Although the transportation charge is higher absolutely for butter than for fluid milk (2.67 cents versus approximately 1.5 cents in 1973), it is lower when considered in relation to the original farm value. The hauling charge for butterfat is figured according to the wholesale value ration described above. The remaining figure is subtracted from the price to give the final farm value figure. B. MANUFACTURING AND WHOLESALE "Other" procurement costs (exclusive of transportation), and manufacturing and wholesaling cost components are broken out on the basis of cost data acquired directly by ERS from a sample of butter producers, representing 24 percent of total butter production in 1972, and over a third of production in 1973. The overall spread is determined by subtracting the farm value from the BLS reported wholesale price. Problems of separability arise in the butter cost breakdowns between manufacturing and wholesaling. The more efficient method of continuous churn and "soft-printing" 22 has become prevalent in recent years. All inter-city transportation costs are assigned to wholesaling regardless of who actually transports the butter. Other costs are prorated on the basis of the assumption that 65 percent of butter produced is "soft-printed" and 35 percent is "hard-printed." 23 The resulting figures represent a weighted average of the cost of the both methods of packaging rather than typical costs for one method or the other. "Profit is" a residual figure and "other" costs are derived from direct data for both manufacturing and wholesaling functions. C. RETAILING As with milk, the retail spread is apportioned according to the 1972 Cost Component Task Force. There were some rather dramatic changes in the "other" and "profit" components of the retail spread between 1972 and 1973. "Other" costs (described as including professional fees and insurance) jumped from 1.4 cents to 4 cents, for an increase of 285 percent, while "profit" rose from 1.3 cents to 2.1 cents, or an increase of 161 percent. USDA has indicated that the published figures are in error due to a "good old-fashioned keypunch error." The figures have since been revised to show a 231 percent increase in "other" and a 176 percent increase in "profit." Labor and business taxes were also revised upwards. These revised figures are unpublished and have not even been circulated within USDA. Obviously these revisions do not change the fact that the increases in these particular categories have been substantial indeed. When the overall margin increases faster than the specific costs, a "contribution allocation" approach is adopted. That is, the portion of the spread which is not accounted for is arbitrarily added as increases in "labor," "interest," "other" and "profit" on a proportional basis. No direct data is used either to validate or invalidate these allocations. The butter is divided and packaged as part of the manufacturing function rather than being sent on to a wholesaler in bulk to be packaged later (hard-printing). The allocation ratio (65 percent-35 percent) is an estimate made on the basis of "personal contact with industry." The figures were not arrived through formal collection of data. CHAPTER 1 DATA Data for this study of the relationship between price and slaughter in two wholesale beef markets were gathered from the sources listed below: LIVE CATTLE PRICES Omaha live prices for 1,100 to 1,300 pound steers. Collected daily by the Omaha office of USDA's Market News Branch. SLAUGHTER STATISTICS Federally inspected U.S. slaughter of cattle (steers, heifers, cows, bulls). Collected daily through a co-operative effort of three divisions of USDA: The Animal and Plant Health Inspection Service, The Statistical Reporting Service, and The Agricultural Marketing Service. CARCASS PRICES National Provisioner (yellow sheet) prices for yield grade three 600 to 700 pound steers. GRAIN PRICES Price of No. 2 yellow grain on Chicago market, collected daily by the Agricultural Marketing Service branch of USDA. RETAIL PRICES Retail prices determined for use in the computation of USDA beef price spreads were used. These prices are based on data collected by the Bureau of Labor Statistics and by the Economic Research Service of USDA. The prices of choice beef cuts are weighted according to carcass proportions to determine the retail price of a choice beef carcass. |