The class I formula used in the north Texas market is based on manufacturing milk prices with a so-called fluid differential added. The basic formula manufacturing milk prices are those actually paid at unregulated milk manufacturing plants which condense milk in the Midwest or manufacture milk in Texas. The butter-powder formula is a computed estimate of what manufacturing plants would pay at a given level of prices for butter and nonfat solids. These prices represent what buyers voluntarily pay to get the milk to keep their plants in operation. In determining such prices we would normally expect buyers to take into account the inducement necessary to maintain their supply. If a short crop of grains indicates a national shortage of feeds we would expect that to be reflected in the pay prices at these plants. If local conditions affect the supply, such as in the case of a drought, the supplydemand factor would raise the price automatically. In fact, if the basic formula fails for any reason to reflect the factors which influence the supply of milk producers will deliver at the established prices or, if the supply does not move in line with market sales, the supply-demand factor goes into operation. In the north Texas computation, the influence of this factor raised the March price 9 cents per hundredweight. In the Boston computation, it reduced the price 58 cents. COMPUTATION OF BOSTON CLASS I PRICE FOR MARCH 1955 [Price per hundredweight for 3.7 percent milk) 1 The adjustment is computed on total class I sales and total receipts in 4 markets-Boston, Springfield, Worcester, and Merrimack Valley. 2 This factor calls for Reducing economic index by 10 percent. Seasonal factor for March 100 percent. 93.00 93.00 Economic index adjusted by supply-demand and seasonal factors times base price of $5.61 $5.217 COMPUTATION OF NORTH TEXAS CLASS I PRICE FOR MARCH 1955 Receipts plus class I sales (percent).. Normal receipts plus class I: 118 percent minus 120 percent. Adjustment for 3 percentage points below normal-add. Mr. ABERNETHY. Mr. Watts has a question. 118,793, 757 102, 966, 077 115 $0.09 Mr. WATTS. As I understand the situation, in adopting this order, you do not set a price on milk, you just set a formula. The operation of which automatically sets the price of milk. Is that correct? Mr. FOREST. Yes, sir. Mr. WATTS. What supervision do you exercise over the handling part of it to see that this change in the price is reflected in the price paid? Mr. FOREST. Every month he reports to the local market administrator the amount of milk which he has received from farmers and how it was utilized. On the basis of that report the market administrator takes the amount he put into bottles, multiplies it by the class I price fixed and for the amount of surplus, multiplies by the surplus price. That is the total amount of money which he must pay for his milk. And the market administrator will audit his payroll to see that he has paid that to the farmers every month. Mr. WATTS. That is audited every month? Mr. FOREST. Yes. Mr. WATTS. He makes his payments after the audit? Mr. FOREST. He makes his payment-well, he makes it right away, and then we audit subsequently. If we find that he did not pay the full value, then we make him make it up. Mr. WATTS. Then the price to the producer, that is the farmer. might vary each month? Mr. FOREST. It will change every month. Mr. FOREST. That is right. Mr. ABERNETHY. Will you proceed, Mr. Forest? Mr. FOREST. Although formulas of these types are effective in bringing about many of the price changes needed in fluid-milk markets, developments in the production of milk and market sales often require changes in the relationships between milk prices and the selected series. An indicator which has helped to call attention to the need for such adjustments in pricing methods is the comparison of class I sales with the total supply of producer milk available in a current period, as compared to some normal or standard relationship of class I sales to supply. In recent years, many of the class I pricing formulas have been amended to incorporate such an indicator which operates automatically to reduce the class I price when supplies are excessive, and to raise the class I price when supplies are inadequate in relation to market requirements. These automatic provisions have been termed "supply-demand adjusters." The type of class I price formula and whether or not a supply-demand adjuster is used is indicated for each market on table 6. (Table 6 is as follows:) TABLE 6.-Federal order markets in which class I price is determined by specified types of formulas, Apr. 1, 1955 1 Class I price is limited by price in another market which has a supply-demand factor. 2 Index formula is limited in application by a manufacturing milk formula. Compiled by the Dairy Division, AMS. Mr. FOREST. Although class I prices in markets having economic type formulas are not directly related to manufacturing milk prices, they tend to move in general alinement with such prices. The data contained in figure 1 indicate that prices of fluid and manufacturing milk tend to move in the same direction at the same time but that fluid prices do not fluctuate as widely as manufacturing prices. The attached figure 2, which compares class I price changes in marketsBoston, New York, New Orleans, Fall River, and Merrimack Valley where economic index formulas are used and in markets-Chicago, Dubuque, Fort Wayne, Kansas City, Louisville, Omaha-LincolnCouncil Bluffs, Quad Cities, South Bend-LaPorte and Toledo-where manufacturing milk values determine price changes, indicates that the economic index type of formula also avoids the wider price fluctuations brought about by the formulas based on manufacturing milk values. (Figure 2 is as follows:) FIGURE 2.-Class I prices in 10 markets where price is now determined by a formula based on manufacturing milk value and in 5 markets where price is determined on economic index base. 62203-55-pt. 1-4 |