Oral Statement before the United States Senate Committee on Agriculture, Nutrition, and Forestry Hearing on the trade section of the farm bill
Why Are Agricultural Prices So Low? When are prices going to rebound? This is the number one question that I am asked. Prices have been weak for most program crops since 1997, and pork and beef prices in the late 1990s hit rock bottom, although both have subsequently recovered. When discussing where prices are going, it helps to take a long historical view. For agriculture, the long-run, inflation-adjusted price trend is downward. With productivity increases, the supply of agricultural
... ricultural commodities has grown faster than the demand. Other commodities, such as metals, oil, wood, chemicals, and computer capability, have also experienced this downward price trend. This downward trend in inflation-adjusted prices represents a success story for economic growth and wealth creation. Despite claims that the world will inevitably run short of basic commodities, low prices indicate that basic commodities have become relatively less scarce over time. Technological progress means that we can spend relatively less on basic commodities, which helps increase standards of living. However, this long-run trend does not imply that prices cannot rise over a five-year period, particularly if prices start at a lower-than-expected base, as has been the case for program crops. How did they get so low? First, average world yields for corn, barley, and sorghum were above trend each year from 1996 to 1999. They fell slightly below trend in 2000. Average world wheat yields were below trend in 1996 but above trend for the following four years. As we look to the future, we should expect that the number of years with above-trend yields and the number of years with below-trend yields will be more equally divided.