GENERAL FARM PROGRAM 907 



It was indicated at the hearing that prices of milk used for manufactured dairy- 

 products had declined during recent weeks. The question was raised as to whether 

 the prices of milk for nianiifacturing uges are not unusually low in relation to the 

 average price of all milk. This possibility had been recognized by the Depart- 

 ment and the following actions had been taken. 



1. On February 8, the Department announced a program to support the price 

 of butterfat at a national average of 90 percent of paritv during 1949 as required 

 by the Agricultural Act of 1948. 



2. On February 9, the Department announced the contemplated purchase of 

 nonfat dry milk solids for export uses. 



Since these actions were announced butter prices have been above the support 

 level. The first offers under the nonfat dry milk procurement program will be 

 received during the week begimiing February 21. Furthermore, farmers generally 

 are paid for milk every- 2 weeks and such price data are compiled by the Depart- 

 ment monthly. Therefore, it Ls too early to measure the effect of the programs 

 on prices paid farmers for milk. 



Procurement of nonfat dry milk solids has been resumed because agencies 

 administering foreign relief and occupied area programs have indicated that 

 the}- will want substantial quantities of this product during 1949. The influence 

 of such purchases on market prices of that product and the announcement of the 

 butterfat support program should stabilize prices to producers for manufacturing 

 milk. 



Since the hearing on February 10 the Department has given further considera- 

 tion to the matter of appropriate differential between the average prices of 

 manufacturing milk and all milk. Preliminary calculations based on available 

 price data indicate that during the 2]4-yeaT period since the end of price 

 controls — July 1946 to December 1948 — the United States average price of milk 

 used in manufacturing the principal dairy products was 88.5 percent of the 

 United States average price of all milk sold at wholesale by farmers to manufac- 

 turing plants and fluid milk dealers. On the basis of the m.id-January parity 

 inde-x. 90 percent of the United States average parity price of milk at wholesale, 

 including milk for both manufacturing and fluid milk uses, is S3. 57 per 100 pounds. 

 The Bureau of Agricultural I^conomics and the Production and Marketing 

 Administration have recommend'ed that, on the basis of the recent relationship, 

 $3.16 per 100 pounds (88.5 percent of $3.57) may be considered as 90 percent 

 of the parity equivalent price of milk used in manufacturing the principal dairy 

 products — American cheese, evaporated milk, and butter and nonfat dry milk 

 solids. 



It should be noted that this figure represents a Umited States average price 

 of manufacturing milk of average butterfat test (approximately 3.95 percent). 

 It is necessary to recognize that there normally are differences in milk prices 

 associated with different manufacturing uses, localities, qualities, butterfat tests, 

 seasonal production, and other factors. Further, it should be clearly under- 

 stood that this normal differential or pai-ity equivalent is not itself a parity price 

 but rather an administrative determination of an operating differential which 

 is subject to revision as additional data become available or as experience 

 indicates that the same purposes might better be achieved by calculating and 

 applying a revised differential. 



Support of market prices of dairy products, on which prices to producers are 

 based, appears to be the available practical method of supporting producers 

 prices in 1949. In carrying out such actions, however, it may be only feasible 

 to support the general level of manufacturing milk prices. Consideration must 

 be given to the practicability of handling and disposing of different products and 

 to the importance of possible adjustments from time to time in the relative prices 

 of milk in differentuses to encourage needed changes in such uses according to 

 market supplies and demands for the products. 



It is estimated that strengthened prices of nonfat dry milk solids and current 

 prices of cheese, evaporated milk, butter and other dairy products will reflect 

 an average level of manufacturing milk prices at least equivalent to the level which 

 has been administrativeh' determined to reflect the proper relationship of manu- 

 facturing milk to 90 percent of parity for all wholesale milk. If additional infoLina- 

 tion should indicate that this is not the case, the Department will be prepared 

 to take further action to support manufacturing milk prices. 

 Sincerely yours, 



Charles F. Brannan, Secretary. 



