There’s a lot of chatter on the net about the coming food shortages and increasing prices at the grocery store lately. What’s it all about and is it for real, or just fear mongering by alarmists looking to drive advertising revenue? Every month the USDA issues a pricing ratio report that states prices paid by farmers for their produce as compared to prices received, and the picture clearly states that food prices have in fact been rising for quite some time now, and recently the prices have risen sharply.

The following is a brief summary of the report;

February Farm Prices Received Index Increased 4 Points

The preliminary All Farm Products Index of Prices Received by Farmers in February, at 168 percent, based on 1990-1992=100, increased 4 points (2.4 percent) from January. The Crop Index is up 12 points (6.5 percent) and the Livestock Index increased 4 points (2.9 percent). Producers received higher prices for corn, wheat, lettuce, and milk and lower prices for strawberries, cattle, broilers, and broccoli. In addition to prices, the overall index is also affected by the seasonal change based on a 3-year average mix of commodities producers sell. Increased monthly marketings of milk, cattle, broilers, and hogs offset decreased marketings of corn, soybeans, wheat, and cotton.

The preliminary All Farm Products Index is up 33 points (24 percent) from February 2010. The Food Commodities Index, at 163, increased 5 points (3.2 percent) from last month and increased 29 points (22 percent) from February 2010.

Prices Paid Index Up 3 Points

The February Index of Prices Paid for Commodities and Services, Interest, Taxes, and Farm Wage Rates (PPITW) is 197 percent of the 1990-1992 average. The index is up 3 points (1.5 percent) from January and is 17 points (9.4 percent) above February 2010. Higher prices in February for feed grains, complete feeds, nitrogen, and diesel more than offset lower prices for LP gas and other services.

Prices Received, Prices Paid, and Ratio of Prices Received to Prices Paid

Index on 1990-1992=100 Basis – United States: February 2011 with Comparisons

Index February 2010 January 2011 February 2011
Prices received by farmers

Prices paid by farmers

Ratio prices received to prices paid

135

180

75

164

194

85

168

197

85

It is clear by this summary that prices are in fact increasing, but the profit margin remains stagnant, so what’s the problem? Farmer Bob isn’t making any more this year than he did last year, and yet we continue to see increasing costs when we make our weekly shopping trips. The following Prices Paid Indexes and Related Parity Ratios table shows the glaring increases farmers have to contend with, all the while trying to keep the consumer happy with lower costs. It’s not an easy game of juggling the two, and after years of low cost food we finally have to man-up and admit that the ride is coming to an end. The powers that be are finally going to turn the world into their own idea of what the world should look like. It’s not a pretty picture for those of us who grew up in the wealthiest nation in the world, either. Here’s the table;

Prices Paid Indexes and Related Parity Ratios – United States: February 2011 with Comparisons

[Revised historical price indexes for months not shown are available at http://www.nass.usda.gov]

Indexes and ratios 1910-1914 = 100 1990-1992 = 100
February

2010

January

2011

February

2011

February

2010

January

2011

February

2011

(percent) (percent) (percent) (percent) (percent) (percent)
Prices paid by farmers for commodities, services, interest, taxes, and wage rates (PPITW)

Production

Feed

Livestock & poultry

Seeds

Fertilizer

Chemicals

Fuels

Supplies & repairs

Autos & trucks

Machinery

Building materials

Services & rent

Services

Rent

Interest (1)

Taxes (2)

Wage rates

Production, interest, taxes, and wage rates (PITW)

Family living-CPI (3)

2397

1788

867

1609

3008

874

899

2097

1124

3004

5688

2224

2028

(NA)

(NA)

3389

5549

7159

2467

2059

2583

1957

1054

1922

2815

1016

890

2464

1149

3026

5810

2272

2117

(NA)

(NA)

3646

6032

7295

2682

2092

2618

1991

1103

1955

2815

1051

897

2530

1155

3039

5831

2282

2116

(NA)

(NA)

3646

6032

7295

2721

2102

180

184

178

126

304

238

145

272

158

113

227

164

(NA)

159

191

135

207

191

184

161

194

202

216

150

284

277

144

319

162

114

232

167

(NA)

165

203

145

225

195

200

163

197

205

226

153

284

287

145

328

163

114

232

168

(NA)

165

203

145

225

195

203

164

Ratio (received/paid)

Parity ratio (4)

Parity ratio adjusted (5)

PPITW adjusted for productivity (6)

(NA)

36

37

1405

(NA)

40

42

1452

(NA)

41

42

1459

75

(NA)

(NA)

(NA)

85

(NA)

(NA)

(NA)

85

(NA)

(NA)

(NA)

Crop sector (PPITW)

Livestock sector (PPITW)

(NA)

(NA)

(NA)

(NA)

(NA)

(NA)

191

169

201

187

203

190

Farm sector (production)

Non-farm sector (production)

(NA)

(NA)

(NA)

(NA)

(NA)

(NA)

180

187

205

200

210

202

(NA) Not available.

1 Interest per acre on farm real estate debt and interest rate on farm non-real estate debt.

2 Farm real estate taxes payable per acre.

3 Bureau of Labor Statistics, Consumer Price Index for all urban consumers (CPI-U), for the previous month converted by the USDA.

4 Ratio of index of prices received to PPITW (1910-1914=100).

5 Based on estimated cash receipts, from marketings and government payments, the preliminary adjustment factor is 1.044 for 2011 and the revised factor is 1.041 for 2010.

6 PPITW is adjusted based on productivity trend for the prior 15 years.

Bottom line here is that the cost of what we eat is increasing, but it’s not the farmers fault, it’s the economies fault. And the economy is failing because we allowed it to fail as a nation and as a world in general. We let too many regulations creep into the mix, driving the costs of everything we do up and up over the last century. We cannot stop this runaway train of economic disaster; we can only learn to prepare for the coming times.

At the outset, it looks like the farmer is making more, as the prices received index is up 4 points, and the prices paid is up 4 points, but don’t let the number fool you. There’s no real profit in that ratio to be gained in the face of today’s economy.

Last warning here, get your food resources, and your fuel resources in order now. We haven’t much time left before this house of cards comes tumbling down around us.

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