It is a measure of how wealthy a society we are that hardly anyone pays attention to farm prices besides farmers. Apparent shortages of basic grains, as happened in 2008 that drove prices to historic highs, disregarding inflation, prompt only fleeting media attention.
There is even less interest in world gluts like the current one that is pushing wheat prices to disastrous lows for farmers. Most of us just go to the supermarket and buy what we want and can afford without paying attention to whether the wheat crop was big or small.
This nonchalance on the part of households in modern industrialized economies about the availability of food is an anomaly. Throughout most of human existence, the size of staple crops was crucial to life. This remains true for more people today than many of us realize.
This change results from enormous productivity increases in food production that have driven down real food prices over the last century.
However, inflation, even the relatively benign levels that have prevailed since the mid-1980s, obscure the degree to which the prices of basic food commodities have fallen.
Adjusted for inflation, wheat prices in 2010 probably would hover at about one-fourth of what they were in 1910. Corn, buoyed by ethanol production and less affected by recent bumper crops than wheat, sells for about one-third of what it did a century ago.
Since inflation-adjusted or “real” farm commodity prices have fallen while “real” median incomes have risen, the inevitable outcome has been that the proportion of household incomes devoted to purchasing food has shrunk over time.
However, the fact that we buy more processed foods and eat a higher proportion of food out of the home obscures the degree to which basic foodstuffs themselves have gotten cheaper.
A century ago, buying food took about a third of household income. By 1930, that had fallen to 25 percent and was below 18 percent in 1960. In 1990, food took about 11 percent of household income and now is about 9.5 percent.
This does not mean that acquiring food is not a problem for anyone. Much of the increase in average household incomes over the past 25 years has gone disproportionately to already wealthy households. So for the bottom 60 percent or more of all households, food’s share of the overall budget may have dropped little.
Many low-income families must strain to buy food while covering other necessities even when the economy is healthy. And as always, losing a job can create food acquisition problems in short order. So the fact that staple food prices continue to fall, as does the portion of income that the average family needs to buy food, does not mean everything is hunky-dory. But things are generally better than in the past.
The flip side of declining read food prices for consumers is declining product prices for farmers. Unlike consumers, farmers are acutely aware that the long-term price trend for their products is downward. They are victims of their own collective ingenuity and success.
Unlike much of our nation’s history, however, farmers no longer have lower incomes than the national average. Teasing this out is complicated, because a high proportion of farm families now have substantial off-farm income. And a relatively small fraction of all those USDA deems “farmers” produce a large majority of the total value of farm output.
No matter how exactly one slices and dices the data, it is clear full-time commercial farmers who get most of their income from crops and livestock have annual incomes above the national average and net worth greatly above most other households. The adage “farmers live poor but die rich” still has a lot of truth.
They also generally work very hard, which may be why I no longer am one. And they must absorb enormous risk, including price rollercoasters like that from 2006 to now, up, up and then down again.
In years like 2010, after covering variable input costs like seed, fertilizer and fuel, wheat farmers are not likely to have enough left over to service the debt on their machinery and land. But in the long run their profits, or anticipated ones, are high enough that they themselves keep bidding up the price of land in nearly all areas of the country.
© 2010 Edward Lotterman
Chanarambie Consulting, Inc.