Return from Surplus Sales 



The supply of milk moving into fluid use is controlled by the dealers to 

 meet market needs. In New Hampshire the purchase and sale prices are 

 controlled under the State Milk Control Act. The price spread available 

 to dealers, therefore, is about the same irrespective of size. Any gains by 

 one dealer size group relative to another will depend on its costs. Given the 

 same price margin, then the lower cost dealers will gain greater net returns 

 than the higher cost operators. 



The price spread available to dealers from the sale of surplus milk, how- 

 ever, will depend on the form in which the milk is sold. The use of surplus 

 in cream only, for example, will provide a lower margin than when sold 

 as cream and cottage cheese. Variations in supply, however, mean that the 

 dealer must continually change his production and sales pattern if he ex- 

 pects to maximize his returns. For any particular dealer an increase in the 

 surplus to be handled, when he is operating on a set utilization pattern, 

 will generally force him to sell an increased quantity of his surplus on a 

 low return market. This will automatically reduce his spread. Such sales 

 are made on "irregular" markets. The variation in price spread in fluid or 

 Class I markets and in Class II or surplus markets is given in Table 11. 

 The relatively lower returns on Class II products is apparent. 



Table 11. Price Spread Per Quart from the Sale of Purchased Fluid Milk and 

 its Derived Surplus Products as Based on the Typical Utilization of New Hamp- 

 shire Milk Dealers, by Size Groups 



An example of the returns obtainable from milk sold as different types 

 of by-products is given in Table 12. It is apparent that the higher returns 

 are received when the skim by-product is retained in fluid form or is used 

 for cottage cheese in addition to the sale of cream. This assumes there is a 

 market for the skim milk. Once this assumption is removed, however, and 

 the skim milk is dumped or otherwise disposed of, then the margin to 

 dealers from handling surplus is greatly reduced. 



A Restatement of the Problem 



Based on our previous analysis, the milk purchased by dealers in excess of 

 that sold on fluid markets results in waste resources, for which there may 

 be some economic solution. The profit or returns obtained by dealers will 

 depend on their managerial ability, on their particular location, and on the 

 utilization pattern followed. 



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