xt78w950hp70 https://exploreuk.uky.edu/dips/xt78w950hp70/data/mets.xml   Kentucky Agricultural Experiment Station. 1960 journals 095 English Lexington : Agricultural Experiment Station, University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Progress report (Kentucky Agricultural Experiment Station) n.95 text Progress report (Kentucky Agricultural Experiment Station) n.95 1960 2014 true xt78w950hp70 section xt78w950hp70 FACTORS UNDERLYING
MILK OUTPUT AND SUPPLY RESPONSES
lll
- THE LOUISVILLE MILKSHED
By
. A. N. Halter, E. A. Proctor and L. H. Keller
Department of Agricultural Economics
Progress Report 95
` (Filing Code: 7)
UNIVERSITY OF KENTUCKY
AGRICULTURAL EXPERIMENT STATION
Lexington

  

 FACTORS UNDERLYING MILK OUTPUT AND SUPPLY RESPONSES
IN THE LOUISVILLE MILKSHED
By A. N. Halter, E. A. Proctor, and L. H. Keller
The supply and demand conditions affecting the production of Grade A milk in the
Louisville Milkshed are constantly changing. These changes affect milk producers in
both Kentucky and Indiana since counties of both states are included in the boundaries
` of the milkshed. Consequently, a joint research project between the Agricultural Ex-
_ periment Stations of Purdue University and the University of Kentucky was initiated to
analyze the technical and economic conditions which influence the actions of dairy
farmers marketing Grade A milk in the Louisville milkshed.
THE RESEARCH PROJECT
The title of the overall research project from which this report originated is,
"Cost and Returns of Various Sizes of Dairy Operations and Supply Responses of Milk
Producers to Changing Prices in the Louisville Milkshed. " The specific objectives
and problems established for the project were:
(l) To determine input—output relationships on farms with various combinations
. of productive factors.
. (2) To derive cost curves indicating the nature of cost advantages and disadvan-
tages of various sizes and types of dairy operations.
(3) To estimate supply responses of dairy farmers to changes in relative prices
of milk and input factors, such as labor, feed and equipment.
(4) To determine and analyze some of the obstacles of dairy farmers in making
supply responses to price changes.
PURPOSE OF THIS REPORT
This report presents a summary of some of the preliminary phases of the study.
Specifically the objectives of this report are:
(l) To provide a description of the economic and physical environment within
` which Grade A milk is produced and marketed in the Louisville milkshed.
(2) To analyze some of the technical relationships among factors of production
for various sizes of farms.
(3) To analyze the quantity of inputs used on farms of two production levels per
cow. I
(4) To provide a better understanding of the responsiveness of farmers to changes
in the prices of productive factors and of milk.
-3-

 With this basic information compiled and analyzed for a stratified random sample
of 203 farms, it is reasonable to expect that generalizations about the 2, 000 farms pro-
ducing Grade A milk will be relevant and useful. Therefore, it is reasonable to believe
that farmers, their advisors, and agricultural policy makers can derive benefits from
this publication. This report is also timely in that it will permit interested people and organi-
zations to become oriented to the problems, the solutions to which the supporting studies
of the project are directed.
PROCEDURE '
This report (1) provides a description of the sample farms and of some of the
relevant characteristics of the Louisville Milkshed area. This is done by describing
the land, labor, capital and management resources existing in 1957. (2) Demonstrates
the association between size of herd and level of input use, input and output comparisons
for four size of herd strata are presented and analyzed. (3) Presents and analyzes the
combinations of factors of production for two levels of output per cow. The second and
third steps are designed to illustrate that a wide range of input combinations will produce
milk but that quality of cow is probably the crucial factor in reducing the cost of producing
100 pounds of milk. (4) Presents the willingness to expand and contract the use of inputs
to demonstrate some of the subjective, economic, and physical obstacles to changing the
supply of milk.
DESCRIPTION OF THE LOUISVILLE MILKSHED l
There were 42 counties, 30 in Kentucky and 12 in Indiana, shipping milk into
Louisville market in 1957. The concentration of producers in these counties varies
from time to time, and as use of bulk tanks becomes more widespread the geographic
area of the milkshed increases. Other factors, such as costs of production, comparative
advantage of competing products, and transport costs also affect the number of counties
and producers.
Louisville, the central market, is located near the center of the producing area,
being slightly north of the north-south dimension. The industrial and residential growth
of this city has caused a redistribution of adjacent dairy farms and an expansion of the
market.
Soil, Topography. and Climate
Soil type, fertility, and characteristics of drainage vary widely over the milkshed. I
Generally, those counties nearest the market are the more fertile as a whole, but many .-
smaller areas farther from the market are equally fertile. Dairy farms are as a rule
sufficiently fertile and well drained to provide forage and varying quantities of grain for
the dairy herd. Those farms with relatively steep land usually have sufficient forage
but are forced to purchase some hay if climatic conditions are unseasonable. Those
farms with relatively level land are confronted with an expensive drainage problem for
the production of feed for dairy cows.
-4-

 The growing season ranges from 170 days in the northernmost counties of Indi-
ana and 180 days in the southernmost Kentucky counties, to 190 days or more in counties
along the Ohio river. Rainfall ranges from 40 to 50 inches and is usually well distributed
throughout the year. Frequent rains during the forage harvesting season are not un-
common and create a hazard to the production of high-quality hay.
The climate is classified as moderate and humid. Summer daily temperatures
r average 850 and winter daily temperatures average (for six weeks) 350. The humidity
. is moderately high, averaging about 80 percent most of the year, and falling to 60 to
70 percent in the winter.
I Land Use
Land use varies from 15 to 80 percent cropland; type of farming ranges from
subsistence and family to commercial. Most of the steep land is devoted to woods,
pasture, and hay. The less steep land is devoted to tobacco, corn, soybeans, (prima-
rily in Indiana), small grains, hay, and pasture.
Livestock Enterprise
Grade A dairying is an important type of farming in the milkshed. In 1957, pro-
. ducers who shipped Grade A milk to the Louisville market received a return of
$1, 606, 777, 669 for 376, 405, 567 pounds of milk. 1 The significance of the dairy industry
. in the milkshed is made more apparent when its returns are compared with the income
from all livestock and livestock products sold. 2 This comparison reveals that the value
of dairy products sold in 1954, the year for which data were available, represented 29
percent of the total.
Institutional Characteristics
The influence of organized industrial labor on farm wage rates is felt throughout U
the milkshed. This influence is more pronounced in the immediate vicinity of Louisville
and smaller urban communities having one or two industrial plants. Any adverse wage
influence due to location disadvantage is probably counterbalanced to some extent by
lower transport costs due to location advantage.
` The bargaining power of the producers is organized and represented by a cooper-
ative producers' association having a membership that includes approximately 95 per-
. cent of all producers.
IJoseph E. Bobo, "Bulk Tank Development, " The Courier, Vol. 20, No. 9 M
(Jan. 1960), p. 10.
2U. S. Department of Commerce, Bureau of the Census. United States Census
V of Agriculture; 1954 Counties and State Economic Areas, Indiana, I, Part 4. 69.
U. S. Department of Commerce, Bureau of the Census, United States Census
of Agriculture: 1954 Counties and State Economic Areas, Kentucky, I, Part 19, 97.
-5..

 Prices and classes of milk are administered by a Federal Milk Marketing Order.
This intends to provide a uniform price by classes of milk and aids in the seasonal . `
distribution of production through the use of a fall premium price plan.
Sanitary conditions for the production and handling of milk are specified and ad-
ministered by a central health authority. This authority is empowered to issue and ;
revoke health permits. Thus, costs of production and number of producers are affected
to some extent. ` ‘
The entry of new producers into the market (industry) is largely regulated by
relatively high capital requirements for a farm sufficiently large to be efficient and by
the willingness of milk handlers- to accept milk from new shippers. These approved
handlers are under no formal obligation to receive milk from new producers, and they
do so only when an anticipated shortage of supply indicates the need.
DESCRIPTION OF A 203-FARM SAMPLE
A stratified random sample of 203 farms was drawn from the 2,000 Grade A milk
producers of record as of June 1957. The distribution of the population and the sample
'by counties is shown in Fig. 1. The sample was stratified so that the distribution of the
203 farms by size of herd was; 56 farms had less than 20 cows, 66 farms had 20-29
cows, 45 farms had 30-39 cows, and 36 farms had 40 or more cows. The distribution
of these sizes in the total population has significant implications for milk supply. The .
approximate distribution of sizes of herds of Grade A milk producers for 1957 in the
entire milkshed is: 33. 8 percent, less than 20; 27. 3 percent, 20-29; 23. 4 percent,
30-39; 15. 5 percent, 40 or more cows.
SAMPLE ESTIMATES
The sample of farms provides a means for making estimates of various charac-
teristics of the total population of Grade A milk producers. For example, we can
estimate the total quantity of milk produced. Since this is known from published sources,
the estimate can be compared with the actual and hence provides a gross check on the
representativeness of the sample. The estimate of the 1957 milk production from the
sample was 381, 234, 404 pounds, while the actual production was 376, 405, 567 pounds
or an error of about 1 percent. In order to account for the possibility of error in
making estimates of other characteristics. we will say that the "true" quantity falls
within an interval and our degree of confidence is that 95 out of 100 samples would '
provide an interval that would include the population value. Some physical and eco- . _,
nomic facts concerning the entire milkshed for 1957 are given in Table 1.
In addition to these characteristics of the population, we can indicate various
frequency distributions of practices followed by the sample farmers.
-6-

 ¤ 37 36 `/
40 @ 6
“ .56
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Fig. 1. - — Distribution of population and sample farms by counties .
Legend:
Number Number Number Number
Farms Farms Farms Farms
County Kentucky in in County Kentucky in in
No . Counties Population Sample No . Counties Po  ulation Sam p le
1 Adair 7 1 22 Oldham 164 24
2 Anderson 27 4 23 Russell 6 0
3 Barren 33 4 24 Shelby 404 37
4 Boyle 4 0 25 Spencer 165 17
e 5 Breckinridge 14 2 26 Taylor 8 0
- 6 Buiim 74 6 27 TI‘lI1'1bl€ 25 3
7 Casey 3 0 28 Warren 15 1
8 Edmunson 3 0 2 9 Washington 20 0
9 Franklin 4 1 30 Woodford* ? 0
10 Grayson 4 0
1 1 Green 4 0 Indiana Cotuities
12 Hardin 39 4 31 Clark 92 11
. 13 Hart 13 0 32 Crawford 6 0
14 Henry 160 17 33 Dearborn* ‘? 0
‘ 15 Jefferson 147 19 34 Floyd 52 7
16 LaRue 14 1 35 Harrison 123 8
17 Marion 41 6 36 Jackson* ? 1
18 Meade 7 1 37 Lawrence 1 0
19 Mercer 7 2 38 Martin* ‘? 0
20 Metcalfe 13 3 39 Monroe* ? 0
21 Nelson 105 10 40 Orange 7 1
41 scm 11 1
42 Washington 12 1 8
* Not shipping milk in July , 1 95 8
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 Table 2. - Cropland utilization by percent of total devoted to hay, grain, and
pasture and by number of farms, on 203 sample farms in the Louisville Milkshed
1957
 
 
Kind of Crop
 
Hay Grain Pasture
Percent of Number Percent of Number Percent of Number
Cropland of Farms Cropland of Farms Cropland of Farms
.  
Less than 16 35 Less than 11 60 Less than 30 30
16-30 96 11-20 71 13-60 86.
31-45 52 More than 20 72 61-90 87
46-60 20
 
For example, Table 2 presents cropland utilization and Table 3 shows forage fertili-
zation practices on the sample farms. Some important feeding practices are given in
Table 4. All these practices are of considerable importance in producing low-cost
milk. Later sections will show relationships among these and other factors affecting
the supply and/ or production cost of milk.
This descriptive section has been presented to orient the reader to the economic
and technical structure of the total milkshed as it existed in 1957, and to indicate the
quantities of resources that were employed to produce the milk supplied to the Louis-
ville market for that year. In addition, it indicates that farmers are using various
practices in producing milk and are therefore probably operating under various cost
conditions.
The farm characteristics that existed when this survey was made are significant
` and relatively reliable bases for examining the relationship between size of herd and
< input efficiency. The results presented in the next section are based on grouping of
farms by size of herd and various input-output relationships.
COMBINATIONS OF FACTORS OF PRODUCTION BY SIZE OF HERD
For four herd sizes - less than 20 cows, 20-29 cows, 30-39 cows, and more
than 39 cows - the average production per cow per year varied less than 125 pounds.
` This implies that the net returns per cow were determined by the difference in costs
_ of production for a given production per cow among all sizes of herds. Costs of
production are determined by prices, input combination, and their efficiency. Indi-
cations of input levels, input prices, and efficiency are shown for the four herd size
strata in Table 5. Each line of the table shows the percentage of herds of the particu-
lar size which possessed the property given along the top of the table. The chains of
square links through the body of the table give at a glance the relationship between
size of herd and the property given in the heading. This device is used to approximate
the association between the factors, yet recognizes that there are differences between farms
-9-

 Table 3. - Forage fertilization practices by percent of total acres and by _
pounds per acre on 203 farms in the Louisville Milksheda
 
 
Type of Percent of Number Pounds Number
Forage Total Acres of Farms Per Acre of Farms
Hayland fertilized
for establishment None 37 None 37 {
11-49 32 100-349 83
50-89 28 More than 349 80
More than 89 104 Unascertainable 3
Unascertainable 2
Pastureland ferti-
lized for esatab-
lishment Less than 10 91 None 85
10-39 29 100-299 42
40-89 29 300-349 38
More than 89 50 More than 349 34
Unascertainable 4 Unascertainable 4
 
3Applies to commercial fertilizer only.
Table 4. - Number of farmers following various feeding practices on 203 farms in
the Louisville Milkshed
 
Pounds of Number of Total Diges- Number of Total Diges- Number of _
Protein Fed Farms table Nutri- Farms table Nutri- Farms
Per Cow ents Fed from ents Fed from ’
Silage as a Grain as a
Percent of Hay Percent of Hay
Less than 1, 500 92 Less than 20 80 Less than 40 54
1, 500 - 2, 000 55 20-59 71 40-69 62
More than 2, 000 55 More than 59 51 70-99 41
More than 99 45 '
Unascertainable 1 1 1 M
 
-10-

 as shown by the frequencies around the chain. For example, the frequencies shown in
the first section of the table indécate that as the size of herd increases, the pounds of
protein fed per cow decreases.
The efficiency of production among the different size farms and within any one
size stratum can be indicated by the efficiency of production per cow, and thus may
reflect differences in costs and returns. The inputs actually used to obtain two specific
. outputs are given in the following sections.
' SPECIFIED INPUT—OUTPUT RELATIONSHIPS BY PRODUCTION PER COW
The contrast between the input combinations used to produce less than 6, 000
pounds of milk and more than 8, 900 pounds of milk is more pronounced than between
intermediate production ranges. This contrast (1) lends emphasis to the efficiencies
of input uses, (2) suggests what is required to increase efficiency, and (3) shows what
might be obstacles to increased efficiency of milk production. Table 6 shows these
levels of input use for two levels of milk output per cow. The black rings in the body
of the table indicate at a glance the high frequency of each line for the property shown
across the top of the table.
COMPARISON OF SELECTED INPUTS BY PRODUCTION PER COW
To aid in picturing the differences between the two groups described in Table 6,
I the contrasts between the two groups for selected inputs used at the modal level of the
8, 900 pounds of milk per cow group are shown in Fig. 2. This level of input use is
shown since this indicates that the highest frequency of farmers was actually using
this level. The picture to be conveyed by Fig. 2 is that the highest frequency ofthose
farmers whose herds are producing more than 8, 900 pounds of milk per cow was
employing the following resources in the mannner and quantities specified;
. (1) They were producing more than three acres of tobacco.
(2) They were using 20 to 39 man months of labor per year.
(3) They were using less than 90 percent family labor.
(4) They were devoting I6 to 45 percent of their hay, grain, and pasture acres
. to hay.
` (5) They were producing I to 49 acres ol rotation pasture.
(6) They were feeding more than 1, 500 pounds of protein per cow per year.
(7) They were deriving from silage more than 20 percent of the TDN provided
by silage and hay.
3For the less than 20 cow herds the bimodel frequency weights are interpreted
by centering the chain. An analogous procedure was followed in interpreting similar
situations.
-11-

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 PERCENT
0 20 40 60 80 88
Farms with more than 3 acres of Z;-;·;?;-;·;?;-;·;Z;·;-3;-;-;·;·;-;-;-;·;-;?;-;
tobacco
Fafms using 20 · 39 man m¤¤thS Z·Z·Z·Z·I·Z·Z·Z·Z·Z·Z·Z·Z·I·Z·Z-}Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·
of labor per year _ i .
Farms using less than 90 percent ·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·I·Z·Zi·I-Zi{·Z·Z·Z·]·Z·Z·Z·Z·Z·I·GZ·Z·Z·Z·Z·I·Z·Z·Z·Z·Z·Z·E·Z·Z·Z ‘
family labor _ L » t_ -·
16 - 45 percent of hay, grain and Zi-Z-I·Z·Z·Z·I·Z·I-Z-I-Z·Z·GZ-Z·Z-}Z·I·Z·If·Z·Z·Z·Zi·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·§·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z
 asture acres devoted to ha i .
Farms with 1 - 49 acres of ·I·:·:·}:·:·P}I·ZC·:·;·;·Z·:·;·:·;·;·Z·`
rotation  asture V ` ,
Feeding more than 1, 500 lb of ·Z·Z·Z·Z·Z-Z·Z·Z·]·Ziif·Z·Z·Z·Z·Z·Z·I·Z-Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z
rotein  er cow V
20 percent or more of total digestible ·:·}:·:·:_·:·:·:·;·;·Z·:·E}P}?E}:{·:·ZY·j·:·:·:·:·:‘:·:·:‘;·:·;·;·:‘ . ‘
nutrients from fora e fed as sila e ` ‘ ‘ _ "
Using more than 600 lb purchased E
irotein  er cow ` V .
More than 80 percent of cows ';':`:`:':°:':`;':':';':';’:';`:`:':` G V V ’
artifieiall bred . n ` ” ’
Dairy Building cost less than $5  
per cwt of milk in 1957 i
Forage equipment cost less than $1 .·Z-Z·Z·Z·Z·Z·I~Z-Z·Z·Z·I·f·Z·Z·I·Z·Z·I·Z-Z·Z·Z·Z·I·Z·Z·Z·Z·Z`·S·Z·Z-Z·Z·Z·I·Z
yer cwt of milk in 1957    -· _   - ·
Purchase price of cows more than $27  ·I·Z·Z·Z·Z·Z·I·Z·I·I·I·I·Z·GZ·I·Z·I·I·I·I·I·I·I·Z·I·
each · _,,.ZQ, l _ U ° _
Selling price of cows more than $275 :°:':':':`:`;':`;';`:`;`:‘2`:°:':‘Z‘ ·
each L J `  
Dgcigigng msds by tenant Oi- -Z·Z·Z·Z Z·GZ-Z·Z·f·Z·Z·Z·Z·Z·l·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z·Z· `
shared e uall i
Attended school more than E y
12 years _ d·
Legend: ’
Less than 6,00 pounds of milk More than 8, 900 pounds of milk
g per cow per year — per cow per year
Fig. 2 - Percentage comparison of selected inputs used for two levels of output on 94
farms in the Louisvi