Supply response of Grade A milk production in upper Flathead Valley
by Jack R Davidson
A THESIS Submitted to the Graduate Faculty in partial fulfillment of the requirements for the degree
of Master of Science in Agricultural Economics at Montana State College
Montana State University
© Copyright by Jack R Davidson (1955)
Abstract:
This study was devised to estimate supply response of Grade A milk in Flathead County. Examination
of previous work indicates that several methods of approach have been utilized. Limitations of time
and data restricted it largely to a demonstration of the manner in which the budget technique might be
used for this purpose, yet some of the substantive results can be stated briefly.
A representative Grade A milk producing farm for this area was described with a synthetic model based
on the use of survey data. The existing organization was related to current price for milk and other
relevant farm products. For posited changes in milk price, optimal adjustments were budgeted in
selected parts of the farm organization. The results in terms of milk output then serve as estimates of
supply response to changes in milk price over a restricted range—but only with respect to the budgeted
adjustments Elasticity of supply with respect to milk price is estimated at between .25 and .08 as a
possibility of almost immediate response, based on response due to change in feeding level. Over a
time period sufficient to permit changes in herd size the elasticity estimate increases. It would increase
still further, if other adjustments were taken into account. On the other hand, many of the
non-economic factors which influence supply response would doubtlessly reduce the actual elasticity
estimates. SUPPLY RESPONSE OF
GRADE A MILK PRODUCTION IN
UPPER FLATHEAD VALLEY
by
JACK R. DAVIDSON
A THESIS
S ubm itted to th e G raduate F a c u lty
in
p a r t i a l f u l f i l l m e n t o f th e re q u ire m e n ts
f o r th e degree o f
M aster o f S cien ce in A g r ic u ltu r a l Economics
at
Montana S ta te C o lleg e
Approved?
HeadsyMaj o r ' D epartm ent
Chairm an, Exam ining Committee
Dean, G raduate D iv isio n
Bozeman, Montana
A ugust, 1955
I)
Acknowledgements
1' A-|>,
The a u th o r w ishes to e x ten d h is a p p re c ia tio n to C. B. B aker, E . H.
Ward and D. C. M yrick, members o f th e th e s i s committee f o r th e tim e and
e f f o r t extended in c r i t i c i z i n g , en co u rag in g and g u id in g in th e w r itin g o f
th is th e s is .
However any e r r o r s and o m issio n s in t h i s stu d y a re th o se o f
th e a u th o r.
iii
118859
TABLE OF CONTENTS
P ag e
A b s tra c t
P a rt I :
ix
CN CN ro in
INTRODUCTION............................................ ....................................................
1
^
The P r o b l e m ................................... ...........................................* ] j
The Concept o f S u p p l y ........................................I
S tatem en t o f Problem '.........................................................
]
]
^
Review p f L i t e r a t u r e ......................................................................
E a rly Work .■ ............................ . ........................................
The Role o f P r ic e E x p e c ta tio n s .........................................................
S ig n ific a n c e of. E a r l i e r S t u d i e s ......................
Methods Developed to D eterm ine Supply
Response o f M ilk P ro d u ctio n .............................................................
C ost A n a ly sis and Supply Curves ............................................
In te r-A re a A n a ly sis . . ...................................
]
D eterm in an ts o f Supply ................................... ]
]
Supply Curves . . . . . .
* ......................
The E l a s t i c i t y o f S u p p l y .....................................................
]
^o
S ources o f S u p p l y ................................................
] ]
^i
P r ic e as a D eterm in an t o f Supply ............................................ | *
12
V a r i a b i l i t y in P r ic e . . . ...........................* °
* * ]
^13
The H y p othesis ...........................
..................* *
-i q
T h! M e th o d .................. ................. ................. : : ] ] | [ ] ] ] |
^
Farm B udgeting . . . . . . . . . . . . . . . . . . . . . .
13
U sing th e S y n th e tic Model ........................" "
M
sh o rt cu t B u d g e ts
The Budget and th e Supply F u n c tio n . . . . . . . . . . . .
16
\b t"- 00 0 o'
...............::::::::: It
P a rt H s
METHODOLOGICAL APPROACH AND DERIVATION OF SYNTHETIC MODEL
Area Under C o n sid e ra tio n . . . . .
.......................... . . . . .
I
D e s c rip tio n o f A r e a ................... , . ...................... . . . ] ] ] ]
C lim ate and P r e c i p i t a t i o n . . . . . .
i
X !
A g ric u ltu re o f th e Area . „ ........................................
E a rly A g ric u ltu re •......................
Trends in M ilk P ro d u ctio n . ...............................
M arket O u tle ts and T r a n s p o rta tio n . . . . . . . . . . . .
The M ethodological Approach . . . . . .
........................................
The Budget A n a ly sis
...............................
]
The Prim ary Data ..........................................................................
L im ita tio n s o f Sample Data ..................................................................
Secondary D a t a .............................................................
j
The Farm ...........................................................................
The Crop O r g a n i z a t i o n ................................................
]
The L iv e sto c k O rg a n iz a tio n
\ \ \ \ \ \ \ \ \ \
I n d i r e c t and Fixed Expense Item s
Summary o f th e Budget . . ...............................
iv
17
17
17
17
19
19
20
22
23
23
23
24
24
25
26
28
30
33
TABLE OF CONTENTS (Con’ t . )
Page
P a r t i n s em pirica l in v e s t ig a t io n .............................................................
C om binations' to Meet P r ic e V a ria tio n . . . . . . .
I
Time P e rio d Involved ......................................................... ....
M ajor1A lte r n a tiv e s o f th e I n tr a ^ y e a r P e rio d .* ] ! !
I n t r a - y e a r A djustm ents o f Milk P ro d u ctio n ..................
In p u t-O u tp u t R e la tio n s h ip s in M ilk P ro d u ctio n . . .
Supply E s tim a te s With In p u t-O u tp u t Data ......................
E xpected Farmer Response to th e F eeding A lte r n a tiv e
O th er A lte r n a tiv e s o f I n tr a - y e a r P e rio d . . . . . .
Summary o f I n t r a - y e a r Response .................. . . . . .
F u r th e r A n a ly sis With an Expanded Time P e rio d . . . „*
The I n t e r - y e a r P e rio d
.
D ir e c t Expenses of Crop P ro d u c tio n . . . . . . . .
Acreage R equirem ents f o r D airy P ro d u c tio n . . . . .
The P o s s i b i l i t y o f A creage S h i f t s . . . . . . . . .
A n a ly sis o f an A lte r n a tiv e S h i f t in Acreage . . . .
Summary o f th e A n a ly sis . . . . . . . . . . . . . .
P a r t IVS
CONCLUSIONS AND IMPLICATIONS . . . . . . . . . . . .
C onclu sio n s o . . . . . . . . . . . . . . . . . . . .
Summary o f A n a ly sis . . . . . . . . . . . . . . . .
L im ita tio n s o f th e Study . . . . . . . . . . . . .
E v a lu a tio n o f th e Budget Method . . . . . . . . . .
S p e c if ic Im p lic a tio n s . . . . . . . . . . . . . . .
G eneral Im p lic a tio n s ........................... . ...........................
S u g g e stio n s f o r F u r th e r R esearch ...................................
A S e le c te d B ib lio g ra p h y
35
35
36
36
37 .
38
43
.44
47
.4 9
49
49
50
52
56
57
58
61
61
61
62
63
64
65
66
68
v
LIST OF TABLES
Page
T able I .
Land;Use o f Sample Farms . . . . . . . . . . . . . . .
25
T able I I .
Land'U se and Crop P ro d u c tio n System
26
T able I I I .
Crop R equirem ents
T able IV.
D ir e c t Costs- o f Power and Machine O p e ra tio n s . . .. .
28
T able V.
L iv e sto c k O rg a n iz a tio n . . .
29
T able V I.
L iv e sto c k Produce D is p o s itio n and Use
T able V II.
Annual Feed D is p o s itio n
Table V III.
D ir e c t Expenses o f L iv e sto c k E n te r p r is e
31
Table IX.
Fixed C osts o f Power and Machine Item s .
31
Table X.
Fixed and N on-allo 'cab le Expense o f B u ild in g and
O th er D e p re c ia b le R eal P ro p e rty .
32
Table XI.
O th er N o rt-allo cab le Expense Item s
33
Table X II.
Summary o f Indrrexrt- and N o n -a llo c a b le Fixed Expenses
33
Table X III .
Budget Summary ...........................
33
T able XIV.
In p u t-O u tp u t R e la tio n s h ip o f Milk P ro d u c tio n . . . . .
39
T able XV.
V alue o f M arginal P ro d u ct w ith M ilk P r ic e s $ 2 .0 0
to $6 .0 0 p e r c w t . ......................
42
T able XVI.
T able XVII.
. . . . . . . . .
......................
27
..................
. . . . . . . .
29
......................
30
Optimum F eeding Level o f th e Given G rain R atio n
in Pounds o f G rain P e r Cow P e r Year „
o
43
E s tim a te s o f Average E l a s t i c i t i e s Between
S e le c te d P r ic e L e v e ls ' . . . .
44
T able X V III.
Income P e r Cow + V alue o f A d d itio n a l Feed R equired .
46
T able XIX.
A d d itio n a l Herd Income a t Optimum Feeding L ev els . . ■„
46
Table XX.
R eturns P e r Herd Net o f D ir e c t Expenses
49
Table XXI.
D ir e c t Expenses P e r Crop Acre
vi
.
...........................
51
LIST OF TABLES '(D on’ t . ) ..
Page
T able XXII.
D airy G rain and Hay R equirem ents in A cres P er
M ilking C o w .....................................................- - r
Table XXIII.
Feed A cres R equired P e r A d d itio n a l M ilk Cow . . . . . .
Table XXIV.
R etu rn s P e r Acre Net o f D ire c t Expenses For
Changes in Herd S iz e and Milk P r ic e s ....................................55
T able XXV.
D airy Income and Expense P e r Acre For Milk
P r ic e s o f $ 4.50 to $ 5.50 cw t.
............................................ ' .
56
R etu rn s Net o f D ir e c t Expenses f o r A lte r n a tiv e Herd
S iz e s o o . . . . . . . . . .
. e . ' . e o o . . . . . . .
58
Table XXVI.
v ii
54
LIST QF FIGURES
Page
F ig u re I .
F ig u re 2.
The m echanics o f c o n tin u o u s d iv e rg e n t and
c o n v erg en t c y c le s in p r ic e s and p ro d u c tio n . . . _
a
, Long-tim e and s h o rt-tim e re sp o n se s o f m ilk
p ro d u c tio n to p r ic e changes ..................
7
F ig u re 3,
P r ic e d e te rm in a tio n o f a fir m ’ s o u tp u t . . . .
F ig u r e '4 .
(Map) Study a re a o f Upper F la th e a d V a lley
F ig u re 5,
M ilk cow num bers, F la th e a d C ounty, 1940-1953 . . . . . .
21
F ig u re 6.
T o ta l and M arginal p ro d u c t c u rv e s
-Il
F ig u re 7.
Optimum m ilk p r ic e supply re sp o n se 'w ith r e s p e c t
to a given G rain r a t i o n . . . . . . . . . . . . . . . .
44
Supply re sp o n se o f a l t e r n a t i v e s examined f o r
i n t r a - y e a r p d rio d . . . . . . . . . . .
50
F ig u re 8„
v iii
. . .
g
.
. . . .
ir
The A b s tra c t
T his stu d y was d e v ise d to e s tim a te supply resp o n se o f Grade A m ilk
in F la th e a d C ounty.
E xam ination o f p re v io u s work in d ic a te s t h a t s e v e ra l
methods o f approach have been u t i l i z e d .
s t r i c t e d i t l a r g e ly
L im ita tio n s o f tim e and d a ta r e ­
to a d e m o n stratio n o f th e manner in which th e budget
te ch n iq u e m ight be used f o r t h i s p u rp o se , y e t some o f th e s u b s ta n tiv e r e ­
s u l t s can be s t a t e d b r i e f l y .
A r e p r e s e n ta tiv e Grade A m ilk p ro d u cin g farm f o r t h i s a re a was
d e s c rib e d w ith a s y n th e tic model based on th e use o f su rv ey d a ta .
e x is tin g
The
o rg a n iz a tio n was r e l a t e d to c u r r e n t p r ic e f o r m ilk and o th e r .
r e le v a n t farm p r o d u c ts .
For p o s ite d changes in m ilk p r i c e , o p tim al a d j u s t ­
ments .were budgeted in s e le c te d p a r ts o f 't h e farm o r g a n iz a tio n .
The r e ­
s u l t s in term s o f"m ilk o u tp u t th e n se rv e as e s tim a te s o f supply resp o n se
to changes in m ilk p r ic e o v e r a r e s t r i c t e d ra n g e —b u t o n ly 'w ith r e s p e c t
to th e b u d g e te d Na d ju s tm e n ts .
' E l a s t i c i t y . 'o f su pply w ith r e s p e c t to m ilk p r ic e i s e s tim a te d a t
between .25 and .0 8 as a p o s s i b i l i t y o f alm o st im m ediate re s p o n se , based
on resp o n se due to change in fe e d in g l e v e l .
Over a tim e p e rio d s u f f i c i e n t
to p e rm it changes in h erd s iz e th e e l a s t i c i t y e s tim a te in c r e a s e s .
It
would in c r e a s e s t i l l f u r t h e r , i f o th e r a d ju stm en ts were ta k en in to a c c o u n t.
On th e o th e r hand, many o f th e non-econom ic f a c to r s which in flu e n c e su p p ly
re sp o n se would d o u b tle s s ly reduce th e a c tu a l e l a s t i c i t y e s tim a te s .
ix
PART I
INTRODUCTION
The Problem
The C oncept o f Supply
The c o n cep t o f su pply as used by econom ists in d ic a te s th e q u a n t i t i e s
o f a p ro d u c t o r p ro d u c tiv e s e r v ic e t h a t w ill be made a v a ila b le to buyers in
a s p e c if ie d m arket a t a s p e c if ie d tim e , a t any o f a s e r i e s o f s p e c if ie d
p r ic e s i f such p r ic e s were o f f e r e d .
As in th e case o f demand, a c tu a l p ro ­
d u c tio n of, th e p h y s ic a l commodity i s u n n e ce ssa ry f o r th e e x is te n c e o f su p p ly
R a th e r supp ly r e p r e s e n ts w illin g n e s s and a b i l i t y to make th e q u a n tity a v a i l ­
a b le in re sp o n se to a p r ic e s i t u a t i o n , l /
W ith supply as a fu n c tio n o f
p r i c e , th e q u a n tity o f a p ro d u c t made a v a ila b le i s a fu n c tio n o f p r ic e e x ­
p e c ta tio n s .
S ta te m e n t o f Problem
Q u e stio n s o f th e a g g re g a te p ro d u c tio n fu n c tio n s and su p p ly re sp o n se s
in a g r ic u ltu r e a re o f concern to a l l in d iv id u a ls , firm s and p u b lic a g en c ie s
r e l a t e d to a g r i c u l t u r e . 2 /
Supply fu n c tio n s are o f p a r t i c u l a r concern to
th o se buying from o r s e l l i n g t o o p e ra tin g farm ers and to a g en c ie s re sp o n - ■
s i b l e f o r th e developm ent o f p o lic y and a d m in is tra tio n o f program s which
a f f e c t fa rm e rs .
The f a rm e r's concern w ith supply resp o n se i s i n d i r e c t b u t
im p o rta n t.
l / Thomsen & F o o te , A g r ic u ltu r a l P r i c e s , McGraw-Hill Book Comoanv„ T nc-.
1952, p . 5 7.
:
'
'
2 / E . 0 . Heady, Economics o f A g r ic u ltu r a l P ro d u c tio n and R esource Use,
P r e n ti c e - H a ll, I n c . , New York, 1952, p . 672.
- 2 As an e x p lo r a tio n in farm management re s e a rc h m ethodology th e purpose
o f th e fo llo w in g stu d y w ill be to p o in t to a method f o r th e d e r iv a tio n o f
m eaningful su p p ly c u rv es f o r th e p ro d u c tio n o f Grade A M ilk.
The o b je c tiv e s
o f th e p r e s e n t in v e s t ig a ti o n w ill b e , ( I ) to d is c o v e r th e problem s met in
d e te rm in in g th e f a c to r s in f lu e n c in g th e production-*response to a change in
m ilk p r i c e , ( 2 ) to determ in e th e v a rio u s a l t e r n a t i v e s a v a ila b le by which
Grade A d a ir y farm s in m ountain v a lle y s o f w estern Montana may resp o n d , (3 )
to p o in t to a method by which th e re sp o n se may be in d ic a te d and by which
th e v a rio u s a l t e r n a t i v e s may be t e n t a t i v e l y t e s t e d , and ( 4 ) to t e s t , i l l u s ­
t r a t i v e l y , some o f th e a v a ila b le a l t e r n a t i v e s to a r r iv e a t th e ex p ected
re s p o n s e .
Review o f L i te r a tu r e
E a rly Work
S tu d ie s o f su pply re s p o n s e , as concerned w ith a g r i c u l t u r a l p ro d u c tio n ,
a re h o t new.
In th e p a s t 30 y e a rs s tu d ie s o f farm er re sp o n se to p r ic e and
o th e r ,f a c to r s have d e a l t w ith a wide range o f farm p ro d u c ts .
The problem
re c e iv e d c o n s id e ra b le a t t e n t i o n in th e decade betw een 1930 and 1940 as an
im p o rta n t f a c t o r in th e e f f o r t to a d ju s t a g r i c u l t u r a l p ro d u c tio n to p ro s ­
p e c tiv e su pply and demand c o n d itio n s .
The in d iv id u a l p ro d u c e r who would
a d ju s t h is acreag e and liv e s to c k num bers, w ith due re g a rd to what o th e r
p ro d u c e rs a re d o in g , needs to judge in advance th e p ro b a b le t o t a l o u tp u t
t h a t w ill compete w ith h is p ro d u c tio n when i t i s read y f o r m a rk e t.
S im i-
l a r l y , in s e t t i n g up th e o v e r - a ll p ro d u c tio n o b je c tiv e s o f a n a tio n a l a g r i ­
c u l t u r a l program , advance judgm ents m ust be made n o t o n ly o f th e p ro b a b le
- 3 e f f e c t s o f th e program i t s e l f b u t a ls o o f farm ers re sp o n se to p r i c e , te c h ­
n o lo g ic a l ch an g es, and o th e r f a c t o r s .
For th e se re a so n s m ost o f th e work
p r i o r to 1939 was r e l a t e d to th e s h o r t run o r im m ediate re s p o n se , 3/
The Role o f P r ic e E x p e c ta tio n s
One h y p o th e s is r e l a t i n g to th e r o le o f p r ic e e x p e c ta tio n s in d e t e r ­
m ining su pply re s p o n s e , th e "Cobweb Theorem", was p re s e n te d by Mordecai
E z e k ie l in 1938, 4 /
This was o f p a r t i c u l a r v a lu e in e x p la in in g th e type
o f re sp o n se which m ight be ex p ected as a r e s u l t o f y e a r to y e a r a d ju s tm e n ts ,
With su pply a fu n c tio n o f p r ic e u n d er c o n d itio n s o f a to m is tic c o m p e titio n ,
th e p r ic e and p ro d u c tio n o f a commodity i s d eterm ined a t th e p o in t where
th e su pply and demand cu rv es i n t e r s e c t .
Under th e s t a t i c c o n d itio n s assumed,
a d is tu rb a n c e moving p r ic e and p ro d u c tio n from th e i n t e r s e c t i o n p o in t s e ts
in to m otion th e fo rc e s to r e tu r n to th e o r ig i n a l p o s i t i o n , b /
In c o n s id e rin g th e amount su p p lie d as a fu n c tio n o f th e p r ic e expec­
t a t i o n s , where t h i s i s a c o n s id e ra b le la g in th e resp o n se o f p ro d u c tio n to
p r ic e change, and e l a s t i c i t y o f su p p ly = e l a s t i c i t y o f demand, th e p r ic e
and p ro d u c tio n may n o t r e tu r n to th e o r ig i n a l p o in t b u t in s te a d may c i r c u l a t e
3 / R. P , C h ris te n s e n and R, L. M ig h e ll, Supply Responses in M ilk P ro d u ctio n
i n Dodge and B arron C o u n tie s , W isconsin, U.s7d,A. Tech, B u l . , '1 9 4 1 , p , I .
4 / M ordecai E z e k ie l, "The Cobweb Theorem", Q u a rte rly J o u rn a l o f Economics.
L U , F e b ru a ry , 1938,
.
------------- ----------------------------------5 / G. S. Shepherd, A g r ic u ltu r a l P r ic e A n a ly s is , Iowa S ta te C o lle ae P r e s s .
1947, p . 90.
.
----?
4
about i t .
Under t h i s c o n cep t a high p r ic e c a l l i n g f o r th a la rg e supply
i n t e r s e c t i n g th e demand a t a low p r ic e would in tu rn c a l l f o r th a r e l a t i v e l y
s h o r t supply w hich, in tu r n , would i n t e r s e c t the demand curve a t a high
p o in t.
This co n cep t would be one o f c o n tin u o u s f lu c tu a tio n around th e
e q u ilib riu m p o in t as i l l u s t r a t e d in P a r t A o f F ig u re I below .
When e l a s t i c i t y o f supply i s g r e a te r th an th e e l a s t i c i t y o f demand a
s i t u a t i o n o ccu rs as shown in p a r t B o f F ig u re I .
o f d iv e rg e n t f l u c t u a t i o n s .
T his would be a s i t u a t i o n
The m agnitude o f c y c li c a l p r ic e and p ro d u c tio n
changes in c re a s e o v e r tim e .
Under th e se c o n d itio n s th e s i t u a t i o n m ight
grow in c r e a s in g ly u n s ta b le u n t i l th e e l a s t i c i t y o f supply changed o r p ro ­
d u c tio n was abandoned.
The re v e rs e s i t u a t i o n as shown in p a r t C i s t h a t o f
c o n v erg en t f lu c tu a tio n s in which p r ic e and p ro d u c tio n approach more and
more c lo s e ly to th e e q u ilib riu m c o n d itio n s as o u tlin e d in the s t a t i c c o n c e p t.
A. C ontinuous C ycles
B. D iv erg en t C ycles
C. C onvergent C ycles
0>
O
A
O,
•H
F ig u re I .
The m echanics o f c o n tin u o u s , d iv e rg e n t and co n v erg en t c y c le s in
p r ic e s and p ro d u c tio n .
- 5 S ig n ific a n c e o f E a r l i e r S tu d ie s
These s tu d ie s made l i t t l e more th an p a s s in g r e fe re n c e s to th e s i g n i ­
fic a n c e o f lo n g e r-te rm ph ases o f supply#
T his s i t u a t i o n was n o t p e c u li a r
to s tu d ie s o f p ro d u c tio n and su p p ly , b u t was a ls o found in th e f i e l d o f
consum ption and demand re s e a rc h in t h a t p e r io d .
There a p p ea r to have been two p r in c ip le re a so n s f o r t h i s s i t u a t i o n .
The f i r s t i s r e l a t e d to th e ra p id developm ent and w idespread use by a g r i ­
c u l t u r a l econom ists o f s t a t i s t i c a l p ro c e d u res ( in c lu d in g m u ltip le c o r r e ­
l a t i o n te c h n iq u e ) f o r d e a lin g w ith tim e - s e r ie s d a ta .
As such a n a ly s is i s
p r o je c te d f u r t h e r in to th e f u tu r e , th e s ta n d a rd e r r o r o f e s tim a te becomes
la rg e r.
As th e p e rio d i s le n g th e n e d , th e number o f in d ep en d en t v a r ia b le s
become l a r g e r and n e t in flu e n c e o f each i s h a rd e r to e s tim a te .
q u irem en ts become g r e a te r and more d i f f i c u l t to h a n d le .
Data r e ­
As such th e se
s t a t i s t i c a l p ro c e d u re s seemed most e f f e c t i v e l y a p p lie d to s h o r t- r u n p ro b ­
lem s.
The second and more im p o rta n t re a so n f o r the concern o f th e p u b lic
re s e a rc h a g e n c ie s w ith s h o r t- r u n problem s was t h a t th e se appeared to be more
u r g e n t, and m ost p r a c t i c a l a s s is ta n c e co u ld seem ingly be re n d e red in t h i s
way to farm ers and to th e g e n e ra l p u b lic .
A lthough i t was re co g n ized t h a t
farm ers had im p o rta n t lo n g -te rm d e c is io n s to make, i t was g e n e r a lly f e l t
t h a t th e m ost u s e f u l c o n tr ib u tio n co u ld be made in d e v elo p in g in fo rm a tio n
to a id in th e y e a r - to - y e a r a d ju s tm e n ts . 6/
E f f o r t s o f re s e a rc h w orkers in d e riv in g m eaningful supply cu rv es by
th e h i s t o r i c a l - s t a t i s t i c a l p ro ced u re have n o t been too f r u i t f u l and the
6/
C h ris te n s e n and M ig h e ll, o £. c i t . , p . 2 .
- 6 r e s u l t s a re open to q u e s tio n ,
As in d ic a te d by G. S , Shepherd, t h i s can be
a t t r i b u t e d to th e many v a r ia b le s which m ust be tak en in to acco u n t in supply
a n a ly s is such as w e a th e r, changes in p r ic e s o f v a rio u s c o s t ite m s , changes
in te c h n o lo g ic a l p ro c e s s e s , e t c . ? /
However, th e v a lu e o f t h i s work as
ground b re a k in g d e v ice i s v e ry im p o rta n t.
Methods Developed to D eterm ine Supply Response o f M ilk ,,Production
In an a tte m p t to an aly ze su p p ly re sp o n se o f m ilk p ro d u c tio n , s e v e r a l
a l t e r n a t i v e ways to d e riv e supply cu rv es have been a tte m p te d .
For exam ple,
in 1940 an a tte m p t was made to d e riv e a su p p ly curve f o r m ilk in a lo c a l iz e d
a re a o f Vermont by th e f a m ilia r b u d g et p ro c e d u re . 8/
In t h i s case th e sup­
p ly curve r e p r e s e n ts a much lo n g e r-ru n p e rio d as a l l a d ju stm e n ts which could '
re a so n a b le ta k e p la c e w ith in te n y e a rs were p e rm itte d .
E stim a te s were b ased
upon th e Study o f in d iv id u a l re c o rd s from r e p r e s e n ta tiv e sam ples o f farm s.
I t c o n s is te d o f w orking o u t budget e s tim a te s o f p ro d u c tio n f o r each farm ,
sa y , te n y e a rs h e n ce , under s e v e ra l d i f f e r e n t p r ic e s i t u a t i o n s —h ig h e r p r ic e
f o r th e p ro d u c t (sa y 15 p e rc e n t h ig h e r ) , c o n s ta n t p r ic e s and low er p r i c e .
These e s tim a te s , added u p, then p ro v id e th re e p o in ts on th e lo n g -tim e c u rv e .
T his method p r e s e n ts d i f f i c u l t i e s o f i t s own, and in v o lv e s a good
d e a l o f e s t i m a t i o n .- The r e s u l t s o f a p p ly in g t h i s method to a stu d y o f
m ilk p ro d u c tio n in th e C ab o t-M a rsh fie ld a re a o f Vermont a re shown in F ig u re
2.
The heavy s o l i d l i n e BAC shows th e e s tim a te d re sp o n se o f p ro d u c tio n te n
t/
S hepherd, 0£ . p i t . , p . 90.
8/
R. H. A lle n , E r lin g H ole, and R. L. M ig h e ll, Supply R esponses in Milk
P ro d u c tio n in th e C ab o t-M a rsh fie ld A rea9 Vermont, USDA Tech. B u i. 709,
1940.
™
7
y e a rs l a t e r to m ilk p r ic e s 15 p e rc e n t h ig h e r, c o n s ta n t, and 15 p e rc e n t low er
than th ey were o r i g i n a l l y .
A s h o rt-te rm ( th ree-m o n th ) supply curve f o r the
same a re a i s shown by th e curve SS.
<D
o
80
C
Milk S a le s as a P e rc e n t o f A
F ig . 2 .
Long-tim e and s h o rt-tim e re sp o n se s o f m ilk p ro d u c tio n to p r ic e
changes. (As ta k en from A lle n , H ole, and M ighell by G. S . Shep­
h e r d ) . 9/
C o st A n a ly sis and Supply Curves
In d e v elo p in g a supply curve f o r an in d iv id u a l firm o r an in d u s tr y ,
(d is c u s s e d in a l a t e r s e c tio n ) supply i s a fu n c tio n o f th e c o s ts t h a t are
v a ria b le .
E s tim a tio n s o f th e se c o s ts depend upon p r o d u c tiv ity e s tim a te s
f o r v a r ia b le re s o u rc e s e r v ic e s .
Hence, E in a r Jenson endeavored to d e riv e
a p ro d u c tio n fu n c tio n f o r fe e d in g d a iry c a t t l e by e x p erim en tal te c h n iq u e s .
9/
G. S. S hepherd, A g r ic u ltu r a l P r ic e A n a ly s is , Iowa S ta te C o lleg e P r e s s ,
1947, p . 9 2 -9 3 . See a ls o A lle n , H ole, and M ig h e ll, 0£ . c i t .
- 8 -
T his method g iv e s an in d ic a tio n o f th e p o s s i b i l i t i e s o f th e ex p erim en tal
te c h n iq u e .
R e s u lts from such a stu d y can be tran sfo rm ed in to th e f a m ilia r
c o s t c u rv es o f t r a d i t i o n a l economic th e o ry .
The p o r tio n o f the m arginal
c o s t curve ly in g above th e minimum p o in t o f th e average v a r ia b le c o s t curve
r e p r e s e n ts th e supply curve f o r th e firm in term s o f m ilk .
In t h i s c a s e ,
changes in th e amount s u p p lie d a re assumed as due o n ly to changes in th e
amount o f feed in p u t.
Thus, each p ro d u c tio n fu n c tio n depends on th e le v e l
a t which th e o th e r f a c to r s a re h e ld c o n s ta n t.
The supply curve which i s
d e riv e d i n t h i s fa s h io n can be used to r e p r e s e n t re sp o n se s which a re l i k e l y
to o c cu r in th e s h o r t- r u n and a re concerned w ith th e v a r ia b le feed c o s t s . 10/
A lthough a d a p t i b i l i t y o f e x p e rim e n ta l d a ta to a c tu a l s i t u a t i o n s i s q u e s tio n ­
a b le , th e im portance o f th e method in d ic a te d and th e n a tu re o f th e r e s u l t s
o f such o b s e rv a tio n s sh ould n o t be o v e rlo o k e d .
I n te r- A r e a A n a ly sis
A t h i r d a l t e r n a t i v e h as re c e iv e d m ention b u t l i t t l e w idespread r e c - .
o g n itio n .
This i s th e p o s s i b i l i t y o f d ev elo p in g su p p ly cu rv es on th e b a s is
o f d a ta c o lle c te d W ithin g eograph ic re g io n s th ro u g h o u t which p ro d u c tio n
c o n d itio n s a re s i m i l a r , b u t in which i n t e r - a r e a p r ic e s d i f f e r .
I f s e v e ra l
d i f f e r e n t a re a s can be found w ith s im ila r c o n d itio n s o f p ro d u c tio n s b u t
d i f f e r e n t p r i c e s , and i f th e se p r ic e
d if f e r e n c e s have p e r s i s t e d long enough
f o r th e p ro d u c tio n o f d i f f e r e n t a re a s to become a d ju s te d to them, th en th e
1 0 / S ta n to n P . P a rry and W illiam McD. H e rr, "A Note on th e D e riv a tio n o f
'\ S h o rt-ru n Supply C u rv e s," J o u rn a l o f Farm Econom ics, A ugust, 1954.
- 9 -
p r ic e s and p ro d u c tio n p e r square m ile in th e d i f f e r e n t a re a s can be used as
p o in ts on a lo n g -tim e supply c u rv e , l l /
I t i s n e c e s sa ry to assume t h a t th e
f u n c tio n a l r e l a t i o n s h i p between feed in p u ts and m ilk o u tp u t i s s im ila r b e ­
tween the g eographic a re a s w ith in th e re g io n .
I t a ls o must be assumed t h a t
each a re a i s homogeneous w ith r e s p e c t to re s o u rc e s and t h e i r p r ic e s b u t w ith
d i f f e r i n g p ro d u c t p r ic e s i t u a t i o n s .
Under th e se assum ptions a s h o rt-r u n
curve i s m eaningful o n ly i n s o f a r as th e r a t e o f fe e d in g i s th e p rim ary r e ­
sponse by farm ers to s h o r t- r u n ch an g es. 12/
D eterm in an ts o f Supply
Supply Curves
At any p r ic e th e r e s p e c tiv e c o m p e titiv e firm s w ill a tte m p t to o p e r­
a te a t th e o u tp u t where m arginal c o s t e q u a ls p r i c e .
This w ill maximize r e ­
tu r n s n e t o f v a r ia b le c o s t and hence d e s ig n a te th e optimum.
I f the t o t a l
o u tp u ts o f th e v a rio u s firm s in a re g io n o r in d u s try a re added to g e th e r ,
th e t o t a l amount which w ill be su p p lie d a t any given p r ic e w ill a p p e a r.
With the fin d in g o f th e q u a n tity which w ill be su p p lie d a t o th e r p r ic e s th e
su pply curve f o r th e in d u s tr y can be c o n s tr u c te d .
Given th e supply and d e ­
mand curve f o r th e in d u s tr y , the p r ic e a t which q u a n tity su p p lie d e q u als
q u a n tity demanded i s found as dem o n strated in F ig u re 3.
A.
In d u s try
B.
Firm
Q u a n tity
Q u a n tity
F ig u re 3 . P ric e D eterm in atio n o f a F irm 's O utput
ll/
Shepherd, op. c i t . , p . 90.
12/
For f u r t h e r in fo rm a tio n co n cern in g t h i s type o f a n a ly s is see S ta n to n
and H e rr, op. c i t . , p . 521.
— 10 —
In d e te rm in in g th e amount to be su p p lie d only th e r e le v a n t p o r tio n o f
th e m arginal c o s t curve o r t h a t p o r tio n ly in g above average v a r ia b le c o s ts
i s shown in F igure SB.
The E l a s t i c i t y o f Supply
The e l a s t i c i t y o f supply i s th e p r o p o r tio n a l r e l a t i o n s h i p between
p r ic e s and q u a n t i t i e s .
I t can be in d ic a te d as th e p e rc e n ta g e change in
q u a n tity o r o u tp u t d iv id e d by th e p e rc e n ta g e change in p ric e s
Es = A S ^
q e
A£
P
=
Ap
. _E_
q
The e l a s t i c i t y o f th e supp ly curve w ill norm ally d i f f e r a t each p o in t
on th e c u rv e .
The " e l a s t i c i t y o f th e su p p ly c u rv e ", u s u a lly r e l a t e s to th e
a rc (a v e ra g e ) e l a s t i c i t y r a t h e r th an p o in t e l a s t i c i t y .
However, th e term
" e l a s t i c i t y o f sup p ly " may r e f e r to e i t h e r . 1 3 /
E l a s t i c i t y o f su p p ly , due to th e number and type o f a l t e r n a t i v e s
a v a il a b le , i s u s u a lly g r e a tly in c re a s e d o v er lo n g e r p e rio d s o f tim e as
compared to t h a t o f s h o r te r p e rio d s (a s shown in m ilk supply c u rv e s, page
4 ). 14/
Under many d i f f e r e n t supply s i t u a t i o n s in a g r i c u l t u r e , p a r t i c u l a r l y
th o se c o v erin g r e l a t i v e l y s h o r t p e rio d s o f tim e , th e supply ap p ears to be
so i n e l a s t i c w ith in th e n o rm ally e n co u n te re d p r ic e range as to j u s t i f y i t s
d e s ig n a tio n as " f ix e d " .
Thomsen and F o o te , in a tte m p tin g to an aly ze th e d i f f i c u l t y o f sep a­
r a t i n g th e e f f e c t s o f p r ic e from o th e r in flu e n c e s on. p ro d u c tio n and i s o l a t i n g
th e p r e c is e p r ic e - q u a n tity r e l a t i o n s h i p s 'i n d i c a t e d by th e law o f su p p ly ,
13/
Heady, ojo. c i t . , p . 674.
14/
Shepherd, l o c . c i t . , p . 93.
11 -
in d ic a te , t h a t th e a p p a re n t e x c e p tio n s r e f l e c t th re e c o n d itio n s ?
( l ) th e
d i f f i c u l t y o r im p o s s i b ility o f d e te rm in in g what p r ic e p ro d u c e rs o r s e l l e r s
e x p e c t to r e c e iv e when th e y make t h e i r p la n s f o r p ro d u c tio n o r s e a lin g ; ( 2 )
th e in te r f e r e n c e o f w eath er and o th e r en v iro n m en tal c o n d itio n s n o t r e l a t e d
to p r i c e j (3 ) fr e q u e n t s h i f t s in th e supply sch ed u le o r curve as a whole
so t h a t i t can n o t be d eterm in ed w hether a given change in q u a n tity r e s u lte d
from a change in p r ic e s o r from a change in th e whole sch ed u le o f q u a n t i t i e s
a s s o c ia te d w ith d i f f e r e n t p r i c e s . 1 5 /
S ources o f Supply
.The so u rc e s o f supply o r q u a n tity t h a t w ill be fu rn is h e d in resp o n se
to a given p r ic e may be d e riv e d from ( I ) th e sto ck o f th e p a r t i c u l a r com­
m odity h e ld in s to ra g e by th e firm s o r (2 ) from p ro d u c tio n . 1 6 /
Supply
d e riv e d from p ro d u c tio n in tu rn m ust come from re s o u rc e s committed to th e
p ro d u c tio n p ro c e s s o r re s o u rc e s n o t com m itted.
The f i r s t type o f resp o n se
would n e c e s s a r ily depend a g r e a t d e a l on th e s t o r a b i l i t y o f th e p ro d u c t
and th e economic f e a s i b i l i t y o f s to ra g e as d ecid ed by th e second type o r
le n g th o f tim e re q u ire d f o r th e p o t e n t i a l p ro d u c e rs to re sp o n d .
As th e
le n g th o f tim e and c e r t a i n t y o f p r ic e e x p e c ta tio n s a re e x ten d e d , th e r o le
o f uncommitted re s o u rc e s becomes p r o g r e s s iv e ly more im p o rta n t as a f a c to r
in d e te rm in in g su p p ly .
■ I t sh ould be p o in te d o u t t h a t o n ly by c o n s id e rin g v e ry s h o r t p e rio d s
o f tim e i s th e r e found im p o rta n t exam ples o f commodities in " fix e d " su p p ly .
15/
Thomsen and F o o te , o£. c i t . , p . 7 0 -7 1 .
16/
Thomsen and F o o te , o £. c i t . , p . 5 8 -9 .
",
- 12 I t should be a p p a re n t t h a t th e le n g th o f tim e n e c e s s a r y 'to v ary th e supply
would depend upon th e s i z e , com p lex ity and d egree o f s p e c i a l i z a t i o n o f th e
p la n ts in v o lv e d as w e ll as th e p ro d u c ts p ro d u ced .
The re lu c ta n c e o f p ro ­
d u cers to commit re s o u rc e s in th e form o f fix e d in v e stm e n t item s a ls o ex ­
te n d s th e tim e p e rio d n e c e s sa ry to in d u ce re s p o n s e .
When re sp o n se o f p ro ­
d u c tio n becomes f l e x i b l e o v e r s h o r t p e rio d s o f tim e , su p p ly more n e a rly
becomes a fu n c tio n o f p r i c e .
This fu n c tio n in tu rn i s in flu e n c e d as p r e ­
v io u s ly m entioned by p r i c e s , q u a n tity , a v a i l a b i l i t y o f feed s to c k s and
u n c e r ta in ty o f d u ra tio n o f change.
This a n a ly s is d e a ls w ith th e q u a n titie s
t h a t farm ers sh ould r a t i o n a l l y a tte m p t to produce in re sp o n se to given
p r ic e e x p e c ta tio n s to maximize n e t income n o t w ith th e q u a n t i t i e s a c tu a lly
produced in s o f a r as th e se a re a f f e c te d by c o n d itio n s o u ts id e o f th e fir m ’ s
c o n tr o l.
E s tim a te s o f th e l a t t e r s o r t r e q u ir e th e use o f p r o b a b ility e s t i ­
m ates u n a v a ila b le f o r t h i s s tu d y .
P r ic e as a D eterm in an t o f S u p p ly
Of th e many im p o rta n t v a r ia b le s in flu e n c in g p ro d u c tio n and th e ty p es
o f u n c e r ta in ty e n c o u n te re d , th e main c r i t e r i o n used in d e te rm in in g what
p ro d u c tio n program w i l l be fo llo w e d i s p r o f i t a b i l i t y .
Any a p p a re n t la c k o f
r e l a t i o n s h i p betw een p r ic e and su b seq u en t supply i s T a rg e ly due to th e a s ­
s o c ia te d v a r ia b le s and th e r e l a t i v e im portance o f non-econom ic c o n s id e ra tio n s
r a t h e r th a n an absence o f a d e f i n i t e p r ic e - s u p p ly r e l a t i o n s h i p .
I t m ust be
remembered t h a t d e s p ite th e in flu e n c e o f th e se o th e iT fa c t o r s , which ten d to
p a r t i a l l y co v er up th e o p e ra tio n o f th e law o f su p p ly , th e changes in p ro ­
d u c tio n would have been d i f f e r e n t in th e absence o f th e changes ta k in g p la c e
- 13 in th e p r ic e o f th e commodity,
As d is c u s s e d p r e v io u s ly , th e resp o n se w ill
be c o n sid e re d th e fu n c tio n o f p r ic e e x p e c ta tio n s .
T h erefo re th e le v e l o f
p r ic e change and c e r t a i n t y o f change n e c e s sa ry to cause th e p ro d u c e r to a c t
m ust be c o n s id e re d .
V a r i a b i l i t y in P r ic e
The in d iv id u a l farm er as e n tre p re n e u r o f a c o m p e titiv e firm , has no
c o n tro l o v e r p r i c e s .
h a r v e s tin g .
Large f lu c tu a tio n s may o ccu r betw een p la n tin g and
The c o e f f i c i e n t o f annual m ilk p ro d u c tio n v a r i a t i o n in Montana
f o r th e p e rio d 1944-1954 was 28 p e r c e n t.
The range o f m ilk p r ic e s in t h i s
a re a o f te n v a r ie s 10 p e rc e n t o r more w ith in a l a c t a t i o n p e rio d .
F a c to r p r ic e s as a r u le show l e s s v a r i a b i l i t y th an p ro d u c t p r i c e s .
T his has long been a p o in t o f c o n te n tio n to th e farm er who must a d ju s t h is
p ro d u c tio n to a downward s h i f t in p ro d u c t p r ic e w h ile f a c to r p r ic e s remain,
in fle x ib le .
The H y p o th esis
For p u rp o se s o f t h i s stu d y i t w ill be assumed t h a t p r o f i t a b i l i t y i s
th e prim e d e te rm in a n t o f th e amount which w ill be p ro d u ced .
Assuming th e
farm er i s eco n o m ically m o tiv a te d , th e h y p o th e sis o f t h i s stu d y i s t h a t th e
b udget method can be ad ap ted to a stu d y o f supply resp o n se o f m ilk p ro d u c­
tio n .
T his should r e v e a l , w ith in th e ran g e o f th e a l t e r n a t i v e s t e s t e d , th e
p ro d u c tio n p o s s ib le as a resp o n se to a change in p r ic e e x p e c ta tio n s .
The Method
Farm B udgeting
The farm b udget c o n s is ts o f an o p e ra tio n a l and o r g a n iz a tio n a l
14 s ta te m e n t o f a firm e i t h e r h y p o th e tic a l o r a c tu a l o v e r a given p e rio d o f
tim e .
I t i s , un d er th e ^ a c tu a l" s i t u a t i o n , to g e th e r w ith an e s tim a te o f
income and expense r e l a t e d t h e r e to , a p la n o f fu tu re o p e r a tio n .
Thus i t
can be used as an a n a l y t i c a l te ch n iq u e f o r comparing n e t r e tu r n s from
s e v e ra l a l t e r n a t i v e o r g a n iz a tio n s o f an in d iv id u a l farm firm . 1 7 /
The b u d g et can a ls o be used as a d e s c r ip tiv e d e v ice in term s o f which
to s y n th e s iz e an average o r r e p r e s e n ta tiv e s i t u a t i o n .
The f l e x i b i l i t y o f
th e b u d g e tin g te c h n iq u e has long made i t a u s e f u l to o l in th e a p p lic a tio n o f
economic p r i n c i p l e s to a farm firm .
The s y n th e tic farm model i s analogous to such d e v ic e s as t e s t p lo t s
o r e x p e rim e n ta l c o n d itio n s used in o th e r a re a s o f re s e a rc h in a g r i c u l t u r e .
In d e p ic tin g an average o r r e p r e s e n ta tiv e farm to se rv e as a form o f c l a s s i ­
f i c a t i o n , th e c o n ce p t e n t a i l s th e c o n s tr u c tio n o f th e model u n d er v e ry p r e ­
c i s e l y d e fin e d c o n d itio n s .
In t h i s way th e method h as been developed and
used in a wide v a r i e t y o f farm management s t u d i e s . ■
U sing th e S y n th e tic Model
The s y n th e s iz in g p ro c e ss i s used to p e rm it freedom in combining p ro ­
d u c tio n re s o u rc e s and p r a c t i c e s so t h a t a s im ila r degree o f m an ag erial
a b i l i t y o r e f f ic ie n c y i s a tta in e d f o r a l l farms in c lu d e d as combined in
th e " a v e ra g e ” .
The s y n th e tic m odels, analogous to e x p erim en tal te c h n iq u e ,
" f ix " many o f th e v a r ia b le s found under a c tu a l c o n d itio n s in o rd e r to e s t i ­
mate th e in flu e n c e o f th e v a r ia b le f a c to r s under s tu d y .
I T / ■E. G. S tra n d and E. H ole, Supply R esponses o f M ilk P ro d u c tio n in S o u th ­
e a s te r n M innesota, USDA9 Tech. B u i. 789, Nov. 1941, p . 25.
- 15
E stim a te s o f th e e f f e c t s o f change can and o fte n a re based d i r e c t l y
on in fo rm a tio n p ro v id ed by r e s e a r c h in such a re a s as agronomy, anim al n u t r i ­
t i o n and a g r i c u l t u r a l engineering®
Crop and liv e s to c k re sp o n se in fo rm a tio n
o b ta in e d from such so u rc e s may be u t i l i z e d to p ro v id e th e in p u t- o u tp u t d a ta
b a s ic to th e c o n s tr u c tio n o f farm models® 1 8 /
In fo rm a tio n from sample
so u rc es i s u t i l i z e d in d e te rm in in g s i z e , ty p e o f farm and as a b a s is fo r
making c l a s s i f i c a t i o n s .
In g e n e ra l th e s tr e n g th o f sample in fo rm a tio n
used in th e s y n th e s is i s in i t s r e p r e s e n ta tio n o f th e u n iv e rs e in which th e
stu d y i s bein g conducted®
In p r a c tic e th e b u d g e tary te c h n iq u e s t a r t s from a g iv en s i t u a t i o n . '
T h e .e f f e c t o f an a d ju stm e n t on farm income i s th e n c a lc u la te d by e s tim a tin g
th e a d d itio n a l expenses and r e c e i p t s t h a t a re a s s o c ia te d w ith th e change.
In t h i s way th e im pact o f a l t e r n a t i v e p ro d u c tio n p r a c tic e s on t o t a l farm
b u s in e s s can be e s tim a te d .
However i t should be n o ted t h a t t h i s t r i a l and
e r r o r method i s so tim e-consum ing t h a t o n ly a few o f th e more im p o rtan t
v a r ia b le c o n d itio n s can be t e s t e d .
To f a c i l i t a t e t h i s , th e g r e a te r manipu­
l a t i v e power giv en by l i n e a r programming may be a t t r a c t i v e in farm manage­
ment s tu d ie s r e q u ir in g a n a ly s is o f numerous a l t e r n a t i v e s .
S h o rt Cut B udgets
To in c re a s e th e number o f v a r ia b le s which can be t e s t e d , th e method
o f p a r t i a l b u d g e tin g w i l l be u se d .
S t a r t i n g w ith th e s y n th e tic model r e p r e ­
s e n tin g th e com plete b u d g e t, a n a ly s is w i l l 'b e made by p a r t i a l o r " s h o r t- c u t"
1 8 / I . E. Fellow s, G. E. F ric k and S . B. Weeks, P ro d u ctio n E f fic ie n c y on
New England D airy Farm s. S to r r s A gr. E x p r. S t a , , B u l l , 285, p . 9 .
- 16 b u d g e ts .
This i s to e s tim a te c o s ts and r e tu r n s where changes a re r e l a t e d
to o n ly t h a t p a r t o f th e b u s in e s s d i r e c t l y co n cern ed .
The Budget and th e Supply F u n ctio n
As was p re v io u s ly m entioned th e b u d g e tin g te ch n iq u e p ro v id e s one o f
th e m ajor to o ls w ith which farm management re s e a rc h has a p p lie d economic
p r i n c i p l e s to problem s in th e farm b u s in e s s .
Through use o f ex p erim en tal
d a ta to o b ta in p h y s ic a l p ro d u c tio n f u n c tio n s 9 th e b u d g e tary approach em­
p loyed in farm management work p ro v id e s a w orking a l t e r n a t i v e to th e s t a t i s t i c a l ap p ro ach .
The s ta n d a rd s o f perform ance as d e riv e d from secondary
so u rc e s and a p p lie d to th e s y n th e tic o rg a n iz a tio n a re o v e r - s im p lif ie d v e r ­
s io n s o f p a r t i a l p ro d u c tio n f u n c tio n s .
U tiliz e d in d e s c rib in g th e fa,rm
o rg a n iz a tio n under c o n s id e r a tio n th ey r e p r e s e n t le v e ls o f accom plishm ent
under p r e c is e ly d e fin e d s i t u a t i o n s when many o f th e u s u a l v a r ia b le s a re
h e ld c o n s ta n t.
They a r e , as in c o rp o ra te d in th e s y n th e tic s i t u a t i o n ,
re sp o n se o b s e rv a tio n s h y p o th e tic a lly ta k en from i d e n t i f i a b l e p o in ts on th e
p ro d u c tio n s u rfa c e developed from th e i n t e r r e l a t i o n s h i p o f s e v e ra l im p o rt­
an t v a ria b le s .
The s y n th e tic model re p r e s e n tin g a p a r t i c u l a r form o f a g r ic u ltu r e
i n a s p e c if ie d a r e a , may, i f p ro p e rly c o n s tr u c te d , r e p r e s e n t th e average
o f th e group under c o n s id e r a tio n .
L ikew ise th e supply sch ed u le o r curve o f
th e in d u s tr y r e p r e s e n ts th e a g g re g a te o r t o t a l supply o f th e firm s under
c o n s id e ra tio n and th e e l a s t i c i t y o f th e curve should be r e p r e s e n ta tiv e o f
th e a v e ra g e .
I f th e s y n th e tic model i s r e p r e s e n ta tiv e o f th e group as to
o r g a n iz a tio n , e n t e r p r i s e c o m b in atio n , re s o u rc e a l l o c a t i o n , e t c . i t should
a ls o be r e p r e s e n t a t i v e .
•
- 17 PART I I
METHODOLOGICAL APPROACH AND DERIVATION OF SYNTHETIC MODEL
Area Under C o n sid e ra tio n
D e s c rip tio n o f Area
The a re a u n d er c o n s id e ra tio n i s t h a t o f th e Upper F la th e a d V a lley in
th e n o rth w e ste rn p a r t o f M ontana, n o rth o f th e F la th e a d Lake and im m ediately
w est o f th e C o n tin e n ta l D iv id e .
N early a l l o f th e a re a l i e s in F la th e a d
County as i s shown in F ig u re 4 . 1 9 /
The a re a i s 14 m ile s wide and a p p ro x im ately 31 m ile s lo n g .
I t com­
p r i s e s a p p ro x im a te ly 238,000 a c re s and em braces a m ajor p a r t o f th e c u l t i ­
v a te d la n d in F la th e a d C ounty.
The average e le v a tio n i s ap p ro x im ately
3,000 f e e t above sea l e v e l .
C lim ate and P r e c i p i t a t i o n
The c lim a te o f th e Upper F la th e a d V a lley a re a i s ty p ic a l o f th e i n t e r ­
m ountain v a lle y s o f th e P a c if ic s lo p e .
I t i s c h a r a c te r iz e d by abundant sun­
s h in e , low r e l a t i v e h u m id ity , c o m p a ra tiv e ly low r a i n f a l l and wide d a ily and
s e a so n a l v a r i a t i o n s in te m p e ra tu re .
W eather re c o rd s show t h a t th e p r e c i p i t a t i o n i s r a t h e r ev en ly d i s t r i ­
b u te d th ro u g h o u t th e y e a r .
F o r ty - f iv e p e rc e n t o f th e average annual p r e ­
c i p i t a t i o n o f 15.02 in c h e s f a l l s d u rin g th e growing se a so n , as in d ic a te d
19/
W. W. M au ritso n and H. R. S tu ck y , F a c ts About F la th e a d County A g ric u l-,
t u r e , Monti E x t. S e rv ic e , C ir c . No, 264, June '1 9 5 0 , p p . 5 - 6 .
'
WESTERN
MONTANA
STUDY AREA
F ig u re 4 .
Study Area
- 19 by th e K a lis p e ll r e c o r d s e 2 0 /
The f r o s t - f r e e season v a r ie s c o n sid e ra b ly
o v e r th e a re a and ra n g e s from 99 days b o rd e rin g th e m ountains to 150 days
a t th e v a lle y c e n te r .
A g ric u ltu re o f th e Area
F ie ld crops p ro v id e th e p r in c ip a l source o f farm incom e.
In o rd e r
o f t h e i r im portance th e p r in c ip le cro p s a re w heat, b a r le y , hay , o a ts , p o ta ­
toes- and p e a s , 2 l /
W inter wheat i s produced in p re fe re n c e to s p rin g w heat,
p a r t i c u l a r l y in th e d r i e r a r e a s .
In m a tu rin g e a r l i e r , i t te n d s to p a r t i a l l y
escape d ro u g h t, i n s e c t and d is e a s e h a z a rd s .
A lf a lf a i s th e p r in c ip a l hay crop and i s u t i l i z e d p r im a r ily f o r lo c a l
consum ption.
With th e e x c e p tio n o f w heat m ost o f th e cro p s a re used as
feed f o r liv e s to c k , e s p e c ia ll y on th o se farms com bining crop and liv e s to c k
e n te rp ris e s .
The main liv e s to c k e n te r p r is e i s d a ir y in g , w ith hogs and p o u ltr y p ro ­
d u c tio n as m inor e n t e r p r i s e s on m ost farm s.
B eef c a t t l e and sheep are
r a is e d on r e l a t i v e l y few farm s o f th e a r e a .
E a rly A g ric u ltu re
Stockmen were th e f i r s t a g r i c u l t u r a l i s t s o f th e a r e a .
Few crops
were produced and th e sm all amount o f farm ing t h a t e x is te d was d ir e c te d
l a r g e ly to th e p ro d u c tio n o f n a tiv e h a y s .
The advent o f th e ra ilw a y in 1892
20/
F , K, Nunns, Upper F la th e a d V a lley A rea, U npublished M an u scrip t, D ept.
o f Agronomy, A gr, Exp. S t a . , Montana S ta te C o lle g e , J e n . 1947, p p . 2 -3 .
21/
M auritson and S tu c k y , o £ , c i t . , p p . 8 -9 .
- 20 induced g r e a te r em phasis on cash cro p s b u t most o f th e p ro d u c tio n was geared
to th e needs o f th e lum bering in d u s tr y t h a t developed when th e ra ilw a y p ro ­
v id e d a means o f m a rk e tin g lum ber.
H o rse s, o a ts and hay and fo o d s tu ff s
were m ajor p ro d u c ts t h a t th e lum bering in d u s tr y r e a d ily absorbed w ith in th e
a r e a . 22/
Wheat became a m ajor crop d u rin g th e h ig h p r ic e s o f th e World War I
p e r io d .
The m e ch a n iz atio n o f farm ing and lum b erin g , b e g in n in g d u rin g th e
11tw e n tie s " , reduced th e need f o r h o rs e s , h o rs e fe e d , and p a s tu r e .
Wheet
more th an e v e r was th e m ajor c ro p .
Trends in M ilk P ro d u c tio n
As e a r ly as 1932 p u b lic a tio n s appeared p ro c la im in g W estern Montana
as an im p o rta n t d a ir y r e g io n .
As a b u t t e r and cheese a r e a , th e p h y s ic a l
advantages were d e c la re d equal o r s u p e r io r to t h a t o f some o f th e m ajor
d a ir y in g s t a t e s o f th e G re a t Lakes re g io n .
However, even a t t h a t tim e th e
m arket was lim ite d by d is ta n c e and i n te r r e g io n c o m p e titio n . 2 g /
as a whole expanded r a p id ly d u rin g World War I I .
grew r a p i d l y .
D airy in g
Grade A m ilk p ro d u c tio n
Wartime demand f o r b u t t e r rem ained h ig h through th e e a r ly
p o stw ar y e a r s .
In c re a s e d lo c a l b u s in e s s a c t i v i t y i n th e form o f an e a r ly p o stw ar
boom caused a s t i l l f u r t h e r expan sio n o f th e f l u i d m ilk
in d u s tr y .
E a rly
22/
Nunns, o£. c i t . , p p . 10-11.
23/
S . E . Jo h n so n , J . 0 . T re ts v e n , M. E z e k ie l and 0 . V. W ells, O rg a n iz a tio n ,
F eeding Methods and O th er P r a c tic e s A ffe c tin g R etu rn s on I r r i g a t e d D airy
Farms in W estern M ontana, B u i. 264, Montana S ta te C o lleg e Ag. Exp. S t a . ,
Bozeman, M ontana, J u n e • 1932, p . 61.
- 21
a d o p tio n o f modern m ilk h a n d lin g te c h n iq u e s by th e lo c a l c o -o p e ra tiv e cream­
e ry extended th e m arket f a r in to the e a s te r n p a r t o f th e s t a t e .
However, by
1949 and e a r ly 1950, the demand fo r b u t t e r had dropped o f f and p ro d u c tio n o f
m a n u fa ctu rin g cream on a commercial b a s is became a th in g o f th e p a s t alth o u g h
i t has rem ained in th e form o f a supplem entary e n te r p r is e on many crop farm s.
Grade A m ilk p ro d u c tio n was g ra d u a lly r e s t r i c t e d to a more lo c a liz e d m arket
through i n te r r e g io n a l c o m p e titio n and g rad u al le v e lin g o u t o f b u s in e s s a c t i v i ty .
At th e p r e s e n t tim e th e m ilk cow numbers shown in F ig u re 5 below
have a d ju s te d c lo s e ly to th e lo c a l demand.
R ecent r e s t r i c t i o n s on wheat
acrea g e however have thrown in c re a s e d em phasis on d a iry in g as a means o f
k eeping farm income h ig h .
F ig u re 5 .
Lack o f a d ju stm en t on th e p a r t o f th e farm ers to
M ilk cow num bers, F la th e a d C ounty, 1940-1953, as ta k en from
Montana A g r ic u ltu r a l S t a t i s t i c s , as com piled by U .S .D .A ., co­
o p e ra tin g w ith Montana D epartm ent o f A g r ic u ltu r e , H elena.
- 22 -
th e s e a so n a l n a tu re o f demand has c re a te d a s u rp lu s problem c au sin g wide
v a r ia tio n in se a so n a l p r ic e s as an e f f o r t on th e p a r t o f d i s t r i b u t o r s to
match th e flow o f m ilk w ith lo c a l consum ptione
M arket O u tle ts and T ra n s p o rta tio n
The main l i n e o f th e G re at N o rth ern R ailw ay tr a v e r s e s th e n o rth e rn
p a r t o f th e a re a in an e a s t- w e s t d i r e c t i o n , and a branch l in e co n n ects K a lis p e l l to th e main l i n e a t Columbia F a l l s ,
T his ra ilw a y p ro v id e s f a c i l i t i e s
f o r th e shipm ent o f liv e s to c k and cro p s to o u ts id e m a rk e ts, such as Spokane,
S e a t t l e , G re a t F a lls and S t , P a u l,
M isso u la , G reat F a l l s , and B u tte a re
th e c h ie f w i t h i n - s t a t e m arkets f o r th e s e p ro d u c ts .
S ta te and F e d e ra l h ig h ­
ways tr a v e r s e th e c e n tr a l and e a s te r n p o r tio n o f th e a re a in a n o rth -s o u th
d i r e c t i o n , and th e n o rth e rn p o r tio n in an e a s t-w e s t d i r e c t i o n , 2 4 /
Most o f th e hays and feed g ra in s produced a r e , as was p re v io u s ly Iiienltio n e d , consumed by liv e s to c k on th e farm s.
The wheat i s m arketed lo c a l l y
through c o o p e ra tiv e a n d /p r iv a te ly owned e l e v a t o r s .
Most o f th e liv e s to c k
n o t used f o r lo c a l s la u g h te r i s m arketed in M isso u la , Spokane and P a c if ic
C o ast c i t i e s .
There a re th r e e c re a m e rie s a t K a lis p e ll and one a t W hitefi s h ,
p la n ts h an d le th e m arket m ilk and cream produced in th e v a lle y .
These
T h e ir p r i n ­
c ip a l o u t l e t f o r d a iry p ro d u c ts c o n s is ts o f th e y e ar-a ro u n d lo c a l tra d e and
in th e summer th ey supply th e camps and h o te ls o f G la c ie r P a rk . 2 5 /
Local
tr a d e i s s h a rp ly in c re a s e d d u rin g th e summer months due to t o u r i s t tra d e
24/
Nunns, o £. c j t . , p p . 1 1 -1 2 .
25/
M au fitso n and S tu ck y , o £. c i t . , p p . 7 -1 0 . '
- 23
and use o f lo c a l r e s o r t f a c i l i t i e s .
The M ethod o lo g ical Approach'
The B udget A n a ly sis
With th e p re v io u s p o r tio n s o f th e stu d y in mind i t w ill be r e c a lle d
t h a t th e p rim ary purpose o f th e stu d y i s to develop a method whereby th e
p ro d u c tio n re sp o n se o f w h o le sa le m ilk may be e stim a te d u n d er d e fin e d p r ic e
ch an g es.
The P rim ary Data
P rim ary d a ta s e rv in g as a b a s is f o r th e b udget a n a ly s is i s d e riv e d
from a random sample o f Grade A m ilk p ro d u c e rs o f F la th e a d C ounty.
The
sample was conducted f o r th e purpose o f d is c o v e rin g p ro d u c tio n a l t e r n a t i v e s
on d a iry farm s in W estern M ontana. 2 6 /
A m ilk p ro d u c e rs .
The o r ig i n a l sample was o f 60 Grade
Of th e 60 farm re c o rd s o b ta in e d , 55 were c o n sid e re d as
adequate and com plete enough f o r th e stu d y a t hand.
The sample was drawn
from p ro d u c e r l i s t s su p p lie d by th e lo c a l d i s t r i b u t o r s which r e p r e s e n t
v i r t u a l l y a l l p ro d u c e rs o f commercial m ilk in F la th e a d C ounty.
Data o b ta in e d from th e s e sch e d u le s i s u t i l i z e d p r im a r ily to d eterm in e
th e n a tu re o f th e u n iv e rs e w ith in which th e o p e ra tio n i s c a r r ie d o u t.
De­
s c r i p t i v e in fo rm a tio n re g a rd in g s iz e o f o p e r a tio n s , number o f a c re s found
in d i f f e r e n t c ro p s , average p o rd u c tio n r a t e s p e r cow, e t c . , as d e riv e d from
th e sample d a ta s e rv e s as th e o r g a n iz a tio n a l and p ro d u c tio n base o f th e
s y n th e tic m odel.
26/
U npublished E x p erim en tal S ta tio n D ata, MSC, Agr. E xpt.' S t a . , Bozeman,
M ontana.
*■ 24 —L im ita tio n s o f Sample Data
The sample d a ta r e l a t i n g to th e 1953 p ro d u c tio n p e rio d s has s e v e ra l
im p o rta n t lim it a ti o n s ?
( I ) The tim e p e rio d covered by th e sample was too
s h o r t to p ro v id e in fo rm a tio n re g a rd in g p ro d u c tio n tr e n d s , p a s t p r ic e re s p o n se ,
e tc .
(2 ) The in fo rm a tio n was g a th e re d in th e l a t e summer and f a l l o f 1954
r a t h e r th a n d i r e c t l y fo llo w in g th e p ro d u c tio n y e a r in v o lv e d .
Thus making
q u a l i t a t i v e a n a ly s is , com pleteness, a c c u ra c y , and memory b ia s become f a c to r s
li m i t i n g th e u s e f u ln e s s o f th e in fo rm a tio n .
(3 ) In g e n e ra l th e in fo rm atio n -
is. n o t r e l a t e d s p e c i f i c a l l y to th e supply problem , n o t b e in g secu red s p e c i­
f i c a l l y f o r t h i s p u rp o se .
Secondary Data
As was p re v io u s ly m entioned, th e s y n th e s iz in g p ro c e ss as p re s e n te d
r e l i e s on in fo rm a tio n p ro v id e d by th e v a rio u s f i e l d s o f a g r i c u l t u r a l r e s e a r c h .
Crop and liv e s to c k re sp o n se in fo rm a tio n d e riv e d u n d er c o n d itio n s resem b lin g
th o se o f t h i s stu d y as c lo s e ly as p o s s ib le has been u t i l i z e d to p ro v id e th e
in p u t- o u tp u t d a ta .
in a s im ila r m anner.
V arious r a t e s o f m achinery u s e , c o s ts , e t c . , a re d e riv e d
The m ajor so u rc e s o f such d a ta w ill be in d ic a te d in th e
m odel. .
■With th e d e s c r ip ti v e m a te r ia l d e riv e d c h ie f ly from sample d a ta o f th e
1953 p e r io d , th e p r ic e and p ro d u c tio n base used r e l a t e s to t h a t p e r io d .
The
s ta n d a rd s s e t up re g a rd in g in p u t- o u tp u t r e l a t i o n s h i p s , s ta n d a rd s o f p erfo rm ­
an ce, e t c . , w ill be used c o n s is te n tly th ro u g h o u t.
The a l t e r n a t i v e method to u s in g p r ic e and p ro d u c tio n d a ta o f a s in g le
y e a r would have been to use d a ta "av erag ed " from s e v e ra l y e a r s .
This would.
- 25 -
as i s p o in te d o u t by Mo Ee Quenemoen9 n o t b rin g th e problem any n e a r e r to
a c t u a l i t y and n o th in g would be gain ed in th e f i n a l a n a ly s is . 2 7 /
The Farm
Qf th e 55 sample farm s9 379 o r 67 p e r c e n t, combined a wheat and Grade
A d a ir y o p e r a tio n .
The rem ain in g 33 p e rc e n t were p r im a r ily d a iry farms w ith
t h e i r own produced feed r e s o u r c e s .
Of th e f i r s t group, 24 farm s, o r 65 p e r ­
c e n t had betw een 20 and 60 p e rc e n t o f t h e i r t o t a l crop acreag e in w heat.
Of th e 37 farm s found p ro d u cin g d ry la n d w heat and Grade A m ilk in combina­
t i o n , th e average s iz e d farm was found to c o n s is t o f 212 a c r e s .
Land use
o f a l l sampled farm s i s l i s t e d below .
Table I .
Land Use o f Sample Farms
Item
T otal A cres
No. o i Farms
Mean o f sample
Use
Wheat
Fallow
Hay
O ats
B arley
P a s tu re and Waste
TOTAL
,
Amount
7851
37
212 Acres
%
21
21
16
9
10
23
100%
Based on th e in fo rm a tio n given above, a 212 a c re w heat and d a iry farm
i s chosen as r e p r e s e n ta tiv e o f th e group.
On t h i s b a s is th e fo llo w in g bud­
g e t i s p r e s e n te d .
27/
M. E . Quenemoen, Economic Aspe c ts o f Water S p rea d e r Developments on
S o u th e a ste rn Montana R anches, Montana A gr. Exp. S t a . , C ir c . 6 2 , Dec.
1952, p . 2 5.
- 26 -
The Crop O rg a n iz a tio n
The la n d use o rg a n iz a tio n and crop p ro d u c tio n p la n i s given in Table
I I 9 based on th e p e rc e n ta g e s given above9 th e farm has 45 a c re s in w heat,
34 in h ay , 19 in o a ts and 21 in b a r le y .
The 45 a c re s o f w heat i s r a is e d
s p e c i f i c a l l y f o r cash s a le s b u t o n ly s u rp lu s o v er liv e s to c k re q u ire m e n ts o f
o th e r cro p s i s s o ld .
Y ield f ig u r e s a re based on county av erag es f o r th e
y e a r 1953. 2 8 /
Table I I .
Crops and Land Use
W inter lW heat
Summer F allow
B arley
Dats
A lf a lf a
C leared P a s tu re
Timber P a s tu re
Farm stead & Waste
TOTAL
Land Use and Crop P ro d u c tio n System
D]is p o s i'tio n
Cash Income
A cres Y ield P ro d .
Feed Seed a / Sold P r ic e b / T o tal
45
30 Eu. 1350
45
1305 $ 2 .0 0
$ 2610
45
21
28
588
480 32
76
1 .0 0 ■
76
19
30
5570
523 38
34
2 T.
68
62
6 T.
20.00
120
15
25 '
8
I
212
$ 28061
a / A ll seed i s assumed as home grown.
b / P r ic e co rre sp o n d s to 1953 l e v e l . See P r i ce R eceived by Montana Farm ers
and R an ch ers, 1910, B u i. 503, Montana S ta te C o lleg e Ag. Exp, S t a . ,
Bozeman, M ontana.
Table I I I shows th e machine o p e ra tio n s in v o lv e d in crop p ro d u c tio n
and th e number o f a c re s in v o lv e d in each o p e r a tio n .
In fo rm a tio n d e riv e d
from th e sample in d ic a te s t h a t th e common m ajor r o t a t i o n on th e se farm s i s
th r e e y e a rs in le n g th s
28/
w in te r w heat, feed g r a in , and f a llo w .
Summer
Montana A g r ic u ltu r a l S t a t i s t i c s , Montana D ept, o f A g r ic ., L abor, and
I n d u s tr y , c o o p e ra tin g w ith th e U .S .D .A ., Bureau o f A g ric . E c o n ., H elena,
M ontana, V ol. V, Dec. 1954.
- 27 -
fa llo w in g i s an im p o rta n t weed c o n tro l measure I n t h i s a r e a , 2 9 /
Table I I I ,
A cres
Wheat
O p e ratio n
Plow ing
D isk in g
S p rin g to o th in g
Harrowing
D rillin g
"Weeding
Combining
Mowing
Raking
45
45
90
45
45
45
Crop R equirem ents
A cres
B a rle y
A cres
O ats
21
21
21
42
21
19
19
19
38
19
21
19
Summer
Fallow
45
A cres
A lf a lf a
45
135
135
68
68
T o tal
A cres
85
85
130
305
85
180
85
68
68
U sing th e above d a ta ta b le IV i s developed to show th e d i r e c t c o s ts
o f crop p ro d u c tio n .
Hours p e r a c re and c o s t p e r hour f ig u r e s a re d e riv e d
from th e re s e a rc h s tu d ie s l i s t e d below and a re ad ap ted to th e a re a u n d er
c o n s id e r a tio n , 3 0 /
T o ta l v a r ia b le c o s ts o r g i n a r i l y v a ry w ith th e amount o f use o f th e
m achine,
However9 fo llo w in g th e su g g e s tio n o f th e New England e f f ic ie n c y
S tu d y 9 a charge f o r wear d e p r e c ia tio n i s n o t made because o f th e r e l a t i v e l y
few hours o f annual use o f th e item s in v o lv e d .
Three hundred h o u rs was
c o n sid e re d th e minimum number a t which to charge use d e p r e c ia tio n fo r
29/
For in fo rm a tio n c o n cern in g a l t e r n a t i v e means o f weed e lim in a tio n on
Montana w heat farm s, see the work o f C arl In f a n g e r 9 U npublished Manu­
s c r i p t , Montana S ta te C o lle g e , A gr, Exp. S ta .
30/
S ources o f perform ance r a t e s used in c lu d e Leo E6 C hoate and S c o tt A.
W alker, Guide in Answering B asic Q u estio n s on Farm M achinery C o sts ,
Idaho A gr, Exp, S ta , B u i, 224, U niv. o f Id ah o , Moscow, 1954; A.D, Reed9
M achinery C o sts and R e la te d D a ta , U niv. o f C a l i f . , A gr. E x t. S e r . C i r c . ,
D avis9 C a l i f . , N ov., 1954; and G, E . F r ic k , S . B, Weeks and I . F. F e l­
lo w s , P ro d u c tio n E f f ic ie n c y on New England D airy Farms, N. H. A gr. Exp.
S t a . 9 U niv. o f New H am pshire9 Durham, N. H ., B u i. 407, May9 1954.
- 28 -
sim ple m achinery ite m s .
S im ila r charge f o r power o r h ig h c a p a c ity machine
item s b e g in s a t 500 h o u rs under th e recom m endations o f t h i s s tu d y , S i /
T able IV,
O p e ratio n
D ire c t C o sts o f Power and Machine O p eratio n
A cres
T o tal
C ost
T o tal V ar­
A cres
P e r Hour
Hours
P e r Hour
ia b le C o sts
Plowing
85
1 .0 0
85
$0.12
$ 10.20
D isking
85
2 .4
3 5 .4
.18
6.37
S p rin q to o th in q '
130
7 .0
18 .6
.2 4
4 .4 6
!arro w in g
305
8 .5
35 .8
.0 4
1.43
D r ill in g
85
3 .0
2 8 .3
.69
1 9.53 Weeding (ro d w eed er) 180
3 .3
5 4 .5
.1 3
7 .09
Combining
85
340.00
Viewing
. .6 8
2 .5
2 7 .2
.58
15.78
Raking
'68
2 ,5
2 7 .2
.1 8
4 .9 0
H auling o r E le v a tin g
67
4 .0
16
.0 4
.6 4
Custom B a lin g a /
340.00
Custom S praying
56.25
T ra c to r Hours
328
229.60
TOTAL
$1036.25 b /
a/
b/
Custom B a lin g i s charged a t th e r a t e o f $5 p e r to n o r $10 p e r a c r e ,
The v a r ia b le c o s t v a lu e shown above in c lu d e s such item s as g a s, o i l s
g re a se and r e p a i r s . I t does n o t in c lu d e a charge f o r la b o r , as th e
fa m ily la b o r i s assumed as more th an a d e q u a te . The la b o r problem o f
th e a re a seems to be one o f making a more com plete use o f t h a t a v a i l ­
a b le r a t h e r th a n o b ta in in g m ore. Labor i s n o t c o n sid e re d a lim it in g
f a c t o r in t h i s s tu d y .
The t o t a l v a r ia b le c o s ts
o f crop p ro d u c tio n a re $ 8 0 4 .0 5 .
F u r th e r b reak
down o f th e s e c o s t item s w ill be made in th e fo llo w in g s e c tio n o f th e stu d y
to determ in e th e d i r e c t c o s ts in v o lv e d in th e p ro d u c tio n o f th e d i f f e r e n t
c ro p s .
The L iv e sto c k O rg a n iz a tio n
The liv e s to c k b udget as su g g este d by th e average o f th e sample d a ta and
S i/
Ge E. F r ic k , S . B, Weeks, and I . F. F e llo w s, o£, c i t , , p p . 5 -1 0 .
- 29 c o n s is ta n t w ith th e type o f crop o rg a n iz a tio n l i s t e d above id shown in Tablp
V.
B eginning
Number
14
3
4
I
100
Kind
M ilk Cows.
2 y r . o ld h e i f e r s
I y r . o ld h e i f e r s
C alves
Sows
P ig s
Hens
C hicks
TOTAL
WJS. VXyciuX* a cion
S a le s
Home
Born Died Use No. P r ic e
3
HO.
14
2
7
I
2
8
60
2
.I
I
.25
6
Value
$ 330
7. .
42
14.
1.2 5
56
31
Ending
Number
14
4
4
I
4
.25
100
$ 459
The h erd i s p red o m in a n tly h o l s t e i n and th e average w eig h t p e r head i s 1100
p ounds.
Each cow produces an averag e o f 6775 pounds o f 4 .0 m ilk .
Table
VI shows d is p o s it io n o f liv e s to c k produce
Table V I. L iv e sto c k Produce D is p o s itio n and Use
No. o f
P ro d .
T o tal
Value o f
Sold
Cash
Head
R ate
P ro d .
Home use
Amt.
P ric e
Income
14
6775
94,850
$ 177.
90,865
$ 4 .5 0 a / $ 4089
2
200#
400#
60.
100
12 doz. 1200 doz.
45.
1050doz.
315
2
200#
400#
60.
25
31.
373.
$ 4404
P roduct
4# m ilk
EggsPork
P o u ltry
TOTAL
a/
M ilk s o ld and used on th e farm i s c r e d ite d a t i t s n e t v a lu e a t th e farm .
Based on a lo c a l d i s t r i b u t o r p r ic e o f 4 .9 0 , 40 c e n ts p e r cw t. was de­
d u cted f o r h a u lin g .
Herd l i f e f o r d a ir y sto ck av erag es 6 p ro d u c tio n y e a r s .
ment r a t e v a r i e s .
s to c k .
The r e p la c e ­
A ll rep la ce m e n ts a re n o rm ally p ro v id e d from home r a is e d
S tock shown o v e r th e re q u ire d re p la ce m e n ts a re o r d i n a r i l y so ld i f
n o t needed.
B u ll c a lv e s and th o se h p if e r s n o t in te n d e d f o r rep lacem en t p u r ­
p o ses o r home consum ption a re norm ally s o ld as d a y -o ld c a lv e s under th e
30 p r e s e n t b u d g e t.
The hog and p o u ltr y e n te r p r is e s a re o f a supplem ental n a tu re and are
used p r im a r ily f o r home consum ption.
E x tra p ig s a re s o ld as w eaners.
Roughage consum ption o f d a iry c a t t l e i s based on a 105 day p a s tu r e
p e r io d .
P a s tu re i s c o n sid e re d as good n a tiv e d ry la n d su p p ly in g a p p ro x i­
m ately 1200 pounds o f t o t a l d ig e s ta b l e n u t r i e n t s p e r anim al p e r se a so n .
G rain i s fed on th e b a s is o f the. r e l a t i v e p r ic e s o f m ilk and g ra in f o r th e
1953 p e r io d .
The c o n c e n tra te r a t i o n f o r th e m ilk in g s to c k , composed o f 2 /3
b a rle y to l / 3 o a ts i s fed a t a y e a r ly r a t e o f 2000 pounds p e r cow.
eq u al to a p p ro x im a te ly 75% t o t a l d ig e s ta b le n u t r i e n t s .
This i s
D is p o s itio n o f fe e d '
re s o u rc e s i s budgeted in Table V II.
Table V II.
L iv esto ck
Milk Cows
2 y r . o ld
I y r . o ld
C alves
Hogs
P o u ltry
No.
14
3
4
6
3
100
Annual Feed D is p o s itio n
Hay Tons
B arley pounds
O ats pounds
51.42
3'. 75
4 .0
4
18,667
1 ,000
1 ,500
9,333
1,000
1,500
2 ,8 0 0
898
165
1,698
200
T o tal G rain Pounds
Fed P er Year
28,000
2 ,0 0 0
3,000
2,800
2,569
365
The annual d i r e c t expenses o f th e liv e s to c k system a re shown in Table
V III.
Both o b so lesc en c e and use d e p r e c ia tio n o f b u ild in g s i s charged as a
d i r e c t expense to e n t e r p r i s e s making e x c lu s iv e use o f b u ild in g and e q u ip ­
m ent.
I n d i r e c t and Fixed Expense Item s
The m achinery used to o p e ra te th e farm i s l i s t e d in ta b le IX.
The
t o t a l annual c o s t o f ow nership o f th e machine i s e x p re sse d as a p e rc e n ta g e
- 31 T able V I I I ,
E n te rp r is e
D airy Cows
Hogs b /
P o u ltry
TOTAL
D ire c t Expenses o f L iv esto c k E n te rp r is e
C ost P e r
Type
T o tal
Head a /
B u ild in g
$ 12
$
Equipm ent Use
8
A r t i f i c i a l In se m in a tio n
8
V e te rin a ry
2
E le c tric ity
3 .5 0
Spray and d i s i n f e c t a n t
2 .5 0
Washing powder (S oap, e t c , )
3 .0 0
M isc e lla n eo u s Expenses
2 .0 0
V e te rin a ry
B u ild in g D e p re c ia tio n
Mash 4000 pounds @ 2„75 cw t.
B u ild in g D e p re c ia tio n
$
E n te r p r is e
168
112
112
28
49
35
42 •
28
25
5
HO
37
751
a / C ost item s f o r d a iry e n t e r p r i s e 9 a re s y n th e s iz e d from K0 Te W right and
T0 L0 Hodges b u l l e t i n . D airy f o r P r o f i t in S o u th e a ste rn M ichigan, M ichi­
gan S ta te C o lle g e , A gr0 Exp0 S t a 0, E a s t L an sin g , M ichigan, S p e c ia l B u lle ­
t i n 373, A ugust 1951, and a d ju s te d to sample d a ta ,
b / Hog and p o u ltr y item s a re d e riv e d from J c P 0 D o l l 's , Economic A p p lic a tio n
o f S o il Survey Data in I r r i g a t e d A re as, Mimeo9 C i r 0 8 7 , A gr0 Exp0 S t a 0,
Montana S ta te C o lle g e , Bozeman, M ontana, June 1955, p«, 2 7 0
vuo
uo ou fi Power
r I mei; and
Fixed C
o sts
Ctnu Machine
Men;n in e Item
item s
Annual
Ownership C o st '
S iz e o f
E xpected
New C o st
P e rc e n t o f
Machine'
L ife Yrs0
T o ta l
irig in a l co st
20 hp
$ 2,000
10 y r s .
$280.00
14
2 - 16 "
230
16
24.38
10.6
T able IX0
Machine
T ra c to r
Plow
Combine
G rain D r i l l
IcF
~
D isk ( o f f s e t )
8'
Rod Weeder
12'
S p rin g to o th
20'
_n
Harrow Spike
30'
Mower
7'
Side D e liv . Rake
8'
Manure S p rea d e r
70 bu„
Wagon
2 Ton
H yd rau lic
Farmhand
M isc0 to o ls
Truck
l i T,
Auto (Farm S h a re )
T o tal
a / Auto and tru c k in c lu d e f u e l,
540
600
. 225
410
300
330
395
175
250
18
6
7
12
20
• 18
16
18
14
1,075
350
2,000
1,000
14
5
12
10
o i l and r e p a i r s .
54.00
150.00
51«30
5 1.25
2 8.00
33.00
41.87
1 7.50
28.50
.1 2 2 .5 5
9 8 .0 0
3 3 7 .5 0 a/
250.00
$ 1 ,5 6 7 .8 0 a /
10
25
22.8
1 2 .5
9 .5
10
10.6
10
11 .4
11 .4
28
1 2.5
1 4.0
- 32 o f th e o r ig i n a l C o st6 These t o t a l p e rc e n ta g e s in c lu d e o b so lesc en c e d e p re ­
c i a t i o n , i n t e r e s t , ta x e s , in s u ra n c e , and h o u sin g .
The s t r a i g h t - l i n e method
w ith a 10 p e rc e n t t r a d e - i n v a lu e was used to d eterm ine d e p r e c ia tio n ,., The
t o t a l l i f e o f each machine used to d eterm in e th e d e p r e c ia tio n i s given in
th e t h i r d column. 3 2 /
T able X in c lu d e s C o sts, l i f e span, annual d e p r e c ia tio n and r e p a i r s o f
b u ild in g s and s t r u c t u r a l item s n o t a ssig n e d as d i r e c t c o s ts to th e s p e c if ic
e n te rp ris e s .
(
va /
■
b/
<
F ixed and N o n -a llo c a b le Expense o f B u ild in g s.
and O ther D ep rec ia b le R eal P ro p e rty
Item
C ost a /
L ife
Annual D e p re c ia tio n
R ep a irs
D airy Housing
$4000
33
$—
M
G ranary
1200
. 36
'
24
19
Hog House & E quip.
85
——
P o u ltry House &
99
a—
Equipment
740
Fence
2034
31
20
T o tal
$67
$44
8
I
T able X.
T o ta l
$ __
60
-i.
51
$111
C ost item s' a d ju s te d from J . P. D oll,, og. c i t . , p . 32, see a ls o Farm Budg e t S ta n d a rd s f o r I r r i g a t e d Farm ing, U. S. D ept, o f I n t e r i o r , Bureau of
R eclam atio n , Region 6, B i l l i n g s , Montana, O ctober 1948, p . 5.
A ssigned as a d i r e c t expense to e n te r p r is e in v o lv e d .
O ther expense item s in c lu d e ta x e s , and an annual overhead expense
added to co v er g e n e ra l farm expenses c h a rg e a b le to th e whole farm .
Such
item s as g e n e ra l upkeep o f th e farm , farm O rg a n iz a tio n d u es, farm p a p e rs ,
32/
P e rc e n ta g e s were d e riv e d from F. C. F en to n , and G. E. F a irb a n k s , The
C ost o f U sing Farm M achinery, Kansas S ta te C o lle g e , E n g in e e rin g Exp.
S t a . , B u i. 74, S e p t. 1954, see T able I I I and IV, pp, 12 to 34,: a ls o
13 to 23.
- 33 -
3nd te le p h o n e , make up t h i s c h a rg e .
I t was e s tim a te d as fiv e p e rc e n t o f
th e t o t a l o f o th e r n o n - s p e c if ic c o s ts . 3 3 /
*WAyo-W ,&U.O VUHt=A IMViI-CULJ. VVavj. C CAfJtSWSe I LeiIlS
Item
Taxes
Overhead Expense
T o ta l
' '
I
Amount
$ 215
130
$ 345
The i n d i r e c t and fix e d expenses f o r th e farm a re summarized in Table
XII®
I n d i r e c t expenses in c lu d e m achinery d e p r e c ia tio n and r e p a i r s l i s t e d
in Table IX and overhead expense from T able X I.
Fixed expenses in c lu d e
ta x e s , d e p r e c ia tio n o f b u ild in g s and s t r u c t u r e s , i n t e r e s t , e t c . n o t l i s t e d
as " d i r e c t " , o r as shown in T able X.
T able X II. Summaty o f I n d i r e c t and N o n ^allo cab le F ixed Expenses
I n d i r e c t Expenses
Amount •
Annual Ownership C o sts'
$ 1568
Overhead Expense
130
T o ta l I n d i r e c t Expenses
$ 1698
F ixed Expenses
B u ild in g D e p re c ia tio n and R ep a irs
Taxes .
T o ta l F ixed Expenses
11J
Amount
$ 111
215
$ 326
Summary o f th e Budget
___
R e c e ip ts
^ro P
L iv e sto c k
Home Consumption
T o tal R e c e ip ts
33/
|
W right and Hodge,
T able X III .
Amount
$ 2806
4863
373 $ 8042
ojd.
Budget Summary
Expenses
D ire c t
Crop
L iv esto c k
In d ire c t
F ixed
T o ta l Expenses
Net Farm Income
c i t . , p . 52.
Amount
$ 1036
751
1698
326
3811
$ 4231
Net farm income i s c a lc u la te d by s u b tr a c tin g th e t o t a l expense from
th e t o t a l incom e.
Thus i t r e p r e s e n ts th e r e tu r n to th e farm er f o r use o f
re s o u rc e s he owns:
h is la b o r , and management, to g e th e r w ith i n t e r e s t on
h is e q u ity in in v e stm e n t, 3 4 /
T his model i s p re s e n te d to r e p r e s e n t th e most predom inant type o f
farm o f th e re g io n on which Grade A M ilk i s pro d u ced .
I t w ill be used to
t e s t th e p o s s i b i l i t i e s o f p ro d u c tio n resp o n se to m ilk p r ic e changes.
The
n e x t s te p i s to develop and t e s t th e a l t e r n a t i v e s by which th e farm er may
re sp o n d .
34/
J . P . ' D o ll. op. c i t . , p . 33.
- 35 PART I I I
EMPERICAL INVESTIGATION
C om binations to Meet P r ic e V a ria tio n
The le n g th o f tim e n e c e s sa ry to v a ry ( l ) p ro d u c tio n from a given
s iz e o f h e rd , (2 ) s iz e o f h e rd , (3 ) s c a le o f o p e ra tio n , e t c . , may be only
a few weeks o r may ex ten d in to p e rio d s o f y e a r s .
I t depends on th e e x i s t ­
in g re s o u rc e commitments ( e . g . , deg ree o f s p e c i a l i z a t i o n ) and l i m i t a t i o n a l
fa c to rs .
A d r y l o t d a ir y o p e ra tio n w ith p u rch ased re s o u rc e s w ill resp o n d ,
in g e n e r a l, more r e a d i l y th a n w ill a farm which combines crop e n te r p r is e s
and liv e s to c k .
With lim ite d amounts o f c a p i t a l and o th e r re s o u rc e s a v a i l ­
a b le , c o m p e titio n a r i s e s in th e a llo c a tio n o f a v a ila b le "b u n d le s” o f
re s o u rc e s .
As e n t e r p r i s e s a re added, say feed p ro d u c tio n , to th e s in g le e n t e r ­
p r i s e d a ir y o p e ra tio n a whole new s e r i e s o f in p u t- o u tp u t r e la tio n s h ip s and
s u b s t i t u t i o n r e la t i o n s h i p s m ust be c o n s id e re d .
The q u e stio n o f optim a must
now in c lu d e n o t o nly optimum le v e l o f fe e d in g f o r liv e s to c k b u t a ls o must
a d ju s t th e fe e d base to th e liv e s to c k and v ic e v e r s a .
In term s o f th e bud­
g e t c o n s tr u c tio n a crop system must be added to a liv e s to c k system , adding
an a rra y o f d i r e c t and i n d i r e c t e x p en se s.
In th e reglm o f management, as
crop e n t e r p r i s e s a re added to liv e s to c k , th e number o f a l t e r n a t i v e s to meet
p r ic e v a r i a b i l i t y a re in c re a s e d .
The p o s s i b i l i t y o f adding supplem ental
e n t e r p r i s e s becomes im p o rta n t as crop e n t e r p r i s e s a re added, w hereas w ith
h ig h ly s p e c ia liz e d d a ir y u n i t s th e a l t e r n a t i v e s a re .,larg ely o f a - f in a n c ia l
n a tu r e .
When a system com bining both crop and liv e s to c k e n te r p r is e s (such
- 36 -
as th e t h e o r e t i c a l model u sed ) i s p re s e n te d , th e budget becomes in c r e a s in g ly
awkward i n t e s t i n g th e number o f a l t e r n a t i v e s a v a il a b le .
A lthough a d iv e r ­
s i f i e d type o f o p e ra tio n i s g e n e r a lly a c c r e d ite d as b e in g more f l e x i b l e , to :
m eet p r ic e v a r i a b i l i t y , c o m p e titio n in th e use o f la n d , la b o r , c a p i t a l and
management re s o u rc e s a v a ila b le n e c e s s a r ily l i m i t th e ran g e o f c h o ic e .
As
more and more re s o u rc e s a re com m itted th e r e s u l t i n g r e s t r a i n t s ten d to r e ­
duce f l e x i b i l i t y .
Time P e rio d In v o lv ed
In t h i s s tu d y , o n ly two tim e p e rio d s w ill be c o n sid e re d .
The f i r s t ,
o fte n r e f e r r e d to as th e i n t r a - y e a r o r p o s t p la n tin g p e rio d , w ill c o n sid e r
o n ly th o se a d ju stm e n ts which a re p o s s ib le d u rin g th e y e a r - a f te r p ro d u c tio n
p la n s a re made.
ju s tm e n ts .
The' second p e rio d w ill be concerned w ith y e a r to y e a r ad­
D uring t h i s p e rio d a l l e n te r p r is e s a re c o n sid e re d
v a r ia b le o r
s u b je c t to change w ith in c e r t a i n l i m i t s , as w ill be s p e c if ie d l a t e r .
M ajor A lte r n a tiv e s o f th e I n t r a - y e a r P e rio d
The f i r s t a n a ly s is w ill be made to in d ic a te th e p o s s i b i l i t i e s o f a
w ith in y e a r re s p o n s e .
The p e rio d u n d er c o n s tr u c tio n i s so s h o r t as to i n ­
clu d e p o s s i b i l i t i e s o f s h i f t i n g crop a c re s and as d a ta a re n o t a v a ila b le in
t h i s a re a to p e rm it th e c o n s tr u c tio n o f r e a l i s t i c p o s t- p la n tin g p ro d u c tio n
fu n c tio n f o r c ro p s .
As such th e crop fu n c tio n s w ill be assumed as given
w ith in th e scope o f t h i s a n a ly s is .
The p o s s i b i l i t y , however, e x i s t s t h a t
given d a ta n e c e s s a ry to conduct a stu d y o f t h i s ty p e and w ith a s u f f i c i e n t
m agnitude o f p r ic e change, im p o rta n t in d ic a tio n s o f farm er re sp o n se m ight
be shown<
- 37 In c o n s tr u c tin g a p ro d u c tio n fu n c tio n f o r liv e s to c k , an immediate o r
i n t r a - y e a r re sp o n se i s p o s s ib le , due la r g e ly to th e em phasis on d i r e c t o r
v a r ia b le re s o u rc e s made p o s s ib le by th e e l a s t i c re sp o n se o f m ilk o u tp u t to
changes in feed co m p o sitio n , r a t e o f fe e d in g , e t c .
P o s s i b i l i t i e s o f an
alm ost im m ediate re sp o n se o f m ilk p ro d u c tio n to p r ic e changes e x i s t s w hereas
in th e case o f cro p s w ith th e crop a lre a d y in th e ground th e r e i s l i t t l e o r
no chance to in c r e a s e th e p ro d u c t w ith in th e p ro d u c tio n p e rio d .
I n t r a - y e a r A djustm ents o f Milk P ro d u c tio n
M ilk p ro d u c tio n , as a fu n c tio n o f feed in p u t, can v a ry o v er a f a i r l y
wide range d u rin g a given l a c t a t i o n p e rio d .
Optima in c lu d e , ( l ) th e o p t i ­
mum com bination o f feed components to produce a given p ro d u c t to m inim ize
c o s t and (2 ) th e d i f f e r e n t le v e l s o f o u tp u t made p o s s ib le by su c c e ss iv e
a p p lic a tio n s o f th e fe e d in p u t (o f given co m p o sitio n ) and th e most p r o f i t a b l e
le v e l a t which to pro d u ce.
In th e f i r s t in s ta n c e , re s e a rc h s tu d ie s in d ic a te t h a t a c o n sid e ra b le
range o f s u b s t i t u t i o n e x i s t s n o t o n ly between two g ra in s b u t between hay and
g r a in , and g ra in and p a s tu r e . 3 5 /
In t h i s case th e optimum d r p o in t o f c o s t
m in im iza tio n o ccu rs where th e m arg in al r a t e o f s u b s t i t u t i o n o f one feed com­
p o n en t f o r a n o th e r, as d eterm ined by th e r a t i o o f th e m arg in al p ro d u c ts i s
e q u ate d to th e in v e rs e p r ic e r a t i o o f th e two fe e d s g
mppx1/ mppx2 o px 2/ p x1
215/ E . 0 . Heady, ojo. c i t . , c h a p te rs 5 and 9. For s p e c if ic re fe re n c e to p a s ­
tu r e and g ra in s u b s t i t u t i o n p o s s i b i l i t i e s as d a iry fe e d .s e e a ls o S.
Sta n g e la n d , In p u t-O u tp u t R e la tio n s h ip s in (c o n tin u e d on n e x t page)
38 -
T his r e l a t i o n s h i p i s of im portance in stu d y in g resp o n se to v a r i a t i o n
in r e l a t i v e p r ic e s o f th e feed com ponents.
However, assum ing a given r a t i o n
in t h i s s tu d y , th e p r ic e o f th e feed a g g re g a te only i s c o n sid e re d .
With
t h i s a ssu m p tio n , th e p r in c ip a l a l t e r n a t i v e a p p ea rs to be th e le v e l o f g ra in
which should be fed to d eterm in e th e optimum le v e l o f p ro d u c tio n under p o s­
s i b l e p r ic e changes.
In p u t-O u tp u t R e la tio n s h ip s in M ilk P ro d u ctio n
In t h i s a n a ly s is m ilk o u tp u t i s re g a rd ed as a d i r e c t r e s u l t o f g ra in
in p u t w ith o th e r v a r ia b le s o f p ro d u c tio n h e ld c o n s ta n t u n d er an a ssu m e d .lev e l
o f management.
The d e riv e d p ro d u c t curve w ill v a ry depending on what le v e l
o th e r v a r ia b le s a re assumed f ix e d .
Most o f th e s tu d ie s o f r e c e n t y e a rs show
anim al p ro d u c tio n fu n c tio n s s u b je c t to d im in is h in g m arg in al p h y s ic a l p ro ­
d u c t i v i t y , as anim als a re fed to h e a v ie r l e v e l s .
In th e stu d y o f E. Jen sen
p re v io u s ly ..in d ic a te d , i t i s c l e a r l y shown t h a t th e law o f d im in is h in g p h y s i­
c a l o u tp u t a p p lie s to m ilk p ro d u c tio n .
In t h i s stu d y m ilk p ro d u c tio n i n ­
c re a s e d w ith e v ery in c r e a s e in g ra in a llo w an ce, b u t a t a d e c re a s in g r a t e . 3 6 /
A fu n c tio n a l r e l a t i o n s h i p o f th e ty p e Y = f ( X ^ / X g . a p p e a r s w ith each
le v e l o f o u tp u t, Y r e p r e s e n tin g th e e x p ec te d resp o n se to th e given le v e l o f '
a p p lic a tio n o f th e v a r ia b le f a c t o r X1 .
' 'v
By a d a p tin g th e average p r o d u c tiv ity p e r cow o f th e a re a under c o n sid ­
e r a tio n (a s d e riv e d from th e sample d a t a ) to th e p re v io u s ly m entioned stu d y ,
(f o o tn o te from p re c e d in g pages co n clu d ed ) L iv e sto c k P ro d u c tio n , Agr. Exp.
S t a . , South Dakota S ta te C o lleg e and Bureau o f R eclam atio n , U.S. D ept,
o f I n t e r i o r c o o p e ra tin g . Ag. Econ. Pam phlet 38, J a n . , 1952, pp. 7 -1 4 .
36/
Jensen,
ojd.
c i t . , p . 86.
- 39 -
th e method used to d e riv e th e in p u t- o u tp u t r e la t i o n s h i p s shown in T able XIV
was to employ th e S p illm an p ro d u c tio n fu n c tio n o f th e type Y = m-'arx.
The
e q u a tio n as su g g este d by th e Jen sen stu d y i s in d ic a tiv e o f th e type o f r e ­
sponse e x p ec te d on a l f a l f a hay fed f r e e ly d u rin g th e o f f p a s tu r e seaso n .
S in ce th e c o e f f i c i e n t s o f th e e q u a tio n were n o t given by J e n se n , th e ”r"
Teable XIV. [n p u t-o u tp u - R e la tio n s h ip s o f Milk P ro d u ctio n
X 1-30
a rx
( l b s . o f m ilk added
rX
(m = 7505.69
L evels o f T o ta l l b s .
(a
=
2575
p
e r added pound o f
g ra in fed ( r = .9 4 5 )
lb s )
fe e d in g
lb s )
g ra in MPPx)
0
0
0
4855.60 '
I
100
.9450
2433.38
5172.31
2
200
.8930
2299.48
5306.21
1 . 3390 '
3
300
.8439
2173.04
5432.65
1.2644
4
400
.7975
2053.56
5552.13
1.1948
5
500
.7536
1940.52
5665.17
1.1304
6
600
.7122
1833.92
5771.77
1.0660
7
700
.6730
1732.98
5872.71
I .0094
8
800
.6360
1637.70
5967.99
.9528
9
900
.6010
1547.58
6058.11
.9012
10
1000
.5679
1462.35
6143.34
.8523
11
1100
.5367
1382.00
6223.69
.8035
12
1200
.5072
1306.04
6299.65
.7596
l3
1300
.4793
1234.20
6371.49
.7184
14
1400
1166.22
.4529.
6439.47
.6798
15
1500
.4280
1102.10
6503.59
.6412
16
1600
.4045
1041.59
6564.10
.6051
17
1700
.3823
984.42
6621.27
.5717
18
1800
.3613
930.35
6675.34
.5407
19
1900
.3414
879.11
6726.58
.5124
20
2000
.3226
830.69
6775.00
.4842
21
2100
.3049
785.12
6820.57
. 4557
22
2200
.2881
741.86
6863.83
.4326
23
2-300
. 2723
701.17
6904.52
.4069
24
2400
.2573
662.55
6943.14
. 3862
25
2500
.2431
625.98
6979.71
. 3657
26
2600
.2297
591.48
• 7014.21
. 3450
27
2700
.2171
559.03
7046.66
. 3245
28
2800
.2052
528.39
7077.30
.3064
29
2900
.1939
499.29
7106.40
_
.2910
30
3000
.1832
471.74
7133.95
.2755
- .
40
-
v a lu e o f .945 ( r e p r e s e n tin g a c o n s ta n t r a t i o o f th e m arg in al p ro d u c ts ) was
computed from T able 21 o f J e n s e n ’ s s tu d y . 3 7 /
The c o e f f i c i e n t "m", eq u al to 7506 pounds, r e p r e s e n ts th e maximum
o u tp u t to be o b ta in e d from th e fix e d te c h n ic a l u n i t (one cow).
The sample
average o f 6775 pounds in d ic a te s a low c a p a c ity d a iry anim al as d e fin e d by
Jensen. 3 8 /
The "a" v a lu e , eq u al to 2575 pounds o f m ilk , in d ic a te s th e maxi­
mum o u tp u t to be added by an in crem en t o f th e p a r t i c u l a r v a r ia b le f a c to r
under c o n s id e r a tio n .
T h is r e p r e s e n ts th e ty p e o f re sp o n se ex p ected assum ing
f r e e fe e d in g o f h ig h q u a lity a l f a l f a h ay .
T able XIV, shows th e com putations
used in d e r iv in g an e s tim a tio n o f th e ex p ected t o t a l and m arg in al resp o n se
p e r 100 pounds o f g ra in fe d .
"X" v a lu e s o f I to 30 r e p r e s e n t 30 le v e ls o f
fe e d in g .
The m ilk p ro d u c tio n fu n c tio n d e riv e d from th e above c h a r t i s shown
in F ig u re 6 .
The c o rre sp o n d in g m arg in al p r o d u c tiv ity curve i s shown d i r e c t l y
below th e t o t a l p ro d u c t c u rv e .
M ajor c r i t i c i s m s o f th e use o f t h i s type o f fu n c tio n a re s
( l ) in itia l
in c r e a s in g r e tu r n s a re n o t shown, .and (2 ) by n a tu re o f th e u p p er l i m i t o f
p ro d u c tio n assumed, a d e c re a s in g t o t a l p ro d u c t can n o t be shown.
For t h i s
s tu d y , th e s e segm ents o f th e TPP curve a re n o t o f concern s in c e in th e
a n a ly s is th e eco n o m ically r e le v a n t a re a f a ll's between maximum average p h y s i­
c a l p ro d u c t and maximum t o t a l p h y s ic a l p ro d u c t.
I t i s tr u e t h a t when p r ic e
v a r i a t i o n i s in tro d u c e d , as th e p r ic e o f th e v a r ia b le f a c t o r approaches z e ro ,
37/
J e n s e n , op. c i t . , p . 68=
38/
J e n s e n , op. c i t . , F ig . 4, p . 42.
- 41
th e tendency i s tow ard m axim iaztion
o f th e TPP, and as th e p r ic e o f th e
fix e d f a c to r approaches z e ro , th e
ten d en cy i s to maximize APP„
How­
e v e r , such extrem es in p ric e v a r i a ­
t i o n w ill n o t be approached in t h i s
a n a ly s is .
Only t h a t p o rtio n o f th e
t o t a l p ro d u c t curve d e sig n a te d by
th e heavy s o lid li n e i s c o n sid e re d
</>
I
r e le v a n t.
(£
Given th e in p u t- o u tp u t r e l a ­
•H
S
tio n s h ip s shown ab o v e, th e n ex t
G rain (Thousand o f Pounds)
F ig u re 6 .
T o ta l and M arginal
P ro d u ct C urves.
q u e s tio n i s one o f choosing th e
amount o f th e v a r ia b le f a c to r to be
used to maximize income n e t o f g ra in
feed c o s t.
To d eterm in e g ra in fe e d in g le v e ls v a lu e r e la tio n s h ip s must a g ain be
in tro d u c e d .
Assuming a p r ic e f o r m ilk , th e s e optim a are d e riv e d by co n v er­
s io n o f th e p h y s ic a l fu n c tio n in to v a lu e term s by m u ltip l ic a tio n o f th e mar­
g in a l p h y s ic a l p ro d u c t a t d i f f e r e n t le v e l s o f fe e d in g by th e m ilk p r ic e and
e q u a tin g t h i s v a lu e o f m arg in al p ro d u c t w ith th e p r ic e o f th e g ra in in p u t.
G ra p h ic a lly t h i s i s e q u iv a le n t to fin d in g a ta n g e n t to th e slo p e o f th e t o t a l
p ro d u c t curve e q u al to th e r a t i o o f feed p r ic e to m ilk p r i c e .
Follow ing t h i s
m ethod, th e v a lu e o f m arg in al p ro d u c t i s shown in Table XV f o r each le v e l o f
fe e d in g a t s e le c te d m ilk p r ic e s ra n g in g from 3 3 .3 p e rc e n t h ig h e r to 4 4 .4 p e r ­
c e n t low er th a n th e 1953 le v e l assumed in th e s y n th e tic m odel.
T able XV.
2 .2 5
3.01
2 .8 4
2.69
2 .5 4
2 .4 0
2 .2 7
2 .1 4
2 .0 2
1 .9 2
1.81
1.71
1 .6 2
1.53
1 .4 4
1.36
1.29
1.22
1.15
1.09
1.03
.97
.9 2
.8 7
.8 2
.78
.73
.69
.65
.62
2 .5 0
3.34
3.16
2 .9 9
2 .8 3
2.67
2 .5 2
2.38
2.25
2 .1 3
2.01
1.90
1.80
1 .7 0
1 .6 0
1.51
1.43
1.35
I e28
1.21
1 .1 4
1.08
1 .0 2
.97
.91
.86
■ .81
.77
.7 3
.69
2.7 5
3.68
3.48
3.29
3.11
2 .9 3
2.77
2 .6 2
2.4 7
2.3 4
2.21
2.09
1.9 8
1.87
1.76
1.66
1.57
1.49
1.41
r— I
2 .0 0
2.68
2.53
2.89
2.26
2.13
2 .0 2
1.91
1 .8 0
I . VU
1.61
1.52
1 .4 4
1.36
I e28
1.21
1.14
1.08
I o02
.97
o91
.87
.81
o77
.73
.69
.65
.61
.58
.55
S
cwt of
g ra in MPPx
2
1.3390
.3
1.2644
4
1.1948
5
1.1304
6
1.0660
7
I .0094
8
.9528
9
.9012
10
.8523
11
.8035
12
.7596
13
.7184
14
.6798
-15
.6412
16
.6051
17
.5717
18
.5407
19
.5124
20
.4842
21
.4557
22
.4326
23
.4069
24
.3862
, 25 - .3657
26
.3450
27
.3245
28
.3064
29
.2910
30
o2755
Value o f M arginal P ro d u ct w ith Milk P r ic e s a t $ 2 .0 0 to $ 6 ,0 0 p e r cw t.
1.25
1.19
1.1 2
1.06
1.01
.95
.89
.84
.8 0
.76
3 .0 0 3.25
4 .0 2 4.3 5
3.79 4.11
3.58 3.88
3.39 3.6 7
3.2 0 3.46
3.0 3 3.2 8
2.8 6 3.1 0
2 .7 0 2 .9 3
2 .5 5 2.76
2.41 2.61
2 .2 8 2 .4 7
2.16 2 .3 3
2 .0 4 2.21
1 .92 .2 .0 8
1 .82 1.97
1.71 1.86
1 .62 1.75
1.5 4 1.66
1.45 1.59
1.37 1.48
1 .3 0 1.41
1.2 2 1 .3 2
1.16 1.26
1.1 0 1.19
1.0 4 1 .1 2
.97 1 .0 5
.9 2 1.0 0
.87 .95
.8 3 .9 0
3.5 0
4 .6 0
4 .4 3
4 .1 8
3.9 6
3 .7 3
3 .5 3
3 .3 3
3.1 5
2 .98
2.81
2.6 6
2.51
2.3 8
2 .2 4
2 .1 2
2 .0 0
1.89
1.79
1.71
1.59
1.51
1 .4 2
1.3 5
1.28
1.21
1 .1 4
1.07
1 .02
.96
3 .7 5
5 .0 2
4 .7 4
4 .4 8
4 .2 4
4 .0 0
3.79
3.57
3 .38
3 .2 0
3.01
2 .8 5
2 .6 9
2 .5 5
2 .4 0
2 .2 7
2 .1 4
2 .0 3
1 .9 2
1 .8 3
1.71
1.6 2
1.5 3
1.4 5
1.37
1.2 9
1 .2 2
1 .15
1.09
1 .0 3
4 .0 0
5.3 6
5.06
4.7 8
4 .5 2
4 .26
4 .0 4
3.81
3.6 0
3.41
3.21
3.04
2.8 7
2 .7 2
2.5 6
2 .4 2
2.29
2.1 6
2 .0 5
1.9 5
1.8 2
1.7 3
1 .6 2
1 .5 4
1.46
1 .38
1 .30
1 .23
1.16
1.1 0
4 .2 5 4 .5 0
5.69 6 .0 3
5.37 5 .6 9
5 .08 5 .3 8
4 .8 0 5 .0 9
4 .5 3 4 .8 0
4 .2 9 4 .5 4
4 .0 5 4 .2 8
3 .8 3 4.0 6
3 .62 3 .8 4
3.41 3 .6 2
3.23 3 .4 2
3.05 3.2 3
2.8 9 3.06
2 .7 3 2:89
2.5 7 2 .7 2
2 .4 3 2 .5 7
2 . 30 . 2 ,4 3
2.18 2.31
2.06 2 .1 8
1.9 3 2 .0 5
1.84 1.9 5
1 .73 1.83
1 .64 1.7 4
-1.55 1.65
1.47 1.5 5
1.38 1.46
1.3 0 1.38
1 .2 4 1.31
1.17 1 .2 4
4 .7 5
6.3 6
6.01
5.68
5 .3 7
5.0 6
4 .7 9
4 .5 3
4 .2 8
4 .0 5
3 .8 2
3.61
3.41
3.2 3
3.0 5
2 .8 7
2 .7 2
2 .57
2 .4 3
2 .3 2
2.16
2.0 5
1;93
1 .8 3
1.7 4
1.6 4
1 .5 4
1.4 6
1.38
1.31
5 .0 0
6 .7 0
6 .3 2
5 .9 7
5 .6 5
5 .3 3
5.0 5
4.7 6
4.51
4 .26
4 .0 2
3.8 0
3.59
3 .4 0
3.21
3 .0 3
2.8 6
2 .7 0
2.56
2.4 4
2 .2 7
2.16
2 .0 3
1 .9 3
1.8 3
1.7 3
1 .67
1 .53
1.46
1.38
5 .2 5
7 .0 3
6 .6 4
6 .2 7
5 .9 3
5 .6 0
5 .3 0
5 .0 0
4 .7 3
4 .4 7
4 .2 2
3.99
3 .77
3.57
3.37
3.18
3.0 0
2 .8 4
2.6 9
2.5 6
2 .3 9
2.2 7
2.1 4
2 .0 3
I .92
1,81
I .76
I ,61
1.5 3
1.45
5 .5 0
7.36
6.9 5
6.5 7
6 .2 2
5.86
5 .55
5 .2 4
4.96
4.6 9
4 .4 2
4.1 8
3.95
3.7 4
3.5 3
3.3 3
3.14
2.9 7
2 .8 2
2.69
2 .5 0
2.38
2 .2 4
2.1 2
2.01
1.9 0
1.8 4
1.68
1.6 0
I . .52
5.7 5
7.7 0
7 .27
6.87
6 .50
6.1 3
5.8 0
5.48
5.18
4 .9 0
4 .6 2
4.3 7
4.1 3
3.91
3.69
3.48
3.29
3.11
2.95
2.78
2.61
2.49
2.3 4
2.2 0
2.10
1.98
1.92
1.76
1.67
1 .58
6 . OC
8.02
7.59
7.17
6.7E
6.4C
6.06
5.72
5.41
5.11
4.82
4.56
4.31
4 . OE
3.85
3.62
3.42
3.24
3.07
2.91
2.72
2.6C
2.44
2.32
2.19
2.07
l.g =
1.84
1.74
1.65
I
M
I
- 43
T able XVIo Optimum Feeding Level of
th e given g ra in r a t i o n in pounds of
g ra in p e r cow p e r y e a r . __________
P r ic e G rain ($ /c w t)
P ric e
Milk
cw t.
1.68 1.89 2.10 2.31 2 .5 2
200
1000
800
600
400
300
^5
1200 1000
800
600
500
250
1400 1200 1100
800
700
275
1500 1300 1200 1000
800
300
1700 1500 1300 1100 1000
325
1800 1600 1400 1300 1100
350
2000 1800 1600 1400 1200
375
2100 1900 1700 1500 1400
400 . 2200 2000 1800 .160.0 .,1500
425
2300 2100 “1900 1700 1600
450
2400 2200 2000: 1900 ■1700
475
2500 2300 .2100 2000 ,1800
500
2600 .2400 2200 2000 1900
525
2700 2500 2300 2100 .2000
550
2800 2600 2400 2200 ,2000
575
2800 2700 2500 2300 2100
600
2900 2700 2500 2400 2200
To d eterm in e th e le v e l a t
which to feed g ra in a t any one o f
th e m ilk p r ic e s shown in T able XV,
th e optimum as p re v io u s ly m entioned
i s to eq u ate th e v a lu e o f th e mar­
g in a l p ro d u c t to th e p r ic e of th e
p r ic e o f th e g ra in r a t i o n .
Table
XVI i l l u s t r a t e s th e d e riv e d optimum
le v e l o f fe e d in g w ith m ilk p r ic e s
between $ 2,00 to $ 6 .0 0 p e r hundred
w eight and feed p r ic e s 10 and 20 p e r ­
c e n t low er and h ig h e r th an th e 1953
com posite p r ic e o f th e assumed r a t i o n .
Supply E s tim a te s With In p u t-O u tp u t Data
With g ra in as th e o nly v a r ia b le in p u t under th e assum ptions made, th e
su pply re sp o n se o f m ilk p ro d u c tio n to p r ic e changes can be d e riv e d .
7
i l l u s t r a t e s g r a p h ic a lly th e n a tu re o f t h i s supply c u rv e .
a re h e ld c o n s ta n t a t $ 2 .1 0 .
F ig u re
G rain p r ic e s
Milk p r ic e s v a ry from $ 2 .0 0 to $ 6 .0 0 p e r hund­
re d w e ig h t.
SS, r e p r e s e n ts th e p ro d u c tio n o r supply resp o n se p e rm is s ib le w ith
r e s p e c t to th e given g ra in r a t i o n .
However, i t should be p o in te d o u t a g ain
t h a t t h i s i s n o t n e c e s s a r ily th e way th e farm er would respond to p r ic e changes
o f t h i s m agnitude based on th e assumed in p u t- o u tp u t r e l a t i o n s h i p s .
i t shows th e p o s s i b i l i t y o f re sp o n se which m ight be pro d u ced .
R ath er
44 Over a f i n i t e range of th e
supply fu n c tio n , l e t th e average
e l a s t i c i t y , Es , be given by
F
_ q2 - Qi
Ag t Pi
where
-
s " q2 +
~ P2 - P1
m ilk , measured in pounds p e r cow
p e r y e a r , p^ . p r ic e p e r hundred
w eight o f m ilk .
Then, between s e le c ­
te d m ilk p r i c e s , th e average e l a s ­
F ig u re 7 .
T able XVII.
P r ic e I
$ 2.00
3.00
4 .0 0
5 .0 0
cw t. o f Milk
Optimum m ilk p r ic e supply
re sp o n se w ith r e s p e c t to a
giv en g ra in r a t i o n .
t i c i t i e s a re shown in T able XVII.
E s tim a te s of Average E l a s t i c i t i e s Between S e le c te d P ric e L evels
P ric e 2
Q u a n tity I
Q u a n tity 2
E l a s t i c i t y of Supply
$ 3.00
5772
6371
“ E'ls = .25
4 .0 0
6371
6675
t 2s = .16
5 .0 0
6675
6864
^3s - .13
6 .0 0
6864
6980
t 4s - .08
E xpected Farmer Response to th e Feeding A lte r n a tiv e
Given th e range o f p r ic e changes shown in Table XV, m ilk o u tp u t may
be v a rie d o p tim a lly over a range o f 1208 pounds.
As a p o in t o f d e p a rtu re
th e budget makes use o f th e le v e l o f fe e d in g in d ic a te d as most p r o f ita b l e
u nder g ra in a t $ 2 .10 cw t.
From th e m ilk o u tp u t th u s y ie ld e d , o u tp u t may be
v a rie d 1003 pounds to meet th e maximum assumed p r ic e d e c re a se o r r a is e d 205
pounds to meet th e maximum assumed p r ic e in c r e a s e .
To use th e s e r e l a t i o n ­
s h ip s to e s tim a te a c tu a l farm er resp o n se i t would be n e c e s sa ry to assume
t h a t th e o p e ra to r i s aware o f th e e x is t in g r e l a t i o n s h i p s .
45 C o n sid e rin g th e p o s t- p la n tin g p e rio d o r w ith in y e a r p r ic e changes,
th e problem o f how th e farm er i s l i k e l y to respond (a s w ell as how he can
re sp o n d ) should be c o n s id e re d , 3 9 /
Given a p r ic e change o f s u f f i c i e n t mag­
n itu d e to i n t e r e s t th e farm er in th e p o s s i b i l i t y o f in c r e a s in g h is o u tp u t
in s p i t e o f th e u n c e r ta in ty o f th e d u ra tio n o f th e change, th e fo llo w in g
q u e s tio n s should be answ eredg
( l ) how much does i t pay th e farm er to feed
th e given h e rd a t th e in d ic a te d optimum to meet th e p r ic e change, and (2 ) i s
t h i s s u f f i c i e n t inducem ent to c a l l f o r th th e e x tr a la b o r and management r e ­
q u ire d to meet th e change?
To determ in e th e p o s s ib le income p e r cow, assum­
in g a d d itio n a l g r a in , above and below budget re q u ire m e n ts, i s bought and
s o ld a t $ 2 .1 0 p e r hundred w e ig h t.an d a t t r i b u t e d to th e te c h n ic a l u n i t u n d er
c o n s id e r a tio n , T able XVIII i s p re s e n te d . 4 0 /
T able XJX i s p re s e n te d to d eterm in e th e p r o f i t a b i l i t y o f a d ju s tin g
o p tim a lly to changes in m ilk p r i c e .
The optimum income from m ilk and feed
ex p ected a t th e v a rio u s m ilk p r ic e s is- shown in Table X V III.
Income (from
m ilk a lo n e , s in c e no feed i s bought o r s o ld ) a t th e assumed fe e d in g le v e l
o f pounds o f g ra in p e r cow p e r y e a r i s shown, f o r v a rio u s m ilk p r i c e s , in
column 3 o f T able XIX.
T his assum es, th e n , no ad ju stm en t w h atev er, in fe e d ­
in g l e v e l , in re sp o n se to a change in m ilk p r i c e .
Column. 4 shows th e d i f - '
f e re n c e , p e r cow, o f optimum income and th e income r e s u l t i n g from f a i l u r e to
a d ju s t o p tim a lly .
The l a s t column shows th e same th in g on a h erd b a s is .
3 9 / The p re v io u s ly m entioned s tu d ie s by J e n s e n , e t a l j A lle n , Hole and Migh e l l j and Johnson, T r e ts v e n ,.E z e k ie l and W ells; a l l in d ic a te t h i s as a
m ajor a l t e r n a t i v e o f s h o r t term re s p o n se . However, assum ing d i f f e r e n t
e n v iro n m en tal c o n d itio n s as w ell as d i f f e r e n t in p u t- o u tp u t r e l a t i o n s h i p s ,
a t e s t sh ould be made.
4 0 / The term te c h n ic a l uni-t r e f e r s to a s in g le , fix e d u n i t in p ro d u c tio n f o r
which o u tp u t and r e tu r n s may be c a lc u la te d , ( e . g . , one cow, one a c r e ) .
- 46 -
Tal3le X V III. Income 3Sr Cow + V alue o f A d d itio n a l Feed R equired
P r ic e T o ta l G rain Feed
Feed
V alue o f Addi­ Value o f
Milk Income t
o f m ilk
P e r Cow,
Sold Bought
t i o n a l Feed
Milk Prod. v a lu e o f feed
so ld o r bought
$2.00
600
1400
+ 29.40
' 115.44
144.84
2 .5 0
1100
900
4 18.90
155.60
174.50
3 .0 0
1300
700
4 14.70
191.13
205.83
3.50
1600
400
4
8 .4 0
229.74
' 238.14
4 .0 0
1800
200
t 4 .2 0
267.00
271.20
4 .5 0
2000
0
0
0
304.50
304.88
5 .0 0
2200
200
- 4 .2 0
343.20
339.00
5 .5 0
2400
400
- 8 .4 0
381.87
373.47
6 .0 0
2500
500
- 10.50
418.80
408.30
a
T able XIX. A d d itio n a l herd income a t optimum fe e d in g l e v e l s .
P r ic e
N et Income of
Income w ith
A d d itio n a l
A d d itio n a l
o f Milk
T able XVIII
feed a t
Income p e r
Income
2000 pounds
Cow a t optimum
14-cow h erd
$2.00
$ 144.84
$ 135.50
$ 9 .3 4
$ 130.76
2 .5 0
174.50
169.38
5 .1 2
71.68
3.00
205.83
203.25
2.5 8
36.12
3.50
238.14
237.12
1 .0 2
12.28
4 .0 0
~ 271.20
, 271.00
2 .8 0
4 .5 0
304.88
304.88
.00
5 ,0 0
339.00
337.75
1.2 5
17.50
5 .5 0
373.47
371.52
•
1.9 5
27.30
6 ,0 0
408.30
406.50
1 .8 0
25.20
O
O
With a p r ic e in c r e a s e o f $ 1 .0 0 p e r hundred pounds o f m ilk , a p o s s ib le
in c re a s e in income o f $ 1.95 p e r y e a r p e r cow would p ro v id e l i t t l e in d u c e ­
ment to s h i f t f a c to r s o f p ro d u c tio n to meet th e change.
T h is may be an
im p o rta n t f a c t o r in e x p la in in g th e f a i l u r e shown by farm ers o f th e a re a to
respond r e a d ily to th e p r ic e changes a p p lie d f o r th e purpose o f c o n tr o llin g
m ilk o u tp u t.
However, i t should be p o in te d o u t t h a t i f th e farm er were n o t
fa c ed w ith th e a l t e r n a t i v e o f buying o r s e l l i n g a d d itio n a l g ra in b u t could
r e a d j u s t h is su p p ly on hand, t h i s ty p e o f re sp o n se would p erh ap s be more
- 47 s ig n ific a n t. A l/
I t sh ould be p o in te d o u t, how ever, t h a t th e b a s ic a n a ly s is o f th e
stu d y i s d e riv e d from a s y n th e tic m odel.
T h is model i s d e riv e d w ith th e
a id o f sample d a ta to r e p r e s e n t a predom inant type o f farm in a c e r ta in
g eo g rap h ic a r e a .
As such th e farm r e p r e s e n ts n o t only th e average p ro d u c e rs
of th e a re a b u t th e hig h and low p ro d u c e rs a ls o .
With th is., in mind i t can
be p o in te d o u t t h a t even a sm all p o s s i b i l i t y f o r resp o n se would be s e iz e d
upon by some o f th e p ro d u c e rs in th e a r e a , w hile ''o th e rs would rem ain alm ost
in a c t iv e under any re a so n a b le p r ic e changes.
Also th e ex p ected resp o n se o f
th e m ilk p ro d u c tio n to le v e l s o f fe e d in g would v a ry w idely as th e c a p a c ity
o f cows in c re a s e d , improved m an ag erial te c h n iq u e s were in tro d u c e d , e t c .
It
should be k e p t in mind t h a t th e assum ptions o f a m ilk p ro d u c tio n fu n c tio n
and a c a p a c ity r a t i n g o f cows a re based upon e x p erim en tal r e s u l t s a d ju s te d
to th e sample d a ta .
The p o s s i b i l i t y e x i s t s t h a t , due to a la c k o f i n f o r ­
m atio n , th e seem ingly low c a p a c ity p e r cow may be due to a la c k o f m anager­
i a l a b i l i t y and i n i t i a t i v e on th e p a r t o f th e farm ers r a t h e r th an the in h e r ­
e n t q u a l i t i e s o f th e a n im a ls.
O th er A lte r n a tiv e s o f th e I n t r a - y e a r P e rio d 4 2 /
Looking back to th e o r ig i n a l b u d g e t, a n o th e r s h o r t term a l t e r n a t i v e
o f in c r e a s in g p ro d u c tio n to meet a p r ic e r i s e a p p e a rs.
4 l/
T h is i s an in c re a s e
T his m ight be a t t r i b u t e d to ( l ) th e p e r f e c t m arket assumed may n o t
e x i s t th u s b rin g e r r o r in to th e p r ic in g o f th e v a r ia b le in p u t, and (2 )
w ith p r ic e changes o f th e n a tu re d is c u s s e d , th e r e l a t i v e p r o f i t a b i l i t y
o f a l t e r n a t i v e e n t e r p r i s e s would f lu c tu a te g iv in g a p o s s i b i l i t y o f
s h i f t i n g feed re s o u rc e s in and o u t o f th e supplem ental hog, p o u ltr y ,
c a l f and h e i f e r e n t e r p r i s e s . T h is would (c o n tin u e d on n e x t page)
- 48 -
in herd s i z e .
Given a p r ic e change la r g e enough to m o tiv a te , a change in
o u tp u t could r e a d ily ta k e p la c e w ith in a s h o r t p e rio d o f tim e by th e a d d i­
tio n o f more a n im a ls.
The p o s s i b i l i t y o f in c r e a s in g h erd s iz e in fa c e o f
s h o rt-te rm p r ic e c e r t a i n t y would be to in c re a s e th e given h e rd by buying a
a d d itio n a l anim als o r changing th e e x i s t i n g c u llin g p r a c tic e to in c re a s e
h erd s iz e o v er s h o r t p e rio d s o f tim e .
Buying o f sto ck in face o f s h o r t­
term c e r t a i n t y i s d e c id e d ly r is k y and o n ly th e a l t e r n a t i v e o f a change in
c u llin g r a t e w ill be analyzed in t h i s s e c tio n .
Under th e p r e s e n t s e tu p th e average p ro d u c tio n o f th r e e cows o f th e
given 14, i s d iv id e d betw een th r e e fre s h e n in g h e i f e r s and th re e c u ll cows.
W ith cows b e in g re p la c e d as h e i f e r s are fre s h e n e d , th e h erd i s m a in tain ed a t
a p p ro x im a te ly 14 cows th ro u g h o u t th e y e a r .
In t h i s way, o n e -h a lf o f t h i s
p ro d u c tio n i s a t t r i b u t e d to each so u rc e .
In view o f th e p r ic e change d is c u s s e d above th e farm er could h o ld th e
c u l l cows u n t i l t h e i r l a c t a t i o n p e rio d i s te rm in a te d .
In t h i s way i t i s
assumed t h a t an a d d itio n a l 10,163 -pounds o f m ilk could be o b ta in e d .
and expense item s a re shown in Table p c .
C ost
The t o t a l m ilk income n e t o f th e
d i r e c t expenses (a s shown in T able V III o f th e s y n th e tic m odel) i s shown
b o th a t th e p r e s e n t le v e l o f p ro d u c tio n a t th e in c re a s e d p r ic e and a t th e
new le v e l c o n s id e rin g an in c re a s e in h erd s i z e .
T his i s shown in s h o r t- c u t
bud g ets I and 2 r e s p e c tiv e ly .
(fo o tn o te from p re c e d in g pages co n clu d ed ) pose im p o rta n t a l t e r n a t i v e s and
would f a c i l i t a t e s h i f t s in m ilk o u tp u t.
42/
O th er s h o r t- r u n a l t e r n a t i v e s would in c lu d e improved m an ag erial p ra c ­
t i c e s to r e g u la te p ro d u c tio n to meet se a so n a l p r ic e s h i f t s , improved
p r a c t i c e s to in c re a s e p ro d u c tio n and e lim in a te w a ste .
-4 9
T able XX. R etu rn s P e r Herd
Budget I
Cow Numbers ( a v e ra g e )
14
T o ta l P ro d u c tio n (p o u n d s)
94,850
Value o f P ro d u c t ($ 5 .5 0 cwt.)
$5217
D ire c t E x p e n ses($41 p e r head)
574
Income n e t o f D. Exp.
$4643
'
Net o f D ire c t Expenses.
Budget 2
Cow Numbers ( a v e r a g e )
T o ta l P ro d u ctio n (lb s.)
Value ($ 5 .5 0 cwt.)
D ir e c t Exp. ($41 p e r head)
A d d itio n a l Feed a /
Income Net o f D. Exp.
1 5 .5
105,013
$5,776
636
183
$4,957
a / Cows a re fed a t th e p r e s e n t bu dget le v e l o f 2000 l b s . p e r cow p e r y e a r .
Comparison o f th e two bud g ets shows a p o s itiv e n e t r e tu r n o f $314
f o r th e a l t e r n a t i v e b u d g e t.
T his a n a ly s is assumes t h a t th e c u ll cows are
cap a b le o f f in i s h in g th e l a c t a t i o n p e r io d .
a lte rn a tiv e .
T h is i s d e f i n i t e l y a s h o r t- r u n
C ontinued use o f th e c u ll cows would ten d to low er th e q u a lity
o f th e h e rd and in c re a s e r i s k o f d e a th lo s s s u ffe re d as a r e s u l t o f t h i s
p r a c tic e would e lim in a te th e salv a g e v a lu e o f th e cow (assumed at-»$liO ) and
s u b s t a n t i a l l y low er th e r e s u l t i n g r e t u r n s .
However, r e g u la tio n o f c u l l i n g
p r a c tic e s to meet e x p ec te d p r ic e s would ap p ear to o f f e r a f e a s ib le a l t e r n a ­
t i v e to in c r e a s e m ilk p ro d u c tio n and hence r e t u r n s .
Summary o f I n t r a - y e a r Response
Comparison and summation o f th e r e s u l t s o f th e a l t e r n a t i v e s o f th e
i n t r a - y e a r p e rio d which have been examined a re shown in su p p ly cu rv es o f
F ig u re 8 .
In F ig u re 8 , th e d o tte d l i n e between p o in ts A and B i s p re s e n te d to
in d ic a te t h a t some p ro d u c e rs m ight respond a t any o f th e p r ic e le v e ls shown.
F u r th e r A n a ly sis With an Expanded Time P e rio d
The I n t e r - y e a r P e rio d
P r e v io u s ly feed has been c o n sid e re d bought and s o ld fre e ly g
however,
- 50
'0
80
90
100
HO
M ilk (Thousands o f Pounds)
rO 80
90
100
HO
M ilk (Thousands o f Pounds)
A.
Response to C u llin g A l t e r B. Response to C u llin g
n a tiv e , No Change in Feed­
A lte r n a tiv e , @ Optima
ing L ev el.
F eeding.
F ig u re 8. Supply Response o f A lte rn a tiv e s Examined fo r I n tr a - y e a r P e rio d .
in th e su b seq u en t a n a ly s is t h i s assum ption i s n o t made.
Now th e a n a ly s is
w ill be concerned w ith th e i n t e r - y e a r p ro d u c tio n p e rio d when th e farm er can
a d ju s t crop a c re s to p ro v id e a d d itio n a l feed i f needed.
T h is a n a ly s is i s
made assum ing th e farm er i s faced w ith r e l a t i v e c e r t a i n t y o f p r ic e e x p e c ta ­
tio n s o f a p e rio d in e x cess of one y e a r .
T h is would a llo w re a so n a b le a d j u s t ­
ments in crop a c r e s , as w ell as in th e s iz e o f th e d a iry e n t e r p r i s e .
For
t h i s in v e s t ig a ti o n th e $ 5.50 p e r hundred w eight m ilk p r ic e which was used
in th e p re v io u s s e c tio n i s again a p p lie d .
T h is r e p r e s e n ts a $ 1.00 in c re a s e
o v er th e c u r r e n t m ilk p r ic e and i s assumed as s u f f i c i e n t to s tim u la te f a r ­
mer r e a c tio n .
D ir e c t Expenses o f Crop P ro d u ctio n
Faced w ith some c e r t a i n t y o v er a p e rio d o f tim e s u f f i c i e n t to make
- 51
a c rea g e a d ju s tm e n ts , th e q u e s tio n a r i s e s as to how. p r o f i t a b l e th e s h i f t i n g
o f crop a c re s to su pply feed in c re m en ts f o r an expanding d a ir y h erd m ight
be.
To compare th e e n te r p r is e a l t e r n a t i v e s th e fo llo w in g ta b le i s p re s e n te d
to show th e d i r e c t c o s ts a t t r i b u t a b l e to th e s p e c if ic crop e n t e r p r i s e s .
T able XXI. D ir e c t Expenses P er Crop Acre
I . Wheat (45 crop a c re s J
O p e ratio n
Acres.W orked A cres P e r Hour T o ta l Hours D ire c t Expenses a /
D isk in g
45
2 .4
18.75
$
3.3 8
S p rin g to o th in g
45
7 .0
6 .4 3
1 .5 4
H arrow ing
90
8 .5
10.54
.4 2
D rillin g
45
3 .0
15.00
10.35
Weeding
45
3 .3
13.64
1 .77 .
Combining
45
180.00
S p ray in g
45
56.25
T r a c to r
64.41
45.09
T o ta l C ost
298.90
C ost P e r Acre
6 .6 4
2 . B arley & Ocits
O p eratio n
A cres worked A cres p e r hour ' T o ta l h o u rs I D ir e c t Expenses a /
Plow ing
40
1 .0
4 0.00
$
4 .8 0
D isking
40
2 .4
16,67
3.0 0
S p rin g to o th in g
40
7 .0
5.71
1.3 7
Harrowing
80
8 .5
9.41
.38
D rillin g
40
3 .0
13.33
9 .2 0
com bining
40
160.00
T ra c to r
85.20
5 9 .6 4
T o tal C ost
238.38
-.o st p e r a c re
5.9 6
3. A lf a lf a (34 a c r e s )
D peration
A cres worked A cres p e r hour T o ta l h o u rs !D ire c t Expenses a /
Mowing
68
2 7 .2
,
2 .5
$ 15.78
KdKlliy
e>8
275
277"2
4 .9 0
H auling
1 6 .0
.64
B aling
340.00
T ra c to r
7 0 .4
49.28
T o tal C ost
411.60
^ o s t p e r a c re
12.11
..
a / D ire c t expense item s a re a b reak down o f th o se shown in T able IV as
th e y a p p ly to s p e c i f i c c ro p s .
52 -
A creage R equirem ent f o r D airy P ro d u ctio n ■
With th e d i r e c t c o s ts p e r a c re as given in T able XXI, th e n e x t s te p
i s to d eterm in e th e number o f a c re s re q u ire d to supply n e c e s sa ry feed r e ­
q u ire d p e r m ilk in g cow.
At th e p r e s e n t m ilk p ro d u c tio n le v e l and crop
y i e l d s , th e e s tim a te s a re shown in p a r t one o f T able XXII.
P a r t two i s
concerned w ith th e optimum le v e l o f fe e d in g a t th e p r ic e assumed.
T able XXII. D airy G rain and Hay R equirem ents in A cres P e r M ilk in g Cow
I . Budget F eeding Level o r Optimum @ $ 4 .5 0 cw t.m ilk
Item
Feed
Amount
U n it
Acres
Cow
o a ts
i'
667
lb s .
.74
b a rle y
1333
lb s .
1.0 5
-hay
3 .7
to n s
1 .8 4
Replacem ent R e q u ire ­
m ents P e r Cow a /
o a ts
240
lb s .
.28
b a rle y
175
lb s .
.14
hay
.3 4
to n s
.17
T o ta l hay a c re s
P e r D airy Cqw
2.01
T o ta l G rain A cres
P e r D airy Cow
2.21
2 . Optimum fe e d in g le ' veI @ $ 5.50 cw t. m ilk
Item
Feed
Amount
Cow
o a ts
800
b a rle y
1600
hay
3 .3 2
Replacem ent R eq u ire ­
ments P er Cow
o a ts
240
b a rle y
175
hay
.3 4
T o ta l G rain A cres
P er Milk Cow
T o tal Hay A cres
P er M ilk Cow
U n it
lb s .
lb s .
to n s
Acres
.89
1.26
1 .6 0 b /
lb s .
lb s .
' to n s
.2 8
.1 4
.17
2 .57
1 .7 7 .
a / Replacement, re q u ire m e n ts a re based on a 6 -y e a r p ro d u c tiv e l i f e p e r head
f o r m ilk in g cows, o r 1 /6 o f th e feed re q u ire m e n ts needed to r a i s e a r e ­
placem ent h e i f e r to 3 y e a rs o f ag e.
b / T h is f ig u r e r e p r e s e n ts th e a d ju stm en t made in hay consum ption as g ra in
in ta k e i s in c re a s e d 400 l b s . p e r y e a r . I t r e p r e s e n ts a 1 1 .5 p e rc e n t in
hay consum ption. For f u r t h e r in fo rm a tio n see J e n s e n , og; c i t . , p p . 8 0 -9 0 .
- 53 At th e p r e s e n t le v e l o f p ro d u c tio n , c o n s id e rin g th e p a s tu r e a v a ila b le
as n o n -a llo c a b le to crop e n t e r p r i s e s , 4 .2 2 (2 .0 1 in hay and 2.21 in g r a in ) .
a c r e s a re re q u ire d to su pply th e d a ir y feed re q u ire d p e r head o f m ilk in g
s to c k .
I f a d d itio n a l d a ir y anim als a re added, a g r e a te r p a s tu r e in crem en t '
m ust be o b ta in e d .
Two p o s s i b i l i t i e s e x i s t s
( l ) a d d itio n a l crop a c re s may
be s h if te d to p a s tu r e p ro d u c tio n o r (2 ) e x i s t i n g p a s tu r e may be improved to
meet in c re a s e d n e ed s, 4 3 /
D ir e c t c o s ts from e s t a b l i s h i n g and m a in ta in in g p a s tu r e s h if te d from
wheat p ro d u c tio n w ill be assumed a t $ 7 .5 0 /a c r e . 4 4 /
s e e d , f e r t i l i z e r , and power and equipm ent c o s ts .
a llo c a te d o v e r a f iv e y e a r p e rio d .
T his f ig u r e in c lu d e s
I n i t i a l c o s t item s a re
Assuming ah o u tp u t o f 1800 pounds of
TDN p ro d u c tio n a v a ila b le p e r p a s tu r e se a so n , .67 a c re s a d d itio n a l p a s tu r e
would be needed f o r each a d d itio n a l cow added to th e d a iry e n t e r p r i s e .
By.
use o f t h i s in fo rm a tio n , th e a n a ly s is p re s e n te d in T able XII can be com­
p le te d and a t o t a l number o f a c re s p e r head can be o b ta in e d .
R e fe rrin g to T ab le X X ilI, i f anim als a re to be fed to th e optimum
g ra in fe e d in g le v e l f o r a m ilk p r ic e o f $ 5 .5 0 p e r c w t., „12 (5 .0 1 - 4 .8 9 ) o f
an a d d itio n a l a c re w ill be needed per. m ilk in g cow added to th e o r ig i n a l
h e rd .
At th e fe e d in g le v e l in d ic a te d in p a r t one a t o t a l o f 4 .8 9 a c re s are
43/
L i t t l e in fo rm a tio n i s a v a ila b le co n ce rn in g c o s ts and ex p ected in c r e ­
m ents o f y ie ld f o r p a s tu r e improvement in t h i s a re a . As a r e s u l t
q u a n tita tiv e a n a ly s is i s n o t f e a s i b l e . However, i f th e n a tu re o f th e
fu n c tio n s could be d e term in e d , i t would c o n tr ib u te tow ard a d e te rm in a n t
s o lu tio n as to th e f e a s i b i l i t y o f s h i f t i n g a c re a g e .
44/
T his expense item was tak en from C laren ce J e n s e n ’ s , The Economics o f
P a s tu re I n te g r a tio n on I r r i g a t e d Farm s, Agr. Exp. S t a . , Montana S ta te
C o lle g e , Mimeo. C ir c . 67, p . 56.
” 54 «=
re q u ire d p e r cow added.
At th e le v e l o f fe e d in g shown in p a r t two ( o p t i ­
mum fe e d in g ) 5.01 a c re s a re re q u ire d p e r cow added because o f a d d itio n a l
g ra in acrea g e r e q u ir e d .
Budget fe e d in g le v e l o r
optimum @ $ 4 .5 0 cwt. Milk
nay a c re s p e r cow
b ra in a c re s p e r cow
A d d itio n a l p a s tu r e a cres/c o w
T o tal a c r e s /a d d itio n a l cow
—
I.
4
w .
1V U ..L IV .
O U W
2.
2.01
2.21
.67
4.8 9
Optimum fe e d in g le v e l
@ $ 5.50 p e r cwt. Milk
Hay a c re s p e r cow
G rain a c re s p e r cow
A d d itio n a l p a s tu r e acres/co w
T o ta l a c r e s /a d d itio n a l cow
1 .77
2 .5 7
„67
5.01
T able XXIV i s c o n s tru c te d as a b a s is f o r ex am in atio n o f p o s s ib le a c re -,
age s h i f t s betw een feed ( f o r th e d a ir y e n t e r p r i s e ) and w heat.
U sing th e
a crea g e re q u ire m e n ts d e riv e d above, r e tu r n s p e r a c re a re shown f o r w h e a t.
and f o r fo u r d i f f e r e n t co m binatio n s f o r d a ir y p ro d u c tio n below.
Comparison o f columns I and 2 r e v e a ls t h a t th e p r e s e n t crop acreag e
u t i l i z e d in m ilk p ro d u c tio n shows a p o s i t i v e n e t r e tu r n o f $2.29 p e r a c re
($53.65 - 5 1 .3 6 ) o v er an a l t e r n a t i v e use in w heat, a t a m ilk p r ic e o f $4„50
cw t.
I f a p r ic e o f $ 5 .5 0 p e r hundred w eight o f m ilk i s c o n s id e re d , com pari­
son o f columns I and 4 r e v e a ls t h a t a t t h i s p r ic e a p o s itiv e r e tu r n o f $ 7 .1 5
(5 8 .5 0 - 5 1 .3 6 ) p e r a c re may be e x p e c te d .
F u r th e r a n a ly s is , c o n s id e rin g columns 4 and 5, ($ 5 9 .1 7 - 5 8 .5 1 ) show
an in c re a s e o f o n ly $ .66 p e r a c re when anim als are fed a t th e optimum le v e l
as compared With th e o r i g i n a l le v e l o f fe e d in g (2000 pounds p e r cow p e r y e a r ) .
Due to th e la c k o f more d i s t i n c t i o n betw een th e optimum and fix e d l e v e l , f o r
th e sake o f s i m p l i c i t y , th e o r ig i n a l le v e l o f fe e d in g w ill be used to com plete
th e a n a ly s is .
55 T able XXIV. R etu rn s P e r Acre Net D ire c t Expenses
f o r Changes in Herd S iz e and Milk P r ic e s - "
1 4 -d a iry h erd
In c re a s e in Herd S ize
Wheat m ilk @ $ 4 .5 0 m ilk @ $ 5.50
m ilk @ $ 5 .5 0
Income and Expense ( I )
(2 )
(3 )
(4 )
[5 ]
N on-optim al
N on-optim al
N on-optim al Optimal
Feeding
Feeding
Feeding
Feeding
4 .2 2 a c re s
4 .2 2 a c re s
4 .8 9 a c re s 5.01 acres
Acre
re q u ire d
re q u ire d
re q u ire d
re q u ire d
G ross R etu rn s
$58.00 $304.88
$372.62
$372.62
$381.87
D ire c t Expense
y
N o n -v ariab le41.00
41.00
41.00
41.00
G rain b / •
13.17
13.17
13.17
15.32
Hay
c/
2 4.3 2
24.32
27.33
2 4.07
P a s tu re (added)
5 .0 3
5 .0 3
T o ta l D ire c t Exp.
6.64
R etu rn s Net of
D ire c t Expenses
226.39
294.13
286.09
2 9 6 .4 5 '
P e r Cow
R etu rn s p e r a c re
Net o f D ir e c t
Expense d /
51.36
53.65
69.70
5 8 .5 0
5 9.17
a/
N o n -v a ria b le d i r e c t expense ite m s a re p e r head f ig u r e s ta k en from d i r e c t
expenses a t t r i b u t e d to th e d a ir y e n te r p r is e shown in T able V I I I 0 T h is
expense item p ro b a b ly i s n o n - lin e a r ; how ever, v a r i a t i o n would p ro b a b ly
be s l i g h t a n d ,la c k in g th e n e c e s sa ry in fo rm a tio n to s y n th e s iz e a non­
l i n e a r f u n c tio n ,a l i n e a r c o e f f i c i e n t i s assumed.
b / Seed re q u ire m e n ts p e r a c re a re s u b tra c te d from th e ex p ected y ie ld p e r
. - a c re .
c/
C ost f o r p r e p a r a tio n and se e d in g o f new hay ground i s assumed a t $ 1 .5 0
p e r a c r e , o r a t o t a l a d d itio n a l hay c o s t o f $13.60 p e r a c re .
d/
However, w h ile th e a crea g e a lre a d y in d a iry p ro d u c tio n i s more p r o f i t ­
a b le th a n th e a l t e r n a t i v e use in w heat, a n a ly s is in d ic a te d t h a t to add
a.cow ( r e q u ir in g 4 .8 9 a c r e s ) a t t h i s p r ic e le v e l ($ 4 .5 0 p e r cwt.) f o r
m ilk , t h i s would r e s u l t in a n e g a tiv e r e tu r n o f $6.71 p e r a c re added
when compared to th e ex p ected wheat r e t u r n .
H olding p ro d u c tio n p e r cow a t 6775 pounds and w ith th e d i r e c t expenses
as g iv e n , T able XXV shows th e r e tu r n n e t o f d i r e c t expense p e r a c re which
m ight be e x p ec te d from an in c r e a s e o f m ilk p r ic e s a t th e given le v e l o f
fe e d in g .
- 56 -
Table XXV. D airy Income and Expense P er Acre f o r
M ilk P r ic e s o f $ 4 .5 0 to $ 5 .5 0 cwt.
G ross Income
D ir e c t Expenses
Net Income
Milk P r ic e s
P e r Acre
P e r Acre
P er Acre
$ 4 .5 0
$ 62.35
$ 17.70
$ 44.65
4 .7 5
65.81
1 7 .7 0 .
48.11
5 .0 0
69.27
17.70
51.57
5 .2 5
72.74
17.70
5 5.04
5 .5 0
7 6 .20
17.70
58.50
The above ta b l e seems to in d ic a te t h a t th e b reak even p r ic e between
wheat and m ilk l i e s a t a p p ro x im ately $5„00 when th e n e t income column i s
compared w ith th e d e riv e d n e t income f o r wheat o f $51„36„
I f resp o n se i s
assumed a s 'fo rth c o m in g a t t h i s l e v e l , th e farm er would te n d to ^ s h ift wheat
acreag e in to d a iry p ro d u c tio n o n ly as p r ic e o f m ilk approached $5;00 a t
$ 2.00 p e r b u sh el o f w heat.
The P o s s i b i l i t y o f Acreage S h if ts
In an a c tu a l s i t u a t i o n th e p o in t a t which th e p ro d u c e r would s h i f t
re s o u rc e s would depend upon non-economic f a c t o r s as w ell as economic i n ­
ducem ents.
Some p ro d u c e r m ig h t rem ain in a c tiv e under alm o st any p r ic e
s itu a tio n .
O thers w ould, depending upon th e amount o f knowledge a v a ila b le .,
s h i f t as soon as i t becomes e co n o m ically f e a s i b l e .
The p r ic e -level a t
which th e s h i f t s would o c cu r would depend, to a la r g e d e g re e , upon th e r e l a ­
t i v e c e r t a i n t y o f p r ic e e x p e c ta tio n s .
The p r ic e in c re a s e s u f f i c i e n t to c a l l .
,fo rth th e r e a l l o c a t i o n o f th 6 p h y s ic a l re s o u rc e s o f th e firm would n eces­
s a r i l y depend upon th e u n c e r ta in ty accompanying th e change. The g r e a te r
th e u n c e r ta in ty th e l a r g e r must be th e change in e x p ectatio n -.
Under th e s y n th e tic model c o n s tr u c te d , r e f e r r i n g to p a r t i a l budgets
■1 and 2 in T able XXIV, d a iry would show a g r e a te r n e t r e tu r n p e r a cre th an
- 57 w heat.
T h is i s a t h erd le v e l f o r which p a s tu r e i s a v a ila b le and n o t s u i t ­
a b le f o r crop p ro d u c tio n .
th e p r e s e n t s e t- u p .
to wheat p ro d u c tio n .
T his la n d does n o t have an a l t e r n a t i v e use under
Hence, th e r e i s no o p p o rtu n ity to c o n s id e r i t f o r s h i f t s
At th e $4.50 m ilk p r i c e , s h i f t s from wheat to d a iry
p ro d u c tio n would n o t be eco n o m ically sound.
T his would come about as a r e ­
s u l t o f th e in c re a s e d acreag e and c o s t n e c e ssa ry to p ro v id e e x tr a p a s tu r e .
Given an in c re a s e in th e p r ic e o f m ilk , th e p r ic e o f wheat and o th e r'
f a c to r s rem ain in g a t th e given l e v e l , a p o in t would be reach ed a t a p p ro x i­
m ately $ 5 .00 p e r hundred w eight o f m ilk , where c o n tin u e d w heat p ro d u c tio n
would n o t be e co n o m ica lly f e a s i b l e .
The fo re g o in g i s assum ing a l i n e a r
p ro d u c tio n p o s s i b i l i t y curve and a c o n s ta n t r a t e o f s u b s t i t u t i o n o f d a iry
and wheat p ro d u c tio n r e s o u r c e s .
At t h i s p o i n t , under a p u re ly economic
s i t u a t i o n , th e p ro d u c e r would s h i f t from wheat to d a ir y to th e l i m i t s o f
h is p h y s ic a l p ro d u c tio n f a c i l i t i e s , o r as f a r as th e p ro d u c tio n fu n c tio n
rem ained l i n e a r .
A n a ly sis o f an A lte r n a tiv e S h i f t in Acreage
■
T h is in v e s t ig a ti o n i s d e v ise d to show th e in c re a s e in m ilk p ro d u c tio n
and th e a d d itio n a l r e tu r n s which m ight be ex p ected from a s h i f t o f crop
acreag e from wheat to d a ir y under a p r ic e r i s e o f $1 .0 0 p e r hundred w eight
o f m ilk .
Such a p r ic e in c re a s e i s assumed to be s u f f i c i e n t to b rin g a b o u t.
th e re sp o n se o u tlin e d below.
A llow ing f o r s u f f i c i e n t tim e to a d ju s t , an
average number o f 20 m ilk in g cows i s c o n sid e re d th e upper l i m i t s o f th e
l i n e a r c o s t fu n c tio n .
Beyond t h i s number a d d itio n a l c a p i t a l in v e stm en t
would be n e c e s sa ry to p ro v id e adeq u ate b u ild in g f a c i l i t i e s , c o o lin g and
m ilk in g equipm ent, e t c .
With new c o s t s i t u a t i o n s , more tim e would be need­
ed and a g r e a te r c e r t a i n t y o f p r ic e e x p e c ta tio n th an i s to be c o n sid e re d
h e re .
Of th e 119 crop a c re s a v a il a b le , 5 a c re s a re a r b i t r a r i l y fix e d in
th e p ro d u c tio n o f feed f o r m inor e n t e r p r i s e s .
Of th e rem ain in g 114 a c re s
f o r a 20 cow d a ir y , 8 8 ,5 a c re s (14 x 4 .2 2 ) + (6 x 4 .8 9 ) would be needed f o r
p ro d u c tio n .
Comparing t h i s s i t u a t i o n w ith one w ith a 14 cow d a iry h erd on
th e same farm , th e p o s s ib le r e tu r n s a re shown in T able XXVI.
T able XXVI,
“"
Budget I . 14 cows @ 4 .2 2 a c re s p e r cow
Item
A cres
R eturn P e r Acre
T o ta l R eturn
Net o f D. E.
Net o f D. E.
D airy
59 a /
$ 6 9.70
$ 4112.30 .
Wheat
55
51.36
2824.80
T o ta l
114
$ 6937.10
Budget 2. 14 cows @ 4 .2 2 a c re s p e r cow and 6 cows @ 4 .8 9 a c re s p e r cow
Item
A cres
R eturn P e r Acre
T o ta l R eturn
N et o f D. E.
Net o f D. E.
D airy
59
$ 69.70.
$ 4112.30
2 8 .5
58.50
1667.25
Wheat
2 6 .5
51.36
1361.04
T o ta l
114
$ 7140.59
a/
Perm anent p a s tu r e a v a ila b le up to 14 cows and re p la c e m e n ts.
Comparison o f th e r e tu r n s shown above in d ic a te s an in c re a s e o f $203.19
(7140.59 - 6 9 3 7 .1 0 ).
I f th e in d ic a te d re sp o n se were to ta k e p la c e th e ex ­
p e c te d in c re a s e in m ilk p ro d u c tio n would be 40,605 pounds (6775 x 20) (6675 x 1 4 ).
Summary o f th e A n a ly sis
The above a n a ly s is seems to in d ic a te t h a t given a m ilk p r ic e in c re a s e ^
th e farm er has a good d e a l o f o p p o rtu n ity to in c re a s e m ilk p ro d u c tio n by
59 *”
th e u se o f a s in g le p ro d u c tio n a l t e r n a t i v e i f th e p r ic e le v e l.u s e d were
s u f f i c i e n t inducem ent to b rin g about th e s h i f t s .
However, due to th e ex­
panded tim e f o r a d ju stm e n t, i t i s p o s s ib le t h a t s e v e ra l more o p p o r tu n itie s
o f equal o r g r e a te r im portance may e x i s t .
Some o f th e more obvious o f
th e s e in c lu d e p a s tu r e im provem ent, lan d c le a r in g to b rin g a d d itio n a l lan d
in to p a s tu r e p ro d u c tio n and in tr o d u c tio n o f s p r in k le r i r r i g a t i o n to provide:
a g r e a t p a s tu r e p r o d u c tiv ity and lo n g e r season o f u s e .
I n tr o d u c tio n o f
such a l t e r n a t i v e s would n e c e s s a r ily change th e p ro d u c tio n program and i n t r o ­
duce d i f f e r e n t feed s u b s t i t u t i o n s and p ro d u c tio n r e la t i o n s h i p s g e n e r a lly .
T hese, as f e a s i b l e a l t e r n a t i v e s , would depend upon e x i s t i n g p r ic e r e l a t i o n ­
s h ip s , c e r t a i n t y o f e x p e c ta tio n s , farm er i n e r t i a to change, etc..
The u se o f la n d re s o u rc e s d em o n strated in T able XXVI, r e p r e s e n ts th e
minimum number o f a c re s which would be re q u ire d f o r th e r e s p e c tiv e e n te r ­
p ris e s .
T h is a n a ly s is i n d ic a te s a g r e a te r e f f ic ie n c y o f lan d use th an i s
d em o n strated in th e o r ig i n a l b u d g e t.
However, th e in c re a s e d e f f ic ie n c y
m ight r e p r e s e n t a ty p e o f m an ag erial re sp o n se to be ex p ected from a sub­
s t a n t i a l in c r e a s e in m ilk p r i c e s .
Under a s t r i c t l y economic s i t u a t i o n th e resp o n se shown would be ex­
p e c te d to ta k e p la c e , t h a t i s , i f o u tp u t v a rie d d i r e c t l y w ith p r ic e as i n ­
d ic a te d by th e c o n cep t o f s u p p ly .< However, i f an e s tim a te i s to be made o f
th e p ro d u c tio n which w ill a c tu a lly ta k e p la c e , o th e r f a c to r s must come u n d er
s c r u tin y .
The c o n c lu sio n m ight e a s i l y be drawn t h a t as th e tim e p e rio d i s
le n g th e n ed and more a l t e r n a t i v e s become a v a ila b le and w ith r i s i n g p r ic e
e x p e c ta tio n s , e l a s t i c i t y o f farm er re sp o n se may in c r e a s e .
However, in
- 60 a p p ly in g t h i s c o n c lu sio n to th e s h i f t s in acreag e between wheat and d a iry
e n t e r p r i s e s , s e v e ra l lim it in g f a c to r s should be p o in te d o u t.
F i r s t , wheat
a t th e p r e s e n t tim e i s un d er s t r i c t acreag e c o n tr o ls and p r ic e s u p p o rts .
S h i f t s in th e d ir e c tio n o f a d d itio n a l wheat acreag e would be im p o ssib le
u n d er th e e x i s t i n g program .
Second, wheat p r ic e s a re fix e d and s t a b l e ; m ilk
p r ic e s la c k any such c e r t a i n t y .
T h is would ten d to h in d e r s h i f t s even in
p r ic e s i t u a t i o n s where d a ir y p p rd u c tio n has a d i s t i n c t economic advantage
o v er wheat f o r a p e rio d o f tim e .
T h ird ly , th e p ro d u c e rs would- be r e l u c t a n t
to s h i f t a crea g e from wheat f o r f e a r o f lo s s o f a llo tm e n ts .
F o u rth , th e
s h o r t season o f la b o r re q u ire d f o r w heat p ro d u c tio n compared w ith th e e x a c t­
in g y e a r around d a ily re q u ire m e n ts o f d a ir y o p e ra tio n makes wheat an a t t r a c ­
tiv e a lte rn a tiv e .
However, th e purpose o f t h i s stu d y has been to d em o n strate and te n ­
t a t i v e l y t e s t th e u s a b i l i t y o f th e b u d g e tin g te ch n iq u e in d e te rm in a tio n o f
supply re s p o n s e .
R ath er th an to say th e farm er w ill o r w ill n o t re sp o n d ,
th e a n a ly s is has been to p o in t to ways in which he may re sp o n d .
In doing
t h i s , some c o n s id e r a tio n has been made to in d ic a te a le v e l a t which re sp o n se
m ight ta k e p la c e .
—61 —
PART IV
CONCLUSIONS AND IMPLICATIONS
C o n clu sio n s
R ecent developm ents in Montana have focused c o n s id e ra b le a t t e n t i o n
upon problem s r e l a t i n g to th e f l u i d m ilk in d u s tr y .
A ttem pts made a t v a r i ­
ous le v e l s to c o n tro l p ro d u c tio n th ro u g h m a n ip u la tio n o f th e p r ic in g mech­
anism have in d ic a te d th e n e c e s s ity o f re s e a rc h in supply resp o n se pro b lem s.
P re v io u s ly conducted s tu d ie s have given I i t t l e 9 in th e way o f p ro d u c tiv e
re s u lts .
There i s l i t t l e l i t e r a t u r e a v a ila b le to se rv e as a b a s is f o r
e s tim a tin g re sp o n se o r i n v e s t ig a ti n g th e problem s en co u n tered in e s tim a tin g
th e su pply t h a t m ight be forthcom in g from changes o f p r ic e e x p e c ta tio n s in
th e a re a u n d er c o n s id e r a tio n .
Summary o f A n a ly sis
The a tte m p t h e re in has been to e s tim a te Grade A m ilk supply resp o n se
w ith in th e lim ite d ran g e o f a l t e r n a t i v e s which r e p r e s e n t a d ju stm en ts to
p r ic e ch an g es.
A s y n th e tic model c o n s tru c te d to r e p r e s e n t a predom inant
ty p e o f p ro d u c e r o f th e a re a p ro v id e s th e b a s is f o r a n a ly s is .
The v a rio u s a l t e r n a t i v e s which a re r e a d ily d is e e rn a b le a re b u d g eted .
The r e s u l t i n g e s tim a te s form th e b a s is f o r c o n s tr u c tin g supply curves
which in d ic a te s e v e ra l p o s s i b i l i t i e s o f re s p o n s e „
These in c lu d e changes in
fe e d in g l e v e l g herd s iz e and c u llin g r a t e to change h e rd s i z e .
A n aly sis
in v o lv in g i n t e r - y e a r c h o ic e s show t h a t a lth o u g h many new a l t e r n a t i v e s a r i s e 9
lim it in g f a c to r s make th e c h o ic e s more d i f f i c u l t .
T his i s e v id e n t p a r t i c u ­
l a r l y where such c h o ic e s .in v o lv e commitment o f re s o u rc e s p re v io u s ly
- 62 -
uncom m itted to th e d a ir y e n t e r p r i s e ,
As re s o u rc e s a re com m itted in th e
form o f fix e d c o s ts downward s h i f t s o f m ilk p ro d u c tio n a re no lo n g e r f e a s i ­
b le .
L im ita tio n s o f th e Study
The p r e s e n t stu d y i s lim ite d by ( l ) th e q u a n tity and q u a lity o f th e
in fo rm a tio n a v a il a b le , ( 2 ) th e numerous assum ptions n e c e s sa ry to th e a n a ly - s i s , (3 ) th e number o f a l t e r n a t i v e s which can be te s t e d in any givbn s i t u a ­
t i o n , (4 ) th e in flu e n c e o f th e non-econom ic f a c to r s which in flu e n c e th e
r e a c tio n o f th e p ro d u c e rs and a re n o t s u b je c t to e s tim a tio n on economic
ground„
R eferen c es were made to p r ic e changes s u f f i c i e n t tp s tim u la te p ro ­
d u c e r-a d ju s tm e n ts ,
These were a tte m p ts to re c o g n iz e th e many f a c to r s
which a f f e c t th e p r o d u c e r 's c h o ic e .
To say t h a t p ro d u c e rs w ill o r w ill n o t
respond t o , a c e r t a i n change i s n o t th e p u rp o se o f t h i s s tu d y .
To do so
would r e q u ir e a n 'a c c o u n t o f n o t only th e amount o f knowledge a v a ila b le con­
c e rn in g p r ic e c e r t a i n t y b u t e v a lu a tio n o f non-economic f a c to r s as w e ll.
Some o f th e s e f a c to r s would in c lu d e th e amount o f l e i s u r e im p o rta n t to th e
in d iv id u a l u n d er c o n s id e r a tio n , im portance o f y e a r around income as compared
to se a so n a l incom e, p e rs o n a l p r e f e r e n c e s , te n u re s t a t u s , c a p i t a l a v a il a b le ,
e tc .
These ite m s , non-m easurable in economic te rm s, can n o t be e n t i r e l y
o v erlooked i f a r e a l i s t i c e s tim a tio n o f p ro d u c tio n re sp o n se i s to be made.
They a re p a r t i a l l y re s o lv e d by use o f a s y n th e tic model to r e p r e s e n t th e
a re a.
In any given p r ic e s i t u a t i o n a v a r i e t y o f r e a c tio n s q ig h t be e x p e c te d .
Some a l t e r n a t i v e s o f f e r i n g sm all p o s s i b i l i t i e s o f improvement m ig h t, in th e
- 63 a g g re g a te , be o f c o n s id e ra b le im portance to th e in d iv id u a l as economic con­
d i t i o n s v a ry from th e a v e ra g e .
E v a lu a tio n o f th e Budget Method
The v a lu e o f th e 'b u d g e tin g te c h n iq u e n e c e s s a r ily depends upon th e
p a r t i c u l a r s i t u a t i o n under a n a ly s is .
As a d e s c r ip tiv e d e v ic e .to i l l u s t r a t e
th e type o f a g r ic u ltu r e under c o n s id e ra tio n and as a to o l to p ro v id e th e
b a s ic framework f o r a n a ly s is , th e budget i s u s e f u l.
In a stu d y o f supply
re s p o n se , i f th e im p o rta n t a l t e r n a t i v e s f o r re sp o n se can be is o la te d and
th e model used c o n sid e re d r e p r e s e n t a t i v e , th e r e s u l t s would be a r e p r e s e n ta ­
t i v e su pply curve ov er a range .of p r ic e ch an g es.
.The v a lu e o f th e s y n th e tic
model in r e p r e s e n tin g th e a g g re g a te n e c e s s a r ily depends upon th e amount o f
q u a n t i t a t i v e in fo rm a tio n a v a ila b le and th e p a r t i c u l a r ty p e o f a g r ic u ltu r e
u n d er c o n s id e r a tio n .
In an a re a w ith a predom inance o f s in g le e n te r p r is e
firm s w ith p u rch ased r e s o u r c e s , th e b u d g e tin g te c h n iq u e and su b seq u en t
a n a ly s is would have c o n s id e ra b le advantage o v er a s i t u a t i o n in which s e v e ra l
com binations e x is t s
T his would be due to th e r e l a t i v e l y few a l t e r n a t i v e s
which must be ta k en in to c o n s id e ra tio n in such a s i t u a t i o n as c o n tr a s te d to
th e e v a lu a tio n o f th e numerous a l t e r n a t i v e s which must be made in a more
d i v e r s i f i e d type o f o p e ra tio n .
To t e s t a l t e r n a t i v e s a v a ila b le to fa rm e rs , th e b u dget i s adequate
o n ly in s o f a r as th e t o t a l e f f e c t o f th e a l t e r n a t i v e can be fo llo w ed th ro u g h
v a rio u s e n t e r p r i s e s .
Given a s i t u a t i o n in which numerous a l t e r n a t i v e s a re
a v a ila b le and th e n e t e f f e c t o f any one c an n o t be r e s t r i c t e d to a s p e c if ic
e n t e r p r i s e , th e budget becomes an in c r e a s in g ly awkward and clumsy d ev ice to
- 64 -
use.
The h i t and m iss n a tu re o f t e s t i n g th e a l t e r n a t i v e s may impose con­
s id e r a b le l i m i t a t i o n s on th e amount which can be accom plished in any one
b u d g e tin g stu d y .
S e v e ra l o f th e a l t e r n a t i v e s by which th e p ro d u c e r may be ex p ected to
respond to a given p r ic e change
have been examined in th e body o f t h i s
s tu d y .
be t e s t e d in o rd e r t h a t a re a so n a b le e s t i ­
Many more would need to
mate o f th e re sp o n se o f a l l th e
n a tiv e s m ight be c a lc u la te d .
p ro d u c e rs in term s o f a l l re a so n a b le a l t e r ­
Some o f th e
most im p o rta n t may y e t rem ain u n - ■
covered due to th e la c k o f in fo rm a tio n and th e tim e and space n e c e ssa ry to
conduct a more com plete a n a ly s is .
By u se o f th e p a r t i a l b u d g etin g te c h n iq u e s
more ground i s covered th a n m ight be ex p ected through th e u se o f more com­
p l e t e b u d g e ts.
More a l t e r n a t i v e s and th e e stim a te d n e t e f f e c t o f th e s e a l ­
te r n a t i v e s can be summarized.
However, to use p a r t i a l b u d g e tin g , numerous
assum ptions must be made to l i m i t a n a ly s is to th e s p e c if ic item s under con­
s id e r a ti o n .
Even w ith th e use o f s h o r t- c u t o r p a r t i a l b u d g e tin g te c h n iq u e s
th e number o f a l t e r n a t i v e s which can be te s t e d by any one b u d g e tin g stu d y
i s n e c e s s a r ily lim ite d by th e tim e and space a v a ila b le .
S p e c if ic Im p lic a tio n s
In d iv id u a l farm ers co u ld use th e d a ta given o n ly inasmuch as th ey
can r e l a t e t h e i r o rg a n iz a tio n and a l t e r n a t i v e s to th o se o f th e average f a r ­
mer re p re s e n te d by th e s tu d y .
T h is im poses s e r io u s l i m i t a t i o n s .
mers d e p a r t from th e a v e ra g e .
M oreover, th e e x te n t and even d ir e c tio n o f
d e p a rtu re a re o fte n d i f f i c u l t to e s tim a te .
Most f a r ­
Hence l i t t l e can b e -s a id f o r
th e g e n e ra l a d a p t a b i l i t y o f th e e s tim a te s developed h e re to in d iv id u a l
- 65 -
s itu a tio n s .
Even i f th e r e l a t i o n s h i p s as developed h e ld tr u e f o r th e i n ­
d iv id u a l farm er o th e r l i m i t a t i o n s ( e . g . , c a p i t a l , la b o r , e t c . ) m ight p ro ­
h i b i t th e p ro d u c e r from making a d ju stm e n ts .
The stu d y does su g g e s t a method by which th e com petent farm er h aving
a more com plete knowledge o f p ro d u c tio n r e la tio n s h ip s s p e c if ic to h is farm
may c o n s tr u c t a b udget and an aly ze h is a v a ila b le a l t e r n a t i v e s .
For th e
concern o f th o se engaged in making p r ic e d e c is io n s to r e g u la te o u tp u t, th e
stu d y would give an in d ic a tio n o f th e way in which th e p ro d u c e r o f th e a re a
m ight be e x p ec te d to resp o n d .
As a b a s is f o r r e s e a r c h , t h i s stu d y should be o f some v a lu e as a
s t a r t i n g p o in t to a more com prehensive a n a ly s is o f su p p ly pro b lem s.
T h is
su g g e s tio n w ill be d is c u s s e d more co m p le tely in th e s e c tio n o f "S u g g estio n s
f o r F u r th e r R ese arch ” .
G eneral Im p lic a tio n s
Due to th e r e s t r i c t e d s iz e o f lo c a l m ark et, d is ta n c e to o th e r o u t­
l e t s , and c o m p e titio n lim i t i n g ex p an sio n o f th e m ark et, th e p la c e o f d a ir y
p ro d u c tio n in t h i s v a lle y may be in th e n a tu re o f a su p p lem en tal e n te r p r is e
to u t i l i z e a c rea g e re s o u rc e s n o t a llo c a b le to wheat due to th e p r e s e n t con­
t r o l system .
The a n a ly s is s u g g e sts th e p o s s i b i l i t y t h a t d a ir y p ro d u c tio n ,
as a c o m p e tito r f o r land u s e , may be advantageous o n ly i n s o f a r as p a s tu r e
re s o u rc e s e x i s t which a re u n a v a ila b le to o th e r cro p s even in th e absence o f
wheat acrea g e c o n tr o ls .
In t h i s l i g h t , due to th e la r g e amounts o f u n c le a re d
and p a r t i a l l y c le a re d land a v a ila b le in th e a r e a , d a iry p ro d u c tio n m ight
tu rn o u t to be a t r a n s i t i o n a l phase o f th e a g r i c u l t u r a l developm ent o f th e
a re a.
T his would have im p o rta n t p o lic y im p lic a tio n s .
-
66
-
S u g g e stio n s f o r F u r th e r R esearch
The r e s u l t s and l i m i t a t i o n a l f a c to r s re v e a le d in t h i s a n a y ls is should
p ro v id e a b a s is f o r f u r t h e r re s e a rc h in to supply re sp o n se problem s.
S e v e ra l
in fo rm a tio n d e f ic ie n c ie s re v e a le d in t h i s stu d y and re s o lv e d by assu m p tio n s,
in d ic a te need f o r f u r t h e r farm management r e s e a r c h .
These in c lu d e p a r t i ­
c u la r ly p ro d u c tio n re sp o n se e s tim a te s o f g ra in fe e d in g , g ra in and p a s tu r e
s u b s t i t u t i o n , and th e c o s ts and r e tu r n s which may be ex p ected from p a s tu r e
improvement and la n d c le a r in g m easu res.
In fo rm a tio n c o n cern in g th e s e fa c ­
t o r s co u ld a id s u b s t a n t i a l l y in e s tim a tin g th e r e s u l t s o f ad ju stm en ts by
means o f a r e p r e s e n ta tiv e m odel.
V alu ab le in fo rm a tio n on th e se a s p e c ts
co u ld w ell be accum ulated th ro u g h c o o p e ra tio n o f th e C re sto n Branch o f th e
Montana A g r ic u ltu r a l E xperim ent S ta tio n .
The f a c t t h a t d a ta d e f ic ie n c ie s a
appeared in t h i s stu d y su g g e s t t h a t th e y a re d e f ic ie n c ie s a ls o f o r farm ers
in th e a re a .
With a d d itio n a l e s tim a te s o f p ro d u c tio n resp o n se and c o s ts in c u rre d '
under v a rio u s e n t e r p r i s e s e tu p s , a stu d y o f supply resp o n se m ight be e x p e c t­
ed to show more s i g n i f i c a n t r e s u l t s .
A lso , to f a c i l i t a t e a stu d y o f t h i s
ty p e , re s e a rc h in to th e o th e r f a c to r s o b v io u sly in flu e n c in g resp o n se would ■
be needed.
In t h i s s tu d y , no r e a l e s tim a te s o f th o se dynamic f a c to r s such
as f l e x i b i l i t y , r i s k and u n c e r ta in t y , and c a p i t a l l i m i t a t i o n s were a tte m p te d .
With such a d d itio n a l in fo rm a tio n , a more com prehensive stu d y o f sup­
p ly re sp o n se would need to adopt a method o r to o l to f a c i l i t a t e th e s e le c tio n o f a l t e r n a t i v e s most l i k e l y to be u s e d .
S e le c tio n o f optimum a l t e r ­
n a tiv e s i s hampered by th e h i t and m iss n a tu re o f th e budget te c h n iq u e .
R e a l i s t i c a n a ly s is o f th e se problem s would, be b o th c o s tl y and ex trem ely tim e
\
- 67 consum ing.
I f , how ever, th e most im p o r ta n t'a lte r n a t iv e fa c in g th e p ro d u c e r
co u ld be i s o l a t e d , i t i s re a so n a b le to e x p e c t t h a t by use o f a m odified
b u d g e tin g te c h n iq u e th e p o s s ib le su p p ly re sp o n se o f a given a re a m ight be
e s tim a te d .
As a to o l to i s o l a t e th e a l t e r n a t i v e s a v a ila b le and to t e n t a t i v e l y
t e s t them , th e l i n e a r programming te ch n iq u e shows d i s t i n c t p o s s i b i l i t i e s .
By use o f a s y n th e tic model o r models based on th e more ad eq u ate in fo rm a tio n
su g g este d to p ro v id e th e b a s ic r e s t r a i n t s n e c e ssa ry to t h i s te c h n iq u e , i t
seems l i k e l y t h a t a la r g e number o f a l t e r n a t i v e s m ight be t e s t e d .
By p ro ­
gramming under a s e r i e s o f p r ic e r e l a t i o n s h i p s , i t seems l i k e l y t h a t .9 '
re a so n a b le e s tim a te o f th e ex p ected supply m ight be o b ta in e d .
I f f u r th e r
re s e a rc h were d e s ir a b le in o rd e r to more p r e c is e ly e s tim a te th e e f f e c t s o f
c e r t a i n c h an g es, th e i s o l a t i n g o f more r e le v a n t a l t e r n a t i v e s by a te c h n iq u e
such as t h i s would l i k e l y prove e x tre m ely v a lu a b le .
- 68 A S e le c te d B ib lio g ra p h y
C hoate, Leo E . and W alker, S c o tt A ,, Guide in Answering B asic Q u estio n s on
Farm M achinery C o s ts , Agr„ Exp, S t a 0 B u ll. 224, U niv0 o f Id ah o , M osT
cow, 1954.
C h ris te n s e n , R, P . and M ig h e ll, R0 Log Supply Responses in Milk P ro d u ctio n
in Dodge and B arron C o u n tie s , U0S 0D0A0 Tech. B u l l , , 194T7“p 7 X ---------D o ll, J . P ., Economic A p p lic a tio n o f S o il Survey Data in I r r i g a t e d A reas,
Mimeo. C ir . 87, A gr. Exp. S t a . , Montana S ta te C o lle g e , Bozeman, M ontana,
June 1955, p . 27.
E z e k ie l, Mordeca i , "The Cobweb Theorem", Q u a rte rly Jo u rn a l o f Economics,
L U , F ebruary 1938.
F e llo w s, I . F ., F r ic k , G. E ., and Weeks, S . B ., P ro d u ctio n E f fic ie n c y on
New England D airy Farm s, S to r r s Agr. Exp. S'ta. B u ll. 2B5” p . 9. “
F en to n , F. C ., and F a irb a n k s , G. E ., The C o st o f U sing Farm M achinery,
Kansas S ta te C o lle g e , E n g in e e rin g Exp. S ta . B u ll. 74%~Sept. 1954,
F r ic k , G„ E0, Weeks, S , B0, and F e llo w s, T 0 F 0, P ro d u ctio n E f fic ie n c y on
New England D airy Farm s, Agr0 Exp0 S t a , , U niv0 o f New H am pshire,
Duriiani N0 H ., B u ll. 407, May 1954,
Heady, E , O0, Economics o f A g ric u ltu re P ro d u c tio n and R esource Use, P ren ­
t i c e H a ll, I n c , , New Y ork, 1952 , p 7 - 6720
”
I n f a n g e r, C a r l, Weed E lim in a tio n on Montana Wheat Farm s, U npublished Manu­
s c r i p t , Montana S ta te C o lle g e , A gr0 Exp0 S t a 0 ’ '
J e n s e n , C la ren c e C0, The Economi c s o f P a s tu re I n te g r a tio n on I r r i g a t e d Farm s,
A gr. Exp. S t a , , Montana S ta te C o lle g e , Mimeo C ir . 6 7 ,""p, 5 6 .
"
™
M a u ritso n , W0 W0 and S tu c k y , H, R ., F a c ts About F la th e a d County A g r ic u ltu r e ,
Mont, E x t. S e rv ic e , C ir . No, 264, June 1950, p , 56,
:
-----------Johnson, S, E , , T re ts v e n , J . 0 o, E z e k ie l, M0 and W ells, 0 , V ,, O rg a n iz a tio n ,
F eeding Methods and O ther P r a c tic e s A ffe c tin g R eturns on I r r i g a t e d ----D airy Farms In W estern M ontana, Mont. Agr. Exp. S t a , , B u li0 264, Bozeman,
M ontana, June 1932, p . FT!
Montana D epartm ent o f A g r ic u ltu r e , Montana A g r ic u ltu r a l S t a t i s t i c s , C oopera­
t iv e w ith A g r ic u ltu r a l M arketing S e rv ic e , N elena,' M ont,, Vol V, Dec, 1954.
Nunns, F. K ., Upper F la th e a d V a lle y A rea, U npublished M an u sc rip t. D ept, o f
A g ro n ., Agr. Exp. s t a . , Montana- STate C o lle g e , J a n . 1947,. pp. 2 -3 .
- 69 P a r r y 9 S ta n to n P. and H e rr9 W illiam McD., "A Note on th e D e riv a tio n o f
S h o rt-ru n Supply C u rv es", Jo u rn a l o f , Farm Econom ics, Aug, 1954,
Quenemoen9 M, H ., Economic A spects o f W ater S p rea d e r Developments on
S o u th e a ste rn Montana R anches, Mont. AqrV E x d . StaT C ir . 69.
lV)529 p . 25.
9
Shepherd9 G. S . 9 A g ric u ltu re P r ic e A n a ly s is , Iowa S ta te C o lle a e P r e s s .
1947, p . 90.
■
9
S tr a n d , E. G. and H ole, E „, Supply Responses o f Milk P ro d u c tio n in S o u th ­
e a s te r n M innesota, U.S.D .A . Tech. B u ll. 7 8 9 1 H W T 1 9 4 1 , p„ 2 5 . ~ ---Thomsen9 F re d e ric k L. and F o o te , R ich ard J . , A g r ic u ltu r a l P r i c e s , McGrawH ill Book Company, I n c . , 1952, p . 57. ''
W right, K, T . and Hodges, T . L ., D airy f o r P r o f i t in S o u th e a ste rn M ichigan,
M ichigan S ta te C o lle g e , A gr. Exp. S t a . , E a s t L an sin g , M ichigan, Spec i a l B u lle tin 373, Aug. 1951.
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