As commodity prices and farm incomes have appreciated in recent years, many farmers and agricultural observers have drawn comparisons between current farm prosperity and the prosperity of the 1970s. Ohio State University agricultural economist Carl Zulauf examined those comparisons in a series of articles focusing on crop prices, farm debt, cash income and real estate, and cash farm expenses.
"Both the period of U.S. farm prosperity during the 1970s and the current period of U.S. farm prosperity experienced sizeable increases in crop prices, whether measured in nominal prices, real deflated prices, or relative to crop input prices," Zulauf concluded in his introductory analysis in the series. "However, notable differences exist between the time paths of prices during each period. The differences become more pronounced if crop prices are adjusted for general economic inflation or examined relative to farm input prices."
Zulauf noted that by both 1979 and 2012 (year 7 of each period), the index of prices that U.S. farms received for the crops they raised was appropriately double (200%) the index of crop prices at the start of the period. A key difference, however, is that price increases were larger earlier in the 1970s, while price increases have been more consistent over the current period of prosperity, at least through 2012.
One key difference between the two periods is farm-sector debt. By 2012, deflated farm real estate debt had increased 37% compared with the 2001-2005 benchmark period. By 1979 on the other hand, deflated farm real estate debt had increased 55% compared with the 1968-1972 benchmark period.
While Zulauf points out that the current increase in farm real estate debt is not trivial, it is significantly smaller than the increase observed in the 1970s. The major difference between the two time periods, it turns out, is non-real estate debt.
"The time path of farm non-real estate debt is strikingly different in the two periods of farm prosperity," he wrote. "Relative to their respective benchmarks, deflated farm non-real estate debt had grown 83% by 1979 but only 13% by 2012. Thus, deflated farm non-real estate debt has increased substantially less during the current period of farm prosperity."
Perhaps the most important difference between the two periods is the difference in what is driving current farm prosperity. In the 1970s, Zulauf concluded that the primary driver of prosperity was an increase in asset values, namely the value of farm real estate. In the current period, on the other hand, asset values appear to be increasing in response to increasing farm income.
The professor discussed the results of his analysis in a recent Feedstuffs interview. You can hear his comments by listening to Feedstuffs In Focus, the podcast of big news in agriculture.