It is common to hear references to the farm prosperity of the 1970s during the current period of farm prosperity. Therefore, this post is the first of a series that will examine various aspects of these two periods of U.S. farm prosperity. The series starts with U.S. crop prices since both periods are clearly associated with large increases in U.S. crop prices.
This article uses 3 variables: (1) the index of prices received by U.S. farms for all the different types of crops they produce, (2) the index of prices U.S. farms paid for farm production inputs, interest, taxes, and wage rates, hereafter simply referred to as farm inputs; and (3) the U.S. Gross Domestic Product (GDP) price deflator. Economists commonly use the GDP price deflator as a broad measure of price inflation in a nation's economy. The data on prices are from the U.S. Department of Agriculture (USDA), National Agricultural Statistics Service while the data on GDP deflator are from the Federal Reserve Bank of St. Louis.
To facilitate comparison of the two periods, the various price measures are indexed, also called benchmarked, to a year that predates the start of the period of prosperity. These benchmark years are 1972 for the 1970 period of farm prosperity and 2005 for the current period of farm prosperity. The latest calendar year for which price information is available is 2012, the 7th year after 2005. As a result, the 1970 period ends with 1979, the 7th year after 1972. There is no definitive way to decide when to start either period and other alternatives exist, but these are reasonable benchmark dates. As more data becomes available for the current period, the periods can be extended, but 7 years provides a long enough period for an initial comparative examination.
Prices paid for farm inputs are measured for the U.S. farm sector, which includes livestock. A prices-paid index for U.S. crop inputs is available, but only since 1992. Since 1992, the correlation between the index of prices paid for U.S. crop inputs and the prices paid for inputs by the entire U.S. farm sector exceeds +0.95, both for the indexes measured in levels and for the year-to-year change in the indexes (+1.0 is a perfect correlation). Hence, available evidence suggests that the results of this examination will likely not be affected by using the prices paid for inputs for the entire U.S. farm sector as opposed to the prices paid for inputs by the U.S. crop sector.