OUR ECONOMIC SITUATION
AS IT AFFECTS FLORIDA AGRICULTURE
Abstract of talk presented
Marvin A. J rookr
Professor of Agricultural Economics
University of Florida
Production Credit Directors' State Conference
Atlantic Beach, Florida
May 27, 1947
Percent 4* Nonagricultural Farm products -..
200 ----- products* -
(] 'l.." "l'" "' "'..)..i....l.... .........i...,.i |l ...... ....ln ,..i . .. ...
Ratio of farm to nonagricultural prices
100 ----~--- ------ -- ----- *------ -
([/ .. I***1kiII. *Ji*I* ...... ,...
1800 1820 1840 1860 1880 1900 1920 1940
*"All commodities" other than farm products and foods
Following the Napoleonic Wars prices declined for a period of about 30 years
with some interruptions. Following the Civil War, again prices declined for a
period of about 30 years. The decline from 1920 to 1932 was for a period only about
half as long as the previous long-period declines following major wars. However,
the decline following 1929 was much more violent than any similar previous declines,
ao it is problematical as to whether or not the long period of decline had run its
bourse before the abrupt up-turn occasioned by World War II.
The question then arises, are we now in a period comparable with 1919-20,
1865-66, and 1816-177 Further, even if we should escape such a violent break in
pricess as followed these previous peaks, what are the chances of escaping a de-
flining price level over a period of years?
It is good to hope that we may not again experience such a break in prices
4s occurred in 1920-21. However, it is probably too much to hope that we may not be
*ear the beginning of a period of readjustment to a lower level of prices. Whether
:r not this readjustment is violent, the repercussions on agriculture are likely to
Agricultural and nonagricultural prices have shared the influences of indus-
trial prosperity and credit expansion in war periods. Over a long period of time,
agricultural prices have been trending higher relative to nonagricultural prices.
WHOLESALE PRICES OF FARM AND NONTAGRICULTUR A
PRODUCTS, UNITED STATES, 1798-1946
Index Numbers (1910-14= 100)
1910 1915 1920 1925 1930 1935 1940 1945
In the above chart we see the trends of wholesale prices of all commodities
in the United States since 1910. The general level of these prices has risen con-
tinuously since the beginning of the War, but has not quite reached the high levels
attained after World War I. However, the sharpest increases have occurred during
the past few months, so that in Anril the index stood at 215 as compared with the
high point of 244 in May, 1920.
In the first World War period, the peak in wholesale prices occurred 18
months after the Armistice. It is now approximately 21 months after V-J Day.
Although the decline in prices that followed the 1920 peak was severe, the
general level of wholesale prices remained above that prevailing before World War I.
A similar readjustment, whether it be violent or gradual, would bring the general
level of prices down some 25 or 30 percent below present levels. Since agricultural
prices have risen more than nonagricultural prices, the readjustment would be
greater for agricultural than for nonagricultural prices.
WHOLESALE PRICES OF ALL COMMODITIES,
SUITED STATES, BY MONTHS, 1910-46
Index Numbers (1910-14= 100)
WHOLESALE PRICES OF FARM PRODUCTS, AMD OF ALL COMMODITIES
OTHER THAN FARM AND FOOD PRODUCTS, INDEX NUMBERS
UNITED STATES, 1914-23 AND 1939-46
1939 1940 1941 1942 1943 1944 1945 1946 1947
1914 1915 1916 1917 1918 1919 1920 1921 1922 1923
In the comparison of farm product prices in the upper nart of the chart on
this page, it will be noted that during the World War I '-eriod farm prices rose
during the entire war and postwar period until the break came in 1920. During
World War II, prices rose rapidly in the early part but became relatively stable
under the price control act. The rise was resumed after controls were removed when
prices again advanced very rapidly.
As shown by the lower half of the chart, nonagricultural -rices behaved very
much like farm prices during World War I, but due to more rigid price controls did
not rise so rapidly during World War II. Since the removal of price controls, prices
have risen rapidly.
It now seems to be the consensus of most observers that unless we should
have a serious crop failure the peak of farm prices has been reached Pnd the future
trend will be generally downward. This conclusion seems justified from a review of
both the export and domestic market situations.
VALUE OF U. S. EXPORTS, 1914-46
It will be noted that throughout the period from the end of World War I until
the beginning of World War II exports of agricultural products declined. This was
true despite the fact that exports of nonagricultural products increased rapidly
following the bottom of the depression in 1932-33. The value of agricultural ex-
ports rose sharply after the United States entered the war but at a much lower rate
than total exports, In 1945 and 1946 total exports were lower in value than in 1944
due primarily to the virtual stoppage of lend-lease shipments of war goods. Agri-
cultural exports, however, rose above their previous wartime levels because of the
acute world food shortage and large exports on a gift basis. With the discontinu-
ance of UNRRA end a probable improvement in foreign food supplies 1947 likely will
see a decline in our agricultural exports.
An additional reason why agricultural exports may hrve reached their neak in
1946 is the likelihood that foreign countries, in using their limited means, will
give priority to the purchase of industrial goods needed for reconstruction.
1915 1920 1925 1930 1935 1940 1945 1950
Dollars DISPOSABLE INCOME AND CONSUMER EXPENDITURES
(Billions) 1929-1946, AND BY QUARTERS 1946
Disposable / '
120 income -4 ----
20 By years Quarters
0 i t r i r I I l r i i -
S1 2 3 4
The status of domestic demand is, of course, the most important element in
the current situation. In the chart on this page are shown the trends of disposable
income of consumers and of consumer expenditures since 1929. During 1946 both dis-
posable incomes and consumer expenditures were the largest of record. However,
consumer expenditures increased in 1946 over the 1945 level by a much greater
margin than was true for disposable income, thus indicating a considerable re-
duction in the rate of saving.
Savings of individuals during the fourth quarter of 1946 were at the lowest
annual rate since 1941. Either a reduction of selling prices or a slowing down in
the volume of purchases by consumers, or both, seems inevitable. It is doubtful
whether the rate of consumer savings will or even can be reduced much further
except by adversity.
It is unsafe to assume that there are still enough savings in hand from war-
time earnings to supplement current income for any considerable length of time.
Recent surveys indicate that 24 percent of American families held no war bonds or
bank accounts in 1945, and an additional 29 percent held less than .500' of savings
in these forms. This situation is perhaps less favorable today than at the end of
In March 1947, the index of prices received by farmers reached an all-time
high of 280 as compared with the 1935-39 average of 107 and the World War I high
of 235. The index of prices paid, interest and taxes stood at 229 in March, and
the ratio of prices received to prices paid at 122. This indicated an advantage
to the farmer, as compared to pre-World War I relationships, of 22 percent.
The chart on this page reveals that when farm prices are high and rising
it is normal for the advantage to be with the farmer. When farm products prices
fall, however, they fall farther and faster than prices paid by farmers and the
advantage is quickly lost. Not only does the farmer sell at wholesale and buy at
retail, but his input, or production expense, occurs often several months or even
years in advance of sale of his products, during which time prices may have slumped
to such an extent as to eliminate all expected profits or to occasion losses.
PRICES RECEIVED AND PAID BY FARMERS,
INDEX NUMBERS, UNITED STATES,
BY MONTHS, 1910 MARCH, 1947
50 1 i 1 1 I 111 111' i I I I 111111
1910 1915 1920 1925 1930 1935 1940 1945
180 Food-- /
/ .-House rents
90 j '
1914 1917 1920 1923 1926 1929 1932
Index Numbers of Retail Prices of Food and City House Rents, 1914-32
Pre-war = 100
rise, the prices of foods rise faster
therefore rents rise slowly and building
Deflation reduces the cost of food and
Farm land prices reached a peak in 1920, about the
same time as food prices. Rents reached a peak 5
years later. Prices of city real estate reached a
peak at a still later date.
10 1 .I 1 I I I I I I
1899 1904 1910
1916 1922 1927 1932
Monthly Volume of Building Construction in the United States, 1899-1932
1926-30 = 100
Before World War I, building construction was in-
creasing at the average rate of 3.40 percent per
year, about the same as the increase in total
basic production. A peak of construction occurred