Agricultural prices

Rent or interest on the money invested in land is a legitimate item in cost of production—so far as the individual farmer is concerned. But society is likely to reach a time when it will assert the right to object to paying a price for corn which will permit of paying a very high rent, which in turn is used to support very high land values.

Society may say, in effect: Your high land values are just as vicious as watered railway stock, and you have no more right to expect a five per cent return on the inflated value than the railroads have to expect such a return on their watered stock.

Society may be expected to pay a price for corn which is established by competition between farmers in this country and in the Argentine, and by the need of Europe for our pork products. This price doubtless will bear much the same relation to the general price level as before the war. It may be high enough to permit of corn belt land values as they existed in 1920, or even higher values. Or it may be low enough to compel a reduction in corn belt values and farm-hand wages.

In the case of a severe drop in corn prices, it is conceivable but not probable that corn belt farmers will organize sufficiently to compel the return to a price high enough to maintain 1920 land values and farm-hand wages.

It is believed that under conditions of free competition it will be necessary for corn to sell for about 85 cents a bushel, on a basis of December 1st farm valuations in the corn belt in the ordinary crop year, in order to maintain land values as they existed in 1920. This means that prices might go as low as 70 cents a bushel in years of big crops, or as high as $1 in years of small crops. It is also assumed that labor at harvest, without board, will settle down to about $4.25 a day, which was the 1918 level. If labor at harvest, without board, continues at $5 a day, which was the 1919 level, it will be necessary for corn to sell for about 88 cents a bushel, on a December 1st farm basis, in order to maintain the 1920 level of land values and farm-hand wages.

It is recognized that this prediction may be wide of the mark in case farmers are able to organize themselves for selfish purposes as effectively as capital and union labor. For forty years preceding the war, the farmer paid his regular monthly labor a sweated wage, and, in effect, sold his own labor just as cheaply. During the war, the farmer had a taste of a higher standard of living, and, having had this taste, he will be loath to let farm product prices slip back to a point where he will be reduced to his former state or even lower.

It is suggested as the only effective way out of the difficulty that farmers organize into powerful bargaining organizations, which, on occasion, can practice sabotage as skillfully as capital or union labor. But, in addition, and above all, it is absolutely necessary to become extraordinarily efficient. We must continue to apply our best brains to production problems, perfecting methods which will enable us to produce corn 10 cents a bushel cheaper in Iowa than in Argentina.

One of the strongest arguments for more stable prices is the effect on soil fertility. While the best farmers will try to maintain the fertility of their land, no matter what may be the economic outlook, the bulk of our farming population will not make any serious efforts along this line as long as the price outlook is uncertain. When prices are advancing, the tendency is for millions of acres of farm land to find their way into the hands of speculators and investors, who hold for a rise, and who take no interest whatever in the application of lime and phosphate or the growing of clover. When prices are tending downward, there is a tendency to economize to the limit. Even those farmers who normally use fertilizers are likely to postpone purchases until next year or the year after, in the hope of lower prices. It is only under a system of relatively stable prices that we may expect really effective attention to be given to soil fertility problems by the bulk of our farmers. The quicker we can get onto a stable price level, the more effectively will the fertility of our soil be conserved.

It is common observation that live stock farming maintains the fertility of the soil more effectively than grain farming. In the corn belt, live stock farms ordinarily produce five bushels more corn per acre than grain farms. Two great obstacles to live stock farming are tenancy and price uncertainty. The man of small means who has been farming for himself for only a few years can not afford to take a chance. He does not know whether or not hogs will be at a price next year which will furnish a good market for corn, and he therefore plays safe by breeding only three or four sows, instead of the five or six which he might very well handle. Unquestionably, the farmers in the corn belt would be justified in keeping more live stock if the price of live stock should represent cost of production day by day and month by month. In fact, corn belt farmers, as an average of a five-year period, could probably afford to produce both hogs and cattle at lower relative prices than were customary before the war, if only prices were more nearly stable, if they could feel reasonably sure of getting a price more nearly representing production cost.

The maintenance of the fertility of our soil is a matter of national concern. In the long run, it is of more vital interest to the people of the cities than to the farmer. Men engaged in industrial enterprises should do what they can to favor such adjustment of prices as will make it to the advantage of the farmer to keep his land in good heart, because that will make for larger production and more economical production.

MEASURING TOTAL CROP PRODUCTION

This chapter does not follow the same line of thought as the other chapters. It has an indirect bearing, however, and we believe the suggested method of measuring total crop production to be of some value.

Small crops ordinarily bring the farming class more money than large crops. Nevertheless, in the long run big crops mean prosperity to the country as a whole. To judge just when crops as a whole are large and when they are small, a method has been devised, which may be illustrated as follows:

In 1918, the United States produced 2,582,814,000 bushels of corn, 917,100,000 bushels of wheat, 89,833,000 tons of hay, 11,700,000 bales of cotton, etc. Now, to ascertain total crop production, it is obviously impossible to add together bushels, tons, bales, etc. We can add together the value of the crops, but the price level shifts from year to year, and this method is not satisfactory.

Now, the 1907–1916 ten-year average price of corn was 61 cents, of wheat 96.2 cents, of hay $11.49 a ton, of cotton $59 a bale, etc. A ten-year average illustrates the relative economic emphasis. These prices are therefore used as constant factors, applicable to any crop year.

The 1918 corn crop of 2,582,814,000 bushels, converted into economic crop units by multiplying by 61, equals 157,500,000,000. The 1918 wheat crop of 917,100,000 bushels, multiplied by 96.2, equals 63,600,000,000. The same thing done with the thirteen leading crops gives 559,900,000,000 crop units produced by the United States in 1918, or 5,270 crop units per capita.

The per capita production of crop units since 1880 has been as follows:

Note how constant has been the productive power of the United States in economic crop units per capita, decade by decade, since 1880. Note that since 1910 crop production has more than kept pace with the increase in population.

In the ’80’s we exported the equivalent of about 650 economic crop units per capita (in this we convert pork exports into corn), which left, roughly, 4,500 economic crop units per capita for home consumption. In the fiscal year ending June 30, 1919, we exported about 750 economic crop units per capita, which left, roughly, 4,500 economic crop units of the 1918 crop for home consumption. During the decade ending 1919 there has been an average of about 4,800 economic crop units per capita left for home consumption. It was probably necessary to retain more economic crop units per capita at home during the last decade than during the ’80’s, because of the smaller live stock production per capita.

From the standpoint of production per farm, there has been a tremendous increase every decade. As an average of 1880–1889, the production per farm was 66,420 units, as compared with 67,990 units for the 1890–1899 decade, 71,600 units for the 1900–1909 decade, and 81,000 units for the 1910–1919 decade. In response to the higher price level, the productivity of the average farm has constantly been increasing. If both the general price level and the price of farm crops had been the same in the 1910–1919 decade as in the 1900–1909 decade, the probabilities are that the average production per farm would have been about 73,000 economic crop units instead of 81,000. If by the 1940–1949 decade we have a population of 150,000,000, and if Dun’s index number at that time is $170, it will be necessary to pay at Chicago an average of about $1.80 for wheat, $1.15 for corn, and 65 cents for oats, in order to call forth as much production per capita as was called forth by the prices paid during the past forty years. When Dun’s index number is as low as $170 (at this writing, in early 1920, it is $244), $1.80 for wheat, etc., will be very high relatively. Rather than pay such a high relative price, the consumers of the United States will probably turn to Argentina and other countries where farmers produce food cheaply by living on a lower standard. The position of the United States, rising out of the world war, whereby she is the creditor nation of the world, will favor food importations.

It is a commonplace among business men that good crops mean good business. The effect, however, is not as close as they imagine. The short crop of 1901 did not affect the business world till 1903 and 1904. The short crops of 1892, 1893 and 1894 did not have full effect till 1895 and 1896. A single crop year which is only slightly below average may have no effect whatever on business. But when three crop years average below normal, there is almost certain to be some effect on business. From 1903 to 1919, the correlation between crops and the price of securities on the stock exchange was about .53. Professor H. L. Moore, in his book on “Economic Cycles,” finds between crop yields per acre and pig iron production a correlation coefficient of .72, pig iron production lagging about a year behind crops.

Big crops do mean good business, altho they mean prosperity to the farming class chiefly in an indirect way. A small crop generally brings farmers more money than a large crop, but small crops over a period of two or three years cause business depression and this reacts on farmers.

The problem of both business men and farmers is to devise some means of giving farmers as a class a financial interest in producing big crops rather than small crops.