Most of the discussion involving input price changes in US production agriculture has focused on fertilizer prices, which have declined during the last few months, but other inputs have not necessarily experienced this decline, said Michael Langemeier, Purdue University agricultural economist, in a publication Tuesday.
Each input used in production agriculture and in other industries has its own set of supply and demand fundamentals, Lanagemeier wrote.
However, input prices also can be affected by changes in general inflation, he said.
Over time, farm input costs are correlated with general inflation, Langemeier said. Each input has its own supply and demand fundamentals with those for machinery and labor more correlated with general inflation than feed, seed, fertilizer and fuels.
LONG-TERN RELATIONSHIPS
Inflation represents the decline in purchasing power of a currency over time as measured by the increase or decrease in the price levels of a basket of selected goods, Langemeier said. Measures include the consumer price index and implicit price deflators.
Most economists would agree that an increase in the supply of money is the root cause of inflation, he said. Inflation mechanisms can be classified into three types: demand-pull, cost-push and built-in.
When an increase in the money supply increases overall demand more than the productive capacity of an economy, demand-pull inflation results, Langemeier said.
When production costs increase prices, cost-push inflation results. Quality improvements and technological change often are incorporated into cost-push inflation. Quality improvements would increase prices while technological change tends to reduce prices.
Finally, when individuals expect current inflation rates to continue in the future, built-in inflation results, he said. In general, the longer above average inflation rates persist, the more important built-in inflation becomes.
All three inflation types have contributed to inflation the last couple of years, Langemeier said.
THE IMPLICIT PRICE DEFLATOR
Using information for the 1973 to 2022 period from the Federal Reserve Bank of St. Louis on inflation rates and farm input price indices from USDA-NASS, Purdue economists examined the correlation between the Implicit Price Deflator for personal consumption expenditures and agricultural production item.
An IPD is an economic technique to account for inflation by comparing the current-dollar price to constant-dollar prices as a ratio.
The correlation coefficient between the IPD and agricultural production items was 0.611, he said. The average annual rate of change over the period was slightly higher (3.9%) than the rate of change for the IPD (3.4%).
The average annual price changes for labor (4.4%) and machinery (5.6%) were significantly higher than the average increase in the IPD. So, correlations between the IPD and labor and machinery were higher than the correlation between the IPD and general farm price index.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $182.83 per cwt to $184.50, compared with last week’s range of $182.00 to $185.26 per cwt. FOB dressed steers, and heifers went for $286.32 per cwt to $289.34, compared with $285.29 to $291.98.
The USDA choice cutout Tuesday was up $0.47 per cwt at $305.14 while select was up $1.43 at $278.63. The choice/select spread narrowed to $26.51 from $27.47 with 117 loads of fabricated product and 37 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.30 to $1.45 a bushel over the Dec corn contract, which settled at $4.89 a bushel, down $0.01.
No live cattle contracts were posted for delivery Tuesday.
The CME Feeder Cattle Index for the seven days ended Monday was $246.83 per cwt, down $1.43. This compares with Tuesday’s Oct contract settlement of $248.80, up $0.47.