 89.0 47.0 34.0 42.0 39.8 July 89.0 47.0 33.9 42.0 August 89.0 50.0 37.2 39.0 September 89.0 52.0 39.0 37.0 39.0 October 89.0 49.6 37.1 39.4 November 89.0 46.3 38.1 42.7 December 89.0 44.7 33.1 44.3 43.1 Average • 89.0 49,4 36.6 39.6 1931 January 89.0 37.3 26.2 51,7 February 67.0 38.8 28 .5 28.2 March 67.0 38.4 28 ,2 28 .6 36.2 April 67,0 3 2 0 o 34.7 May 67.0 32.4 25,3 34.6 June 67.0 30.5 25.0 36.5 35,3 Table 1 continued on next page. Table 1 continued. 7. Year and Market milk Manufacturing 92 score butter Differential between month price at San milk at at market milk and manu- Francisco country point San Francisco facturing milk Monthly Quarterly cents per pound of milk fat , , , cents per pound cents per pound of milk fat 1931 July 67.0 31.0. 26 . 2 36.0 August 67.0 34.6 29.6 32.4 September 67.0 35.9 30.5 31.1 33.2 October 60.0 37.8 31.9 22.2 November 60.0 39.0 32.0 21.0 December 60.0 36.3 29.7 23.7 22 . 3 Average 67.1 35.4 28.1 31.7 1932 January 63.0 30.9 24.4 32.1 February 63.0 30.5 24.0 32. 5 March 63.0 29.4 22.9 32. 7 April 63 0 25 20.0 37.5 May 63.0 25.0 19.5 38.0 June 63.0 23.4 17.9 39.6 38.4 July 63.0 24.4 18.9 38.6 August 63.0 26.2 20.7 36.8 September 63.0 26.5 21.0 36.7 37.4 October 63.0 27.4 21.9 35.6 November 63.0 31.2 25.7 31.8 December 63.0 32.4 26.9 30.6 32.7 average 63.0 27.0 22.0 36.0 1933 January 63.0 25 . 6 20.1 37.4 February 63.0 24.3 18.8 38.7 March 53.0 24.8 19.3 29 2 35 1 April 51.0 26 1 20.6 24. 9 May 51.0 29.4 22.9 21.6 June 51.0 29.5 23.0 21.5 22.3 July 51.0 31.5 24.0 19.5 August 51.0 29.9 21.4 21.1 September 51.0 30.1 20. 6 20.9 20.5 October 55.0 30.7 22.2 24.5 November 61.0 25.1 16.6 35.9 December 61.0 31.1 21.1 29. 9 30.1 Average 53.8 27.4 21.1 26.4 1934 January 58,0 25.3 16. 8 32.7 February 58.0 30.3 23.8 27.7 March 58.0 29. 9 23.4 28.1 29.5 April 50.0 27.7 21.2 22.3 May 50.0 27.6 21.1 22.4 June 50.0 31.0 22.5 19.0 21.2 Table 1 continued on next page. table 1 continued 8. Year and Market milk Manufacturing 92 score butter Different! al between month price at San milk at at market milk and manu- Francisco country point Sa'n Francisco facturing milk Monthly Quarterly cents per pound of milk fat cents per pound cents per pound of milk fat 1934 July 50.0 31.6 23.1 18.4 August 50.0 35.0 26 . 5 15.0 September 50.0 36.2 27 . 7 13.8 15.7 October 62.0 37.5 29 .0 25.5 November 62.0 41.2 32. 7 20.8 December 62.0 41.4 30, 9 20.6 22.3 Average 55.0 33.4 25. 1 21.6 1935 o cm u dl jr 62.0 43.0 Oez . \) 19.0 February 62.0 45.2 34.7 16.8 March 62.0 40.8 30.3 21.2 19.0 : April 62.0 39.0 28.5 23.0 May 62.0 37.5 27.0 24.5 June 62.0 36.2 26.7 25.8 24.4 July 62.0 35.4 25.9 26.8 August 62.0 37.1 27.6 24.9 Sources of data: Market milk prices: U. S. Dept. Agr. Bur. Agr. Econ. Monthly market milk reports. January, 1925 to August, 1935. Manufacturing milk prices: From the Golden State Company, Ltd. Butter prices: Federal- State Market News Service for San Francisco. Differential: Market milk prices less manufacturing milk prices. O CD O •H U a) rH cd ra CD rH O cd y — -x to a> rH 1 o LO o aj cr> T3 rH aS o o rH CO ■H w cd O CC rH c D cd C3 cd .Jh H o fa fa o cd o to CO ■H 1 O u 1 CD ■» .p. l imn 1 £ 3 4 cents per pound of milk fat cents per pound cents per pound of milk fat 1925 January 77.7 56.6 43.7 21.1 February 77.6 56.0 42.3 20.6 March 74.3 55 »S 42.5 18.5 20.1 April 78.8 53.0 39.9 25.8 May 74.2 O 3 a 2 39.9 21.0 June 74.3 57.6 44.0 16.7 21.2 T--ii *l July 73.5 60.9 48.3 12.6 August 74.8 64.0 50.0 10.8 September 76.4 65,8 51.7 1 0 6 11.3 J- J- # %J October 78.4 69.0 54.0 9.4 November 80.4 69.8 54.3 10.6 December 80.0 65.0 48.7 15.0 11.7 Average 76.6 60.6 46.6 16.1 i r, o c January 80.9 58.5 43.8 22.4 r euruary 81.0 57.9 45.8 23.1 March 79.3 53.2 42.4 26.1 23.9 April 78.8 52.0 40.4 ; 26.8 May 79.0 52.1 40.1 26.9 • June 79.4 52.5 40 . 5 26.9 26.9 ■July 78.3 55.6 40.7 24 . 7 August on A OU.41: o i .4 43.6 23.0 Sept ember 79.5 58 . 2 44 . 3 21.1 22.9 October 78.4 58.5 44.5 19.9 November 78.4 60.6 45.2 17.8 December 79.2 63.6 47.7 15.6 17.8 Average 79.4 56 .5 43.2 22.9 1927 tTf? mm t*v 81.0 63.6 £ i ( . O 17.4 February 83.0 63 .8 47.7 19.2 March 83.0 62,4 45.4 20.6 19.1 April 83.0 59.2 42.4 23.8 May 83.0 58.2 41.2 24.8 June 84.0 58.8 41.8 25.2 24.6 July 84.0 58.6 41.6 25.4 August 84.0 60.7 44.1 23.3 September 84.0 62.6 46.7 21.4 23.4 October 86.0 63.3 48.4 22.7 November 86.0 63.4 48.9 22.6 Table 2 continued on next page Table 2 continued • 11. Year and Market milk Manuf a c t ur ing 92 score butter Differential between month price at milk at at market milk and manu- Oakland country point San Francisco f acturin % milk "Ifonthly Quarterly 1 2 3 4 5 cents per poimH of milk fat cents per pound cents per pound olHidlF'fat"~" 19£7 December 86.0 62.3 48.5 23.7 23.0 Average 84.0 61.4 45.3 22.5 1928 January- 86.0 60.0 46.4 26.0 February 86.0 58.7 45. 2 27.3 March 86.0 57.0 43.4 29.0 27.4 April 86.0 53.4 39.9 32.6 May 86.0 55.1 41.7 30.9 June 86.0 56.4 43.0 29.6 31.0 July 86.0 58.9 45.6 27.1 August 86.0 60.9 47,6 25.1 September 86.0 64.2 50.3 21.8 24.7 October 86.0 64.8 50.9 21.2 November 86.0 63.2 49.2 22.8 December 86.0 64.0 49.7 22.0 22.0 Average 86.0 59.7 46.1 26.3 1929 January 86.0 59.8 45.9 26.2 February 86.0 61.7 47.5 24.3 March 86.0 59.0 44.6 27.0 25.8 April 86.0 57.4 45.1 28.6 May 86.0 59.3 45.0 26.7 June 86.0 59.3 44.8 26.7 27.3 July 86.0 60.0 45,0 26.0 August 86.0 60.9 46.1 25.1 September 86.0 63.6 48.7 22.4 24.5 October 86.0 63.3 48.3 22.7 November 86.0 63.0 48.0 23.0 December 86.0 67.0 41.7 29.0 24.9 Average 86.0 ! 60.4 45.7 25.6 1930 January 86.0 51.4 36.5 34.6 February OS r\ oo.U 37.6 33.3 March 86.0 50.5 37.7 36.5 34.8 April 86.0 51.8 38.8 34.2 May 82.1 49,8 36.7 32.3 June 82.1 47.0 34.0 35.1 33.9 July 84.1 47.0 33.9 37.1 August 84.1 50.0 37.2 34.1 September 84.1 52.0 39.0 32.1 34.3 n c "H n T"i p v 60.5 49.6 10.9 November 57.5 46.3 58.1 11.2 December 57.5 44,7 33.1 12.8 11*6 Average 78.0 49.4 36,6 28.6 Table 2 continued on next page. Table 2 continued. 12. Tear and Market milk Ma nuf aoturing 92 score butter Differential between month price at milk at at market milk and manu- Oakland country point San Francisco facturing milk Monthly Quarterly 1 3 4 5_ cents per pound of milk fat cents per pound cents per pound of milk fat 1931 January 67.0 37.3 26.2 ? Q 7 February 74.0 3R R 28.5 35.2 March 74.0 38.4 28.2 35.6 35.5 April 74.0 32.3 24,3 41.7 May 74.0 32.4 25.3 41.6 June 74.0 30.5 25.0 43 . 5 42.5 July 72.0 31.0 | 26.2 41.0 August 70.0 34.6 29.6 55.4 September 70.0 35.9 30.5 34.1 56.8 October 70.0 | 37.8 31.9 32.2 November 70.0 39.0 32.0 31.0 December 70.0 36.3 29 .7 33.7 52.5 Average 71.6 35.4 28.1 57.0 1932 January 70.0 30.9 O A A 24,4 59.1 February 70.0 30.5 O A r\ 24.0 59.5 March 70.0 29.4 22.9 40.6 59.7 April 70.0 25.5 20.0 44.5 May 64.0 25.0 19.5 59.0 June 63.0 23.4 17.9 I 59.6 41.0 July 63.0 24.4 18.9 58,6 August 63.0 26.2 20.7 56.8 September 63.0 26.5 21.0 56.5 57.5 October 63.0 27.4 21.9 55.6 November 65.0 31.2 51.8 December 63.0 32.4 26.9 30.6 52.7 Average 65.4 27.0 22.0 58.4 1933 January 63.0 25,6 20.1 57.4 February 63.0 24.3 18.8 58.7 March 63.0 24.8 19.3 38,2 58.1 April 57.0 26.1 20.6 50.9 May 51.0 29.4 22.9 21.6 June 51.0 29.5 23.0 21.5 24.7 July 51.0 31.5 24.0 19.5 August 51.0 29 .9 21.4 21.1 Oil September 51.0 30.1 20.6 20.9 20.5 uc to Der 51.0 30.7 9 9 9 cc . c 20.3 November 56.6 25.1 16.6 31.5 December 58.0 31.1 21.1 26.9 26.2 Average 55.5 27.4 21.1 28.1 Table 2 continued on next page. Table 2 continued. 13. Year and Market milk Manuf a c t ur ing 92 score butter Differential between month price at milk at at market milk and manu- country point San Francisco facturing milk Monthly Quarterly i 2 6 4 5 cents per pound of milk fat c ent s per po und cents per pound of milk fat 1934 January 54.0 25.3 lb ,o 28.7 February 51.0 30.3 CO .8 20.7 March 58.0 29 .9 co ,4c 28 .1 25 .8 Apr i 1 58 ,0 27, 7 01 0 Cl o C, 30,3 May 58.0 27 .6 9 1, J. 30,4 June 56.0 31,0 25.0 28,6 July 56.0 31.6 23 ,1 24,4 August 56,0 35,0 26.5 21.0 September 62.0 36.2 27.7 25.8 23.7 October 62.0 37.5 29.0 24.5 November 62.0 41.2 32.7 20,8 December oc ,U A T A 30. y 20.6 25.3 Average 58.0 33.4 2o . 1 24.6 1935 January 62.0 43,0 32.5 19.0 February 62.0 45,2 34.7 16.8 Marcn 62.0 40.8 30,3 21.2 19.0 April 62.0 39.0 28.5 23.0 62.0 37.5 > to o o t: cd O O ra •H O o3 !h 03 CD •| to, CO. CO| CM Oi , CO o, CO 1 .1 LOL tol I in r-Hl CO. o o CO o o o jo punod J9d s 4U9 q o o CO o C\2 o o jospunod aad sq.uao - *,^„r^,. ... >' : i , .. . ; TABLE 3 15. Number of Pounds of Dairy Feed Purchasable with One Pound of Milk Fat January, 1926-August, 1935 DUyxIlg, pi il/C 1 If V.J • liv D • XC v^U j^LIx Yp q v 1 a y*i H J. C CXI CLIl U. of* ylr p 1-'lLi AC I Wholesale price of dairy feed 1 chasabie with one IMKJIX oil trn IV p + UJ X J- A u ax oan r ran ci sco lb. milk fat (on OciXl r X fillOJ. oUU wholesale basis) o o A donar s cenxs per oi mi ik x o b per ton pound v\ c\ 1 1 v*i H o PU UllU b X J ^ D T o n 1 1 r j v* tr iJ cwlucxl y 92 co, iy 1 . lo 79 % r cui udx y QP 17 C cj, 1U T 1 C 1 . lb 7Q v , R/if-i v» r> V> QP ./ C 22,85 U14 ftn 7 OU t / A r> v» 1 T Hp I J_J_ QP ^/ C 22.48 1.12 ftP T OC t 1 May 92 cc , oy T TO 1 ,1c 82.1 June 92 pi Cl »*±0 T H7 1 ,U / 86.0 Jul) QP PP PP CC ,cc T T T 1 • 11 RP Q OC . 2 1 incust n ut o 92 on i o cU » 1c T m 1 .Ul 91 T SPnt PTlbPT I. J w VJ \j \~ ■ J I t-J x 92 1 J , 0 1 n QQ 92. 9 (Vt nh^y 9P pn r a 1 ,uo RQ "*> 92 Pfl ft? T DA 88 5 W W v-' 1U U ^ X | 92 pi X»uu 86 8 n v j. cL,p~t/ ; 92 PI AQ Cl ,D i> 1 Oft 1 »uo 8*5 2 1927 X v (y 1 Jrirniri r v 92 PI 1 ft Cl ,10 1 DA 1 ,UO 86 .8 92 pt pn Cl , i^U i ha 1 »UD 86 8 March 92 21.15 1.06 86 8 April 92 20,42 1.02 90 2 May- 92 pn 7Q T C\A 88.5 June 92 pfl ^ i np 1 ,u c 90.2 Till v 92 PI AQ C 1 « U C 1 D8 1 ,vj o 85 2 A 1 1 PT ) R + n \»i o 92 PT RT cl ,01 i nft 1 ,uo 85 2 Set) te tribe n 92 PP 7P 1 » 11 80.7 Oct nhp r 92 P 1 ^ Oft cO , UO T 1 R 1 » ID 80 0 IVU iXJ U^l 92 'J A Pft T PT 1 ,cl 76 0 n p f* P mh P V* UCwCUJUCi QP P/, Q ft c^ , y o 1 1 , CD 73 6 fl vprp *xp 92 OT Q /l ci ,y4 T in 1 . 1U 83 6 1 928 Jr. yi n fi r v 92 1 26 73 0 Febrile rv 89 26.00 1-30 68.5 March 89 26 97 1 35 65.9 April 89 26.53 1^53 66.9 May 89 25.95 1.30 68. 5 June 89 25,60 1.28 69.5 July 89 25.44 1.27 70.1 August 89 22.98 1.15 77.4 September 89 22.69 1.13 78.8 October 89 22.45 1.12 79.5 November 89 24.11 1.21 73.6 December 89 26 r 60 1.33 66.9 Average 89 25.04 1,25 71.2 Table 3 continued on next page. Table 5 continued. 16. Buying price No. lbs. feed pur- Year and of market Wholesale price of dairy feed chasable with one month milk at at San Francisco lb. milk fat (on San Francisco wholesale basis) 1 2 3 4 cents per pound dollars cents per of milk fat per ton pound pounds 1929 January 89 27.80 1.39 64.0 February 89 28.56 1.43 62.2 March 89 29.98 1.50 59.3 April 89 31 . 81 1.59 56.0 May 89 31.54 1.58 56.3 June 89 30.33 1.52 58.6 July 89 1 , «_o 66.9 August 89 23.43 1.17 76.1 St j n t p rnhi 1 T* 89 23.80 1,19 74.8 October 89 23.99 1.20 74.2 November 89 24.65 1.23 72.4 December 89 25.20 1.26 70.6 Average 89 27.31 1.37 65.0 1930 January 89 25 , 31 1.27 70.1 February 89 25.09 1.25 71.2 March 89 24.45 1,22 73.0 April 89 23.47 1.17 76.1 May 89 22.47 1.12 79.5 June 89 19.94 1.00 89.0 July 89 n on 98.9 August 89 18.92 0.95 93.7 September 89 18.89 0.94 94. 7 October 89 18.21 0.91 97.8 November 89 18.17 0.91 97.8 December 89 20.06 1.00 89.0 Average 89 21.08 1.05 84.8 1931 January 89 20.17 1.01 88.1 February 67 19.02 0.95 70.5 fife rch 67 17.90 0.90 74.4 April 67 19.06 0.95 70.5 May 67 18.91 0.95 70.5 June 67 17.18 0.86 77.9 July 67 lb ,oi n no U. Is 84.8 August 67 15.38 0.77 87.0 S e n t r mh p r 67 15.15 0.76 88 2 October 60 16.06 0.80 75.0 November 60 17.69 0.88 68.2 December 60 17.58 0.88 68.2 Average 67 17.50 0.88 76.1 1932 January 63 17.71 0.89 70.8 February 63 19.14 0.96 65.6 Table 3 continued on next page. 17, Table 3 continued, Buying price Ufif JJds, feed pur- Year and of market Wholesale price of dairy feed chasable with one . month milk at at San Francisco lb. milk fat (on San Francisco .wholesale basis) 1 2 3 4 cents per pound dollars cents per of milk fat per ton pound pounds 1932 .'March 63 17.93 0.90 70.0 April 63 16.99 0.85 74.1 May 63 14.69 0.73 86.3 June 63 14.67 0.73 86.3 July 63 12.27 0.61 103.3 August 63 12.56 0.63 100.0 September DO 12.76 0.64 Q Q A October 63 13.89 0.69 91.3 November 63 14.63 0.73 86.3 December 63 15.61 0.78 80.8 Average 63 15.24 0.76 82.9 1933 January 63 15.11 0.76 82.9 February 63 14.05 0.70 90.0 March 53 13.74 0.69 76.8 April 51 13.25 0.66 77.3 May 51 13.59 0.68 ■ 75.0 June 51 13.60 0.68 • 75.0 July 51 14.29 0.71 71.8 August 51 14.78 0.74 68.9 September 01 13.85 0.69 7 "2, Q /O.J October 55 14.17 0.71 77.5 November 61 15.50 0.78 78.2 December 61 16.41 0.82 74.4 Average 55 14.36 0.72 76.4 1934 January 58 16.46 0.82 70.7 February 58 15.89 0.79 73.4 March 58 15.22 0.76 76.3 April 50 14.87 0.74 67.6 May 50 14.74 0.74 67.6 June 50 15.32 0.77 64.9 : July 50 15.88 0.79 63.3 August 50 17.93 0.90 55.6 September 50 19.27 0.96 CO ~\ DC . X October 62 19.61 0.98 63.3 November 62 20.60 1.03 60.2 December 62 20.92 1.05 59.0 Average 55 17.23 0.86 64.0 1935 January 62 20.27 1.01 61.4 February 62 19*62 0.98 63.3 : March 62 18*49 0.92 67.4. Table 3 continued on next page* Table 3 continued. 18. Buying price No, lbs. feed pur- Year and of market Wholesale price of dairy feed chasable with one month milk at at San Francisco lb. milk fat (on San Francisco wholesale basis) 1 O % 4 cents per pound dollars cents per of milk fat per ton pound pounds 19 35 April 62 19.37 0.97 63.9 May 62 18.47 0.92 67.4 June 62 15.34 0.77 80.5 July 62 14.63 0.73 84.9 August 62 15,34 0.77 80.5 Sources of data: Col. 1: U. S. Dept. Agr. Bur. Agr. Econ. Monthly fluid milk report for the United States. (Note: Prices in reports are for 100 pounds of milk containing 35 per cent milk fat. These have been converted in above table to a price per pound milk fat by dividing prices quoted by 3.5. When two or more prices are Quoted, the highest price is shown.) Cols. 2 and 3: From data on wholesale prices of feed in San Francisco compiled by the Agricultural Extension Division of the University of Cali- fornia. In computing the composite feed prices the following weights were used: Alfalfa, 45; cracked corn, 1; ground barley, 4; rolled oats, 1; cottonseed meal, 2; bran, 3; sugar-beet pulp, 2; linseed meal, 2. Col* 4: Col. 1 divided by col. 3. TABLE 5 Transportation Charges on Market Milk, San Francisco Rates to be Transportation tentatively in rates per can effect from to East Bay Jan 1, 1934 Local metropolitan under county- area before foregoing area reduction conditions Salinas (Gilroy pick-up) 30/ 24/ Gilroy 30 24 Coyote to San Jose 25 20 San Jose and north 22* 17-1 Agnew 22* lit Palo Alto 20 16 Milpitas 20 16 Sunol 20 16 Irvington 18 -■ . f Newark 18 I4i Niles 18 14-J Decoto 18 14§ Centerville 18 14j Alvarado 15 12 Mt. Eden 15 12 Hayward 15 12 San Lorenzo 15 12 San Leandro 15 12 Woodland 50 J 24 Dixon 30 24 Elmira 30 24 St, Helena (Oakville pick-up) 30 24 Oakville 50 24 Yountville 30 24 Napa 30 24 Sonoma 30 24 Vallejo 25 20 Pinole 18 San Pablo 13 ioi Richmond 13 lot Patterson 30 24 Modesto 30 24 Salada 30 24 Ripon oO Manteca 30 24 Lathrop 30 24 Vernalis 25 20 Banta 25 20 Tracy 25 20 Table 5 continued on next page. 21. Table 5 continued. Rates to be Transportation tentatively in rates per fan el i ecx i rom to st Bay- Jan 1, 1934 Local metropolitan under country- area before foregoing area reduction conditions Pleasanton 20p lop Stockton (Roberts -Union Island area) 30 24 tlolt 60 Oakley 25 20 Knight sen 25 20 Brentwood 25 20 Dyron Cj\J Bethany- 25 20 Walnut Creek 20 16 * A basic reduction of 3^ per can was made effective for these points. Source of data: From Golden State Company, Ltd, 22. stationary for the past decade. The transportation charges from the base point (Los Banos and Gustine ) in 1929 was about 35 cents per 10-gallon can or about 11 cents per pound of milk fat (3.7 per cent test). A 20 per cent reduction in transportation rates would amount to about 2.2 cents per pound of milk fat, which for comparative purposes would reduce the predepression average differential for market milk shipped to Oakland to 22.1 cents (24.3 - 2.2) per pound of milk fat. Labor Costs. — Labor costs constitute about 20 per cent of all costs of producing market milk (Exhibit A, table 19). During the years 1927 to 1930 it toek about 90 pounds of milk fat a month to pay the average monthly wage of a milker. By 1932 wages had declined more rapidly than prices of market milk so that only 63 pounds of milk fat were required. The average wage of milkers in- creased about $20 or 50 per cent from 1932 to 1933 (second half), whereas there was no increase in milk fat prices. If milkers' wages remain unchanged during the balance of the current year, approximately 97 pounds of milk fat will be re- quired to pay the average wage of a milker, a ratio relatively less favorable than that prevailing during the years 1927 to 1930. (Table 4 and fig. 4. ) The unfavorable ratio of milk fat to wages would justify a somewhat higher differential than that prevailing during the predepression period. Conclusion. -- The average annual differential between market milk and manufacturing milk prices (for Oakland) during the predepression period was 24.3 cents per pound of milk fat. Allowing for some element of monopoly in these prices a price of 23 cents would seem to more accurately reflect the competitive differential. The reduction of 20 per cent in transportation costs would indi- cate a .justifiable reduction in the differential of about 2 cents per pound of milk fat or to 21 cents. However, the buying of market milk in terms of both feed and milkers' wages is unfavorable. This would justify a somewhat higher differential. Moreover, the 62 cents per pound of milk fat paid to producers during 1935 represents the base buying price. After deductions for market stabilization (loss on disposal of surplus) the prices actually received by pro- ducers (f.o.b. San Francisco) may be several cents less than the base price. This also would justify a somewhat higher differential. The historical method would indicate that a differential between market milk prices in San Francisco and manufacturing milking prices in the milk shed of around 23 to 24 cents (per- haps somewhat higher) would be warranted. During the first eight months of 1935 the prices of manufacturing milk averaged about 39 cents per pound of milk fat. Adding 23 cents to this figure would indicate a price in San Francisco of 62 cents per pound of milk fat. This figure, however, would appear to be conservative. It is necessary to again stress the fact that it is impossible to deter- mine exactly what prices should be paid to producers for market milk at any particular time. At best, such prices can only be determined approximately, because the influence of many of the factors constituting the additional costs of production themselves can only be approximated. Established prices should thus be subject to change when, conditions justify. Danger signals are a tendency for producers to change from market milk production to manufacturing milk, or vice versa. Such movements, together with a constant consideration of the trend in manufacturing milk prices and the buying power of market milk in terms of feed and labor, should serve as a guide to changes in prices to producers. 23. TABLE 4 Wages of Milkers and Pounds Milk Fat Required to Pay Wages* Year Monthly wages of milkers Price per pound of milk fat Wo. of pounds of milk fat required to pay average wae^e J_iOW dollars nign dollars nv cf age dollars Cents per Dound 1925 80 100 90 92.0 98 1926 80 100 90 92,0 98 1927 75 95 82.50 92-0 90 1928 75 90 82.50 89-2 92 1929 75 90 82.50 89-0 93 1930 70 90 80.00 89.0 90 1931 50 80 65.00 67.1 97 1932 30 45 40.00 63,0 63 1933 30 45 40.00 53,8 74 1934 40 60 50.00 55.1 90 1935 First half 45 60 50.00 62.0 81 Second half 50 65 60.00 62.0 97 * Plus hoard and accomodation. Source of data: Supplied hy Murray and Ready, employment agents, San Francisco. 24. FIGURE 4 Number of Pounds Milk Fat Required to Pay Monthly Milker's Wage No. of lbs. milk fat 100- 90" 80- 7a- 60-- 50" 40" 30-- 20" 10- tn O- OO o> O rH ro CM C\2 C\2 cu tO CO to to CO CO cr> o> C7> cr> cn CD cn cn cr> cn cn rH rH rH rH rH rH rH rH rH rH rH 25 It would seem desirable that producers' prices be determined as often as every three months. If this is done any important changes in fundamental conditions influencing producers* prices can be given effect more rapidly than if prices are determined less frequently. This does not mean that prices would be changed every three months. A change in producers' price would not be necessary unless there had been a marked change in the basic factors affecting the situation. 3. Demand for Market Milk Consideration up to this point has been given only to price factors influencing the supply of market milk. To complete the picture consideration must also be given to factors influencing the demand for market milk. Pro- ducers of market milk are not only interested in the price they obtain but also in the volume of milk they can dispose of. A high level of consumption is of extreme importance from the producers' viewpoint. The peak of total consumption of milk in San Francisco was reached in 1927. Since that year consumption has tended to decline consistently, the de- cline being most marked since 1929. Meanwhile, however, population has in- creased. As a result, the decline in per-caoita consumption has been greater than for total consumption. In 1927 per-capita consumption amounted to .600 pints daily. In 1935 it was only .479 pints or a decline from 1927 of 20.5 per cent. (Table 6. ) The decline in per-capita consumption since 1927 and especially since 1929 has been due largely to decreased buying power. The progressive decline in birth rates during the past decade has also been an important contributing factor, because children consume more milk than adults. The decline in per- capita consumption was probably also due to the fact that retail prices for market milk were slow to decline after the beginning of the depression and that the percentage decline, except for a short period, was not very great. Retail prices in San Francisco remained at 14.0 cents a quart (wagon delivery) until the end of 1930, They averaged 13.0 cents during the first seven months of 1931 and 10 cents during the last five months of that year. Since the beginning of 1932 retail prices (except for eight months during 1933 when they were 11 cents) have been maintained at 12 cents per quart. The retail price of 12 cents pre- vailing during the years 1934 and 1935 represents only a 14.3 per cent decline from the 1925 to 1929 levels. The prices paid to producers for market milk, on the other hand, were 32 to 38 per cent lower during the years 1934 and 1935 than during the predepression period. (Table 7.) Retail prices are a combination of (l) the prices paid to producers, and (2) the margin per unit taken by distributors to cover unit operating costs including return on investment. During the years 1925 to 1927 the distribu- tors' margin in San Francisco for wagon delivery amounted to 6.09 cents per quart. During the next three years it averaged 6.35 cents. During the first seven months of 1931 it averaged over 7 cents, but was only 4.84 cents during the last five months of that year. The margin for 1932 averaged 6.58 cents, for 1933 6.59 cents, and for part of 1934 about 7.70 cents. Since October, 1934, the distributors' margin on wagon delivery has been 6,67 cents, which is about .32 of a cent higher than in the years 1928 to 1929. In contrast, distribu- 26. TABLE 6 Per-Capita Consumption of Market Milk in San Fra.ncisco County 1925-1934 Milk consumption pnnnl a + "5 nn Total Pints per capita dailv 1 2 3 thousands of gallons (i.e. . 000 omitted) 0 / U } 0 OO 15,392 0. 591 T Q OR 15 .762 0. 592 cnc nan 16,325 0.600 OU 0 , 003 16,077 0.567 1930 634,394 15,051 0.520 1931 645,411 15,712 0.534 1932 656,428 15,528 0.515 1933 667,445 14,864 0.488 1934 678,462 14,831 0.47 9 Sources of data: Col. 1: 1930: U. S. Dept. Com. Bur. of the Census. Fifteenth census of the United States, 1930. 1925-1929: were interpolated from the 1920 and 1930 Censuses. 1931-1934: calculated, assuming the same absolute annual increase as between 1929 and 1930, less 20 per cent. Col. 2: California State Dept. Agr. Bur. of Dairy Control. Statistic- al reports of California. Dairy products, annual issues. 1925-1934. Col. 3: Col. 2 divided by col. 1. TABLE 7 27. Buying Prices, Retail Prices, and Distributors' Margins on Quart Bottles of Pasteurized Milk Sold on Retail Routes in San Francisco 1 ' Buying price Buying price per Average retail Distributors' margins Year per pound of quart of milk price per quart per quart milk fat {4% milk fat) 1 3 4 cents 1925 92.0 7 . 91 14.0 6,09 1926 no n y^.o 7 Ol f . yi 14.0 b voy 1927 no r\ 92.0 7 . 91 14.0 6.09 1928 on r\ 89.0 / . bo 14.0 b . 35 1929 DO f\ / • bo T a r\ 14.0 C "Z EL b. oo 1930 89.0 7.65 14.0 6.35 1931 January on r\ by .0 7 C C f . bo 13. b D.ob February o / . u A 7 A 0,(0 io.U 7 9/ March A 7 O A 7 A 10. U 7 9/1 April a 7 n A 7C lo.O 7 O/l J . c4 Mav A7 n o / »u A 7 A O.JO 1 7 A 10. U 7 9/ J e &4 June a 7 n D / .U A 7 A D.JO 10. U 7 O/l J . c4 July a 7 n C 7 C D . / O lo.O 7 O/l i . c4 August A 7 Pi R 7 C 10 .0 /I O/l 4 . c4 September c 7 r\ b / .0 K 7 C 0 . j b 10.0 /I O /l 4. 24 October An n o(J . U o . ib 10. U A Q A 4. o4 November bU . 0 o . lb to o 10.0 /l OA 4.84 December bO.O o.lb to o 10.0 4. 84 Average £7 r\ b / .0 0,(1 T T r? o 11.79 CI C\ o b .02 1932 January b3»0 C A O 5 .42 12.0 c o 6.58 February bO„0 o .42 TO O 12.0 £ CO 6. 58 March OO.U R AO O , 4c, TO A 12.0 b . 58 April bo. U cr /id o . 42 TO O 12.0 £ CO 6.58 May a "z. r\ DJ»U c; yi o O . to o b . Do June bo.U K /ID T O O 12.0 b. Ob July S 4? i p o ICtU A Aft D.JO August 63.0 5.42 12.0 6.58 September 63.0 5.42 12.0 6.58 October 63.0 5.42 12.0 6.58 November 63.0 5.42 ! 12.0 6.58 December 63.0 5*42 12.0 6.58 Average 63.0 5.42 12.0 6.58 1933 J anuary 63.0 5.42 12.0 6.58 February 63,0 5.42 12.0 6.58 March 53.0 4.56 11.1 6.54 April 51.0 4,39 11.0 6.61 May 51.0 4.39 11.0 6.61 June 51.0 4.39 11.0 6.61 Table 8 continued on next page. I i Table 7 continued. 28. Buying price Buying price per Average retail Distributors' margins Year per pound of quart of milk price per quart per quart milk fat (45£ milk fat) I 2 3 4 cents T Q 'Z 1 July 51.0 4.39 11.0 6.61 August 51.0 4.39 11.0 6.61 September 51.0 4.39 11.0 6.61 October 55.0 4.73 11.0 6.27 November 61.0 5.25 12.0 6.75 December 61.0 5.25 12.0 6.75 Average 55.0 4.75 11.34 6.59 j. y o