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RESOURCE USE 
AND RETURNS 
FOR GRADE A 
DAIRY FARMS, 
1968-69 

Based on Studies in 
Southeastern Wisconsin 
and Central New York 



ERS-466 



TRJ-AGENCY READING ROOM 
APR £9 1971 

Washington, o. C. 20250 



U.S. DEPARTMENT OF AGRICULTURE / ECONOMIC RESEARCH SERVICE 




mm ■- r 



j^&l '^-j&x Jh C2$ mm ist 



?fjp*^ ,J% 



ABSTRACT 

Incomes in 1969 on two synthesized, representative 40-cow 

dairy farms were about SI 5,1 00 in central New York and 
S 1 9 ,600 in southeastern Wisconsin, both record-highs and about 
10 percent above 1968 levels. Farm expenses advanced 4 to 5 
percent on farms in both areas, but gross income increased about 
7.5 percent largely because milk prices continued to rise. The 
income position of these milk producers has improved consider- 
ably since 1965. as significant increases in milk prices have kept 
ahead o\ steadily rising prices paid for production items. 
Partitioning farm returns to resources according to resource 
functions o( investment, ownership, labor, and management 
revealed that rates of return competitive with use in alternative 
employment were earned on dairy farms in both areas in 1968 
and 1969. 

Keywords: Dairy farms, expenses, input prices, land values. 
marketing areas, milk prices, production, net income, resource 
returns. 



CONTENTS 

Page 

SUMMARY iv 

DAIRYING HIGHLIGHTS OF 1969 AND A CAPSULAR 

LOOK AT THE 1960's 1 

New York and Wisconsin 1 

Milk production I 

Dairy herd 1 

Prices and income 2 

Crop production 2 

National and Regional 2 

Milk production 2 

Dairy herd 2 

Prices and income 3 

World 3 

DAIRY BELT MILK MARKETING AREAS 3 

Chicago Regional 3 

New York-New Jersey 4 

DAIRY BELT FARMS WITH 30-49 MILK COWS 5 

THE TWO SYNTHESIZED, REPRESENTATIVE FARMS . 7 

1968 and 1969 Returns 9 

Partitioning Returns 9 

Description of method 9 

Application of method 11 



Washington, D.C. 20250 March 1971 



in 



SUMMARY 

An efficient, well-managed dairy farm with 40 cows was a 
sound economic unit in the late 1960's. based on characteristics 
of two synthesized, representative 40-cow dairy farms. One was 
drawn up for grade A milk producers with 3049 milk cows in 
central New York, the other for this stratum in southeastern 
Wisconsin. These areas are under two very significant milk 
marketing orders-New York-New Jersey and Chicago Regional. 
At each level discussed in the report-area. State, region, and 
Nation-milk producers with 3049 milk cows are the most 
important stratum in dairying. 

Income on these representative farms improved considerably 
in the latter half of the 1960's and in 1969 was record-high: in 
central New York, S15.100 and in southeastern Wisconsin, 
S19,600. Production costs rose steadily during 1965-69, about 4 
to 5 percent, but were more than offset by sharp increases in milk 
and cattle prices. 

Resources used on these dairy farms were earning market rates 
of return competitive with those in alternative employment. The 
levels of farm income generated on both farms in 1968 and 1969 
were adequate to meet farm debt obligations and family living 
expenses. 

The sharp declines in milk production and cow numbers that 
occurred nationally and in both States in the mid- 1960's had 
eased near the end of the decade. Contributing factors were rising 
milk prices; heavy concentrate feeding in response to a favorable 
milk-feed price ratio; and a tightening of the labor market, which 
probably reduced off-farm employment opportunities for dairy 
fanners and hired labor and slowed the rate of herd disposal. 



i\ 



RESOURCE USE AND RETURNS FOR GRADE A 

DAIRY FARMS, 1968-69 . . . 

BASED ON STUDIES IN SOUTHEASTERN WISCONSIN AND CENTRAL NEW YORK 

By 

David E. Cummins, Agricultural Economist 
Farm Production Economics Division 



This study analyzes the 1968 and 1969 economic 
position of two synthesized, representative 40-cow 
grade A dairy farms in southeastern Wisconsin and 
central New York. Preceding this analysis is a brief 
review of U.S. dairying in 1969 and of dairying in the 
196CTs in New York and Wisconsin, farm production 
regions, the Nation, and the world. The second 
section examines two very important dairy belt milk 
marketing areas— Chicago Regional and New York- 
New Jersey. The most important stratum of milk 



producers at each level— area, State, region, and 
Nation— are those with 3049 milk cows, examined in 
the third section of the report. These three sections 
provide the perspective required to adequately ana- 
lyze the two 40-cow dairy farms drawn up to 
represent the 3049 milk cow group of producers- 
one farm representing a 13-count/y area in south- 
eastern Wisconsin; the other, a nine-county area in 
central New York. 



DAIRYING HIGHLIGHTS OF 1969 AND A CAPSULAR 
LOOK AT THE 1960's 



New York and Wisconsin 
Milk Production 

Following a brief upturn in 1968 from sharp 
declines in 1965 and 1966, milk production in 
Wisconsin dropped 1 percent in 1969. A smaller- 
than-average increase in output per cow in 1969—1 
percent— was more than offset by a 2-percent decline 
in number of milk cows. In 1969, milk production 
was 6 percent, or 1.2 billion pounds, below the 
record 1964 level. Output has been declining since 
1964, despite rapidly rising milk prices. However, 
economic forces that deter increases in milk produc- 
tion have also been operating during this period. Most 
important probably are a strong demand for beef; 
record-high cattle prices; and attractive employment 
opportunities outside agriculture, particularly in 
southern and eastern Wisconsin. 

New York milk production turned upward in 
1969. following annual declines during 1966-68. 
Nonetheless, output in 1969 was 6.5 percent, or 0.75 



billion pounds, below the 1965 record level of over 
1 1 billion pounds. Output per cow continued its 
longtime upward trend, topping 10,000 pounds in 
1969. 



Dairy Herd 

Numbers of Wisconsin and New York dairy herds 
continued to decline in 1969, but at slower rates than 
in 1968 and at considerably slower rates than in the 
mid-1960's. Dairy farmers in both States are culling 
less severely, probably in response both to favorable 
and rising milk prices and to a less attractive off-farm 
employment situation. 

Milk cows and heifers 2 years old and over in 
Wisconsin numbered 2,062,000 on January 1, 1970, 
down 1.5 percent from a year earlier and 13 percent 
from the level of January 1 , 1965. New York's dairy 
herd numbered 1,127,000 on January 1, 1970, 0.5 
percent fewer than in 1969 and 14 percent fewer 
than on January 1 , 1965. 



1 



Prices and Income 

Fluid milk prices received b\ Wisconsin dairy 
farmers in 1969 averaged S5.10 per 100 pounds, 4 
percent above the 1968 price and nearly 44 percent 
higher than the decade low of S3. 55 recorded in 
1963. Market milk prices continued to advance in 
1970, with prices in the first half of the year 
averaging over 5 percent more than a year earlier. 

Fluid milk prices received by the New York 
farmers averaged S5.80 per 100 pounds in 1969, 4.7 
percent above 1968 prices, and 35 percent higher 
than the 1963 low of S4.29. Market milk prices in the 
first half of l l ?70 advanced ^3 percent from their 
level a year earlier, and were considerably less than 
the gam of 7.5 percent for the first half of 1968 and 
1969. 

Cash receipts by Wisconsin dairy tanners from the 
combined marketings of milk and cream were a 
record S846.7 million in 1969. 5 percent above the 
amount a year earlier. Cash receipts rose 44 percent 
over the decade and 31 percent from 1965 to 1969. 
Average returns were S4.86 per 100 pounds in 1969, 
compared with $4.59 in 1968 and S3.42 in 1962 and 
1963. 

Cash receipts by New York dairy farmers from the 
combined marketings ol milk and cream were a 
record $587.7 million in 1969, 6 percent higher than 
in 1968 and nearly SI 10 million more than in 1965. 
Most of the increase in cash receipts over the decade 
occurred during 1965-69, a period of substantial price 
gain. Average returns of $5.83 per 100 pounds in 
1969 were up nearly 5 percent from a year earlier and 
35 percent above the 1962-63 low of $4.32. 



Crop Production 

Production of the principal crops raised in Wiscon- 
sin corn. oats, and hay was abundant in 1969. 
except for corn. Production of corn for grain dropped 
over 14 percent from the 1968 level; yields averaged 
11 percent lower. More acreage than normal was cut 
for silage in 1969, but production fell as yields 
averaged 7 percent less. Acreage of oats harvested 
continued its gradual downtrend in 1969, but yield 
and quality were good. All hay production and yields 
were record-high in 1969, 1.5 and over 2 percent. 
respectively, above year-earlier levels. 

New York dairy farmers also realized a good crop 
year in 1969. Of the three major field crops raised- 
corn silage, oats, and hay— only oat yields and 
production were lower than in 1968. Acreage har- 
vested and production of oats were record lows. Corn 
silage yields averaged 14 tons per acre, up 12 percent 



from the year-earlier level and second onl\ to the 
l c )67 record high o\~ 15.5 tons. Acreage harvested and 
production of corn for silage were record-high in 
1969. All ha\ \ ields averaged a record 2.13 tons per 
acre in 1969, 2 percent above 1968's yields and 
slightly above 1967's. 

National and Regional 



Milk Production 

U.S. milk production continued to drop in 
1969 to 1 16.2 billion pounds, the lowest level since 
1952. However, the decline of about 1 percent from 
1968 was the lowest annual drop since 1964. The 
most rapid declines were in the Northern Plains (4.7 
percent). Corn Belt (2.4 percent), and Lake States 
(2.0 percent). The largest reduction (648 million 
pounds) occurred in the Lake States, the most 
important dairying region (28 percent of U.S. total 
milk production in 1969). 

Milk production rose in five regions, led in rate by 
the Southeast (1.6 percent) and quantity b> the 
Northeast (253 million pounds). The Northeast was 
second in output and accounted for 21 percent of the 
U.S. total in 1969. In general, regions with produc- 
tion increases had substantially smaller declines than 
the decline occurring nationally in number o\ milk 
COWS, and larger increases in output per cow. Regions 
with sharp drops in production also showed sharp 
declines in milk cow numbers and smaller-than- 
average increases in output per cow. 

Production per cow increased less than 2 per- 
cent to a U.S. average of ^ , 1 5 5s pounds in 1969, the 
smallest annual gain since the early 1950Y Cains 
ranged from less than I percent for the Lake States to 
about 5 percent for the Delta States. Milk per cow 
varies widely among regions and in 1969 ranged from 
about 6.000 pounds in the Delta States to over 
1 1 .000 pounds in the Pacific region. 

Conditions encouraging heavy concentrate feeding 
continued in 1969, as the milk-feed price ratio 
reached a record 1.74. over 2 percent above the 1968 
level. Higher milk prices in 1969 more than offset an 
increase ol' nearly 6 percent in dairy ration cost. This 
situation was preceded by a 9-percent increase from 
1967 to 1968 in the milk-feed price ratio, because of 
a substantial rise in milk prices coupled with a slightly 
lower feed cost. Roughage supplies have been ade- 
quate for the past several years and continue to be. 

Dairy Herd 

The national dairy herd on January 1, 1970, 
numbered 13.9 million cows and heifers 2 years old 



and over, a 2 -percent decline from a year earlier. The 
average number o\' milk cows on farms totaled 12.7 
million head in 1969. 2.7 percent fewer than in 1968. 
Both these declines were the smallest annually since 
1962. The largest declines occurred in the Northern 
Plains and Corn Belt, and die smallest in the 
Southeast, Mountain, and Pacific regions. 

The national culling rate was the lowest since the 
mid-1950's. Continued milk price increases and favor- 
able milk-feed price ratios in 1969 offset higher prices 
for cull cows. A tightening of the labor market in 
1969 probably reduced off-farm employment oppor- 
tunities for dairy farmers and hired labor and might 
have slowed the rate of herd disposal. 



marketing year. Milk prices are expected to continue 
improving in 1970 because the support price level was 
increased to $4.66 for the 1970-71 marketing year. 
National dairy pricing policy continues to emphasize 
pricing the nonfat component versus the fat compo- 
nent of milk for two basic reasons: (1) to enable 
plants that process milk into butter and nonfat dry 
milk to increase their paying prices correspondingly— 
to be more competitive with plants manufacturing 
cheese; and (2) to avoid enhancing the competitive 
position of the various milk substitute products, 
particularly "filled milk." 



World 



Prices and Income 

Prices received by U.S. farmers for all milk and 
cream marketed averaged a record-high S5.52 per 100 
pounds in 1969, over 4 percent above the 1968 level. 
Cash receipts totaled a record S6.2 billion, up nearly 
4 percent. Milk prices and cash receipts in 1969 were 
32 and 30 percent higher, respectively, than at the 
beginning of the decade, largely because of sub- 
stantial price gains since 1965. 

During 1969, prices for manufacturing milk re- 
mained above the support level of S4.28 per 100 
pounds. In the face of a continued decline in national 
milk production, the support price for manufacturing 
milk was raised from S4 to S4.28 per 100 pounds for 
the 1968-69 marketing year beginning April 1, 1968. 
This support price was maintained for the 1969-70 



Exports of U.S. dairy products dropped sharply — 
25 percent-in 1969, while imports, especially of 
certain cheeses, rose about 12 percent. Exports have 
been declining because of large surpluses in Western 
Europe and are expected to continue declining in 
1970. 

Net imports in 1969—316 million pounds on a 
whole-milk equivalent basis— were up nearly 85 per- 
cent from a relatively low level in 1968, but were 
substantially below the 1.3 to 1.4 billion pounds 
imported during 1966-67. 

World milk production rose only slightly in 1969, 
following a decade of annual increases averaging 2 
percent. Output leveled off in the European Com- 
munity, fell in other Western European countries and 
North America, and increased in Eastern Europe, 
Oceania, and South America. 



DAIRY BELT MILK MARKETING AREAS 



Chicago Regional 

Considerable quantities of milk for fluid consump- 
tion produced by Wisconsin dairymen are marketed 
under the auspices of the Chicago Regional Federal 
Milk Marketing Order. The area under this order, as 
defined December 31, 1969, includes northern Il- 
linois and much of Wisconsin except chiefly the 
northwest corner. According to the 1960 census, over 
10 million people live in the area, with more than 50 
percent of them in Metropolitan Chicago and its 
suburbs. More than 80 percent of the milk needed to 
supply Metropolitan Chicago is received through a 
system of country supply plants, most of them in 
Wisconsin. In 1969, an average of 16,639 producers 



delivered over 7 million pounds of milk to handlers 
regulated under this order. 

Wisconsin dairymen are becoming increasingly 
important in producing for the Chicago market. In 
December 1969, 90 percent of the milk received by 
order handlers was supplied by Wisconsin dairymen, 
who accounted for 89 percent of the order producers. 

Despite growing urbanization pressures in south- 
eastern Wisconsin — the 13-county area selected for 
studying grade A dairying-producers there continue 
to contribute importantly to the Chicago market. In 
December 1969, this area accounted for 36 percent 
of both total order receipts and producers, compared 
with 40 and 39 percent, respectively, a year earlier. 
Dairying in Wisconsin north and west of this 13- 



Table 1. -Total pool receipts, proportion delivered hulk, average number of producers, and proportion 
with bulk tanks, area under the New York-New Jersey Marketing Orders, by State, 1969 





Unit 


States regulated under New York-New Jersey 
Marketing Orders 


Item 


N ew 
York 


Penn- 
sylvania 


Other 

five 

States' 


Total 


Total pool receipts 


Mil. lb. 
Pet. 
No. 
Pet. 


7 397 ' iss «? in '"" 


Proportion delivered bulk .... 

Average number of producers . . 

Proportion with bulk tanks . . 


74.0 

18,245 

59.2 


55.2 

8,009 

40.6 


86.5 

1,049 

79.1 


70.3 

27,303 

54.5 



Delaware, Maryland, New Jersey, Vermont, and West Virginia. 

Source: The Market Administrator's Bulletin. New York-New Jersey Milk Marketing Area. 
Quar. Stat. Issue (B), Vol. 30, No. 8, 1969. 



county area is expanding. The average number of 
order producers and milk receipts was 13 and 1° 
percent higher, respectively, in December 1969 than a 
year earlier, and 47 and 71 percent higher than in 
December 1965. Clearly, the Chicago milkshed is 
expanding northward. 



New York-New Jersey 

Most milk produced in New York is marketed 
under the New York-New Jersey Federal Milk Mar- 
keting Orders. The area under these orders, as defined 
December 31. 1969, includes southeast, south- 
central, and central New York, and northern New 
Jersey. The 1960 census showed over 18.5 million 
people residing there. In 1969, an average of 28,554 
producers delivered over 10.3 billion pounds of milk 
to handlers regulated under these orders. 

The relevant milkshed encompasses nearly all of 
New York, the eastern two-thirds of Pennsylvania, 
and portions of live other States. 1 A substantial and 
rising proportion of the milk received at plants and 
bulk-tank units under the Federal orders comes from 
producers in New York nearly 72 percent in 1969 
(table 1). 

Two important order trends arc that the average 
number of producers delivering to plants and bulk- 
tank units is declining steadily, and producers ship- 
ping milk bulk are rapidly becoming the more 
important of the two groups (table 2). Commensurate 



Delaware, Maryland, New Jersey, Vermont, and West 



with these trends is a substantial increase m volume 
received per producer. 



Table 2. -Number of producers delivering to plants and bulk- 
tank units in area under the New York-New Jersey 
Marketing Orders, annual average, 1965-69 







Producers delivcri 


ng to- 


Year 


Total 








Plants 


Bulk-tank 


units 










Is percentage 










oj total 
27.4 


1965 . . 


39,614 


28.775 


10,839 


1966 . . 


36,405 


24.235 


12,170 


33.4 


1967 . . 


33.304 


19,956 


13,348 


40.1 


1968 . . 


30,040 


16,064 


13,976 


46.5 


1969 . . 


28.554 


13,194 


15,360 


53.8 



Virginia. 
4 



Source: The Market Administrator's Bulletin, New York- 
New Jcrscj Milk Marketing Area, Annual Reports, 1965-69. 



Most of the milk produced by order dairymen in 
central New York -the nine-county area selected for 
this study is shipped to New York City. Some is 
diverted to supply local cities. In 1969, these nine 
counties collectively accounted for 35 percent of the 
pool receipts of all order producers in New York and 
one-fourth of total order receipts. Also, three of the 
nine counties were among die top 10 in milk 
production in the State and in the area under the 
marketing orders. 



DAIRY BELT FARMS WITH 30-49 MILK COWS 



The most important milk producers in Wisconsin 

those with 3049 milk cows. 

riculture data for 1964 show clearly the 

intribution o\ these dairymen (table 3 

' • jntially one-man operations are 

farm encountered most frequently 

Most of the milk produced in Wisconsin and 

in Now York is eligible for fluid 

imption. In Wisconsin, milk from 70 percent of 

the producers with 30-49 cows and from 96 percent 

liose wiili larger herds was eligible in 1969. The 

highest concentration of grade A producers in Wis- 

in is in the 13-county study area in the southeast 

2). In New York, it is in the nine-count} stud) 

in the central part. Contributions made b\ 

dairymen in each respective area to dairying in the 

are shown in table 4. 

In both study areas, milk producers reporting 

3049 milk cows represent a sizable proportion of 

area producers and an even higher proportion of cow 



Table 3.— Farms, cow numbers, and whole milk sold, for 
producers with 3CM9 cows. New York and Wiscon- 
sin, 1964 



Item 


Unit 


New York 


Wisconsin 


Milk producers: 
Number 


No. 
Pet. 

No. 
Pet. 

Mil. lb 
Pet. 


11,577 22.641 


Percent of State .... 

Cow inventory: 

Number 

Percent of State .... 

Whole milk sold: 

Percent of State .... 


29.3 

435,115 
38.4 

3,915.1 
39.5 


26.5 

818,139 
39.3 

7,188.9 
41.6 



Source: 1964 Census of Agriculture. 

numbers and production. In southeastern Wisconsin, 
the proportion of producers reporting 30-49 cows in 



FARMS WITH MILK COWS, 
MILK COWS, AND MILK SOLD, 1964 



o_ 



LU 

az 



a- S- 



WISC0NSIN 




R : ;RK3 

caws 

MILK SOLD 



E3£L 




U.S. 



1-19 20-29 30-U9 50-99 100+ 1-19 20-29 30-U9 50-99 100+- 
NUMBER OF MILK COWS BY SIZE GROUP 

DEPARTMENT BF AGRICULTURE NEG.ER5 7982-70 UOI EC3NQMIC RESEARCH SERVICE 



figure 1 



LOCATION OF DAIRY FARMS STUDIED 




U.S. DEPARTMENT OF AGRICULTURE 



NEC ERS 5517 -69 ( 5) ECONOMIC RESEARCH SERVICE 



Figure 2 



Table 4.— Milk producers, cow numbers, and whole milk sold, central New York and southeastern Wisconsin, 
1959 and 1964 





Unit 


Central New York 


Southeastern Wisconsin 




1959 


1964 


1959 


1964 


Milk producers: 

As proportion of State 

Proportion with 30-49 cows . . . 

Cow inventory: 

Head 

As proportion of State 

Whole milk sold: 


No. 
Pet. 
Do. 

No. 
Pet. 

MU. lb. 
Pet. 


12,225 9,618 18,662 14,820 
23.2 24.3 18.1 17.4 
25.7 32.3 25.3 35.2 

305,728 293,607 446,825 428,384 
26.1 25.9 21.3 20.6 

2,320.5 2,639.4 3,772.5 3,939.0 
24.9 26.6 23.2 22.8 



Source: 1959 and 1964 Censuses of Agriculture. 



Table 5. -Percentage of dairy farm income supplied by off-farm employment and dairy 
enterprise, for selected cow herd sizes, Wisconsin, 1969 





Cow herd size 


Source of income 


19 
cows 


10-29 

cows 


30-49 
cows 


50 or 
more 
cows 


All 
herds 




. P„i;-,'i,t 


Off-farm employment: 

Dairymen reporting 

As proportion of household 
income 


50 
25 

61 


M 

7 

N2 


25 

2 

87 


15 

1 

87 


28 

5 


Dairy enterprise as proportion 
of household income .... 


84 



Income from sales of milk and dairy stock. 
Source: Wisconsin Stat. Rpt. Serv., Milk Prices Bulletin, Mar. 5, 1970. 



1968 was slightly higher than the 35 percent report- 
ing this number in 1964. Strictly comparable data for 
central New York are not available for 1968. How- 
ever. 1968 State data reveal that 44 percent of the 
milk producers in New York had 30-49 cows. There 
are indications that the proportion of 30- to 49-cow 
herds is increasing more rapidly in the New York 
study area than in the Wisconsin study area. Partly 
explaining this might be the general absence of 
resource use competition and the lower opportunity 
costs in central New York; such a situation favors 
enterprise specialization and farm growth. Daiiying in 
southeastern Wisconsin is being affected significantly 
by alternative uses for area resources—most im- 
portantly, land and labor in the nonfarm sector. 

Many milk producers in both areas- relatively 
more in southeastern Wisconsin-are employing too 
few resources to compete economically and to realize 
an adequate level of farm income. The attrition rate 
of farms with smaller herds, particularly those with 
fewer than 20 milk cows, is rapid. Aggregate farm 
household income on many of these smaller farms. 



however, is adequate because of additional income 
from nonfarm sources. Typically, the principal source 
of nonfarm income is off-farm labor earnings. Off- 
farm employment income in 1969 was important on 
smaller dairy farms in Wisconsin and its relative 
importance was related inversely to herd size (table 
5). 

Many dairy farmers are expanding their operations 
to sizes that generate adequate farm income and 
afford scale economies. This is suggested by the rising 
significance of the essentially one-man dairy farms 
with 30-49 milk cows and the rapid growth rate of 
larger dairy farms. Wisconsin's dairy herds of 50 
or more cows, and particularly those of 100 or more 
cows, are increasing at a rapid rate. Their relative 
numbers, however, continue to represent only a small 
proportion of all herds in the State. According to the 
State farm census, only four of every 1,000 dairy 
farms in 1969 had 100 or more milk cows and only 
70 per 1,000 had 50 or more cows. Comparable 1968 
figures for New York herds of these sizes were 
larger- 28 and 210 per 1,000, respectively. 



THE TWO SYNTHESIZED, REPRESENTATIVE FARMS 



A competitive 40-cow dairy farm was drawn up 
for each of the two study areas to represent grade A 
milk producers having 30-49 milk cows. Major objec- 
tives of the drawing up of these two farms include: ( 1 ) 
portraying realistically the typical or most common 
organization of resources used by an important 



stratum of dairymen in producing milk for fluid 
consumption; (2) representing the types of short run 
adjustments commonly made annually by area farm 
operators, as in feeding rates and practices; and (3) 
reflecting annual changes beyond the control of the 
producer; such as changes in weather effects on crop 



yields and subsequent!) on milk yields, and cha 
in land values and prices paid and received. But most 
important, this study and studies reveal the 

net annual and longrun effects of these factors on 
farm income. 

In the study, herd and farm size were held 
constant. This was done to avoid the effects of major 
adjustments that occur on only a few farms. Most 
dairy farms do not undergo annual changes in farm 
si/e. and annual fluctuations in herd size are typically 
insignificant. Longrun adjustments in farm and herd 
size commonl) result in shifts between, rather than 
within, selected size groups. These shifts are reflected 
in the increasing number of milk producers reporting 
^0-49 milk cows. 



The land base for a 40-cow dairy farm is consider- 
ably larger in central New York than in southea 

onsin, but a substantially higher proportion ol 
the Wisconsin farmland is cropped (table 6). Other 
major differences are use of cropland, feed expendi- 
tures, land values, and degree of enterprise specializa- 
tion. 

Over 40 percent of the cropped acreage on the 
Wisconsin representative farm is corn for grain and 
silage. For the New York farm, the comparable 
proportion is about one-fifth, with all com cut for 
silage. A substantially smaller proportion of the 
harvested acres on the New York farm are grains. This 
means that more feed must be purchased than in 
Wisconsin, and at higher prices. Consequently, teed 



Tabic ft. -Organization and production characteristics of the two synthesized, representative 40-cow dairy 
farms, central New York and .southeastern Wisconsin, 1968 and 1969 ' 



Item 



I nil 



Central New York 



1968 



1969' 



Southeastern Wisconsin 



1968 



1969" 



Land in farm 

Cropland harvested 

Crops harvested: 

Corn for grain 

Corn for silage 

Oats 

May 

Crop yields per harvested acre: 

Corn for grain 

Corn for silage 

Oats 

Hay 

Cattle on farm, Jan. 1 : 

Total 

Milk cows 

Milk production per cow . . . 

Total farm capital. Jan. 1 . . . 

Land and buildings 

Machinery and equipment . 

Livestock 

Crops 

Total labor used 

Operator labor' 



Acre 
do. 



do. 
do. 
do. 
do. 



Bushel 
Ton 

Bushel 
Ton 



Number 
do. 

Pound 

Dollar 
do. 
do. 
do. 

do. 

Hour 
do. 



250 
94 



15.6 

65.0 

3.2 



61 

4(1 

12,220 



250 
94 



20.5 21.2 

14.7 14.6 

58.8 58.2 



17.6 

64.2 

3.2 



61 

4( ; 

12,370 



184 
145 



38.0 
21.0 
27.0 
59.0 



105 
15.2 
78.0 

3.5 



65 
13.000 



184 
145 



37.8 
21.6 
26.6 
59.0 



96 

14.0 

70.0 

3.5 



65 
40 

13,100 



77,720 


81,740 


102,800 


113,330 


36,500 


38,750 


59,430 


67,160 


16.740 


17,550 


17.680 


18,500 


18,420 


19.260 


16,860 


18,400 


6,060 


6,180 


8,830 


9,270 


3.950 


3,980 


4,160 


4,140 


3.120 


3,120 


3,120 


3,120 



Both grade A operations are owner operated and farmed essentially by 1 man in his early 40's and by 
his family. All farm characteristics are based on farms having 3049 milk cows. 

2 

Preliminary. 

3 

Assumes an average of 60 hours per week for the year. 



expenditures on central New York dairy farms 

average over 3-1 1 times more than on southeastern 

:onsin farms. In contrast to the grain deficit in 

central New York, a surplus ot com often exists in 

southeastern Wisconsin. Dairy farmers in the latter 

o\v more than enough corn to meet their 

and market this surplus. Farm-produced ha\ 

ig igt normally are adequate in both areas. 

Dairying is more highly specialized in central New 

an in southeastern Wisconsin. Census data for 

1964 revealed that S71 of every SI 00 of total farm 

in central New York was from milk 

. with S48 in southeastern Wisconsin. 

Dairj farms in the latter area are becoming more 

.ili/ed. although many also raise hogs and beet' 

cattle, and grow cash grains and vegetables. These 

enterprises typically are small and do not represent a 

significant departure from the specialization concept 

that was assumed for the farms with 30-4') cows. 

Crop yields and milk production per cow reflect 
the above-average level of managerial ability assumed 
tor both representative 40-cow farms. Producers in 
both areas milk their cows in stanchion barns 
equipped with gutter cleaners and ship milk in bulk. 
Labor for milking the 40 cows is furnished largely by 
the farm operator; other family members are available 
when needed. Hired farm labor, if needed, is used 
only at harvesttime. 

Capital investment at current market prices is 
considerably greater in southeastern Wisconsin than 
in central New York. Despite the smaller land base 
for the 40-cow farm in Wisconsin, the current value 
of the investment in land and buildings is about 
double that for the New York farm because land 
values are significantly higher. 



1968 and 1969 Returns 



Net returns generated to all resources in 1969- 
irrespective of ownership and excluding debt obliga- 
tions- averaged about 10 percent higher than in 1968 
on the 40-cow representative farm in southeastern 
Wisconsin and central New York (table 7). Farm 
expenses advanced 4 to 5 percent, but gross income 
increased about 7.5 percent in both areas, largely 
because milk prices continued to rise. Higher prices 
received for milk in 1969 accounted for 52 percent of 
the increase in cash receipts in Wisconsin and 71 
percent in New York. 

Income on the southeastern Wisconsin dairy farm 
is typically higher on the average than on the central 
New York farm, despite the considerably higher milk 
prices received by New York dairymen. Cash expendi- 
tures are greater on the New York dairy farm because 



of substantial quantities of feed bought and lower 
milk production per cow. 

In recent years, the income position of milk 
producers in both areas has improved considerably 
because of significant increase in milk prices (fig. 3). 
Receipts from milk sales in 1969 averaged 37-40 
percent higher than the amount 4 years earlier, 
whereas total farm expenditures advanced 17 percent. 
Milk prices have risen unusually rapidly since 1965, 
while input prices have pursued their longer term 
steady increase. Machinery prices and real estate taxes 
have substantially increased. Feed and fertilizer 
prices, on the other hand, have been relatively steady 
over the past 6 years, and recently, have declined. 
Price changes continue to be the main determinant of 
the annual increases in cash expenditures on these 
dairy farms. Price increases in 1969 accounted for 
nearly two-thirds of the increase in cash outlays on 
both representative farms. 

Farmowners in both areas are also benefiting from 
the continued rapid appreciation of land values. From 
1964 to 1969, the market value of capital investment 
in land and buildings rose 50 percent in central New 
York and 46 percent in southeastern Wisconsin. 



Partitioning Returns 
Description of Method 

As computed using a traditional accounting frame- 
work, net farm income is an aggregate return to a 
specific bundle of resources (table 6). Subsequently, 
this return is allocated to operator labor and manage- 
ment, unpaid family labor, and total farm capital. Net 
farm income can also be "partitioned" (allocated) 
with a greater degree of refinement than in the 
traditional method. 2 The objective is to show more 
meaningfully the earnings of resources related to the 
functions they perform commensurate with their 
expected earnings in competitive markets. 

Five distinct functions of resources are recognized 
for this analysis-investment, ownership, labor, man- 
agement, and entrepreneurship. Theoretically, a mar- 
ket value exists for each, but the markets for 
management and entrepreneurship frequently are not 
well enough established to be measured. Generally, 
markets for the other three functions are well 
established and their rates of return can be deter- 
mined. 

In evaluating returns, it is constructive to isolate 
two sets of resources, physical and human. The set of 



"Bostwick, Don, Returns to Farm Resources, Anier. Jour, 
of Agr. Peon. Vol. 51, No. 5, Dee. 1969. 



Tabic 7. -Resource returns and production expenses on the two synthesized, representative 40-cow dairy 
farms, central New York and southeastern Wisconsin, 1968 and 1969 



Item 



Centra! New York 



1968 



1969" 



Southeastern Wisconsin 



1968 



1969" 



Total cash receipts 

Milk sales 3 '. 

Cattle and calves 

Other, including Government payment 

Value of perquisites 

Inventory change 

dross farm income 

Total cash expenses 

Dairy feed 

Veterinarian and medicine 

Other livestock expense 

Machinery repairs 

Auto expense (farm share) 

Gas and oil 

Contract hauling and custom hire . . . 

Fertilizer and lime 

Farm chemicals 

Seed and other crop expense 

Building and fence repair 

Farm taxes 

Farm insurance 

Utilities (farm share) 

Total capital expenses 

New machinery 

New buildings 

Inventory adjustment 

Total farm expenses 

Net farm income 



27,951 


29,658 


28,470 


30,717 


26.112 


27,644 


25,338 


26,724 


1,799 


1,974 


2.362 


2.655 


40 


40 


770 


1,338 


1,034 


1.102 


1,200 


1,267 


967 


1,494 


1,989 


2,010 



29,952 



32.254 



31.659 



33,994 



13.024 


13.604 


10,442 


10.775 


6.414 


6.663 


1,742 


1,771 


364 


388 


270 


284 


1,033 


1,085 


767 


807 


978 


1,025 


1,005 


1.050 


270 


279 


300 


310 


401 


427 


555 


570 


188 


197 


1,063 


1,129 


1,075 


1.069 


1.152 


1.112 


281 


286 


283 


275 


410 


416 


631 


624 


188 


200 


286 


315 


678 


800 


1,536 


1.647 


345 


370 


324 


359 


399 


399 


528 


522 


3,293 


3.540 


3.456 


3,642 


3.576 


3,705 


3.702 


3,819 


520 


640 


572 


630 


- 803 


-805 


-818 


-807 


16.317 


17,144 


13,898 


14,417 


13,635 


15,110 


17.161 


19,577 



' Both grade A operations are owner operated and farmed essentially by 1 man in his early 40's and by his 
family. All farm characteristics are based on farms having 3049 milk cows. Returns and expenses shown, 
however, arc irrespective of resource ownership and do not rctlect farm debt. 
Preliminary. 

3 Receipts from milk sales are net of transportation charges for the New York farm but not for the 
Wisconsin farm. 



physical resources-land, machinery, livestock, and so 
on— embodies the functions of investment and owner- 
ship, for which separate returns can be computed. 

The investment return to each resource is deter- 
mined by the amount of capital invested and by 
either a rate of return specified by contractual 



agreement or an appropriate opportunity-cost rate 
prevailing at the time the resource was acquired. The 
return to a capital investment made using the farm 
operator's capital is assumed to be the same as the 
rate that he would have paid had he borrowed the 
capital. 



10 



NET DAIRY FARM INCOME* 



en 



^v 





^ENTFIflL NEW Y0RK 






SOUTHEASTERN WISCONSIN 




o 






(O 








o 








c\j 






__ _ — — " 








[ — 




h— ' "^-^ 


o 


^ - - ~^ ^^"^ 






*—< 








o 


' 1 


1 


1 



1961 1965 1966 1967 1968 

* TWO REPRESENTATIVE FARMS. 

U.S. DEPARTMENT QF AGRICULTURE NEG.ER5 7963-70 tlD) 



1969 



1970 



ECDN0MIC RESEARCH SERVICE 



The ownership function is a legal condition where- 
by holding title to a resource enables the owner to 
risk reaping benefits or bearing losses. Ownership 
returns (or losses) are stipulated by the market rate at 
which use rights can be rented from the owner. The 
ownership return is determined by the gross rent as 
defined in the rental market, minus all ownership 
costs— such as taxes, insurance, and maintenance- 
plus an adjustment for changes in the book value of 
the resources used. Depreciable resources commonly 
show a negative change in book value. A good exam- 
ple of a positive change is land value appreciation. 

The set of human resources includes labor, man- 
agement skills, and the entrepreneural skills required 
to organize all the resources and services used in 
production. A straightforward procedure is available 
for computing the labor return, given the market 
values associated with the kind and quality of labor. 
The return to hired labor is specified at a rate set by 
contractual agreement; this rate can also be applied to 
farm operator labor. Returns to labor supplied by 
family members are estimated by use of a relevant 
market rate that depends primarily on age and sex. 



Without further defining and discussing manage- 
ment and entrepreneural returns, let it suffice to state 
that well-established markets for each do not exist for 
dairy farmers in the two dairy belts. Thus, these 
returns are treated here as an aggregate residual 
return. 

A subset of financial resources can be isolated 
from the physical resources set. Included are various 
types of liquid assets, such as the value of crops held 
in inventory and the operating capital used to meet 
the production expenses of feed, seed, fertilizer, fuel, 
and so on. The form of this operating capital might 
be money, stocks and bonds, or savings deposits, for 
example. The return-typically only an investment 
return— to financial resources is determined by apply- 
ing an appropriate shortterm market rate of interest 
to the respective amounts of these resources. 



Application of Method 

Partitioning net farm returns to the operator on 
the two synthesized representative farms in south- 



11 



eastern Wisconsin and central New York explicitly 
accounts for returns to three functions-investment, 
ownership, and labor. As mentioned, managerial and 
entrepreneural returns— all accruing to the farm op- 
erator-are considered as an aggregate residual return. 
All external returns computed make up an aggregate 
return to the investment function performed by the 
lenders of capital used by the operator. The partition- 
ing of operator and external returns for 1968 and 
1969 is preceded by a discussion of the financial 
status of the dairy farmers represented, focusing on 
farm debt and on appreciation in the value of laud 
resources. 

Most resources controlled by operators of 30-to- 
49-cow dairy farms in both areas are typically 
operator owned. Land resources are frequently en- 
cumbered by mortgages. It also is common for 
farmers in southeastern Wisconsin to have relatively 
small amounts of chattel debt, usually on machinery 
and sometimes on livestock. The incidence of oper- 
ating loans is low in both areas because of the 
monthly income received from milk sales. 

A comprehensive 1969 survey of 30-to-49-cow 
dairy farms in southeastern Wisconsin revealed that 
half the operators were paying on mortgages and 
about two-thirds on chattel debt. Thus, both types ol~ 



debt are represented by the study farms. In view of 
the wide range in the amounts that were reported as 
outstanding, the median level of debt was selected to 
represent each type of debt. 

Comparisons of farm debt data for 1964 indicate 
that mortgage debt on 30-to-49-cow dairy farms 
studied in both areas was similar. Thus, current debt 
on dairy farms in central New York was assumed to 
be similar to that on the southeastern Wisconsin 
farms. Chattel debt occurred less frequently on farms 
in central New York than in southeastern Wisconsin 
and was not represented here. 

Land resources were assumed to have been 
acquired in the early 1960's with 1962 as the first full 
operating year. Survey data for the Wisconsin area 
show that many of the land tracts with outstanding 
mortgages were acquired in the early 1960's. The 
typical mortgage loan obtained at that time was for 
20 years and carried a loan rate of 5 to 5-1/4 percent. 
The loan was assumed payable over the 20-year 
period according to a standard schedule requiring 
annual repayment of principal and interest. Actual 
adherence to such a schedule was verified by 1968 
survey data for southeastern Wisconsin. The initial 
loan amounts were larger in the Wisconsin area than 
in the New York area, but represented about 61-64 



Table 8. -Farm financial statement for two synthesized, representative 40-cow dairy farms, central 
New York and southeastern Wisconsin, 1969 



Item 



Central New York 



Jan. 1, 
1969 



Dec. 31, 
1969 



Southeastern Wisconsin 



Jan. I. 
1969 



Dec. 31, 

1969 



- Dollars 



Total farm assets, current value 

Land and buildings 

Machinery and equipment 

livestock 

Crop inventories and operating capital 

Total financial liabilities 

Land and buildings 

Machinery and equipment 

Net worth 

Dollar assets controlled per dollar of 
investment 

Operator equity (ratio) 



84,111 

38,750 

17,547 

19,264 

8,550 

12,136 
12,136 



71,975 

1.41 
.86 



86,436 
38,750 
18.352 
19,867 
9,467 

11,462 
11,462 



74,974 

1.38 

.87 



115,382 
67,160 
18,500 
18,400 
11,322 

27,759 

21,859 

5,900 

87,623 



1.76 
.76 



125,607 
74,520 
19,307 
20,855 
10,925 

26,525 

20,625 

5,900 

99,082 



1.80 
.79 



1 Both grade A operations arc owner operated and farmed essentially by 1 man in his early 40's and 
by his family. 



12 



percent of the market value of the land and buildings 
in both areas. 

Changes in the market value of land resources- 
potential capital gains (losses)-are important to 
many dairymen in southeastern Wisconsin and central 
New York, and were considered in the partitioning of 



farm returns. When dairymen buy or retain land 
resources, particularly in southeastern Wisconsin, 
they are probably motivated by the potential capital 
gains, as well as by the annual income -generating 
capacity of these resources in dairying. 

Land value appreciation and potential capital gains 



Table 9. -Partitioning net farm returns on two synthesized, representative 40-cow dairy farms, central New 



York and southeastern Wisconsin. 1968 and 1969 



Item 



Central New York 



I96S 



1969 



Southeastern Wisconsin 



1968 



1969 



Income and expenses: 
Cash farm income 

3 

Noncash farm income" 

Gross farm returns 

Cash operating expenses 

Net farm returns 

Operator returns 

Exogenous returns 

Partitioning net farm returns: 

Investment returns to operator 

Ownership returns to operator 

Labor returns to operator and other 

family 

Management and entrepreneural returns 

to operator 



Ratios and rates of return: 
Investment return per dollar of operator's 

investment 

Ownership return per dollar of operator's 

investment 

Management and other returns per dollar 

of assets controlled 

Dollar net farm returns per dollar of 
assets controlled 

Dollar net farm return per dollar of 
operator's investment 



27,951 


29,658 


28,470 


30,717 


4,251 


2,596 


10,917 


10,637 


32,202 


32,254 


39,387 


41,354 


13,695 


14,241 


12,010 


12,310 


18,507 


18,013 


27,377 


29,044 


17,648 


17,179 


24,746 


26,380 


859 


834 


2,631 


2,664 


3,918 


4,315 


4,078 


4,563 


4,875 


2,024 


10,326 


10,891 


6,088 


6,565 


6,339 


6,882 


2,767 


4,275 
Percent 


4,003 


4,044 



6.6 


6.9 


6.2 


6.6 


8.2 


3.2 


15.8 


15.6 


i.i 


4.9 

Dollar - 


3.5 


3.2 


0.22 


0.21 


0.24 


0.23 


0.30 


0.27 


0.38 


0.38 



Both grade A operations are owner operated and farmed essentially by 1 man in his early 40's and by his 
family. 

2 

Includes income from all farm product sales and Government payments. 

Includes value of perquisites, changes in value of livestock and crop inventories, and change in value of 
land. 

Excludes machinery and buildings investment expenses. Includes interest paid by operator for use of 
external capital. 

Earnings of external capital used by farm operator accruing to the lenders. 



13 



Table 10. -Cash operating statement for two synthesized, representative 40-cow dairy farms, central 
New York and southeastern Wisconsin, 1968 and 1969 



Item 



Central New York 



Southeastern Wisconsin 



1968 



1969 



1968 



1969 



Total operating income' . . 
Total operating expense- 
Net operating income . . 
Capital item purchases 

Net cash income 

Principal payment . . . 
Family living expenses 



27,95 1 


29,658 


28,470 


30,717 


13,695 


14,241 


12,010 


12,310 


14,256 


15.417 


16,460 


18,407 


4,096 


4,345 


4,274 


4,449 


10,160 


11.072 


12,186 


13,958 


640 


674 


1,997 


2,049 


7,211 


7,556 


6,583 


6,898 



1 Both tirade A operations are owner operated and tanned essentially by 1 man in his early 40's and 
by his family. 

Total cash receipts from table 7. 
3 Total cash expenses from table 7, plus interest paid. 

Unadjusted capital expenses from table 7. 
5 Available for principal repayment and farm family's living expenses. 

6 F.stimates based on 1965 data reported in AgT. I eon. Res. 207 and Agr. I eon. Ext. 358 Cornell 
University; and Minnesota Dept. Aur.. Icon. Rpt. No. 285, 1966. All data were adjusted for location 
and for price changes by using U.S. index of farm family living items. 



since 1962 have been substantial in both areas. 
Between January 1, 1962, and January 1, 1970, 
average land values in southeastern Wisconsin rose 
more than 65 percent, to over S400 per acre, an 
increase of about $150 in 8 years. Land values did 
not rise as rapidly in central New York during this 
period about 50 percent, or S50 per acre. Prospects 
for capital gains in southeastern Wisconsin are 
brighter than in central New York, largely because of 
alternative uses for land resources in the nontaim 
sector. 

The current financial situation of both representa- 
tive farms is sound. Net worth as oi' December 31, 
1969, was 79 percent in southeastern Wisconsin and 
87 percent in central New York (table X). Net equit) 
is large on these dairy farms, because of the rapid 
advances in the market value of their real estate. 

Aggregate operator returns in 1968 and 1969 on 
the representative farm in southeastern Wisconsin 
averaged about $25,600, compared with about 
$17,410 in central New York (table 9). Most of the 
difference between the two areas in the aggregate 
operator return was accounted for by potential 



capital gains. During 1968-69, land value appreciation 
alone accounted for 19 percent of gross returns on 
the Wisconsin area farm, compared with less than 5 
percent on the New York area farm. This is reflected 
by the substantially larger ownership returns accruing 
to operators of southeastern Wisconsin dairy farms. 

Investment returns to all resources used by dairy- 
men in both areas reveal that investing in dairy farms 
of this size in the early 1960's was a sound practice. 

Operators of the representative 40-cow dairy farms 
are also realizing substantial returns to then labor, 
management, and entreprencurship. The farm opera- 
tor was considered to average a 60-hour workweek 
for the year, for a total of 3,120 hours. The balance 
of the labor required on these farms was furnished by 
other family members. Typically, hired labor is not 
needed. Occasionally some labor is hired at hay 
harvesttime; but the wage bill usually is small. Since 
costs for operator and other family labor are figured 
at a hired labor wage rate, any hired labor expendi- 
ture would correspondingly reduce returns to opera- 
tor and other family labor. It was also assumed that 
the farm operator and the other family members 



14 



could have been employed as hired hands on another 
farm for the equivalent number of hours they worked 
on their own farm. Admittedly, the reality of the last 
assumption is debatable. For example, a farm opera- 
tor who averaged a 60-hour workweek on his own 
farm could probably not average a 60-hour workweek 
as a hired hand on another farm. If the assumption 
that a fewer number of hours worked on another 
farm is a preferable one. the consequence is that the 
return to operator and other family labor is reduced 
and the return to operator management and entrepre- 
neurship enhanced correspondingly. 

The above-average level of operator managerial 
ability assumed for these representative farms is 



reflected by its return on both farms. Managerial (and 
entrepreneural) returns as a percentage of gross farm 
returns averaged 10-1 1 percent for 1968-69. 

The sound management existing on both farms is 
also reflected by their strong cash position. Net cash 
income in both 1968 and 1969 was adequate for 
principal payment and for meeting estimated family 
living expenses (table 10). The cash position of both 
farms has improved considerably since 1965, largely 
because of rising milk prices. Coupling this positive 
price effect with rapid land value appreciation reveals 
a substantial improvement since the mid-1 960's in the 
economic position of these dairymen. 



15 



UNITED STATES DEPARTMENT OF AGRICULTURE 
WASHINGTON, D.C. 202S0 



OFFICIAL BUSINESS 
PENALTY FOR PRIVATE USE, S300 




POSTAGE & FEES PAID 

Unit»d Stain Deportment of Agriculture