18 MASS. EXPERIMENT STATION BULLETIN 365 



price making purposes, the determination of prices is relatively simple. The price 

 of milk going into other than fluid channels, i. e., surplus or Class II, is based on 

 its market value in cream or butter. The Class II price is a formula price and the 

 formula has been modified as the occasion seemed to warrant. 



The pricing techniques have given little uniformity to the spread between 

 prices for fluid and for surplus milk. Any relationship between them was mechan- 

 ically controlled. As the two series got seriously out of line, one of the following 

 methods was used to restore the balance: 



(a) A change was made in the method of computing the surplus price; or 



(b) An adjustment was made in the price of Class I milk. 



It has probably been the experience of the market that the corrections were not 

 introduced until a certain amount of damage had been done to the market. 



The Relationship Between the Price for Class I and Class II Usage 



Two types of important relationships prevail between the price for milk dis- 

 posed of as Class I or as Class II. The seasonal relationship is the basic one to be 

 expected during a production period. The cyclical or long-time relationship would 

 indicate the trend of the relationship but more significantly the degree or efficiency 

 with which the pricing mechanism has been developed or employed. 



Examination of the Fluid-Surplus^ price ratio in the 181-200 mile zone of the 

 Boston milkshed indicated an upward trend during the 15-year period 1921-1935 

 inclusive; a trend which was very sharp during the 5-year period 1931-1935. (See 

 table 8 and figure 6.) Whether the changes in the ratio were due to adjustments 

 in the Class I price or in the Class II price or both should not be ignored. The 

 significance to be derived from a study of the ratios is, however, the constantly 

 widening spread between the Class I price and the Class II price. The period 

 during which a high ratio prevailed was the period of greatest market instability. 

 Whether the price mechanism was faulty or was unwisely employed is debatable. 

 The results, however, have been unsatisfactory. 



Since the ratio between the prices is a good measure of the relative spread 

 between them and also of its stability, it would seem a logical step to use this 

 ratio in determining the Class II price; particularly since the market value of 

 native cream is appreciably greater than that of western, on which the market 

 is based. The ratio should conform to seasonal considerations, and be lower in 

 the short season than in the flush. Adapting average market experience of the 

 past 15 years, the ratio periods would be November to April inclusive and May 

 to October inclusive. The ratio showed only slight monthly variation during the 

 flush months, and with the exception of January, only slightly greater variation 

 during the short months. The two periods were so very definitely marked off 

 that there could be little question as to the desirability of using them. 



•^Based on data in N. E. M. P. A. handbook. Fluid— SurpIus = Class I— Class II. 



