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Parity is a dream
The value of a commodity is determined by what a buyer will pay for it at a certain place based on the cost to transport, process, package and distribute products to the consumer. The resulting price is not determined by a formula derived from the relationship between the producer, middleman and consumer in 1910 to 1914. Still, the simple word "parity" holds sway with a sizable number of agricultural product producers, at least in their dreams. The American Agriculture Movement championed parity in the 1970s with protests at strategic locations across the country, including Washington, D.C. The allure of the farming class demanding legislative action to curb the business class was hypnotic for many who drove their tractors and trucks to rallies and even to the U.S. Capitol mall in midwinter. The results of their inattention to their own farms were dismal for many individual farmers who were bankrupted in the early 1980s. Congress did not act and the marketplace did not blink in spite of the folk heroes who did crazy and sometimes courageous things, to gain attention. Interviewing a Capitol police officer in the aftermath of the tractorcades, he would say nothing on the record, but privately he stated his admiration of the men and women who protested on his watch. In the biofuels era, we are seeing prices of raw commodities double their traditional value. Still they are less than half of parity. According to the AAM calculations, corn should be $8.10 now and soybeans $17.90. The assumption that this is what a crop is worth implies that the seller is cheated each time they sell for less than this dream figure. The marketplace has no heart and some would argue it has no soul, as it is simply the point where supply and demand touch. Those who say supply and demand don't apply any more should look at wheat. How much have you sold above $8 per bushel? How much did you sell below $3.50? The answers are: a little and a lot. Farmers should realize that incentives from government are there to direct production. The goal of every politician is to keep food available at a reasonable price. Of late, food quality has also become a politically charged issue; regulation, incentives and penalties will be imposed to assure that what we eat is safe. If played right, this restriction could block foreign supply and increase price, but not for long. There is no "farming class" in the United States. There are landowners and agricultural production specialists who have the resources and expertise to bring a crop to market below the cost of production. The advent of technology, coupled with management structure, has made it possible for a very small number of farming businesses to control huge acreage of crops or huge numbers of livestock. These "factory farms" may be the devil to a small farm operator but the marketplace cares nothing for the individual producer as long as quality and quantity meet the contract specifications. The past 12 months should have been the greatest learning experience in a generation for agricultural producers. Demand for a new product (ethanol) crossed the tipping point and buyers bid up available supplies of raw materials used in its production. Buyers even bid higher prices for crops yet unplanted, to encourage production of a desired product. Government reaction to a different problem (oil supply) was a catalyst behind the run-up in feed-stocks for biofuels as it offered incentives to the ethanol industry. Worldwide weather disruptions showed the global nature of the market for wheat. Buyers who never purchase from the United States are paying record prices for the short supply. Parity is a dream, but prosperity can become reality when the producer heeds the signals of the marketplace. Government is not going to save a single farmer for the value of that individual to the production sector. The AAM's Monthly Parity Report will remain a source of anger for some and amusement for others. It is a way to remember those heady days of the 1970s when tractors rolled east and protests gained national attention. No arbitrary measure can remain constant in a dynamic economy. The actions of man result in consequences, some intended and some unintended. Forces of nature, government and business all swirl around and cause change. The key to financial success is reading the forces more right than wrong. The key to personal satisfaction, and ultimately happiness, is to love others and participate in life rather than hating the marketplace. Editor's note: Ken Root is now celebrating his 34th year as an agricultural professional. His career began as a vocational agriculture teacher then turned to agricultural broadcasting and writing as well as environmental consulting and association management. He was the original host of AgriTalk (1994-2001) and now is lead farm broadcaster for WHO Radio in Des Moines, Iowa.
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