View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal Reserve Banh of Chicago -

•

-

March 13, 1959

"PARITY" has served as a central hitching post
for farm policy since about the mid-1930's. At times,
key policies were snubbed closely to this post, at other
times the rein was allowed a good deal of slack. Thus,
it has been possible by varying the hitch to provide some
leeway in farm price policies to adjust to changing conditions even though remaining hitched to the same post.

But, as has been pointed out repeatedly over the
years by able statisticians and economists, and, in
recent years, by a growing number of farm leaders as
well, prices based on historical conditions more often
than not are inadequate to current conditions. Very persuasive evidence of this fact is provided in the $9 billion of CCC stocks and loans outstanding as of January 31,
1959.
However, if prices are to be set by means other than
market forces, some kind of guide is needed. While prospective supply and demand would seem to be the most
logical guides, these are matters of judgment, and judgments differ. Thus, the effort to hitch prices to a pattern of historical relationships has prevailed.
Year-to-year movements in the parity ratio (the ratio
of prices received to prices paid by farmers) have paralleled movements in farm income. Over a longer period of
time, however, the technological revolution in agriculture
has freed labor, increased output and permitted farm income (and in particular income per person in agriculture)
to break away from the trend of the.parity ratio. Further,
the individual farmer's income depends on the amount of
his output and his efficiency, as well as the prices received for his products.
PER CAPITA INCOME FROM FARMING*
DOLLARS PER PERSON
TOTAL INCOME OF FARM OPERATORS*
BILLION DOLLARS

300 8

PARITY RATIO
19104914000

A
\

Per Capita Income

120

225 6
Parity Ratio
A

150 4

/:
/'
Realized Net Income

_J
75 2

60
1-- I

AGRICULTURE

Number 499
services. And as consumers, we are all interested in the
costs of things we buy.
Price and output adjustments to changing market
conditions vary for different commodities. Production of
most industrial goods show large changes in response
to short-run demand changes while prices remain relatively stable. In the absence of support programs, however, prices of most agricultural and some other commodities often show large changes, usually in response to
supply changes.
Efforts to support farm prices were originally aimed
at leveling out wide seasonal fluctuations. It was believed that prices at harvest time were unduly depressed.
Also it was thought that a portion of large crops could
be carried over to years of smaller crops and prices and
income stabilized. After the efforts of the Federal Farm
Board to stabilize prices in the period 1929-1933 proved
unsuccessful, Board officials concluded that any effort
to raise market prices merely by shifting supplies from
one season to another or one year to another could not
be effective. It was a problem of controlling total supply.
During the mid-1930's, production controls were
not effectively tested because the severe droughts cut
farm output drastically. .Then during World War II, price
supports were raised in order to encourage needed expansion in food and fiber production. Following the end
of the critical postwar world food shortages in 1948,
strong opposition developed to any reduction in the level
of price support and to the introduction of strict output
controls on most farm commodities. Many point out that
while production controls could, if effective, raise prices
and reduce outlays for Government programs, it would
not solve the income problem of many individual farmers
though total farm income might be maintained.

90

•-I
.

1929
Deflated

DEPARTivIENT OF

if 11111 II 11111111f 1_11111

1940

t 1

1950

EVERYONE, of course, is interested in prices. Incomes of professional people, laborers and farmers are
all heavily dependent on the prices of their products and

Thus, adoption of new farming practices and enlargement of farm units may be the most promising method
of solving the income problem of individual farmers. To
break with traditional methods of production is not easy.
Yet no one can deny that improvements in production—
greater output at lower costs—provide the key to economic
progress for any society, agricultural or industrial. The
process of adjustment, however, is not conducive to
"the quiet life."
Research Department

FARM BUSINESS CONDITIONS; 1940-1958
ANNUAL SUMMARY

ITEM S

'
.

P R IC ES:
Prices received by farmers.............
(1947-49=100).........
(1947-49=100).........
Paid by farmers ...................
Parity price ratio .......................(191044=100).........
(1947-49=100).....,...
Wholesale, all commodities. ........'...
(1947-49-400).........
Paid by consumers ............
Wheat, No.2 red winter, Chicago....•........(dol. per bu.) .........
(dol. per bu.) .........
Corn, No.2 yellow, Chicago
Oats, No.2 white, Chicago.................(dol. per bu.) .........
Soybeans, No. 1 yellow, Chicago .......... (dol. per bu.) .........
Hogs, barrows and gilts, Chicago........... (dol. per cwt.-).........
(dol. per cwt.)
Beef steers, choice grade, Chicago
Milk, wholesale, U. S. ...................(dol. per cwt.)
Butterfat, local market, U. S. ..............(dol. per lb.) .........
Chickens, local markets, U. S. ..............(dol. per lb.)
Eggs, local markets, U. S
(dol. per doz.)
Milk cows, U. S. .......................(dol. per head).........
Farm labor,, U. S.2 • • • • •• •...............(dol. per week without board)
Factory labor, U. S. .....................(dol. earned per week)....
PRODUCTION:
Industrial
Farm marketings

Calendar Years
1950
,

1940

1945

37
50
81
51
60
.95
.63
•39
.95
5.8o
11.86
1.82
.28
.14
.18
61
9.38
25.20

76
76
109
69
77
1.73
1.21
.7142.20
14.75
17.30
3.19
.50
.27
.38
111
25.25
414.39

67
77

107
98

112
loo

143
1.3.6

134
123

78.7

171.2

228.5

347.9

354.4

8.4
4.6
675
.8.0

21.7
12.4
2,154
18.2

28.5
1.14..o
2,334
21.0

29.8
aa..6
2,232
19.7

33.2
2,735
21.4

9.5
37.9

8.6
44.2

7.5'
52.5

6.2
58.8

5.8
58.1

(22.3)
( 9.4)
( 5.0)
45

(37.1)
(15.8)
( 7.2)
278

51.3
31.4
17.9
257

56.9
55.1432.3
275

59.0
56.2
31.14.
283

1957

87
95
102 .
114
101
82
103
118
403
120
2.22
2.21
1.50
1.29
.85
.76
2.7142.39
18.39
18.28
29.68
23.83
3.95
4-.24
.62
.60
.25
.18
.36
•37
198
166
31.00
141.25
59.33
82.39

19581 ,
92
117
85
119
124
2.014.
1.26
•69
2.23
20.28
27.42
4.15
.58
.18
.38
209
42.50
83.71
0

.

(1947-49.100).........
(1947-49.100)

INCOME:
(bil. of dol.)
Total personal
Farm:
(bil. of dol.) .........
Cash receipts from marketings
(bil. of dol.)
Farm operators' net, total
(dollars)
Farm operators' net, per farm
Income of farm population from all sources.....(bil. of dol.) ..
EMPLOYMENT:
(millions)
Farm
Nonagricultural ........ ...............(millions)

FINANCIAL:
Weekly reporting member banks: 3
Demand deposits adjusted 4...............(bil. of dol.) .....
(bil. of dol.)
Total loans4
Commercial, industrial, and agricultural loans4 • .(bil. of dol.) ..........
(bil. of dol.)
U. S. Government total gross direct debt3
1

Preliminary estimates.
2 Estimates
based on monthly wage rates for years prior to 1948.
3
December.
4 Data prior to 1952 not directly comparable with previous data.
Compiled from official sources by the Research Department, Federal Reserve Bank of Chicago.