100 Questions and 3,000 Answers
President Reagan was quoted as saying that if the game Trivial Pursuit were designed by economists, the game would have 100 questions and 3,000 answers. President Reagan’s quip is the title of a Tidbits feature called . . . “100 Questions and 3,000 Answers.” This feature highlights a question or comment from a reader along with a response. Send questions or comments to rollingeconjay@gmail.com.
Question: How do commodity prices in recent years compare to parity prices?
Response: Parity prices reference federal farm policy which was in place during the 1930s-1960s. The policy goal according to the USDA was “to reestablish prices to farmers at a level that would give agricultural commodities a purchasing power, with respect to the articles that farmers buy, equivalent to the purchasing power of agricultural commodities in the base period.” Parity prices, then, are estimated prices which would provide farmers similar purchasing power to that enjoyed during a 1910-1914 base period. The period 1910-1914 was chosen as the base period because it was one of relatively high prices and prosperity.
Even though parity prices are no longer part of farm policy, the USDA National Agricultural Statistics Service (NASS) continues to calculate them for major commodities on a monthly basis. The NASS estimates the parity price for corn in January was $15.30 per bushel and the parity price for wheat was $20.50 per bushel. Actual average prices for corn and wheat in January reported by NASS were $6.64 and $8.82, respectively. Figure 3 plots the monthly average prices for corn and wheat as percentages of estimated parity prices since 2004. Average prices hovered between 30-50 percent of parity since 2004, only breaking above 50 percent occasionally.
Figure 3. Average Monthly Price as a Percentage of Parity Price
Source: USDA National Agricultural Statistics Service
Looking at the comparison of actual prices to parity prices, one might assume agriculture is not as prosperous today compared to the base period. However, parity prices overlook a critical element in farm revenue—productivity or yields. Yields per acre have increased significantly since 1909-1914. The average corn yield in the U.S. in 2022 was 173 bushels per acre. The average yield between 1909-1914 was 27 bushels per acre. In other words, the average corn yield in 2022 was almost 6.5 times greater than the average yield for the base period. Thus, while prices today are less than parity prices, per acre revenue received by farmers is much greater.
