Dec. 15, 1924 
Feed Cost of Milk Production 
599 
the years 1914-1916, in the Illinois 
Chicago district. The average fat 
test was 3.56 per cent. The conditions 
of production were quite similar and 
entirely comparable to the conditions 
of the Holstein cow testing associations 
referred to in Table IV. Using the 
data of Ross for 1914-1916 the average 
cost of digestible nutrients was $0.0153 
per pound. This figure may be taken 
to represent the price level of feeds at 
the time of Pearson’s investigation and 
on this basis K = $0.0153 Kt, or, taking 
K t from Table IV, K= $0.0153X0.116 
= $0.00177 Substituting these values 
in the feed cost equation we have 
FC = $0.00177 (2.66+3.56) = $0,011. 
That is, the feed cost calculated by the 
equation is $1.10 per hundredweight, 
corresponding quite closely to Pearson’s 
cost-accounting data, $1.05 per .hun¬ 
dredweight. Pearson’s silage evalua¬ 
tion is lower than that used by Ross. 
There is also the question as to the 
cost of nutrients from pasture in 
Pearson’s data (pasture is not included 
in Ross’s data). On the whole, the 
feed-cost equation above may be re¬ 
garded as in accord with Pearson’s 
cost-accounting data. 
COSTS OTHER THAN FEED 
The data on feed costs as interpreted 
above are, to the writer’s mind, quite 
conclusive. The costs other than feed 
constitute a separate problem to be 
solved by cost-accounting methods 
rather than by biological methods. 6 
Until the economists help us out in the 
matter it may be assumed tentatively 
without any apparent gross error that 
the other costs are roughly proportional 
to feed costs. This assumption does not 
imply that there is a constant ratio of 
feed cost to total cost, but merely that 
under conditions where, for example, 
feed cost is 60 per cent of the total 
cost of milk production for the 3 per 
cent cow it will be 60 per cent also for 
the 4 per cent cow under the same 
conditions. As between breeds, espe¬ 
cially, there are a number of cost 
factors directly or indirectly involved, 
such as cost of milk hauling, beef value 
of cow, veal value of calves, etc., but 
these are all minor items. If we may 
assume that the total cost of milk pro¬ 
duction is proportional to feed cost, so 
far as affected by fat 'percentage , it is possi¬ 
ble to make some comparisons with 
reference to the price differential for fat 
^percentage in whole-milk markets. 
THE DIFFERENTIAL IN WHOLE- 
MILK PRICES 
The great bulk of the whole-milk 
market is for city supply. Judging 
by the August, 1923, u Fluid Milk 
Market Report for the United States” 
of the United States Department of 
Agriculture, 7 the markets of about 11 
per cent of our cities still retain the 
flat-rate basis of payment, while 89 per 
cent make some sort of distinction or 
differential in price according to the 
fat test of the milk. Both the pro¬ 
ducer and the buyer are interested in 
this connection in the effect of fat per¬ 
centage on cost of production. The 
buyer’s price is an expression of de¬ 
mand, and the producer seeks to ad¬ 
just his production to that demand, 
as expressed in price, which offers the 
largest profit. If the buyer wishes 
milk of a certain fat test he will dis¬ 
criminate in price against milk of 
another fat test out of proportion to 
the cost of production. On the other 
hand, if he wishes to encourage equally 
the production of milk of various fat 
tests he will pay in proportion to the 
cost of production, as affected by per¬ 
centage of fat content. 
According to the equation developed 
above, the cost of production, so far as 
affected by fat percentage , may be ex¬ 
pressed as a function of the fat per¬ 
centage, and likewise the difference in 
cost of production, corresponding to a 
certain difference in fat percentage, 
may be expressed as a function of the 
cost of production of milk of any defi¬ 
nite or base fat percentage. If we take 
3.5 as the base fat percentage and a 
“ point” or 0.1 as the difference in fat 
percentage, then the difference in cost 
5 
is the cost of 3.5 per cent milk. That 
is, if the price differential is propor¬ 
tional to the cost differential it will 
be 1.6234 per cent of the price of 3.5 
per cent milk. In like manner, it will 
be 1.7668 per cent of the price of 3 per 
cent milk; 1.5015 per cent of 4 per 
cent milk; or 1.3055 per cent of 5 per 
) 
C 3 . 5 , where C 3 .* 
per point is 
0 . 1 
"66 + 3. 
6 Some may regard the whole matter as a problem for the cost accountant alone. One can scarcely doubt, 
however, that the effect of fat percentage on cost is a material factor in the dairyman’s profit, and has been 
especially so in the past when the flat rate for whole milk was so generally in effect. But for some reason 
the economist seems to have passed by this item in his rather detailed analyses of farm management and 
profits. 
7 United States Department of Agriculture, Bureau of Agricultural Economics, Market 
News Service. Fluid milk market report for the United States, August, 1923. 4 p. 1923 
[ Mimeographed]. 
