Agricultural prices

Unquestionably there are vagaries in the consuming demand for pork which might make the payment of a cost-of-production price difficult for a time. It is believed, however, that powerful corn belt farmers’ organizations working in co-operation with the packers should be able to educate consumers to the cost-of-production idea, and so far as seasonal vagaries in the demand are concerned, the farmers and packers should be able to come to an agreement providing for paying rather more than the demand price for hogs in times of poor demand and rather less than the demand price for hogs in times of good demand, in an effort to make price meet cost of production rather than temporary demand idiosyncrasies.

It is realized that the difficulties in the way of paying cost of production at all times are even greater than here indicated. The idea, in fact, runs counter to the laissez faire, competitive price system under which business is conducted today. It is believed, however, that in the future more and more attention must be paid to production and less and less to price manipulation. To this end, products must be sold at all times as nearly as possible at the cost-of-production price. There must be no prospect of unusual profit or unusual loss in the production of staple products. We are now referring to industries as a whole. It is inevitable, of course, that certain individuals will make great profits and others will incur losses, even in years when the cost-of-production or ratio price is paid. Full consideration must always be given to the physical facts and to special emergencies as they arise. Standard ratios representing cost of production for an industry may suddenly be rendered out-of-date by a new invention. New situations must be recognized frankly, but at all times the guiding motive should be to pay the cost-of-production price, in order that supply and demand may operate more smoothly.

To give the cost of production price broader sway in our price system does not necessarily involve governmental control. The first step is education in price judging. Even in the grade schools and country schools, ratio methods of price judgment should be taught. In high schools the matter may be carried farther, and it is suggested that not only should the ratio method of price judging be taught in high school, but also the practical use of correlation coefficients and lines of regression in determining prices from business conditions and the supply. In college (and the colleges have been most neglectful in this matter) specific problems should be worked out in great detail. Students in such classes should have access to adding machines, calculating machines, rechentaffels, and other modern devices for making calculations easy and accurate. But the most important thing of all just now is adequate research by colleges, by experiment stations, and by governmental departments. The government and market agencies must continue to improve their statistical records, and research students must study these records with all the refinements of statistical method.

An excellent start along this line has been made by the Harvard University Committee on Economic Research. This committee seems to be concerned altogether with the industrial world. It is essential that the agricultural world be given similar service.

The object of it all is to discover the best possible kind of machinery thru which the law of supply and demand may work to the end that violent fluctuations in supply and demand may be reduced to the lowest possible point consistent with changing weather and unforeseeable accidents. The present price system is not perfect; it can be improved. But before improvements can be made, the present system must be studied with the greatest thoroness. The great weakness of the present price system is that the men who operate it are concerned chiefly with making the greatest possible profit, and not at all with making the law of supply and demand operate smoothly on a price level roughly equivalent to cost of production.

The highest purpose of our price system should be to tell producers truthfully what to do in the future, instead of capitalizing a temporary supply and demand situation to the advantage of certain bright speculators. The $4.50 price for hogs in January of 1908 was a lie so far as it guided the future action of hog producers. So also was the $11 price in March of 1910. Both prices told the approximate truth about a temporary supply-and-demand situation. But both were fundamentally lies. Our whole laissez faire system is full of lies of this sort. Surely we have enough in the way of legitimate physical handicaps such as weather and pests so that we should be willing to run our price system more truthfully.

So far as farmers are concerned, the object of studies of this kind is, first, to play the price game as well as capital and labor; and, second, to co-operate with capital and labor to enforce prices roughly equivalent to cost of production, to the end that supply and demand may operate more smoothly.

It is anticipated that greater emphasis on “cost-of-production price” and less emphasis on “supply-and-demand price” will result in gradually replacing most business men with production engineers and statistical economists. Business men have had profit as their sole motive. What we need is production engineers whose chief concern is production methods, and statistical economists who are able to understand the delicate inter-relations of different industries. It is believed that there is in most men a desire to do their work well, and that this desire will find more complete expression, to the benefit of the bulk of the people, under the guidance of men whose supreme motive is not profit but technical understanding and love of the work to be done. All this concerns the farmer, to the extent that when the industrial world shifts to this kind of basis, he may be more certain of a stable price for his products.

Substituting production engineers and statistical economists for business men means doing away with the chance of excessive gains and excessive losses. And this is proper so far as production of and trade in staple products is concerned.

The only place where the commercial imagination of the old-fashioned risk-taking business men has legitimate place is in working with things which are not staple, such as theaters, luxuries, newspapers, etc.

The man who studies the figures as to receipts, prices, etc., as they unroll day by day and month by month in the great central markets gradually develops market judgment. Of course, there is more in the market than figures, but a thoro understanding of statistical relationships, of normal seasonal trends, etc., is necessary before one can fully appreciate the extraordinary or strategical considerations which are occasionally involved.

It is suggested that those who are really interested in prices should fill in month by month in the blank tables the figures as they become available. Sources of current figures are the Market Reporter, published weekly by the United States Department of Agriculture; the daily live stock papers published at the great central markets; the Monthly Crop Reporters, published by the United States Department of Agriculture, and, so far as retail prices are concerned, the monthly publications of the Bureau of Labor Statistics. It is hoped that eventually the Bureau of Markets of the United States Department of Agriculture will have available exceedingly valuable figures. At present, however, the Bureau of Markets figures are practically worthless because they have not been continued long enough to have sufficient background to enable anyone to judge them properly.

The effort has been made in the prices here collected to cover the period immediately preceding the war quite thoroly, in order that those who are interested may work out normal pre-war relationships.

In all price questions, the problem of grade is involved. Gradually the grade classifications have been made more and more scientific, but even to this day there is haziness in certain products, notably cattle. It is believed, therefore, that the cattle prices are more unreliable than any other. Scientific grading of cattle is possible, and will be adopted as soon as the producers are in position to demand it.

Market figures furnish the laboratory of economics. It is believed that it is as essential for students at agricultural colleges to do laboratory work in economics as it is for them to spend such a large part of their time in the chemical, zoological or botanical laboratories. When the agricultural students judge marketable live stock, it is suggested that they be required to estimate the weight, grade, dressing percentage and probable Chicago price. An ingenious teacher, who is familiar with economics and market grades of grain and live stock, can think of many devices to bring home to his students the fact that the market is a living thing, yet subject to certain laws which are almost as exact as Mendel’s law of inheritance.

The author will appreciate being informed of any mistakes in the figures. Great pains have been taken to make them accurate, but it is inevitable that a few mistakes will creep in.

The following gives a description of grades and sources of information for some of the products for which figures are given in the tables of the Appendix:

HEAVY HOG PRICES AT CHICAGO.

From 1896 to date, heavy hog prices, as compiled by Chas. A. S. McCracken for the Chicago Drovers’ Journal Year Book, have been used. From 1881 to 1895, inclusive, the average of the range of Chicago hog prices, as compiled by the Cincinnati Price Current, has been used. Properly speaking, these prices refer more nearly to average hogs than to heavy hogs. Previous to 1881, prices have been compiled from the Chicago Board of Trade Reports, the grade known as heavy packers and shippers being used so far as possible.

CORN PRICES AT CHICAGO.

No. 2 mixed has been used thruout. From 1880 to 1916, inclusive, the average of the high and low for the month has been taken. Since January, 1917, each day of the month has been averaged. Previous to 1880, averages were taken either weekly or semi-monthly. All figures are derived either from the Howard-Bartels Red Book or the Chicago Board of Trade Reports. The two sources generally agree.

OATS PRICES AT CHICAGO.

Previous to 1876, the grade known as No. 1 was chiefly used. Since 1876, No. 2, Standard or Contract oats has been used. Previous to 1881, averages were taken weekly or semi-monthly. Since 1881, the high and low for the month have been averaged. Previous to 1881, Chicago Board of Trade Reports were used. Since 1881, the Howard-Bartels Red Books have been used, which quote practically the same figures as the Board of Trade.

WHEAT PRICES AT CHICAGO.

Previous to 1883, the grade known as No. 2 Spring was used, weekly or semi-monthly averages being taken from the Chicago Board of Trade Reports. From 1883 to 1903, inclusive, there is a slight confusion in grades, but the No. 2 Spring is used chiefly, averages of high and low for the month being taken from the Howard-Bartels Red Book.

From 1904 to 1913, inclusive, prices are based on No. 2 Red and No. 1 Northern, the high of the one and the low of the other being used. From 1914 on, prices are based on No. 2 Red, No. 2 Hard and No. 1 Northern, the highest of the highest-priced grade and the lowest of the lowest-priced grade being averaged.

LIVE STOCK PRICES AND RECEIPTS.

Practically all of the live stock figures since 1903 have been compiled from the Chicago Drovers’ Journal Year Books. Mr. Chas. A. S. McCracken has compiled the price figures from actual transactions day by day in the stockyards for the past thirty years, and is still with the Drovers’ Journal. The original source for live stock receipts is the stock yards companies, but we have used the reports of the Drovers’ Journal. For the years 1903, 1904 and 1905, for receipts at six markets, we have used figures furnished by Mr. M. F. Horine, statistician for the Chicago Union Stock Yards. These figures seem to be comparable with the figures for the later years, except in the case of cattle, where there is evidently some confusion in the counting of calves. The cattle receipts at six markets, as published by 1903, 1904 and 1905 reports, are about 8 per cent too large to be truly comparable with the later years.

RETAIL PRICES.

Retail price figures are taken from the publications of the Bureau of Labor Statistics. Concerning the significance of these figures, the following statement of Royal Meeker, Commissioner of Labor Statistics, is of value: “We secure retail prices of 44 articles of food from 50 cities on the 15th of each month. The stores selected are those patronized by wage-earners. The goods carried are standard grades and brands. The Bureau requests that these grades and brands be uniform thruout the year, as nearly as possible. Some of these stores are ‘cash-and-carry,’ and some of them deliver, depending on the locality in which they are situated. The Bureau makes every effort to have each city represented by a sufficient number of stores so the prices published for that city will represent the average prices charged to the wage-earner. Of course, the chances are that there will be differences, as we do not carry either the high-class stores or the cut-rate stores.”