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APRIL 1 9 5 5
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FEDERAL RESERVE
B A N K OF
PHILADELPHIA
: A SOURCE OF WEALTH
cow s e a t grass a n d give m ilk. O rig in a lly d e sig n e d to
the d a iry cow has been “ sou pe d u p " so much th a t
m ilkers a n n u a lly p ro d u c e m ilk 1 2 to 15 tim es th e ir
's g o o d fo r some p e o p le , b a d fo r others.
CURRENT TRENDS
A re-ch eck o f c a p ita l s p e n d in g a n d in v e n to ry p la n s shows th a t
firm s in this a re a have m ade changes since Septem ber. C a p ita l
s p e n d in g has been revised u p w a rd ; a n d firm s seem m ore in clin e d
to increase in v e n to ry b u yin g .
b usin ess r e v ie w
Milk is in a muddle. Farmers gripe about the
low prices they get for milk, yet dairy farmers
are better off than most other farmers in Penn
sylvania. Consumers gripe about the high prices
they pay for milk, yet it is much cheaper and
more fun to get your minerals and vitamins out
of a milk bottle than a pill bottle.
The United States is knee-deep in a sea of
milk. Ohio milk spills across the border into
Pennsylvania where it commands higher prices
under state control. Some milk from Pennsyl
vania flows into the New York market where
there is a super-surplus. Some New York, Jer
sey, Delaware, and Maryland milk also flows into
Pennsylvania. Almost everywhere there is too
much milk.
In New Jersey, the Governor threw out retail
price-fixing of milk. In Oregon, the voters did
likewise. In Memphis, a milk price war broke
out. In Wisconsin, the biggest dairy state, the
senior Senator called for a great and mighty
milk research program like the wartime “Man
hattan District Project” that built the atom
bomb.
In Washington, D. C., the Secretary of Agri
culture sits on top of a huge mountain of butter
about 250 million pounds high. What a slippery
seat to be sitting on! Congress requires him to
buy butter for more than it is worth, and all he
can do is sell it abroad for less than it is worth
here or give it away. Meanwhile the country’s
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cows are busily chewing their cud—which makes
more milk, more butter, more cheese, and more
headaches for the Secretary of agricultural sur
pluses.
CONSIDER THE C O W
Of all groups associated with the dairy industry,
only the cow looks happy. Yet, her entire life is
regulated. She is robbed of her children a few
days after they are born. She is scientifically
bred, dietetically fed, mechanically milked, and
romantically bilked. As soon as she is over the
hill as a good milker, she is sent to the butcher
to be made into hot dogs and bologna, and fer
tilizer. Many of her offspring are slaughtered
for veal or “chicken salad.” In death as in life
she serves her masters. What a boon to mankind
is the dairy cow!
H er habits
The cow stands or lies in the meadow, chewing
her cud in summer. She lies or stands in the
stall chewing her cud in winter. In the spring
and in the fall, anywhere at all, she chews the
cud.
Cud is grass. Grass regurgitated from the
cow’s storage stomach is chewed and chewed
without benefit of an upper plate for processing
in her other stomach—the digestive stomach.
Now, there are many different kinds of grass for
which the cow has a scale of preference—just as
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you like some kinds of apples better than others.
Motoring through the countryside, we have ob
served that cows often prefer what grows outside
the fence. Information about grass may be
found in the 892-page Yearbook of Agriculture
entitled “Grass,’" printed in 1948 and available
for $2 from the Superintendent of Documents at
Washington.
In the course of a year the cow drinks tons of
water and eats tons of hay, corn and grass sil
age, grain, and other food. In the course of a
year she produces tons of milk and manure and
perhaps a calf. The milk nourishes man and the
manure nourishes the soil. If the value of all the
cow’s output is greater than the value of all the
input, the farmer wins; if not, he loses.
H er h a b ita t
Cows live in every state of the country because
every state grows grass and every state has milk
drinking people. If grass grew in New York City
and stall rents weren’t so high, the city would be
full of cows! The accompanying map shows
where most of the cows live. Notice how they
like the eastern part of the United States, and
particularly the west shore of Lake Michigan.
Very simple. Most of the people live in the east
ern half of the country, and the eastern half has
WHERE UNITED STATES DAIRY C O W S LIVE
enough rainfall to grow good grass. The heavy
concentration of cows on the western shore of
Lake Michigan is explained by the heavy con
centration of people in the Chicago area, and the
ideal dairying conditions afforded by Wisconsin.
D airying is big business
Over 2 million of the country’s 5 million farm
ers derive all or part of their income from the
dairy cow. Total dairy income runs to $5 bil
lion a year. That’s no small pile of “hav.’’ Com
pare that with the “value added by manufacture”
of the country’s twenty major groups of manu
facturing industries and you may be surprised to
find that dairying outranks about half of them.
The cow kicks in about one out of every six
dollars of gross income of the American farmer.
Dairy products account for approximately 15 per
cent of all retail food sales and 25 per cent of
the nation’s protein diet. The cow “employs” a
lot of people—farmers, dairy maids, veterinar
ians, milk-machinery makers, chemists, tanktruck drivers, pasteurizers, bottlers, butter churners. cheese makers, delivery men, bookkeepers,
price fixers, secretaries, lawyers, auctioneers, col
lege professors, advertising men, and some
hankers.
In the course of a year the country’s cows pro
duce over 120 billion pounds of milk. One way
of visualizing such a huge flow of milk is to say
that if it all descended as the gentle rain from
heaven over the Delaware watershed, the Del
aware would be a river of milk almost down to
the Bay. Milk tonnage is equal to two-thirds our
annual steel production.
THE C O W
IN PEN N SYLVA N IA
Pennsylvania—the Keystone State, the Coal and
Iron State, the Great Industrial State—is also a
great “Cow Commonwealth.” As an industrial
state, Pennsylvania is superseded only by two
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other states—New York and Ohio. In dairydollar income, Pennsylvania is superseded only
by three other states—Wisconsin, New York, and
California. Dairying contributes annually about
$300 million of income to Pennsylvania farmers.
Cows live in every county of the state, includ
ing Philadelphia. Note the overwhelming pre
dominance of cow counties in the accompanying
map, which shows where dairy products consti
tute the leading and the second largest sources
of farm income. Only a half-dozen counties fail
to qualify. Among them you might be surprised
to find Lancaster, the richest agricultural county
in Pennsylvania. Its richness is precisely the rea
son. Lancaster has many good dairy farms all
right, but as a source of farm income in Lancas
ter the cow is superseded by field crops—notably
tobacco—and even the chicken is ahead of the
cow.
Why do so many Pennsylvania farmers go in
for dairying? They know what they are doing
and they have good reasons. First is the prox
imity of big markets for fluid milk, like Phila
delphia, New York, and Pittsburgh. Further
more, Pennsylvania has two dozen smaller cities
of 25,000 to 150,000 people that afford good sec
ondary markets. Another reason is that the cow
supplies a constant source of income. Twice a
day she is milked, and twice a day she yields
revenue. The dairy farmer’s fortnightly milk
ORIGIN OF DAIRY DOLLARS IN PENNSYLVANIA
DAIRYING, PRIMARY SOURCE OF FARM INCOME
IIIUIUH
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d a ir y in g , s e c o n d a r y
OTHER
SOURCE: CENSUS
source
of fa r m
in c o m e
b usin ess r e v ie w
check stands in great contrast with the once-ayear cash income obtained by farmers in the vast
wheat and corn belts of the country. Third, the
cow is an economical producer and a conserver
of the soil. Along with every bushel of wheat or
hundredweight of tobacco sold from the land
goes a lot of soil fertility; but little fertility
leaves the farm in milk cans. The cow converts
roughage like grass and corn silage into milk,
and in the process leaves most of the soil fertility
intact. Moreover, she puts back a lot of soil nu
triment. A thousand-pound dairy cow voids
about 12 tons of solid and liquid manure in a
year. There is nothing poetic about a pile of
manure, but spread over the land it does a lot of
good.
True, dairying is a year-round job and re
quires a lot of labor. You don’t run into any
dairy farmers in Florida in the winter or at
Bar Harbor in the summer, unless they are rich
enough to hire good managers to tend the cows
back home. Cows need constant care.
A PEN N SYLV A N IA DAIRY FARM
The heavy volumes of the United States Census
are fat with figures about agriculture. There,
anyone can read about the number of farms in
Pennsylvania, acreage in farms, the number of
cows, hogs, chickens, horses and mules, and re
lated information. With but a wee bit of re
search through some pages, it is possible to de
termine that an average Pennsylvania dairy farm
is an enterprise of about 147 acres, that it has
approximately 55 per cent of its land in crops,
that the average farm has about 15 cows, 100
chickens, 4.6 hogs, and perhaps a mortgage.
The trouble with an average is that it is a
myth; you can tour the entire state and find no
such farm. No two farms are alike. Near Phila
delphia, farms are likely to have less-than-average woodland; in the northern part of the state,
less-than-average wheat and corn acreage; in
Greene County, more-than-average sheep; and
so it goes.
Instead of looking at an average dairy farm in
the Census, let us look at a real dairy farm in
Chester County. It is along a tributary of the
Brandywine, about 45 minutes by automobile
from Philadelphia. Turning off the secondary
road into a long lane, shaded in summer, you
pass a contoured slope of green corn on the right
and a greener meadow on the left. Tall ever
greens grace the lawn, flanked by a vegetable
garden and a flower garden. The brick house
has an old-fashioned, second-floor porch, and an
abundance of rooms that are roomy. The kitchen
has sliding-door cabinets, mechanical dish
washer, exhaust fan, electric stove, toe-room at
the sink, and a picture-window affording a view
of the rolling countryside. In the living room
are a thermostat and a television. In the base
ment are a shuffle-board, a ping-pong table, and
cupboards loaded with home-canned fruits and
vegetables.
Push-button farm in g
The dairy barn is large, light, and without ac
commodations for spiders. In one bay separated
by a central aisleway is the milking herd of
about 30 Holsteins—black-and-white beauties,
well-formed, heavy milkers. Each stall is equip
ped with individual drinking fountains, salt
block, stanchions, and generous bedding. The
barn gives every evidence of good housekeeping.
To keep a large barn clean is a chore in itself.
Overhead are the pipe lines through which the
milk flows from the teat cups of the mechanical
milkers to the cold wall tank where the milk is
weighed, sampled for butterfat testing, and kept
in cold storage until picked up by the tank truck
which calls daily or every other day. The cold
wall tank is in the milk house; the room is im
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maculate; the cost of contents is considerable.
Colonic and urinary secretions from the cows
in their stalls are absorbed by straw in the gut
ters. The gutters are equipped with a powerdriven, endless chain to remove manure. Period
ically, the attendant pushes a button and the
manure flows out of the barn, drops through an
opening into the manure spreader on a lower
level, to which a tractor is attached to haul the
natural fertilizer right out into the fields daily,
weather permitting. In six minutes the stables
are cleaned without the lifting of so much as a
pitchfork, but the farmer must be adept with the
wrench and oil can.
In another bay are the cows that are tempo
rarily dry. In other bays are the calves and heif
ers. Upstairs are the hayloft and the storage
areas for baled straw and grains. An inevitable
adjunct conveniently located is the silo, contain
ing corn silage or grass silage. The entire layout
is designed to save steps of attendants.
Just as a mother hen is surrounded by her
brood of chicks, so the main dairy barn is sur
rounded by a “brood” of smaller buildings. One
of them may house a flock of laying hens; other
sheds shelter the farm machinery and the ma
chine shop.
Machinery required to operate a dairy farm
consists of a hay baler, a forage harvester, and a
blower to fill the silo. Also a mowing machine,
a rake, and a drill to plant corn. Also a plow
and disc harrow to prepare the soil for plant
ing, a fertilizer spreader, and a sprayer to kill
spittle bugs and other pests that like to eat
the grass before the cows get a chance at it.
In addition there are a combine to harvest grain,
a truck or two, and at least two tractors used
for field work and belt work around the barn.
The biggest and most expensive of these ma
chines are the tractor, the hay baler, the forage
harvester, and the combine. The machinery at
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present-day prices runs into thousands of dollars.
Surrounding the plant is, of course, the land—
120 acres. Some of the land is in grass, some in
oats or wheat, some in corn, and perhaps an
acre or two in vegetables—tomatoes, potatoes or
beans. Home-grown grain supplies straw for
bedding and high-energy feed for the dairy cows.
But very likely the farmer has to buy some addi
tional proteins such as cottonseed meal or soy
bean meal. Milk is of course the principal source
of income, which may be supplemented by the
sale of vegetables and eggs.
Blue ribbons and a G an tt chart
In the milk house on the wall just above the
faucets is an array of neatly framed citations—
signed, sealed, and decorated with blue ribbons.
They are the proof of past performance of the
dairy herd—awards for heavy production of
delicious milk.
On the white wall just inside the dairy barn is
a large chart. It looks like a Gantt chart and it
helps to guarantee future performance of the
dairy herd. Readers who have been through an
automobile assembly plant or through a college
course in industrial management know what a
Gantt chart is. It is a chart that shows at any
moment of time the progress of materials and
component parts on their way through the man
ufacturing process, together with the due date
promised the customer.
The agricultural adaptation of the Gantt chart
shows the farmer all about his dairy herd at any
moment of time. Listed are each cow, her date
of birth, breeding schedule, milk and butterfat
production, number of calves produced, diet, ill
ness if any, etc.
The dairy farmer or his wife should have a
“cow sense.” If it is not inherited, it may take
years of experience and study to acquire. The
farmer who does have it can almost tell how each
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cow feels just by looking at her. If a cow coughs,
the farmer takes her temperature. If it is above
normal, he gives her the required treatment or
calls the vet. Believe it or not, cows get ulcers—
and if the dairy farmer has any cows with ul
cers, he probably gets ulcers too.
“ Cow s a r e la d ie s ”
Also tacked on the wall in the dairy barn is a
sign which reads: “Cows Are Ladies; Treat
Them With Kindness.” To the city slicker, a
cow is a cow; but to the farmer, the cow is an
individual with character, personality, and a
pedigree. She is a lady of royal heritage and
princely progeny. Some cows are peaceful; others
bellicose. Some are happy; others moody. Some
are robust and rowdy; others are sickly and
“shrinking violets.” Be what they may, the farmer
loves them all. And well he may, for each cow
is worth anywhere from $300 to $1,200, depend
ing on whether she is high born or low born.
No bull
Someone has said the bull is half the herd; yet,
you may be surprised that you saw no bull on
the farm. When the dairy farmer has a cow to
be bred, all he does is go to the telephone, call
the local representative of the nearest artificial
breeders’ association and at the appointed time
their representative appears and inserts semen
from a proven sire into the designated cow, for
a modest fee. If it “takes,” the cow declares a
“stock dividend” in due time—nine months
hence. The farmer hopes for a healthy heifer
that will grow up to be a good milker. If it is a
bull calf, he is most likely destined as an early
candidate for the veal market.
Approximately 20 per cent of the country’s
current cow population is so bred. Artificial in
semination is constantly gaining more advocates
for essentially two reasons. Bulls are dangerous,
and at a breeding center the people are better
equipped to handle them than on the farm. The
principal reason, however, is economic. For most
farmers, buying semen is cheaper than boarding
and bedding a bull. The semen can be diluted
to serve more cows. Moreover, with artificial in
semination it is easier to keep infectious diseases
in check and farmers can take advantage of
breeding their cows from better blood lines.
Through Dairy Herd Improvement Association
work, farmers are able to use records in selecting
bulls which make for improved milk production.
When the butterfat lines of a bull’s daughters
compare unfavorably with the butterfat lines of
their mothers, his days are over and he must
make room for a bull whose daughters do better
than their mothers in milk and butterfat yield.
A pag e from a cow journal
The last stop of the journey around the dairy farm
is in the office. Seated in the visitor’s chair, we
asked for information: “Is it true, as almost every
body says, that the dairy farmer is in a tight
squeeze—a squeeze between stubborn costs and
declining milk prices?” Opening his journal, the
farmer read from the 1954 record. It was quite
a revelation and went as follows:
Cash Income
Sale of milk........................................$22,000
Sale of grain and straw.................... 6,000
Total sales................................. $28,000
Expenses
Artificial breeding .......................... $
Milk hauling.....................................
Veterinary servicesand medicine. . .
New equipment.................................
Fertilizer ...........................................
F eed ...................................................
Insurance .........................................
200
1,600
700
4,000
2,500
2,000
300
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Gas and oil......................................... 1,400
Seed ................................................... 600
Electricity ......................................... 960
Telephone ......................................... 100
L abor................................................. 6,300
Car and truck repairs....................... 360
Miscellaneous supplies and repairs. . 2,000
D.H.I.A. dues ................................... 200
Total expenses........................... $23,220
After deducting expenses from income, it doesn’t
look like a get-rich-quick type of business. True,
some other sources of income are not included,
such as receipts from the sale of eggs, perhaps
some vegetables, and also products consumed on
the farm; but so are some expenses missing, such
as taxes, family labor, and interest on investment.
The capital account of a dairy farm looks some
thing like this:
Investment
Land and buildings........................... $50,000
Cattle ................................................. 18,000
Machinery ......................................... 12,000
Total ..........................................$80,000
The man-power used to operate this farm is the
owner, two hired men, and a boy. The owner ad
mitted that he might be just as well off financially
if he sold the farm and invested the proceeds in
Government bonds; but farming is more fun than
sitting in a chair clipping coupons. Moreover, the
owner knows farming, likes farming, and wants to
do something creative.
Not all of Pennsylvania’s 43,000 dairy farms
are like the one we just visited. This is one of the
better farms. There are vast differences in produc
tivity from one farm to another, and wide dif
ferences in managerial ability from one farmer
to another. This is shown by the records of the
Dairy Herd Improvement Association. Latest rec
ords of the D.H.I.A. show that some farmers have
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herds in which individual cows produce $426
worth of milk above feed costs, in contrast with
other herds where the value of milk production
per cow is only $120 above feed costs. See how
much difference good management makes—and
of course breeding good cows is part of manage
ment.
The d a iry farm as a business e n te rp rise
Running a dairy farm is somewhat like running
a shoe factory or a steel mill. The principal pro
ductive unit is, of course, the dairy herd—analo
gous to a battery of open-hearth furnaces in a
steel mill. To produce the maximum amount of
quality steel, the steel-mill operator must feed into
the furnaces the right kind of raw materials on
schedule. Similarly, to produce efficiently the
maximum amount of quality milk the dairy
farmer must feed his dairy herd the proper raw
materials on schedule. That is why he places so
much emphasis on production of good roughage
as a basis for his entire feeding program. Like the
steel-mill operator, the dairy farmer is also a
meticulous keeper of records so that he knows at
all times the relation between input and output.
Like the steel-mill operator, the dairy farmer
has a huge capital investment and heavy overhead
costs. Consequently, it behooves him to get the
greatest possible production to keep his unit costs
of production as low as possible. Therefore, the
dairy farmer is always watching each cow to make
sure that she is worth her stall rent. The alert
dairy farmer is constantly culling his herd, which
means that if the productivity of the low pro
ducers cannot be improved beyond a certain point
the cows must go.
The average Pennsylvania dairy cow produces
better than 6,000 pounds of milk and almost
250 pounds of butterfat a year. That is about
1,000 pounds of milk and about 30 pounds of but
terfat better than the average for all dairy cows of
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the country. But the Pennsylvania record is noth
ing to brag about. In New Jersey, Rhode Island,
California, and eight other states, cows do con
siderably better than Pennsylvania cows.
The progressive Pennsylvania dairy farmers, of
course, do much better than the average. Cows
that fall below 300 pounds of butterfat go to the
butcher shop. That’s why there is never a scarcity
of hot dogs and hamburgers. As a matter of fact,
abbatoirs and fertilizer factories get too few cows;
if more low producers were culled, the chronic
surplus of milk might be reduced.
How much milk and butterfat a cow produces
depends primarily upon two things. First, the
cow’s heritage and, second, care and feeding.
Occasionally, you run into people who are very
proud of their family heritage and coat-of-arms.
You should see the bovine “coat-of-arms” and
pedigrees of some Pennsylvania cows.
Meet cow No. 691,881, the Queen of the Pas
ture, a Guernsey. She made eight consecutive
records in eight 305-day years for producing milk
in excess of 12,000 pounds, with butterfat in ex
cess of 600 pounds. In her prime she could have
been sold for several Cadillacs, but her owner
loves cows more than Cadillacs. Her name is
King’s Aprodite Mt. Ararat, which means she was
sired by Caroline King. Her mother was Jethro
Pomara. Her grandfather was Cherub’s ‘King
Jethro. She was born on July 24, 1941 and pro
duced eight daughters in eight years—every one
a good milker. One of her granddaughters pro
duces over 50 pounds of milk daily. [Editor’s
note: That’s almost 25 quarts—enough to supply
all the families on our street.]
King’s Aprodite lives on a farm in Lancaster
County. She is still bearing calves and still a
good milker despite her advanced age—compar
able to 90 years among humans. She occupies a
separate pen where she can roam at her pleas
ure. “That cow,” said her owner, “will never go
to the block; when she dies she will be buried
right there.” Now, that is not good economics, as
her owner knows very well, but there are times
when sentiment rises above economics.
In at least one major respect, the analogy be
tween a steel mill and a dairy farm breaks down.
The steel-mill operator hires a crew of specialists—
one to do the purchasing, another to do the sell
ing, and still others with such functions as main
tenance, accounting, quality control, personnel,
etc. On the dairy farm, however, the owner usu
ally performs all these functions himself. He is
accountant, machinist, purchasing agent, produc
tion manager, laboratory technician, midwife,
and chairman of the board.
B igger herds
Dairy herds are growing larger in Pennsylvania.
Today, herds of twenty or more cows produce
40 per cent of the milk supply. This is almost three
times the proportion that herds of this size con
tributed 25 years ago. At that time almost half of
the milk production came from herds of nine cows
or less.
It is the pressure of overhead costs that makes
for larger herds. Every farmer is of course acutely
aware of his out-of-pocket costs, like the money
he must spend constantly for gas and oil, electric
ity, and the hired man’s wages. The good farmer,
however, is equally conscious of his overhead
costs like depreciation, insurance, and interest on
his investment. Costs like these are reduced greatly,
per hundredweight of milk produced, by increas
ing the size of the herd. Many a farmer has found
it profitable to add more cows to his herd, reduc
ing the grain acreage, and increasing the acreage
in hay and pasture. By so doing, two acres can be
released to provide roughage for one more cow.
Even labor efficiency is increased by larger herd
size. To climb the silo to throw down silage takes
the same time for thirty cows as it does for twenty.
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b usiness r e v ie w
Greatest increases in labor efficiency are possible
with the shift from a one- to a two-man farm
enterprise. Beyond a four-man business no in
creases are apparent, according to studies by the
College of Agriculture of the Pennsylvania State
University.
A large farm can afford re-layout of the barn,
milking machines, drinking fountains, automatic
barn cleaners and field machinery. If overhead
costs of a forage harvester are $2 an acre when
used on 20 acres, they would be only Si an acre
on 40 acres. The high-cost operators are usually
the small operators. There is still room for lots of
improvement because it is estimated that about
40 per cent of Pennsylvania farmers have herds
too small to warrant equipment and facilities
needed for most efficient operation.
Som e stran g e econom ics
Ideal size of herd is no guarantee of success in
dairy farming. Neither is contour plowing, or
liming the soil, or artificial insemination, or cold
wall tanks, or D.H.I.A. membership, or mechani
zation, or cost accounting, or good marketing. All
of these together do not necessarily spell profit.
The successful dairy farmers are those who are
SEASONAL PRODUCTION OF MILK IN PENN SYLVAN IA
(f942-5i Average)
PER C E N T
10
better than their competitors. When the cost-price
squeeze squeezes harder, one may seek refuge
by culling his herd; another may find the solution
in modernizing his equipment; another may find
a better outlet for milk. Still another may dig a
trench silo and add a few more cows to his herd,
thereby utilizing land and labor more effectively.
Curiously, the individual farmer’s best immedi
ate solution to the problem of surplus milk is
very often to contribute more to the surplus.
Sounds crazy, but you can’t blame a farmer when,
by using his wits, he finds that his own best solu
tion to the overflow of milk is to contribute still
more to the flow. His heavy fixed costs drive him
into more milk production to reduce his cost per
hundredweight.
In Pennsylvania, dairy farms are becoming
fewer and larger. Over the years, the trend seems
to be—get bigger or get out. This is reflected in
the appearance of more and more milk tank trucks
on the highways and fewer 40-gallon milk cans for
pick-up from roadside platforms.
THE FLO W O F M ILK
W hen it flows
Although cows are milked daily, the flow of milk
is not uniform throughout the year. The flow of
milk is always greater in the spring than in the
fall, as shown in the chart.
The heavy springtide is not peculiar to Penn
sylvania alone. It is the time of year when dairy
herds emerge from the barns and graze on the
fresh green grass newly sprung in the meadows.
The change in diet stimulates a greater flow of
milk.
Another reason for the heavier flow of milk in
the springtime is the longstanding practice of
breeding cows for spring freshening. This prac
tice is rooted in more than habit and tradition.
Calves born in the spring are greeted with warmer
weather during critical days of infancy and thus
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have a better chance of survival than calves born
in the fall. The modern dairy farmer, however, is
much better equipped in our time than was his
grandfather. Consequently, smart farmers now
go in more for winter breeding and fall freshen
ing, which has the advantage of boosting the flow
of milk in the fall when prices are high and reduc
ing the flow of milk in the spring when prices of
milk are low.
How much flo w s?
In 1954, Pennsylvania produced slightly over 6
billion pounds of milk. That is only a small frac
tion of the entire country’s milk output, which
amounted to over 123 billion pounds. Milkproduction trends for the past 30 years in the
United States and in Pennsylvania are shown in
the accompanying chart.
THE FLO W OF MILK IN THE UNITED STATES
A N D IN PENN SYLVAN IA
UNITED STATES
BILLIONS OF POUNDS
PENNSYLVANIA
BILLIONS OF POUNDS
The generally rising increase in production has
come about in response to the naturally growing
numbers of milk consumers. During the past 30
years while the country’s population increased by
almost 50 million, the country’s cow population
increased by only 2 million. Thus most of the
increased milk production was brought about
by the increased production of each herd.
Milk production generally does not change
much from one year to the next, as the chart
also shows. In fact, there is no other major agri
cultural product that surpasses milk in regularity
of output, and that is one of the principal reasons
why so many farmers keep cows, as already
mentioned.
How much milk flows, one might reasonably
expect, ought to depend upon the price—rising
prices, more milk; falling prices, less milk. Rising
prices do bring about increased milk production,
but not overnight. It takes two years or a little
over from the time a heifer is born until she be
comes a milk producer, and there are limits to
increasing the flow of milk from a milking cow
for physiological reasons. A cow can be pushed
only so far. Furthermore, the number of cows
that can be accommodated is also limited by the
number of dairy hands available and, perhaps
more important, the available stabling facilities.
Only in the long run—sometimes a very long run
—will rising milk prices bring about increased
milk production, as they did during the inflation
ary period of World War II. Year-to-year
changes frequently make no sense at all.
Nor is a drop in the price of milk necessarily
followed by a quickly reduced production. Over
head costs continue, and as long as the revenue
from the sale of milk is greater than feed costs,
the principal cash outlay, production is likely to
continue or, in fact, increase. Short-run changes
in the relation between production and prices of
milk often make the law of supply and demand
look cockeyed.
Of course on many farms, milk is just one of
several sources of income. If the price of milk
is falling but the prices of other agricultural
commodities are even less favorable, farmers
will turn to milk production as the best way
out of a bad situation.
11
b usin ess r e v ie w
W h ere it flows
MILKSHEDS IN THE NORTHEASTERN STATES
Pennsylvania is just about in the middle of the
Northeastern dairy region of the country. The
region comprises New England, the Middle Atlan
tic States, Maryland, Delaware, and the Virginias.
The climate, topography, and soils of this
region are particularly well suited to grassland
dairying. The chief economic advantage enjoyed
by dairy farmers in the region, however, is the
density of population or nearness to market. For
those reasons, most of the milk produced here
goes to market for consumption as fluid milk. This
is in contrast with the great North Central dairy
region (the Michigan-Wisconsin area) where a
much larger proportion of the milk goes to market
in the form of manufactured products such as but
ter, cheese, ice cream, evaporated milk, condensed
milk, or powdered milk. Approximately threequarters of the milk produced in the Northeast
goes to market as fluid milk in contrast with only
one-third in the great North Central dairy region.
Proximity to large markets for fluid milk en
joyed by Pennsylvania dairy farmers has as its
chief advantage the higher prices these farmers
get for their milk in contrast with the lower prices
paid for milk that goes into manufacturing chan
nels. Pennsylvania farmers, in contrast with
dairy farmers of the North Central region, how
ever, face an offsetting disadvantage in higher
feed costs. In the Northeastern region, approxi
mately one-fourth of the concentrate dairy ration
is home grown as compared to about three-fourths
in North Central dairyland.
Milk generally flows to the nearest market that
offers the best price. There are exceptions to this
generalization, however. For example, each state
has its own health regulations hnd there are dif
ferences in the health regulations as between
metropolitan centers within a state.
As might be expected, Philadelphia and Pitts
burgh are the two largest fluid-milk consuming
markets in Pennsylvania. A milkshed is an area
from which a major consuming market draws its
milk. The Philadelphia milkshed runs from the
Atlantic Coast in New Jersey westward as far as
Altoona. Delaware and Maryland dairy farmers
also ship into the Philadelphia market because
these states are a natural part of the Philadelphia
milkshed.
Milksheds are not exclusive territories. For
example, the New York milkshed comprises a
large part of Pennsylvania and overlaps the Phila
delphia milkshed in part. Similarly, the Philadel
phia and the Baltimore milksheds overlap in part.
12
b usin ess re v ie w
In fact* there are some areas in southeastern Penn
sylvania where some dairy farmers ship to New
York, their neighbors ship to Philadelphia, and
still other neighbors ship to Baltimore, as the
accompanying maps show.
Fluid milk must get to market in a hurry be
cause it is highly perishable. Just where an
individual farmer will ship his milk depends upon
which markets will accept his milk, what price he
CURRENT
can get for it, and what it costs to haul it there.
That’s why milksheds are a cost-price-sanitation
gerrymander.
As a source of wealth, the cow has few if any
peers among the creatures that roam the face of
the earth. In the foregoing analysis, little was said
about the consumpion of milk and its products.
The well being of the cow and her customers is
another tale to be told in a later installment.
TRENDS
A Re-Survey o f Spending Plans o f Philadelphia Manufacturers
Manufacturers in the Philadelphia metropolitan
area are somewhat more optimistic about their
1955 capital expenditures than they were six
months ago. And in that other area of business
spending—inventories—manufacturers say they
are more disposed to step up purchases than they
were last September. Such, in brief, are the con
clusions of a re-check of local firms which, in our
original survey of business spending plans, ac
counted for almost half of the dollar outlays for
plant and equipment contemplated this year.
C a p ita l o u tlays
Last September, producers in this area told us
they planned to spend $257 million on new plant
and equipment during the calendar year 1955.
Compared with actual outlays made in the preced
ing twelve months, the estimate indicated a de
cline of about 20 per cent. Past experience with
our studies of capital spending programs has re
vealed that manufacturers frequently overstate
the declines and understate the increases. The
over-all improvement in business conditions that
began last fall made us wonder what the impact
might have been on the pattern of business spend
ing originally planned for this year.
M ore firm s a r e ta k in g an
optim istic view p o in t
At first glance, we are impressed with the appar
ent firmness of last fall’s prediction as to the
probable trend of capital spending in 1955 as
compared with that of the preceding year. Ap
proximately 85 per cent of the firms called in
the spot check just completed said that spending
still would proceed in the same direction as indi
cated last fall. But a closer look at the latest
results showed that the percentage contemplating
increases had risen from 44 per cent to 47 per
cent. Instead of the 54 per cent originally expect
ing decreases in capital outlays, only 47 per cent
continued thinking in these terms. In the case
of firms planning to maintain their rate of
spending in 1955, the proportion has risen from
2 per cent to 6 per cent.
. . . and d o lla r-w ise , total spending
m a y in cre a se
Over-all, on the basis of the sampling in our re
check, it seems probable that manufacturers in the
Philadelphia metropolitan area may spend from
10 to 15 per cent more for new plant and equip
ment than last September’s programs called for.
13
busine:
iview
ESTIMATED CAPITAL EXPENDITURES
PER CENT OF REPORTING FIRMS
this year’s capital spending. Producers of electri
cal machinery and lumber and furniture did not
make any changes. In transportation equipment
there was a sharp upward revision, prompted no
doubt in some part by the excellent reception ac
corded new-model automobiles after their intro
duction last fall. Small increases appeared in the
case of fabricated metals and non-electrical ma
chinery. Declines included such lines as primary
metals (where productive capacity is apparently
adequate for the present), instruments, and stone,
clay, and glass products.
In ven to ry spending
INCREASE
MAINTAIN
DECREASE
Of course, as compared with actual spending in
1954 this would still mean a decline. Upward re
visions in 1955 spending estimates are somewhat
more numerous among lines making nondurable
goods than among those producing durables.
Measured in dollars, the percentage increases over
original estimates are largest for the nondurable
goods group of industries.
Som e lines h a v e m ad e la rg e revisio n s
Although latest thinking in terms of the direction
that spending may take has not changed so much
among individual lines, the magnitude of both the
increases and decreases in some cases is surpris
ing. Among nondurable goods industries the food
and tobacco lines were about the only ones not
making a substantial change in original spending
estimates. In rubber and leather goods, petro
leum and coal products, chemicals, and paper,
upward revisions were pronounced. The apparel
and textile industries lowered their expectations
considerably, and a moderate decrease was in
dicated for the printing industry.
The durable goods industries, with the notable
exception of transportation equipment, made rela
tively small changes in their original estimates of
14
In the recent past, the influence of inventory
spending on business conditions has been empha
sized time and again. This emphasis has led many
to attempt to use inventory plans in forecasting
business activity, the idea being to get business
men to reveal their inventory plans and build
from that a forecast of general business behavior.
This Bank, for example, has included questions on
inventory policy in its capital expenditures survey
for the past two years. The re-check this year on
our survey reminds us that inventory plans
respond to as well as influence the course of busi
ness activity.
Last September, we asked manufacturers in
the Philadelphia metropolitan area about their
inventory plans for the next three months. At that
time by far the largest number of firms said they
were not going to change their spending plans,
seasonal considerations aside. But about three
times as many firms that expected a change said
they would decrease inventories as expected to
increase them. Now let us see if these plans proved
a dependable guide to actual spending policy.
W h a t a ctu a lly h ap p en ed
Our re-check indicates about 83 per cent of the
firms actually did what they said they were going
b usin ess re v ie w
to do. This would seem to say that the September
survey was a good guide. Unfortunately, this was
not entirely the case. Our re-check confirms the
fact that most firms were going to maintain stocks,
but indicates that instead of more decreasing than
increasing, just the reverse actually occurred.
As the chart below shows, 79 per cent of the
firms said in September they would maintain
stocks through December; about 70 per cent actu
ally carried through with this policy. Only 5 per
cent said they were going to increase buying, yet
18 per cent did step up purchases. As compared
with the 16 per cent who said they would trim
inventories, just 12 per cent actually cut back
purchases. So that actually more firms increased
inventories (18 per cent) than trimmed inven
tories (12 per cent).
Now let us examine the figures a little more
closely paying particular attention to those firms
that didn’t do what they said they were going to
do. Of the firms that changed from their an
nounced policy, 78 per cent increased inventories.
For 13 per cent, the change was to maintain inven
tories, and in just 9 per cent of the cases, firms
changed to decreased spending.
W h a t m a y h app en
The substantial shifts in the direction of inven
tory spending that occurred in the SeptemberDecember period shows us that manufacturers’
inventories must be interpreted with care. Our
re-survey indicates we have about the same num
ber of firms saying they are going to increase
stock buying in the March-June period as said
this in September. This reply also means we have
fewer firms saying they are going to increase
inventories in March than actually did increase
inventories after September. In the other col
umn, we have fewer firms now saying decrease
than said decrease in September. About the same
proportion of manufacturers say decrease now as
actually followed that policy in the SeptemberDecember quarter.
With recent experience in mind, it is difficult to
draw conclusions on future behavior from this
survey. It does seem safe to conclude, however,
that manufacturers are more inclined to increase
inventory buying than they were last September.
Business spending fo re ca sts a re
INVENTO RY SPENDING
hard to m ak e
PER CENT OF REPORTING FIRMS
MAINTAIN
INCREASE
DECREASE
Almost any manufacturer will tell you that making
forecasts as far ahead as one full year is a mighty
tricky job. In fact, making predictions for even
six months can be hazardous, as some of our find
ings in this re-survey indicate. When it comes to
appraising inventory policies, forecasts of only a
few months sometimes lack firmness. As was
pointed out in our November 1954 Business
Review: “No major part of spending changes di
rection faster or oftener than inventory invest
ment.” But taking a look ahead does serve the use
ful purpose of indicating the trend of current
thinking. This, in turn, has a direct bearing on
the economic climate in which businessmen may
find themselves operating.
15
F O R THE R E C O R D . . .
IN DEX
2 YEARS
AGO
YEAR
AGO
Factory*
Third Federal
Reserve District
Un ted States
Per cent change
SUMMARY
February
195 5 from
mo.
ago
year
ago
Employ
ment
Per cent change
2
mos.
1955
from
year
ago
February
195 5 from
mo.
ago
yea'r
ago
E M P L O Y M E N T .A N D
IN C O M E
Factory employment (T o ta l). . .
TRADE**
Department store sales............
B A N K IN G
( A ll member ba(iks)
Deposits.......................................
Loans............................................
Investments..................................
U.S. G ovt, securities..............
O th e r .........................................
Check payments.........................
0
+2
5
+23
+ 1
- 4
+24
- 2
-
5
3
-
6
-
2
+
2
- 3
+
0
1
0
0
-1
-2
+
+
4
6
+
+
-3
-1
-6 t
5
1
+16
+
+
+
+
+
+
7t
+3
+6
+4
+ 7
+33
+18
+ 6
+33
+11
+1
-
1
-
2
-5
-2
+
+
3
3
+
6
+
+
5
6
+ 8
+ 7
+13
+ 5
+
+
8f
-1
+1
-3
-3
+1
-8
0
ot
0
0
5
7
6
2
+17
ot
‘ Based on 3-month moving averages.
“ A d ju ste d fo r seasonal va ria tio n .
16
ot
t2 0 C ities
{P h ila d e lp h ia
-
1
Check
Payments
Payrolls
Stocks
Sales
CHANGES
Per cent
Per cent
change
change
February
February
1955 from 1955 from
Per cent
change
February
1955 from
Per cent
Per cent
change
change
February
February
195 5 from 195 5 from
year mo.
ago ago
year
ago
-1
-1 2
+10
+5
-6
-1 2
+
2
-2
+1
-1
-1 4
0
-6
0
-4
R e a d in g ..........
+1
-3
+1
S cranton. . . .
+2
-2
+4
T re n to n ...........
year
ago
mo.
ago
A lle n to w n . . . + 2
-3
+3
H a rris b u rg . . . + 1
-7
Lancaster. . . . + 1
P h ila d e lp h ia . .
year mo.
ago ago
year
ago
mo.
ago
-
7 +17
0 -
4 +
4
-
2 +
2 +10
0 -
5 +
8
+1
-
8 +
1 +
5 -
7 +10
-1
+
7 +
5 + 10 + 1 3 0
0 +
2 +
9 +12 -3 2
-2 1
1 -1 2
-1 7
-
7
4 -1 3
-
7
9 +
8 +
3
6
6
9
7
+
+
+14
+ 6
PRICES
C onsum er....................................
Departm ent Store
LOCAL
2
mos.
1955
from
year
ago
mo.
ago
O UTPUT
M anufactu rin g pro d u ctio n . . . + 1
Construction c o n tra cts*........... + 2
C o a l m ining................................ + 1
FEB.
1955
+2
-4
+5
+8
-
8
W ilk e s -B a rre
+1
-4
+1
-6
-
6 +
W ilm in g to n . .
+1
-2
+3
+6
-
7 -1 0
0
-9
+3
-9
-1 0
+
5 +17 +35
0
-
1
Y o rk .................
-
7 -
2 +
‘ N o t restricted to corp o ra te limits of cities but covers areas o f one or
more counties.
@FedFRASER