Farm Inputs vs. Prices Received for Crops

Farm Doc Daily

Type: Article
Knowledge level: Intermediate

Farm Table says:

US Research,but interesting work on ratio of crop prices to farm input prices adjusted for farm input productivity.

What is the problem?

This article examined and detailed the differential trends in crop output and farm input prices that may draw implications for risk management and farm policy.

What did the research involve?

It examined 3 variables which are the price index received by U.S. farms among the different crop types they produce, the price index of U.S. farms costs for farm production puts and more factors, and the total factor productivity of the U.S. farm sector. It started from the first year (1948) up to the last year (2009) where the productivity data is available. The U.S. Department of Agriculture (USDA), and National Agricultural Statistics Service provided the data on prices while the USDA and Economic Research Service supplied the data on productivity.

What were the key findings?

  • the highest ratios occur in 1973, 1974, and 1975, or during the prosperity of the 1970s except for the 1980s that got less than 100% which is said to stem from the 1970s prosperity. The 1981 Farm Bill that increased support prices made the adjustments even worse
  • no trend occurred in the crop output prices to farm input prices ratio that was adjusted for input productivity. This prompts a risk management for the input productivity while uninviting large debt. Moreover, the similarity between the two variables advocated that the optimal beneficiaries of extended farm safety net support produce farm inputs. Nonetheless, a less than 1% linear trend of the variation in the ratio existed. Additionally, the ratio averaged 99% all throughout the years 1948 to 1972, as well as since 1996
  • in the U.S., major changes have occurred in their crop sector and their farm safety net since 1996
  • moreover, U.S. had unavailability with acreage set-asides and floor on prices and had few public stocks
  • agronomists focused on the land price that benefits the farm programs and the input providers because these extended farm supports to improve the ability to buy inputs that results in higher prices of input
  • the higher input prices decrease the international competitiveness of U.S. farms and increase the U.S. farm products costs to U.S. consumers but illustrated in figure 3, from the 3 periods of 1967-1972, 1978-1983, and 1998-2003, the ratio stayed below 100% for 6 years. By this means, there is an extension in the adjustment period beyond the 1-year time window of the current crop insurance program

Final comment

Farms can pay more for inputs who have increased productivity. Higher productivity means more output is generated per unit of input. Summing it all up, a convenient risk management strategy enables the use of current period farm prosperity for farm productivity without debt improvement.

2013 - United States - Farm Doc Daily
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