Full text of Economic Review (Federal Reserve Bank of Kansas City) : June 1973

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JUNE 1973

The Wholesale and Consumer Price
Indexes: What's the Connection? .. page 3
World Wheat Production and Trade . page 1 o

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The Wholesale and
Consumer Price Indexes:
What s the Connection?
1

By Dan M. Bechter and Margaret S. Pickett

T

he persisten ce and, more rece ntly, the acceleration of infl ation, have heightened
pu bli c interest in economic indicators of pr ic.;
behavior. This attention is under tandab le,
since ri sin g prices redu ce the purchasing powe r
of everyone's dollar s.
A companyin 1 the widesprea d interest in
c ur rent pri ce index behavior, unfortunately, a re
ome equally widespread mi concep ti o n regardi ng th e meanin g of these indexes a nd th eir
relation hips. In particular, it is freq uen tl y impl ied that increases in the Wholesale Price Index (WPI) will be followed more o r less a utom a ti cally by increases in the Co nsum er Price
Index (CPI). This article shows t ha t this point
of view has little factual basis . The a rt icle a lso
di scusses the meaning of a price index, a nd
gives a brief review of the co ntent an d const ru ction of the CPI and the WPI.
ME ASURING PRICE CH ANGES

T he idea be hin d a genera l price index coverin g h undred s or tho usands of items can be expl ained with examples of one or two goo ds.
Such examples also help show so me of the di fficulti es and ambiguities in the construction
and interpretation of price indexes.
If only one good or serv ice is being co nsid ered, the meanin g of a price index seems
obvious. And so it is, as long as one remember t hat i olating pure price differences require eit her keepin g constant, o r a dju ti ng for
differences in , qu a lit y and quantity. For exampl e, suppose a hamburger price ind ex i to
be u ed to report differences in the price of
ground beef from store to store, or over time .
Monthly Review • June 1973

F irst, o m e q uality sta ndard fo r ham burger
wo ul d have to be c hosen, based o n co nsid eration s suc h as fa t conten t a nd fr eshn ess. T hen ,
pri ces act ua ll y c harged fo r va ri o us q ua lities
of grou nd beef wou ld have to be put in ter m s
of eq uivalen t price for the selected tandard.
T hese q ua li ty -s tandardized p rices wo ul d be
used in th e index so that it va lu es wo uld refl ec t pr ice va r ia t ion a lo ne. Eve n in t h i ham bu rger exa mpl e, one ca n a pp re~ iate how hard
it ofte n is to estimate the ex tent to whi ch p r ice
re fl ects qu a li ty . Th is tas k is es pec ia ll y d ifficult whe n a n ind ex is d es ig ned to m easure
price cha nges in a p rodu ct , such as th e a utomobi le, th a t h as improved so much o ver t he
yea rs.
Si nce th e purpose .of a price index is to m ake
pri ce co mpa ri sons, t wo o r m o re prices o f the
sa me good o r serv ice are a lways in vo lved. On e
o f th ese serves as a po int o f re ference, th e o th er
is co m pa red to it. Beca use a ra t io o f t he two
pri ces is uc h a n o bviou c hoi ce for co m pa ri ng
t he ir rela tiv e s izes, a pri ce ind ex has co m e to
m ean a pr ice ra t io. A s a sin g le, pure-number
sum ma ry o f price chan ge, a pr ice ind ex o mi ts
in fo rmation used in its ca lculation. Fo r exampl e, suppose that a pound of ground beef
costs $1 .20 tod ay but $ .80 a year ago. U si ng
last yea r as a referen ce point , tod ay's ha m burger price index va lue is ($1. 20/$ .80) = 1.50
( o r 150, to follo w the cu tom of ex pre sin g a n
ind ex as th e pri ce ra tio x I 00) . This s hows a
o ne-yea r in c rease o f 50 pe r cent in th e pri ce of
g round beef o ve r last yea r's ind ex va lu e o f
100 = ($ .80 /$ .80) x 100. Th e index va lu e d oes
not reveal the dollar price o f hamburger in
3

The Wholesale and Consumer Price Index es:

either year, or show the absolute differen ce
between the two prices-it only shows the relative change. As the number of it em s includ ed
in a price index increases, however, th e usefulness of the index as a summ ary measure of
price change compensates for the details it
hides.
Wh a t does a price index tell us when it covers two or more good s o r serv ices? Clearly ,
its value mu st refl ect so m e so rt of an average
of t he price changes of the individual items
included . One poss ibility would be a s imple
average . However, thi s choice implicitl y assigns
eq ua l importance-grves equal weight- to
eac h of the items . Fo r examp le, suppose that
a manufacturer uses two raw material s, coppe r and wood . Ir the price o r copper r ises 50
per cent , a nd th e price o r wood rises IO per
ce nt , th e s impl e average of a 30 per ce nt in c rease (two-item index va lu e = 130) does not
likely m ea n that the manufacturer mu s t spend
30 per cent more to bu y the same quantities
of copper and wood as before. The item he produces may require proporti onally much more
of one raw material th a n of the other-depending on these proportions, his costs may
have ri se n by as much as 50 per cent, or by as
little as 10 per ce nt. Because it treats compone nts eq ua ll y, simple averaging does not tell us
much. S in ce a pri ce ind ex necessa rily invol ves
so me weighting sc hem e, it s use fuln ess is im proved by c hoos in g weights to show that, for
certain purposes, so m e it ems are re latively
more impo rta nt th an others.
The c hoice of appropriate weights in a
price index follows directly from the purp ose
for which the index is int e nded. For example,
the price index of each food in a comprehensive index of food prices in the United States
would be weighted according to th a t food's
share of total nat io na l expenditures o n food
during so m e refe re nce, o r base, period . These
weights would differ from tho se in a food
price index d es ig ned, say, to mea su re c ha nges
in the prices of foods bo ught by a n average
American fa mil y, beca use such a fami ly
4

would spen d little or nothing on some of the
most expensive as well as on so m e of the least
palatable foods .
As just indicated, expe nditures o n individua l items as fractions of total expenditures
on a c lass of items are used as weights, or measures of rela tive importance, in a price index.
H owever, it is easier (and quite co rrect) to
think of a price index as a ratio co mparing
total expenditures on fixed quan tities of inc luded items, under two sets of prices.
In order to measure price changes a lon e,
a price index coveri ng two o r more goods or
services must be based on consta nt qua ntiti es,
which means constant weights or m eas ures of
relative impo rtance. Thi requi rement intro du ces some ambigui ty in its construc ti o n,
however, and invites m isinterp retations. For
example, suppose that a po und of stea k cos ts
th e same as a pound of cheese (say, $ 1.00), and
an average family buys five pounds of steak
for each one pound of cheese . Now, assume
that the price of steak doubles to $2.00 a pound
while the price of cheese stays the sa me at $1.00
a pound. Quantities of steak an d cheese previously purchased for $6.00 wo uld now cost
$11.00, yieldin g an index va lue of ( 11 /6) x 100 =
183.33. That is, a steak-and-c heese price ind ex
based on the 5-to- I weights implied by the in iti al quantities would show an 83 I /3 pe r cent
price level increase .
So far, so good, if an ave rage fam il y conti:iu es to purchase five pounds of steak for
every one pound or cheese. But this very important "if" is often ignored by perso ns interpreting price indexes. In fact, expenditures
seldom rise by the amo unts sometimes inferred from price index changes .
What happens when some prices ri se more
t han othe rs? Peop le substitute. In this example,
c heese is lik e ly to be subst ituted for steak,
and so are other foods whose price hav e
not ri se n as mu c h. (To g ive the example a
more general co nnotation, c heese can be
thought of as all foods ot her than stea k .)
Suppose that when the price of steak inFederal Reserve Bank of Kan sas City

What 's the Connection?

creases, the family decides to buy three pounds
of stea k instead of five, an d three pounds of
cheese instead of one. This new combination
will cost $9 .00, of which $6.00 is for steak a nd
$3 .00 is for cheese. This suggests an altern ative price index which uses the new, or current ,
weight , in stead of thos e of the initial period.
Calcul a ti on of thi s cu rrent-weighted index
would yield values of 66 2/3 and 100 (or 100
and 150) fo r the initial a nd curre nt periods,
res pecti ve ly, showing th at currently purchased
quantities of steak and cheese cost 50 per
ce nt more now th an in the in itia l period.
Since a price index using current weights
gives a different answer from one using initi alperi od wei lhts , is one a "bet ter" meas ure o f
pri ce chan 1 e? No. ·1 hey just answe r different
questi o ns. In practice, however, price in dexes usin ini tial perind weig hts arc more
common, because they do not req uire redetermi nati on o f expenditures each period.
Wh en prices ri e, it i tem pting to think
that th ose who must pay these highe r prices
are worse off. But a rising price index is not
necessarily ind icative of a decli ne in well being for three reasons. First, a price index
coverin g many items may increase, even
thou gh th e prices of some of the items a re
declinin g. In suc h a case, substitutin g the decreasin g cost items for th ose of inc reas in g
expen se can lea ve the pure ha -er better off.
econd , even if all prices arc ri sing, well being
can be ri sin g-or a t least un changed-if incomes are in creasi ng too. Third, the su bstitutability amon g cons um er goods changes over
time with chan gin g tastes, as does th e su bstitutability of producer inputs with chang ing
technology .
WHOLES ALE PRICE INDEX- DEVELOPMENT
AND CONSTRUCTION

Th e Wh olesa le Pri ce I ndcx wa firs t published in 1902 and is the oldest con tinu ous
price index in th e United Sta tes. In itiated as
an aid to th e United S tates Senate in evaluating th e effect of ta riff la ws on the U.S.
Monthly Revi e w • Ju ne 1973

economy, the original index covered the years
1890 to 190 I. Until it was revised in 1914 the
index was a simple average of the price ratios
of about 250 co mmodities.
In the years since its inception, the WPI
ha s been revi sed and expanded man y tim es,
but it still meas ures th e ge nera l price level of
goods (including impo rts) at their first level
of tran saction in the United States. It does
not meas ure prices received by whol esa lers in
th e "middl emen" sense of th e word. Price
of goods at later stages of distribution are
included only if they have been refin ed or processed a nd marketed as new semifini hed or
fini hed goods. Goods so ld by produce r-owned
reta il stores are also exc lud ed beca use th ey
a rc sa les to co nsum ers ra th er than rri ma ry
market transac ti ns.
The WPI now in cludes 2,200 co mm oditi es
at severa l stages of production . Most price
information is co llected fro·m questionn aires
se nt directly to producers, but so me publi shed
price data are used. The producing company
is asked to report prices on a design ated day
(the 15th of the month for most item s) less
any disco unts. When disco unted prices are
not available, list prices are used .
The weights fo r th e co mposite indexes are
derived fr om th e va lu e of shipm ents ( ales) in a
pa rti cular yea r. The maj or so urce of these data
is th e ensus o f Ma nufactures tak en by th e
Bureau of th e Cen us. The Bureau of Min es
a nd the Depa rtm ent of Agriculture also provide information used in constructing weights.
The WPI weights change as new value of shipments data are incorporated into the index.
Minor ch a nges in weights occur periodically when commodities a re added to or deleted from the index. As disc ussed in the
prev ious sect io n, changes of weights a nd th e
ad diti on ( or del etion) of items introdu ce
changes in the index th at are not direc tl y related to price cha nge . Th ese nonpri ce cha nge
are introduced to broaden the coverage of the
WPI and to mak e it more represe ntative of
the cha nging economy.
5

The Wholesale and Consumer Price Index es:

The WPI has many different uses for
market analys ts and businessmen. Much attention is give n to the All Commodities Index,
but because it includes the volatile farm products, food, and feed components, it is not a
reliable indicato r of long-term price trend .
However, the industrial commodities index is
considered a va lu ab le indicator of underlyin g
inOationary tendencies. Subindexes by stageof-proce sing ( e.g., raw materials, intermediate goods, and finished goods) are also
helpful in economic analysis. Other subgroup
and individ ual indexes are interestin g to purchasi ng agents and sa le managers who compare cha nges in their tran sac tion pri ces to
general movements of pri ces of similar 1 oods.
The WPI component inde xes, usuall y a t the
indi vidual product level , arc so metim es used
as "esca lators" in I ng-term co ntra ct- r r
purchase or lease of industrial goods .
CONSUMER PRICE INDEX- DEVELOPMENT
AND CONSTRUCTION

The Consumer Price Index first appeared
m 1919 to meet the need of the World War I
era when prices were rising rapidl y. Then ,
as today, price changes were a factor in wage
negotiation . The CPI was initiated to provide a measure of cons um er prices for citi es
in major industrial areas.
The
Pl i often incorrectly referred to
as the "co t of living index ," a mi interpretation of its meaning partly traceable to its
inaccurate official title prior to 1964: "Index
of Change in Prices of Goods and Services
Purchased by City Wage Earner and Clerical
Worker Families to Maintain their Level of
Living." This lengthy title has since been
shortened to "Consumer Price Index for Urban
Wage Ea rners and Clerical Workers. " The
CP I does not mea ure the cost of maintainin g a sta ndard of li ving; it mea ure the co t of
purchasing a set of goods in fixed quantities,
something con umer do not actuall y do a
prices, ta tes, and incomes change over time.
If the con truction of the CPI paralleled
6

the construct ion of the WPI , retail sales wou ld
be used for selecting items and assigning
weights. However, the concept of the CPI requires a somewhat different approach. Not
all retai l sales are made to urban workers
so the value of retai l sales is not the best basis
for constructing the C PI.
Th e item s included in the CPI and the
weights given to th ese items are determined
by a rep resen tati ve urban worker's "market
basket" composed of the good and services
such workers buy. In order to determine th e
urban wo rk er's market basket, a Consumer
Expenditure Survey (CES) is conducted in
major urban areas abou t eve ry ten years.
From the CE , in 1960-6 1 (the year used
for wcightin l the current ' Pl ), 400 items were
selected to be covered by th e ' Pl . Most or
th ese items were chosen because of their im portance relative to total expenditu res a nd
because o f their frequency of purchase. A
sample of less important and less frequentl y
purch ased item s is a lso inc luded.
Th e weights assig ned to indi vidual CPI
item s also are derived from the CES. The
item weight is the ratio of expenditures for
that individual item in the selected referen ce
period, to total expen ditures in that peri od.
ome items are ass igned weights on a classof-item, ra th er than on an individual , basi s.
The PI is constru cted with price from 56
urban a reas th a t must be combined to arrive
at a national index. Each of the 56 cities is
assigned a weight so that it s price changes a re
included in the national index in proportion
to the size of its working population. The city
weights are co nstructed from data collected in
the decennial Census of the Population .
Representatives of the Bureau of Lab or
Statist ics collect mo t of the price data fo r
the CPI. Th ey visit 18,000 retail tores and
ource outl et where urban wage earner buy
goods and se rvices. Each trained Burea u
represe nt ati ve is eq uipped with detailed desc ription s of the goods and service to be
priced . These item s must meet fixed specifi caFederal Re se rve Bank of Kansas City

What's the Connection?

tions in order to insure that no price changes
are due to changes in the type or quality of
the product. New items are substituted for
old ones only when the old ones a re no longer
available, or no longer sold in volume. Rental
rates are obtained from questionnaires sent
to 40,000 tenants . The prices of ome items
such a college tuition and home purcha e
are obtained from o th er government a nd
private agencies.
WPI AND CPI DIFFERENCES

ince th e purposes of the two price indexes differ, th eir constructions are not parallel.
ach is d esigned to do its partic ular measurement joh effectively . Prndu ·crs buy things that
co nsumers do not , and vice ve rsa .
ons 'quentl y, each or the indexc~ includes items
not covered by the other . U nlikc the W Pl,
the
Pl does not include raw material and
capital goods. On the other hand, the WPI
exclude services, while services such as those
received from doctors, lawyers, dry cleaners,
ins uran ce companies, etc., are included in the
CPI because they command a sizable share
of urban workers' budgets.
The WPI and CPI do cove r one set of
similar item . The WPI "Consu mer Finished
Good s" group is roughly comparab le to the
CP I "Commodities" group. However, the
Pl includes goods only in the quality and
quantit y purchased by the average worker.
Thu s, a lth ough the price of a luxury automobile enter , the WPI Con ume r Finished
Good s group, it doe not count in the CPI
Commod ities group because few urban workers
buy expensive cars. Used car prices are included in CPI Commodities but not in WPI
Con um er Finished Good (the sa le of a u ed
car i not a primary market transaction). Home
purcha C ' arc included in the CPI but not
in the WPI. Sales and excise taxes a " Oc iated
with th e purcha ' C or a good are included in
the
Pl Commodities index because th ey
are a co t to the consumer. The WPI lea ves
out taxes. Finally, Consumer Finis hed Good
Monthly Review • June 1973

are weighted only half as heavily (weight = .33)
in the WPI as Commodities (weight = .66)
are in the CPI, and the relative importance
of individual items within these groups differs
between indexes.
The geographic coverage of the two indexe differs. The WPl is essentially national
in scope. The CPI, however , is a composite
or 56 eparate urban area . The price and
quality of the goods are not necessa ril y the
same from city to city, nor are they necessarily
representative of the whole country.
WPI AND CPI OVER THE YEARS

nsiderin
a ll the di ffcrenccs het ween
the wholcsal · and ·o nsumcr price indexes,
it is not surprisin l that the have behaved di similarly . For example, compare their trend s
and cycles ince World War 11: During the
innation following the end of wartime price
controls, the WPI rose 52 per cent in three
years while the CPI rose 34 per cent. Both
dipped in 1949 , recovered in 1950, and jumped
in 1951. From 1951 to 1956, however , the
WPI stayed fairly constant, while the CPI
rose 5 per cent. Both rose between 1956 and
1958, but the WPI again leveled off through
1964, while the Pl kept on creeping up at a
rate averaging sl ightly ver I per cent a yea r
from 1958 through 1964 . By May 1973 , the
CPI had risen 40 per cent since 1964, an inc rea e almost matched by the WPI. However,
only in the seventh of the last 7 years did the
WPI rise faster than the CPI. To sum up , annual data for the two price indexes over the
past 27 years show no close correspondence
between percentage changes of the CPI and
the WPI.
The paths of the comparable components
of the CPI and the WPI are more nearly parallel than the path of the two indexe . hart I
indicates that, on an annual basi at lea t,
retail price levels of particular types of commodities do move with th prices of these same
commodi ties at the producer level.
7

The Wholesa le a nd Consumer Price Indexes :

Chart l
SELECTED PRICE INDEXES

Interestin gly, th e WPI 's ability to expl a in
monthl y perce ntage cha nges in th e Co mmodities component of th e C PI was fo und to be
just as poo r a its ability to explain C PI behav ior with Services left in. So me im pro vement in ex pl a natory powe r was achi eved , however, by associati ng C PI C omm oditi es with
WPI Co nsum er Fini shed G ood . T he fitt ed
relati onship ca n be ex pressed as fo llows:
Y

SOU RCE: Bureau o f Labor Sta ti stic s.

DOES THE WPI LEAD THE CPI ?

ta ti sti al te hniqu e ca n be used to tes t
th e notion th a t current cha nges in th e Pl
depend , in some regular , predi cta bl e way, on
recent changes in the WPI . Previou s secti ons
have emphasized the different compos iti on
and construction of the two indexes, and th eir
di ssimilar behavioral histories . N one of thi s
provides any scientific basis or empirica l evidence to anticipate a close correspondence
between CPI and WPI chan ges, but th e fr equ entl y encountered view th at uch a co rres pond ence exi sts prompted a check o f its
validity .
Monthl y price ind ex data fr om 1956
th ro ugh 1972 were empl oyed in an effo rt to
determine if monthl y percentage cha nges in
th e All Items CPL were explained by perce ntage changes in the All Comm oditi es WPI
for preceding months. No con sisten t rel ati onship (one regular enough to permit confi dent
monthly forecasts of CPI beha vior based on
pas t WPI behavior) could be found.
Thi s re ult does not mean th at retail prices
on pec ifi e comm odities do not depend on
producer pri ces for th ese sa me goods. Th ey
do, of course. To test the closeness o f thi s relati on hip, however, comparabl e- it em co mponents of th e C PI and WPI sho uld be used,
not th e aggregati ve indexes them selves .
8

= .11 + .5 3 X ,

where Y is the monthl y percent age cha nge in
th e C PI Commodi ti es Ind ex, 1956-72, a nd X
is a weig hted average o f perce ntage changes
in the WP I onsumer Fini shed Goods In dex
over th e previo us 6 month s. According to
th is re latio nsh ip, pri ces o r co mm oditi es cove red
by the CP I have tren ded upwa rd . 11 pe r ce nt
per mon th, a pa rt fr om WPI innu ences, in
th e past 16 yea rs. A nd , on th e average, .53 of a
given cha nge in th e WPI' s Con sum er Finished
Goods Index is reflected in the CPl 's Co mmo dit ies Index within 6 months. Dec linin g
weights, with nin e-tenth s of th e 6 month s'
to tal impact felt within 2 month s, ga ve th e
best fit. Howeve r, th e coe ffici ent o f expl anation (R 2 ) fo r this relati onship was j ust .25,
ind ica ting that cha nges in th e WPI Co nsum er
Fini shed Goods Ind ex co uld still ex phin on ly
one- fourth o f' t he mo nthl y va riati o ns in th e
Pl Co mm oditi es Index.
Th e a bove res ult were onl y sli ghtl y im proved when used ca rs a nd ho me purchases
were ta ken out o f the C PL C o mm oditi es
index. Several ot her index pairs, representin g
fi ner brea kd ow ns of the CPI a nd WPI , we re
tr ied wit h monthly dat a . Of th ose compon ent
relationships tested statisti call y, reta il a nd
whol esa le price indexes o f H ousehold Furn is hin gs showed th e closest relati onship . In th eir
ca e, nine- tenth s of a give n cha nge in produ ce r
pri ces was refl ec ted in co nsum er pr ices within
6 month s, on th e ave rage . Still , o nl y 43 per
ce nt of th e monthl y va ri ati on in th e C PI Home
Furnishin gs subindex wa ex pl a in ed by changes
in th e WPI H ouse hold Furni shin gs subind ex .
Federa l Reser v e Ban k of Kansas C it y

What's th e Co nn ec tion?

The next closest relationship was between the
CPl Food At Home, and WPI Processed
Food su bindexes. As was to be expected, thi s
res ult showed a very quick response of retail
food prices to price changes at wholesa le. However, once again thi s res ponse was not co nsistent and co mpl ete enough to expl ain more
than 37 per cent o f th e month -to-mo nth va ri at ion s in reta il food prices. The weakes t relation hi p was betwee n th e " Non-Durable Co mmodities Exce pt Food" co mpone nts of th e
C PI a nd the W PI.
Th ere are several poss ibl e reasons why
monthl y change ' in con umer price indexes
do not depend in a close and r~g ular way on
chan ges in wholesa le rricc indexes. T he difl"eren ces in 'Pl an d W PI covera ge and we i 1 htin, or il cms, even fo r "co m pa rab le" com r onents, have ulrcu uy bcc11 noted. /\l so menti on ed, but dese rvi ng of emphas is, is the fac t
th a t ret a ilers do not always pay th e prices
that go into the fig urin g o f the WPJ. Between
th e prices at the fi rst "wholesale lot" level
of tran sact ion an d th e prices retailers face
are middl emen, who may buffer price changes
sometim es, and magnify them other times.
Moreo ver, t he prices that producers list,
rath er tha n the pri ces t hey act uall y charge,
fr equ en tl y are lhe ones th at enter the WPI.
Even if retaile rs were ex peri encing co t
chan ge · d irect ly propor ti ona l to changes in
produce r li st prices, they might choose to hold
back on changing the ir selling prices. Wh y?
Becau se it takes ti me to kee p abreast o f prices
and to ma ke freque nt adj ustments, especia ll y
when man y commodities are involved and on
display wit h " price as marked ." In short ,
the assum ptio n that retai lers price their items
accordin g to a fi xed, ma rkup-over-cost rul e
may require a longer-r un a nd more gene ral
int erpreta tion o f ost. In support of thi s a re
results ob tai ned by cor relati ng annual , rat her
th an monthl y, percentage cha nges in C P[ subindexes with t hose or co mpara ble WPI co m-

Monthly Re vi ew • J une 197 3

ponents. For example, 80 per cent of the annual variation of the price index for CPI Commoditi es is explained by a weighted average
of the coincident and previous year's variation in the price index for WPI Co nsum er
Finished Goods.
SUMMARY AND CONCLUSIONS

Th e Co nsumer Price Index and th e Whol esa le Price Index are valuable indica tors of
general price beh avior . In various way s, however, th eir mea nin gs often are mi sinterpreted
and th eir relationships to each oth er overstated. The co nstru ction of th e CPI does require th e measurement o r th e cost of livin g
of the representative urba n wo rk er fo r som e
initi a l period or tim c. Ovcr tim e, th e comrositi on of' the urban worker's market basket
mu st be kept co nsta nt to in sure that th e Pl
meas ures price change a lone. Thi s means
that th e cost o f livin g is no lon ger being measured, for as incomes, tastes, and selection s
change ove r ti me, and as the pri ce of th e item s
they bu y cha nge, consumers spend differentl y.
The WPI , which measures list prices of commodities at th eir fir st transaction level , sometimes may not mei:ls ure the prices actually
charged by producers, because of di sco un ts .
The WPI may, th er~fore , give a false pi cture
o f what is hap penin g to tru e tran sact ion pri ces
if li st prices are artificially increased to hedge
aga in st th e po sibility of price ceilin gs, for
example. Fin a ll y, the differences betw een the
WPI and the CPI a re too great, and their historical beh aviors too incon sistent, to allow
accurate forecasts of CPI changes ba sed on
WPI changes. Even when comparable . componen ts of the tw o indexes are examined, the
relationship of monthly percentage chan ges
of CPI subind exes to monthly percentage
cha nges of WPI subindexes is not stro ng
enough to permit confident forecasts o r month to- month chan ges in retail prices, given month ly changes in producer list prices.

9

World Wheat Production and Trade
By Richard D. Rees
is an importa nt food co mmodity in
Wheat
many parts of the world , thou gh not ::ill
nations produce it in sufficient quantttt es to
satisfy their total demand . As a result, international trade becomes necessa ry. Traditiona ll y, four countries- the United States, an ada, Austra li a, and /\r 1 entina - have hccn
largc nct ex porters or wheat. In addition,
France expo rts large 4uantiti es, main ly with in th e European Economic ommuni ty (EEC),
while Ru ss ia-despite its poor crop in 1972fr eq uently exports large amounts , primarily to
Eastern European countries and Cuba. Many
other nations also expo rt relatively minor
amounts of wheat whenever excess supp li es
are available. In the United States, wheat has
made a positive con tribu tion to th e balance
of trade for many yea rs. Furthermore, it is an
important so urce of farm in come in the Tenth
Federal Reserve Di strict , where a large proporti on o f the total U . S. wheat cro p is produced.
Rece ntl y, attention has been focused on
U. S. wheat sa le to Ru ssia . To fit those sa les
into the pattern of world wheat producti on and
tr ade, this articl e will show th e trend sin ce 1950
of wheat production by maj or producing nations and will discu ss the major wo rld markets. It will also outline the various international trade agreements that ha ve regulated
many wheat sa les. Fin a ll y, the importance
of wheat to the United State and th e Tenth
Di str ict will be discu ssed.

WORLD WHEAT PRODUCTION

Th e actual beginning of whea t production
1s hidden in history. However , with the dis10

covery of carbonized remains of wheat kernels at the site of an ancient settl ement in north ern Iraq, scientists have been ab le to trace the
existence of wheat to the period 6700 B.C.
Today wheat is grown in a wide range of
geograp hi c loca tions , thriving in a variety or
soi l cond itions, altitudes, clima tes, and rain rail an.: <1s . Wheat vurictics vary in protein content and thus in their usage. Soft whit c whca l,
at the low end of the protein sca le, is used primarily in ca kes, cookies, a nd cracke rs. Winter
wheat, in the intermediate- to- hi gh protein
range, is used in all-p urpose nours, breads,
a nd rolls . Sprin g wheat, including durumwhich is relati vely high in protein-is used in
macaroni, spag hetti, no odles, breads, a nd is
blended with lower protein wheat for bread
nour. All classes are grown in the Uni ted States
wit h winter wheat being predominant. Winter
wheat varieties arc widely grown in the wor ld
while white whea t is grown mainl y in We tern
Europe, Austra li a, and the Pacific region of
the United S tates. Sprin g wheat is grown primarily in the Dakotas, Montan a, Minnesota,
Canada, Ru ss ia , C hin a, a nd Europe.
Annual wheat production tends to nuctuate widely within individual countries because of va rying weat her conditions and different governmental po licies that are used to
limit production during periods o f surplu ses.
Table I ou tlines world production by major
producer coun tri es sin ce 1950-th e sta rt o f
th e fir st Internationa l Wheat Agreement.
World whea t production has in creased more
than 80 per cent si nce 1950, from 6 billion bu shels to 11 billion bushels estima ted for 1972. This
5 bi lli on bushel increase in total produ ction is
la rgely attribut ab le to a 2 I /4 bi llion bu shel
Federal Reserve Bank of Kan sa s Ci ty

World Wheat Production and Trod e

Table l
WORLD WHEAT PRODUCTION *
(millions of bushels)
1950-54

1955 -59

1960-64

1965-69

Average

Average

Average

Average

1,095
466
226
167
1,954

U.S.S.R.
Eastern Europe
P oplc' Republic of China
Total C ntr a l Plan Co un t ri o

1,240
503
672
2;4 15

50
867
102
338
28
1,385
1,911
556
880
3,347

1,222
538
263
305
2,328
51
957
121
351
32
1,512
1,842
630
779
3,251

1,425
681
238
387
2,731

Japan
EECl
United Ki ngdom
Other We stern Europe
Republic of South Africa
Tota l Developed Importers

1,094
536
216
181
2,027
53
743
95
294
24
1,209

143
17 1
951
1,265

138
185
1,071
1,394

7,951

8,485

United States
Canada
Argentina
Australia
Total Major Exporters

R maining Latin Am rico
and Coribb an
Remaining Africa
Remaining Asia and Pacific
Total Less Developed
Total World

114
158
824
1,096
6,747

1970

1971

l972t

1,618
530
209
318
2,675
16
1,250
177
431
61
1,935
3,009
1, 105
882
4,996

1,560
507
239
250
2,556
11
1,232
163
407

2,458
883
856
4,197

1,352
332
181
290
2,155
17
1,084
156
367
51
1,675
3,039
838
900
4,777

163
204
1,341
1,708
10,357

222
235
1,633
2,090
10,697

198
262
1,804
2,264

194
328
1,867
2,389

11,870

11,041

37
1,113
135
400
36
1,721

N.A.

1,813
2,289
1,098
896
4,283

•Years shown refer to year of harvest in the Northern Hemisphere.

t Preliminary .
1 European Econo mic Community consists of Belgium, Fronce, Italy, Luxembourg, Neth erlands, and West Germany .

N.A. - Not available.
SOURCE: U. S. Deportment of Agriculture.

increase in the Central Plan co untries of Russia, Eastern Europe, and Co mmunist Asia,
and a I I /4 billion bushel incrca e in the less
devel oped nations. A part or the increase in
the less developed nations can be attributed
to the so-called "Green Revolution" which
introdu ced high yie lding, em i-dwarr wheat
varieti es into Asian a nd Nor th African countries in the l 960's. Over this same period, the
developed importing nations and the major
exporting nations each increased output about
700 million bushels. With production that recently reached 3 billion bushels per year, Rusia is by fa r the largest producer of wheat in
the world , with the U nitcd S tates second. In
fact , despite Ru sia's well pub li cized crop failure in 1972, when output declined by one-fourth
relative to a yea r earlier, Ru s ian production
or an e tima tcd 2.3 bil li on bushels was 700 million bushels more than the largest U. S. crop
on record .
M on th ly Revie w • Jun e 1973

INTERNATIONAL TRADE AGREEMENTS

Trade agreements 1 between countries exis t
primarily to facilitate the sa le or a given commodity at an eq uitable and somew hat stable
price and to av id overproduction in the wor ld .
Today , a large share of internationally traded
wheat is contracted for under a wheat agreement. But this has not always been the case.
Efforts to establish the first international
wheat agreement were begun in 1931. Negotiations were unsuccessful until the 1933 International Wheat Conference was convened with
wheat prices at a record low. That year, an
export quota arrangement was agreed upon
that establi hed quotas for eac h count ry stating
the quantities that cou ld be exported within a
range or negotiated world prices. Obviously,
for the ys tem to be workable, the full coI / The disc ussion in this secti on is based largel y on inform ation in

Commodity Policy S tudies, Number 20 of the Food and Agriculture
Organization, United Nations.

11

World Wh ea t Prod uction and Trade

operation of all the major exporting co untri es
was imperative. However, record production
led one major exporting country to exceed its
expo rt quota, thus doomin g the Agreemen t
during its first yea r.
Effo rts to arriv e a t a new ag reeme nt were
interrupted by war in 1939. In 1942anewgroup
was fo rm ed-th e Intern at ion a l Wh ea t Co uncil (I WC)-consisting of Argentin a, Au st ra lia,
Canada, a nd the United States as expo rt ers
a nd the United Kin gdom as an impo rter. The
effo rts of this gro up resu lted in th e eve ntua l
ratifica ti on of the 1949 International Wh eat
Agreement ( I WA ) by 38 co untri es . It was a
multilatera l co ntract agreement in which membc r exporting nati ons a ~recd to providc de fin ite
quant iti es or wheat at a pri ce no hi gher than
the stated max imum , while th e member im porting nati ons ag reed to purcha e a definit e
quantity or proportion of th eir import s from
member exporters . The agreement set price
limits of $1.50 a nd $1.80 per bushel, based on
Ca nadian No. 1 Manitoba N orthern , fo r th e
first yea r of the four -y ear term , with the minimum declinin g 10 cents durin g each succeeding
yea r. Conspicuously absent fr om the list of exporting nation s was Argentina, which fe lt that
th e max imum pri ce was too low ; and the
U.S.S.R., which objected to its propo ed quota .
T he basic provisio ns of th e 1949 I WA were
not cha nged when it was renewed fo r threeyear term in 1953 a nd aga in in 1956. However, the 1953 Agreement ra ised th e pri ce ran ge
to $1.55 and $2 .05 per bushel si nce mar ket
prices generall y were above th e Agreement
prices during the term of the previou s I WA .
By the time the 1953 IW A was adopted, however, wo rld wheat suppli es were beginning to
ex pand , resultin g in lower mark et prices. Coneq uentl y th e United Kin gdom recognized th e
possib ility of hav in g to pay hi gher prices und er
the I WA and wi thdrew from th e Ag reement.
The 1956 I WA lowered pri ces 5 ce nts per bu shel a nd added Argentina and Sweden to th e li st
of export in g nati ons.
In 1959, a modifi ed multil ateral co ntrac t
agreement was adopted . Exporting co untri es
12

were ex pected to suppl y all the commercial
req uirements of the importing countries at
prices wi thin the designated range of $ 1.50$1.90 per bu shel. Importers were co mmitted
to buy a specified pe rce nt age of their total
commercia l purchases from mem ber countries durin g each crop yea r when pri ces were
below the Agreement max imum price. If th e
market price should reac h or exceed th e ma ximum , exporting nations we re ob li ga ted to supply onl y a base quantity that wou ld be determined by th e impo rtin g nati ons' co mm ercial
purchases from the export in g member nati ons
in a rep rese ntative average period. At the
sa me time, imp rter were a ll owed to purch·1sc their co mmcrcial requirem ent s from
any sou rce includin g nonmcmbcrs . Ita ly, Mex ico, and Spain joined the 1959 1W /\ as expo rters and th e Uni ted Kingdom rejo in ed as an
importing nation .
The l WA was renewed in 1962 for anoth er
three-year term and the basic prices were ra ised
12.5 cents per bushel. The U .S.S .R . j o ined as
a n exporti ng member. Th e Agreement was renewed for one-year term s in 1965 and 1966.
In 1968 a new three-yea r pl a n-the International Grai ns Arra nge men t (IGA)-went
into effect. The IGA co nsisted of two legal
branches-the Wh eat Trade
onve nti on
(WTC), which co ntroll ed intern ati onal trade
or wheat, a nd the Food A id o nventi on (FA ),
wh ich governed interna ti ona l shipm ent of
food gra in s und er a id program s. Th e WTC
repl aced the basic Manitob a No . I pri ce ra nge
with a schedul e of prices that were significantly higher than the 1962 I WA . The plan
took effect, however, at a time of rec ord
wor ld whea t production and declinin g import
req uirements. Since th e WTC provided no asur ances of access to wo rld ma rk ets, a nd with
th e sup ply-dema nd situati on then fo rcin g wheat
prices dow n, the WTC pri ce minimums were
violated a lm os t imm ediat ely. It beca me apparent that th e new IGA co uld not co pe with
wo rld whea t surplu se a nd , at th e sa me tim e,
ma intain stab le prices within th e stated ran ge
of th e WTC.
Fed er al Reser ve Bank of Kan sas City

World Wheat Production and Trode

The inherent weakness of the 1968 IGA
pricing policy resulted in the deletion of price
an d quantity provisions from the IGA when
it was ren ewed for another three yea rs in 1971 .
The new IGA maintained the WTC an d FAC
structure and set up a Market Conditions Advisory Subcomm ittee au thorized to co ntinuous ly revi ew the world situation, and to in fo rm th e In ternationa l Wheat Co uncil of any
threat of mar ket insta bility. The xecutive
Committee o f the ounc il will then as ess the
situation and attempt to find a so lution acceptable to the participating nations. In addition the Council has the duty of exa minin g
prices an d trade quantities in orde r to expedite th e ne 1 oti ations for a new ag reement. Thi s
elTcctivcl y keeps th<.: door ope n for wh<.:at trad in l nat ions to contin ue see kin g a workable
wh ea t a 1 reemcnt in the future.
On e final point concerning ex port subsidie
should be made . While su bsidies lie outsid e
th e domain of trade agreements, many co un tries have subsidized their shipments in order
to comply with the terms of the agreement.
UTILIZATION FACTORS

Among factors directly affectin g world
ut ilization of wh ea t are trends in population
and in come, production of other cereal grain s,
substit ution or wheat for other ce rea ls in hu ma n diet , increased reliance on wheat as a
cattl e feed, and larger wor ld ca ttle numbers.
Alth ough it is outside the scope of this a rticle
to an a lyze these factors in detail, some attention sho ul d be focused on a few determi nants
of ut ilization.
A cha:.ge in world popu lat ion is probably
the m::i.jo r factor affecting tota l wheat co nsumption . Wor ld population in 1972 was es timated
at : .8 billion, as shown in Tab le 2, an increase
of 52 per cent since 1950. About two-third f
the world's people live in the less developed
countri es of Latin America, Africa, and As ia.
These low income co untries experienced a 64
per cent increase in popu lation since 1950.
Wh ere per capita incomes a re low, cerea l gra ins
such as rice a nd whea t pro vide a major proMonthly Revi ew • Ju ne 1973

Table 2
WORLD POPULATION BY SELECTED COUNTRIES
(Population at midyear in millions)
North Ame rica
United States
Canada
South America
Brazil
Venezuela
W estern Europe
EEC
Uni ted King d om
Ea stern Europe
Czecho slovak ia
G er ma n Dem. Republic
Polan d
U.S .S.R.
Asia
China, Peop l ' Repub lic
India
Japan
Paki stan
Rep ub lic of Korea
South Vietnam
Afri ca
Un it ed Arab Republ ic
Ocean ia
Total World

1950
218 .0
152 .3
13.7
110.0
52.0
5.0
286 .0
155 .3
50.3

1960
268 .0
180.7
17 .9
144.0
69.7
7.4
308 .0
169.5
52.4

1970
319 .0
205.4
21.4
192 .0
95 .3
10.4
336.0
187 .l
55.7

1972
330 .0
209 .2
22 .2
20 1.0
98 .4
11.5
340.0
189.l
56 .6

106 .0
117.0
126.0
129 .0
12 .4
13 .6
14.5
14. 9
17 .2
16.2
16.2
16 .3
24 .8
29 .6
32 .8
33.7
180 .0
214 .0
243.0
248 .0
1,355 .0 1,645 .0 2,056.0 2, 154 .0
532 .9
6 36 .0
746.5
786 .1
358 .3
429 .0
550.4
584 .8
82 .9
93 .2
103 .5
106.0
79.7
100.2
130.0
146 .6
20.4
24 .7
3 1.8
33 .7
11.6
14. l
18 .3
18.7
217.0
270.0
344 .0
364 .0
20 .5
25 .9
33 .3
35 .9
13 .0
16.0
19.0
20.0
2,485 .0 2,982 .0 3,635 .0 3,786.0

SO URCE: United Notions .

portion of the per capita calorie intake.
Income change is another important determinant of wheat utili za tion. The income
elasti citi es for wheat in the less developed countries are ge nerally higher than in the more developed co untries. Hence, a incom es rise in
th e developin g region of the world , so me increase in wh ea t consumption can be ex pected.
In addition, in those areas where rice traditionall y has been a majo r part of the diet, rising incomes have induced some substituti on
of higher protein wheat for rice. And when
such countries experience a poo r rice production year, dema nd is fr eq uently shifted
to wheat. Wheat co nsumptio n in less developed nation a lso has been di rectl y in0u enced
by co ncess ional wheat sa le -sale other th an
those for cas h do ll ars.
Finally, as na ti ona l inco mes co ntinue to
increase, many na ti ons begin to increase their
mea t consumption, req uiri ng an expansion of
livestock numbers an d feed production. With13

World Wheat Production and Trade

Table 3
WORLD WHEAT AND FLOUR * IMPORTS
FROM ALL SOURCES BY AREA OF DESTINATION
( millions of bushels)
Year Beginning July 1
1950-54 1955 -59 1960-64 1965-69
l97l t
77.2
62 .5
178 .5
180.0
150.6
144.5
132 .3
165 .3
224.0
187.4
260 .9
194.3
246 .2
180.0
106.6
124.9
l l.0
662 . l
654.0
598 .9
150. l
183.7
176.4
199. l
257.2
257 .2
4.7
3.7
3.7
1,927.5 1,987 .8 1,925 .3

Average Average Average Averag e

--- ---

North America
South America
EEC 1
Other W estern Europe
Eastern Europe
U.S.S.R .
Asia2
Japan
Africa
Oceania
Total World

48 .8
90.9
202.2
266.9
78 .2
4.3
151 .l
67.2
57.6
7.8
975 .0

38 .2
100.3
189.2
260 .2
184 .5
l l.l
236. l
89. l
81 .9
9.7
1,200.3

- -49.7
- - -63.6
131.9
165 .3
243 .3
229 .6
95 .8
541 . l
115 .6
131 .4
7 .9
1,711 .6

1970

• Flour In wh o t groin qulvo l nt .
limlnory .
1Exclud e, in tro EC shlpmcntl .
2 Excludes Jopon .

t Pr

SOURCE: U.S. Deportmen t of Agriculture .

in a given price ran ge, wheat often beco mes an
important feed ingredient.

wheat exports. Historically, these countries
have supplied approximately three-fourths of
the wheat sold internationally. With France
and Russ ia included, the six nations account
for about 90 per cent of world ex ports. Chart
l depi cts the trend since 1950 for each of the
principal exporting co untries.
The United States traditionally comman ds th e larges t share of the world export
mark et. Since 1950 the U.S . share has been
fa irl y co nsistent ly in the low to upper 30 per
cent range with so me a nnual nuctuations in
the 20's and severa l over 40 per cent. U.S .
wheat expo rts go to many parts of the world
(Tab le 4). Japan, at a lmost 8 1 million bu hels,
wa the largest ma rk et for U . . wheat in 1971 .
The Republic or Korea, th e , - , Paki stan ,
Ind ia, the United Kingdom, a nd Venezu ela
al o are large markets. A Ith ough Ru s ia i
the mo t important bu yer during th e current
fiscal yea r, thi market traditionally has not
been a major outlet for U.S. wheat.

MAJOR WHEAT MARKETS AND EXPORTING
COUNTRIES

A number of dramatic increases in world
wheat import requirements are evident in Table
3. The large population areas of Asia, Africa,
a nd South America represent a large potent ial
for wheat cons umpt ion, and-as meas ured by
wheat imports- these area s have dr a mati call y
increased wheat consumption in recent years.
African imports during the most rece nt yea r
for which data are available were about 4 ½
times greater than the average during 1950-54.
As ian wheat imports were 4 times larger while
South America doubl ed its wheat imports.
The largest single-country markets in recent yea rs have been India, People's Republic
of China, Un ited Kin gdom, Japan , Brazil,
United Arab Republic, and We t German y.
During the 1965--69 period , f r exa mple, these
co untries accounted for almost one-half of
wor ld wheat import .
The " Big Four" exporting nations- the
United States, Canada, Australia, a nd Argentina-account for a major share of world
14

Table 4
U.S. WHEAT AND FLOUR * EXPORTS
BY DESTINATION
(millions of bushels)
Year Beginning July 1

W estern Hemi sph ere
Brazil
Venezuela
Oth ers
Western Europe
EEC
United Kingdom
Others
Eastern Europe
Asia
India
)apan
Republic of Korea
Pakistan
South Vi etnam
Others
Africa
O cea nia
Total

1960 -64

1965 -69

Average

Average

1970

1971

94.0
46 . l
9 .5
38.4
105.9
57 .5
14.9
33 .5
70.2
346 .l
145.4
48 .4
19. l
48 .2
3.3
81.7
99 .5
0.1
715 .8

109.5
37 .5
20 .6
51.4

107.4
29 .8
21.0
56.6
147.8
74.7
44 .8
28 .3

120.6
17 .0
23 .8
79 .8

32 . l
381.9
53 .2
105.7
61 .9
24 .0
10.2
126.9

l.3
348 .8
27 .9
80.6
64 .5
32 .9
10. l
132.8
70 .2
0 .1
621.2

93 .6
62 .5
16.6
14.5
17.6
408 . l
157.7
77 .3
36 .2
41.4
6 .3
89 .2
67.4
0.1
696 .3

59 .0
0 .1
728 .3

80 .2
39 .6
25 .5
15 . l

• Flour in wheat grain equivalent .
SOURCE : U.S. Deportment of Agriculture.

Federal Rese rv e Bank of Kan sa s City

W orld Wheat Prod uction and Trade

Chart l
WORLD WHEAT AND FLOUR * EXPORTS BY PRINCIPAL EXPORTING COUNTRIES
Millions of Bushels

2400

Millions of Bushels

r----.--,----,----,--,---,--.------,----,----,----,--,---,--.-----,---,---,--,--.------,---,.---,

Year Beginning July I

2200
2000

Total

2400

2200

World Exports

2000

1800

1800

1600

1600

1400

1400

1200

1200

1000

1000

800

800
600
400
200

:~L ···········•t·····•········
1950

'52

'54

0

'56

'58

'60

'62

'64

'66

'68

'70

'72

• Flour 1n wheat urmn t:qu 1volt•n f

SOURCE U S Deporlrnen l a l Agrrcullure

CONTRIBUTION OF WHEAT EX PORTS TO
U.S . BALANCE OF TR ADE

Wheat and wheat fl our exports, including
ship ments under Government programs, accoun t for a significa nt po rtion of U.S . agricultu ral export value. Since 1960, the value
of wheat and flour exports has a veraged well
o ver $ I billion a year (Tab le 5). After reaching
a peak in 1963, the tota l va lu e of shipments
dro pped in th e ensuing years, re fl ectin g a declin e in U.S. whea t prices. H o wever , shipm ents in the current yea r wi ll esta bli sh a record
hi gh .
I n earlier years, U.S. wheat shipments
under Government aid progra m s made up a
substantial portion of the tota l. Since the midl 960's, however, concess io nal wheat sales
have d ropped in value and now a re primarily
lon g- term credit sales ra th er than sales for
soft c u rrencies or outright con tribution . Durin g this time, wheat a les for d o ll a rs have increa ed while the overall U. . tra de ba lan ce
ha s d eteriorated sharply. From a s urplus balance of $6.9 bi llio n in 1963, th e trad e balance
fell each succeeding yea r befo re rebounding
modes t ly in 1969, o nl y to drop into a deficit
M onthly Review • June 1973

position in 1971. Since the United States imports very little wheat each year, wheat sales
represent a net addition to the U.S. balance
of trade position. Therefore, without wheat
exports, the U.S. trade deficit in 1971 would
have been more pronounced.
WHEAT IN THE TEN TH DISTRICT

The Great Plains area, centered in th e
Tenth District, long has been recognized a s
the Nation's breadbasket. In 1972, the Di strict produced 50 per cent of the Nation 's
winter wheat crop, nearly the same proportion as in 1950 when the District's share was
51 per cent. In terms of total wheat production, which includes spring wheat and durum,
the District produced 39 per cent of the Nation's crop last year.
Wheat production also represents a relatively important share of the District 's farm
income. In 1971, wheat contributed about 8
per cent of the District's cas h receipts from
farm marketings-$792 million vs. $572 million in 1950. Though this is still a ignifica nt
portion of total income, it is a substantial reduction from earlier years when it reached 23
per cent in 1954 and was 15 per cent as re15

World Wheat Production and Trade

Table 5
CONTRIBU TIO N O F W H EAT EX PO RTS
TO U .S. BALANCE OF TRADE
(millions of dollars)
Year Beginning July 1
Wheat a nd Wheat Flour Exports
Under
Government
Commercial
Programs
Sales
Total

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971

792 .1
847 .1
840.3
834 .0
973 .5
852 .9
529.7
634 .3
403 .6
390 .5
383. l
371 .7

359 .0
438 .9
317 .6
683.8
266.8
549.4
782 .1
643 . l
489 .6
551 .l
817 .6
675 .3

l , 151 . l
1,286.0
1,157 .9
1,517.8
1,240.3
1,402 .3
1,311 .8
1,277.4
893 .2
941 .6
1,200 .7
1,047 .0

Agri cu ltural
Expor ts

M erchandise
Exports

Merchandise
Imports

Trade
Balance

4,946
5, 142
5,078
6,068
6,097
6,676
6,771
6,311
5,741
6 ,721
7 ,758
8 ,051

20,507
21,447
21,638
24,718
26,331
28,886
30,819
32,195
35,221
41 ,059
43 ,663
44,864

14,161
15,687
16,398
17,776
19,731
23,295
26,427
29,613
34, 175
38,219
42 ,724
50,055

+6,346
+5,760
+5,240
+6,942
+6,600
+5,591
+ 4,392
+2 ,582
+1 ,046
+2 ,840
939
- 5, 191

SOURCE , U.S. Deportmen t of Agriculture .

cently as 1962. Lower wh eat prices-$ 2 .1 2 in
1954 and $2.04 in 1962 vs . $1 .31 in 1971-and
increased cattle production in th e Distri ct
have con tribut ed to the declining ratio of wh eat
marketings to total farm marketings. Ho wever, wheat contributed more than 28 cents of
every crop marketing dollar in 1971 . Thi s
ra tio is even more dra mati c in ce rta in Distri ct
sta tes- in 1971 wh ea t re pre ent ed 53 ce nts o f
each Ka nsa crop mark etin g d o ll a r a nd 45
ce nts in Oklahoma .
ol o rado a t 26 ce nts,
N e bra s ka and Wyomin g a bo ut 20 cent s eac h,
Mi so uri 6 cents, and N ew M exi co a bout 5
cents comp lete the Di stri ct. Fo r th e Nati o n
in 1971 , wheat accounted for 9 pe r cent of crop
ca sh marketings and 4 per cent of tot a l cas h
receipts from farm marketings.
Prior to the massive 1972 wheat sa le t o
Russia , approximately one-half of the U.S.
wheat production , on an average, moved into
inte rn a tional trade chann els. Co ns iderin g
th e importance of wh eat to th e Di tri c t , U. S.

16

wh ea t sa les in th e wo rld mark et trul y a re impo rtan t to th e Dist ri ct 's farm economy .
CONCLUDING REMARKS

Since data by country for the current year
are not avail a ble, th e effect of the recent U.S.
whea t sa le to Ru ss ia is not stressed in thi s
an a lys i . It is kn ow n that Ru ss ia purch a ed
a ppro xim a tely 400 milli o n bus hel s o f wh eat
fr o m the United S tate aft e r mid - 1972 . To put
th e size o f thi s al e in bette r pe rspective, thi s
re pre e nt s o ne- fourth o f th e U .S. crop in 1972
a nd is a n am o unt equ a l to tw o -third of th e
wh eat exported by th e United States a year
earlier. Thi s emphasizes the point th at not a ll
nation s produ ce enough wheat to satisfy domestic demand and that new situ a tions or
emergencies c an alter traditional patterns.
In thi s case, Ru ssia ex perienced abnormal
weath er th a t sev erely c urtailed production
a nd required purc ha es in th e inte rnation a l
m a rk et.

Fe d era l Reser ve Bank of Kan sas Ci ty