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FIGURE 1.-Class I prices in 15 Federal order markets compared with United States average dealers' buying price for milk used for city distribution as milk and cream and prices paid producers by United States condenseries.

facturing, and milk sold for fluid use, for each month since January 1954, compared with the corresponding month a year earlier are shown in tables 2 and 3. All prices dropped rather uniformly during the first 7 months of 1954 from corresponding months of 1953. That is the fluid milk prices, manufacturing prices, for fluid use, blend prices in Federal order markets.

In recent months the declines in the fluid buying prices and prices in Federal order markets have been generally less than the drop in manufacturing milk prices from the previous year. However, the March price for manufacturing milk this year was 11 cents per hundredweight under last March as compared to a 12-cent lower fluid buying price.

Production trends: Dairymen in every State except Wyoming contributed to the 8-billion pound increase in milk production from 1952 to 1954. In general, however, the States where dairying produces the largest share of farmers' cash incomes and where alternatives are limited, showed the greatest production increase. These increases occurred in States where prices are unregulated as well as in States where minimum producer prices are established by Federal or State agencies. State agencies regulate prices paid to farmers for milk in 16 States. Deliveries by farmers to plants under State price regulation amounted to 14 billion pounds in 1953.

These comparisons are shown in the attached table 4 (p. 6, also p. 83), which shows changes in total milk production in the United States, as well as production in selected States where Federal or State price regulation is dominant, and in Minnesota and Wisconsin where the percent of total milk which is priced under Federal orders is relatively small.

Current trends in milk production in Federal order markets are indicated by deliveries per day per dairy. This figure reflects the continuing upward trend in production per cow and size of dairy herd. However, the increases over the previous year are less in recent months than they were early last year (table 5). (Table No. 5 is as follows:)

TABLE 5.-Changes in number of producers, in average deliveries per producer,1 and in whole milk sales to consumers in the defined market areas 2 from corresponding month of previous year

1954 over 1953..
1954-January.

February-
March.
April-
May.
June.

July.

August.

September.

October

November.

December.

1955-January

February.

Year and month

[Percent]

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1 All markets where data is available on a comparable basis for both months. ? Markets where in-area sales can be segregated and which include about two-thirds of the population of all federally reguated markets.

3 Shows effect of New York delivery strike in October 1953.

Source: Compiled by the Dairy Division, AMS.

Mr. FOREST. The number of producers supplying Federal order markets declined during the last half of 1954 and is continuing downward this year.

Milk supplies in Federal order markets: Sales of fluid whole milk in Federal order markets increased significantly during the late months of 1954 and the increases are continuing this year. These increased sales and the leveling off of production reduced surplus milk supplies in Federal order markets in the last quarter of 1954. During this same period national surpluses of milk and dairy products were also substantially reduced.

"Surplus" in fluid milk markets is a term commonly applied to all milk in excess of sales for fluid use. However, some excess results at all times because of the difficulties in balancing variable receipts and sales.

The amount of necessary reserve is usually estimated in terms of the ratio of fluid sales to producer receipts during the shortest production month. The amount of reserve which must be carried in that month varies from market to market, depending upon such factors as day-today sales variations, whether milk plant employees work on a 5-, 6-, or 7-day week, and institutional factors which affect the mobility of the supply.

Even when the supply of milk is nicely adjusted to the market's fluid needs in this shortest production month, the seasonal rise in production brings surplus milk in other months. In the larger milk markets a reserve of 15 to 25 percent in the shortest month is usually sufficient to balance receipts and fluid sales. During 1953 and 1954, most of the larger markets have carried reserves greater than necessary to meet their fluid needs, but increases in fluid sales relative to receipts have been evident in many markets this year as compared to last. The ratio of fluid sales to producer deliveries for all Federal order markets combined was 74.9 percent in the October-December period of 1954 as compared to 72.5 percent in 1953.

Mr. ANDRESEN. Mr. Forest, would you explain a little in detail in this point how they carry over their surpluses in their shorter periods, so that they can equalize? We will say that in the month of December they had a surplus and in the month of January there was a shortage. You carry the milk over from December to January to equalize the shortage, do you not?

Mr. FOREST. That is a little difficult to do, because fluid milk is very perishable. It has to be utilized as fluid milk or converted into those products which they can carry over. And many fluid milk markets convert their surplus into cream and into powder.

Mr. ANDRESEN. You stated that the shortages are equalized by the surplus months. I wish you would explain to the committee right here so we can have that information as to how you handle that.

Mr. FOREST. As you know, Congressman Andresen, milk production increases greatly during April, May, and June. That is the time the milk cows come into milk production, that is, great milk production.

Even though there is a surplus of milk in April, May, and June, because the cows have increased their production over sales which remain fairly constant, even though you have a surplus in April, May, and June, those same cows will not deliver that much milk in the fall period, so that in order to have enough milk in the fall you are

sure you are going to have some surplus milk in April, May, and June. The same number of cows will deliver more milk in April, May, and June than they will in October, November, and December.

Mr. ANDRESEN. Then you do not actually carry over the milk? Mr. FOREST. No; we do not.

Mr. ANDRESEN. Or the products of milk from the surplus-producing time to the short time?

Mr. FOREST. Not for fluid use. No, those products, the surplus milk in April, May, and June, that milk which is produced beyond that which is needed for sales in bottles is converted into dairy products such as butter and cheese, cream and powder.

Those products, especially the cream is carried over into the fall period and used by many dealers for ice cream use, and frozen cream.

Mr. ANDRESEN. Then the main purpose, as you have explained the equalization in here, is equalization of return to the producer, rather than a carrying over of the commodity, with the exception of cream, et cetera, to a short period?

Mr. FOREST. Yes, sir; that is right.

Mr. ANDRESEN. Another factor: We have had abundant production in some years during the months of October, November, and December. How do you account for that? Is that because of the additional high-protein feed that is fed to cows during those months? That has kept up the production.

Mr. FOREST. It is pretty hard for dairy farmers always to guess just exactly the amount of feed which they are going to have and the amount of roughage which they are going to have, and the quality of both the roughage and the feed, and also to some extent I think that the prices themselves have encouraged some additional production.

A combination of all those factors, that is, in some years gives us more production than the market actually needs.

Mr. ANDRESEN. As an expert on dairying and I am referring to you, you know they have developed certain high-protein feeds whereby you can get the same kind of production throughout the entire year. Is that not correct?

Mr. FOREST. Yes, sir; that is right.

Mr. ANDRESEN. In fact, at home I listen to the radio every morning about 6 o'clock, and I hear that if you will use this kind of high-protein feed for your dairy cattle, you will get 20 or 30 percent more production in the winter months.

Is that factor taken into consideration?

Mr. FOREST. Yes, that factor would be taken into consideration, as I will explain later on, because we would look at all times to the amount of milk which the farmers are delivering at the prices we have in effect. And to the extent which they feel that those prices are sufficient to pay them enough profit to produce additional milk, and too much milk relative to fluid milk sales, then the prices must be reduced.

On the same basis, if the prices we have in effect, and with all of these new feeding devices and feeding programs, they are not getting enough milk produced for the fluid milk markets, then the prices are increased.

That is explained later on in the statement, the standards under which we fix these minimum prices.

Mr. ABERNETHY. Mr. Heimburger has 2 or 3 questions.

Mr. HEIMBURGER. I wish you would take the time at this point to define a little more explicitly perhaps what you mean by the two terms "surplus" and "reserve." It is a little unclear to me, at least, in reading this.

Mr. ABERNETHY. You want him to distinguish between the two; is that right?

Mr. HEIMBURGER. That is right.

Mr. FOREST. Even in October and November and December, because the dealer must always have enough milk to put in bottles at all times, he carries somewhat of a reserve above that amount. He cannot always gage exactly the amount of milk which his customers are going to take.

Mr. HEIMBURGER. What you mean by that is that the dealer in order to be sure he has enough fluid milk for any one day will buy more than he actually has scheduled to put in the bottles on that day; is that correct?

Mr. FOREST. That is right.

Mr. HEIMBURGER. That is what you refer to as your "reserve"? Mr. FOREST. As the necessary reserve; yes.

Mr. HEIMBURGER. And you say that in some of the market areas that minimum reserve runs as high as 15 to 25 percent of the amount which actually does go into bottles?

Mr. FOREST. Yes, sir.

Mr. HEIMBURGER. And the excess, then, is what is actually left after he has bottled the milk; is that correct?

Mr. FOREST. Yes, that would be the reserve; yes, sir.

Mr. HEIMBURGER. Is that what is the excess?

Mr. FOREST. That would be synonymous-those would be synonymous terms, "excess" and "reserve."

I do not think we make any distinction between the terms, because in the classified pricing, all of that would be class II milk, but I think that what we would normally think of as "surplus," is that if we got more than 25 percent during November, 15 to 25 percent, then that would be surplus, which was not needed on the market for any use at all, except that there is a possibility that you might need it in future years, but we would consider that as an indication that our prices were somewhat too high-we were. getting more milk than the market needed for actual use in fluid milk, plus necessary reserve. Mr. ABERNETHY. You may proceed.

Mr. FOREST. In order to have an adequate supply of milk to meet fluid-sales requirements plus a necessary reserve during the short production months, it is necessary to carry a much larger excess during the months of seasonally heavy production. Consequently the percent of producer deliveries sold in the form of fluid items is substantially lower in the April-June period. The average in Federal order markets for that 3-month period was 53.4 percent in 1953 and 52.4 percent in 1954.

Mr. ABERNETHY. What do you mean; of what?

Mr. FOREST. Of the total milk-total deliveries of the farmer.
Mr. ABERNETHY. I see. Thank you.

Mr. FOREST. The excess deliveries of milk which are not required for fluid sales in Federal order markets are manufactured into dairy products. The principal products in which surplus milk is used in

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