COMPILATION OF MARKET DATA

The assembly and use of market data has not generally been a function of these organizations. Three, however, issue a monthly bulletin to members in which market conditions and other information regarding the business of the association are included. Likewise, except at Des Moines, general educational work in cooperation has usually been done on a small scale, if at all. News bulletins, special letters, route meetings, district meetings, and annual meetings provide the important channels for such educational work. Most of the associations agree that more attention should be given to the subject of cooperation, and there is an apparent tendency to expand activities along this line.

OTHER SERVICES

Numerous other functions, usually of a less important nature or performed on a more limited basis, are part of the business of these organizations. Loans or advances are sometimes made to producers and even occasionally to milk dealers; milking supplies and other farm supplies such as binder twine and petroleum products-are often handled at cost. Occasionally an association handles mill feed and assists in the purchase of hay and other farm feeds. The general policy of service to members prevails, but beyond price bargaining and other matters related to negotiating the sale of milk to pasteurizing distributors, the functions performed in some cases are limited.

COST OF SERVICES

Because of the differences in methods used in keeping records, it has been difficult to analyze separately the costs of carrying on the many functions of these associations. A general idea of the disposition of income may be had, however, from a study of a typical bargaining association (table 10).

This association had an income of 4 cents per 100 pounds of milk. Office salaries, including a full-time manager and all the workers necessary to keep detailed records of individual patrons' accounts, was the largest single expense item and amounted to 1.73 cents per 100 pounds or 44.5 percent of the total expense. Two men employed by the testing department checked weights and tests in every dairy every day at a cost of 0.93 cent per 100 pounds of milk handled. Miscellaneous office expense and directors' fees were other relatively important items. The remaining expenses were relatively unimportant and accounted for less than 17 percent of all expenditures. Advertising and donations amounted to only 0.02 cent per 100 pounds.

TABLE 10.-DISPOSITION OF AN INCOME FROM BROKERAGE OF 4 CENTS PER 100 POUNDS OF MILK HANDLED BY A BARGAINING ASSOCIATION, 1935

MANAGEMENT AND ACCOUNTING

THE NUMBER of directors for these 10 associations varies from

5 to 21, distributed as follows:

The term of office is usually 3 years. Elections are staggered so that there is always a majority of old members. All the boards except one meet at least once each month, and special meetings are frequent. The board which does not meet monthly chooses from its membership an executive committee which holds monthly meetings. Eight associations have full-time managers and two are managed by farmer-secretaries. One of the oldest organizations, which was said to have "run itself" in the past, engaged a manager recently. Of the eight full-time managers, six have had no previous experience in the business other than that of having been a producer and having served as a board member-usually as president. One of these

managers and the two farmer-secretary managers are still producers and serve on the board of directors. One manager has had some previous creamery experience and another has had both considerable experience in the business and advanced educational training. Of the present managers, only one was employed prior to 1933. This is partly explained by the fact that four of the associations with fulltime managers were organized since that date.

Double entry accounting records adequate for operating and financial statements are kept by half of the organizations. Records kept by the other associations are sometimes quite inadequate. A monthly operating statement is prepared by all associations handling the producer pay roll and an outside audit is performed by a local auditing firm or individual. Four associations have monthly audits; one, quarterly; and four, annual audits. At Iowa City there is none, largely because the distributors handle the producer pay roll.

Bonds are provided for all officers or employees handling funds; nine of these are commercial bonds paid for by the association. The amount per person ranges from $10,000 down to $1,500.

COMPARISON OF SALES PLANS

IN EVERY market dealers buy milk according to some form of the

use plan, and the class 1 price is now uniformly based on 100 pounds of milk testing 3.5 percent butterfat.18 During 1932, 1933, and 1934 the butterfat differential was usually 3 cents for each 0.1 percent above or below 3.5 percent butterfat content. Since 1934, most associations have shifted to a sliding-scale differential, based upon the value of butterfat in butter. At Des Moines, for example, the butterfat differential varies each sale period with the average price of New York Extra butter during that period. In most other markets the differential changes by one-half-cent intervals. That is, when the price of butter averages between 30 and 35 cents, the differential is 3 or 31⁄2 cents per point; and when the butter price averages between 35 and 40 cents, the differential payment increases by one-half cent.

It is also true that all the class 1 prices are straight bargained prices, that is, remain unchanged except by agreement between producers and distributors. At one time the class 1 price at Sioux City was placed on a sliding scale at a fixed differential over the price of Chicago Extra Creamery butter. By so doing it was hoped to eliminate periodic bargaining of fluid-milk prices. The plan probably had some merit but was soon discontinued because it was found that dealers were making resale commitments on the low summer prices, which extended into the fall and winter. Then when the class 1 price

The association at Sioux City adopted this plan in August 1936. Milk had previously been sold

on a butterfat basis.

advanced, the dealers were placed under a serious financial strain and refused to cooperate with the organization. Apparently, with a more or less fixed resale price, the associations find it more satisfactory not to vary class 1 prices except periodically by agreement.

Information is not complete on the exact manner in which the necessary day-to-day reserves of class 1 milk are paid for. In general, however, the bargaining associations selling milk according to the use plan have no problem with the dealers' day-to-day surplus of class 1 milk, since the use classification is based on actual sales rather than on purchases. For example, returned bottled milk is not considered as a class 1 sale. The plan does make it necessary to audit the distributors' books in order to determine the actual class 1 sales. It is in this respect that many of the smaller associations are at a disadvantage.

While the operating associations of the Des Moines type have no problem of auditing the distributors' books to determine the exact use made of the milk, since only class 1 is sold to distributors as milk, there is a problem regarding the payment for class 1 milk purchased but not sold in fluid form. The allowance of 6 percent of milk purchases at surplus prices, which is made at Des Moines, is probably the most satisfactory arrangement. The Cedar Rapids Association allows "returns" at the butterfat value of sour cream, but some associations reported no allowance for class 1 milk purchased but not sold in fluid form.

In June 1936, the prices per 100 pounds of 3.5 percent fluid or class 1 milk were as follows:

1 Includes 10-cent premium usually paid at Iowa City.

2 Total of 9, since the association at Sioux City was then selling milk on a butterfat basis.

In eight out of nine associations the price varied within the narrow range of $1.85 to $2 per 100 pounds. These prices had prevailed generally for the previous year but represent marked increases over 1932 and 1933. It should be pointed out that the average test of milk delivered (and in many cases the average test of milk bottled) is above 3.5 percent butterfat, so that the prices actually paid by distributors are somewhat above the base prices.

As a general rule the highest prices tend to be associated with the largest markets. These markets also tend to have somewhat more

costly production and sanitation requirements and naturally draw their milk supplies from wider areas.

Where three classes of milk are provided under the use plan of the bargaining associations-the usual situation-class 2 applies to milk used to obtain cream for fluid consumption. Until the fall of 1936, all class 2 prices were variable, were based upon a butterfat formula and were quoted in terms of cents per pound of butterfat. During the fall of 1936 two of the five bargaining associations (at Omaha and Sioux City) changed to a bargained price for class 2 milk, based upon 100 pounds of 3.5 percent milk. The prices were thus placed on the same basis as class 1, but at a lower level.

Among the operating associations, Cedar Rapids and Burlington producers have long maintained bargained or negotiated cream prices. The Cedar Rapids price is optional, between 100 pounds of 3.5-percent milk at the established class 1 price and an equal amount (considering the value of skim) from the surplus plant on a pound-of-butterfat basis. That is, Cedar Rapids not only uses a fixed class 2 price but this is the same as the class 1 price.

The producers at Dubuque, where a surplus plant is operated in combination with the use plan of selling, also changed from a formula to a fixed price per 100 pounds for class 2 milk. Thus, five markets have a fixed or bargained class 2 price and the other five sell cream or fluid milk for fluid-cream purposes at a variable price determined according to a formula.

In addition to variations in the method of arriving at and quoting the class 2 prices, there is some variation in the method of arriving at the price of cream for fluid and for manufacturing purposes. At Des Moines and Ottumwa, where cream prices are established on a formula basis at near the butterfat value, sweet cream is sold at one price regardless of use. On the other hand, in all the markets where class 2 milk is based on 100 pounds of 3.5 percent milk, cream for manufacturing purposes is sold on the basis of a price determined by formula, in a separate class or as surplus milk.

Local conditions largely determine the various methods used in pricing cream to distributors. If alternative sources of sweet cream supply are readily available outside the association, the general policy is to keep the cream price low and based on the value of butterfat. It is not unlikely that many associations which adopted a fixed and relatively high cream price during the unfavorable production conditions of 1936 will subsequently have to alter their plans in order to prevent distributors from seeking cheaper sources of cream supply. In all cases where class 3, or surplus, milk 19 is sold to distributors, the price is variable depending upon some central-market butter

The price plan at the Quad Cities provides for four classes of milk but steps are being taken to gradually eliminate class 4.