1. Dr. Roger Ginder Econ 338 Fall 2009 Lecture # 6
Dairy Marketing
Dr. Roger Ginder
Econ 338
Fall 2009
Lecture # 6

2. Top Milk Production States, 2008
Source: NASS, USDA, Milk Production, 2/15/09 2

3. USDA, Federal Milk Marketing Administrator, Tulsa, 2/2005

4. USDA, Federal Milk Marketing Administrator, Tulsa, 2/2009

5. DAIRY PRODUCTON GEOGRAPHIC DISTRIBUTION
Would you expect the production to grow in the south and northeast where per-capita production is low?
Why or Why not?
Iowa has surplus per-capita consumption– Is that good or bad for the future of the industry here

6. Geographic Distribution of U.S. Milk Production
Where is the milk produced
Which areas are increasing production
Which areas are decreasing production

7. USDA, Federal Milk Marketing Administrator, Tulsa, 2/2009

8. Milk Production: 2007 vs 2002
USDA, Federal Milk Marketing Administrator, Tulsa, 2/2008

10. Regional Milk Production
as a Percent of Total U.S. Production
Central
Source: Federal Milk Market Administrator, Tulsa, April, 2008

17. Increases in CA + FO Milk Marketings
December 2007 vs December 2002

18. Decreases in CA + FO Milk Marketings
December 2007 vs December 2002

19. Production Costs By Region
How do the different regions in the U.S. compare with respect to production costs and net returns?
What effects are the differences in cost structure likely to have on where U.S. production takes place?

20. Statistical Regions Pre 2002
MILK:
NORTHEAST: New York, Pennsylvania and Vermont
SOUTHEAST: Florida and Georgia
UPPER MIDWEST: Michigan, Minnesota and Wisconsin
CORN BELT: Iowa, Missouri and Ohio
SOUTHERN PLAINS: Texas
PACIFIC: Arizona, California and Washington
Source: ERS, USDA

21. Source: USDA, ERS

22. Regional Production Returns Per Cwt., 2003
Source: ERS, USDA

23. Regional Production Returns Per Cwt., 2008
Source: ERS, USDA

24. Production Costs & Returns Per Cwt., Heartland Region
Source: ERS, USDA 24

25. Production Costs & Returns Per Cwt., Heartland Region
Source: ERS, USDA 25

26. Production Costs & Returns Per Cwt., Fruitful Rim Region
Source: ERS, USDA

27. Production Costs & Returns Per Cwt., Fruitful Rim Region
Source: ERS, USDA 27

28. Production Costs & Returns Per Cwt.,
How can producers in California pay more for feed and get lower prices for milk and still be more profitable than midwest producers???
Lower Variable Costs Per Hundred Weight
More Hundred Weight of Milk Sold

29. Example Average Cost Curve
Cost/Cwt.
Example Average Cost Curve
$23/cwt
$20cwt
17.5 k
20.5 k
Cwt. of Milk Produced

30. FEED COST PER CWT – IMPACT OF VOLUME
California = /mo to feed/cow prod = 20,500
Iowa = /mo to feed/cow prod = 17,500
Annual Av Cost/CWT
CA = $110/mo * 12 mo = $1320  20,500# = $6.40/cwt
Iowa = $105/mo * 12 mo = $1260  17,500 = $7.20/cwt
Iowa = $100/mo * 12 mo = $1200  17,500# = $6.80/cwt
Iowa = $95/mo * 12 mo = $1140  17,500# = $6.50/cwt
Iowa = $90/mo * 12 mo = $1080  17,500# = $6.17/cwt

31. Supply Curve Concept
What producers will choose to supply at different product prices ---with all variables other than product price equal
Technology, Regulation, Prices of Inputs, Prices of Other Commodities etc. are held constant
A very restrictive set of assumptions

32. Price
$/#
Supply
P m 1 Pm
Q m 1
Quantity
# of milk supplied
Q m

33. Demand Curve Concept
What Consumers will choose to buy at different product prices ---with all variables other than product price equal
Consumer tastes and preferences, Consumer Income, Prices of Other Goods, Prices of Substitutes, Prices of Complements
Also A very restrictive set of assumptions

34. Price
$/#
Supply Pm
Demand
Quantity
# of milk demanded Qm

35. Price
$/#
Supply Pm
Demand
Quantity
# of milk supplied
# of milk demanded Qm

36. Elasticity of Supply
Percent change in quantity supplied that results from a 1% change in price
Determines how much more producers will put on the market when price increases
Determines how much less producers will put on the market when price falls

37. Relatively Inelastic Supply
Price
$/#
Supply P1 Po Qo Q1
Quantity
# of milk
Relatively Inelastic Supply

38. Relatively Elastic SupplyPo P1 Qo Q1
Supply
Price
$/#
Quantity
# of milk
Relatively Elastic Supply

39. Do You Think That Elasticity of Supply Could Differ by Region?
Different Production Systems
Different Cost Structures
Which Regions Would You Expect to Have a Less Elastic Supply Curve?
Which Would You Expect to Have a More Elastic Supply Curve?

40. Relatively Inelastic Supply
Price
$/#
Supply P1 Po Qo Q1
Quantity
# of milk
Relatively Inelastic Supply

41. Relatively Elastic SupplyPo P1 Qo Q1
Supply
Price
$/#
Quantity
# of milk
Relatively Elastic Supply

42. Shifts in the Supply Curve
If we relax the assumption that all else is equal the supply curve can shift
For example assume that input costs decrease for all producers
Producers will be willing to supply more product at all points on the supply curve
The supply curve will shift downward and to the right

43. Factors that can shift supply: 1. New technology
Price So S1 Po P1 Do Qo Q1
Quantity
Factors that can shift supply:
1. New technology
2. Changes in input costs
3. Raw material or resource availability
4. Legal or government program constraints on production

44. Questions?

45. Appendix

46. Statistical Regions Pre 2002
MILK:
NORTHEAST: New York, Pennsylvania and Vermont
SOUTHEAST: Florida and Georgia
UPPER MIDWEST: Michigan, Minnesota and Wisconsin
CORN BELT: Iowa, Missouri and Ohio
SOUTHERN PLAINS: Texas
PACIFIC: Arizona, California and Washington
Source: ERS, USDA 46

47. Production Costs & Returns Per Cwt., 2000
Source: ERS, USDA 47

48. Production Costs & Returns Per Cwt., 2000
Source: ERS, USDA

49. Production Costs & Returns Per Cwt., Heartland Region
Source: ERS, USDA