In 1964, prices received are likely to be little changed from 1963. The parity index is likely to show another modest increase.

Dr. COCHRANE. I would like to describe the prices received and prices paid situation as it has developed generally since 1955. You will observe that from 1960 through 1963 prices received by farmers have remained almost steady. There is a little variation there, but very little. Actually, if you draw a trend line back through 1955 you will find that it is almost level from 1955 through 1963. In fact, if you go back and look over the whole chart, you would find very few periods where there has been a span of almost 10 years in which the level of prices received, has been so steady. On the other hand, as you observe the prices paid line, from 1955 on moves gradually, persistently upward almost each year, with the result that the parity ratio has dropped steadily from 1955. The parity ratio stood at 84 in 1955. It is now down to 78.

PRICES OF SUPPORTED AND NONSUPPORTED COMMODITIES

This next chart, Mr. Chairman, is one which Congressman Horan asked for last year, and we are happy to present it at this time. (The chart referred to follows:)

PRICES OF SUPPORTED AND NONSUPPORTED COMMODITIES

The price-support programs place a floor under the commodities involved, so that price fluctuations of these commodities tend to be markedly less than for the nonsupported ones.

This characteristic was not evident during World War II or during the postwar period up to the end of the fighting in Korea. These were periods of exceptional demand for food of all kinds and prices of supported products were generally above support levels. Thus, prices of both the supported and nonsupported commodities moved closely together.

Since Korea, however, the nonsupported commodities have fluctuated much less than the supported ones. From 1951 to 1956, the nonsupported commodities

dropped an average of 30 percent, or about twice as much as the prices of the supported commodities. Since 1956, the supported commodities have moved within a fairly narrow range. On the other hand, average prices of the nonsupported commodities rose 9 percent above the supported ones in 1958, but have since declined to a level about 7 percent below during 1962 and 1963.

The group of nonsupported commodities includes meat animals, poultry and eggs, fruit, vegetables, potatoes, and sweet potatoes. Meat animals are more important than the others combined, and are the dominant factor in price changes for the nonsupported group as a whole.

In the post-Korean period, 1951-56, all the nonsupported commodities contributed to the downswing. Meat animal prices were the primary cause of the sharp rise from 1956 to 1958, though fruit prices contributed significantly due to short supplies of citrus. The decline since 1958 was due mostly to a downward drift in the prices of meat animals.

Average prices on the nonsupported group declined less than 2 percent in 1963, as a sharp drop in meat animal prices, particularly for beef cattle, were partially offset by a sharp rise in prices of citrus fruit which accompanied short supplies following the freezes in Florida.

Although the drop in meat animal prices in 1963 was appreciable, marketings of meat animals probably would have been greater and prices received even lower had it not been for the stabilizing effects of the production adjustment and price-support program for feed grains.

Dr. COCHRANE. It describes prices received by farmers for two categories of farm commodities: the supported category and the nonsupported category. You will observe that from 1940 to 1952 the prices of supported and nonsupported commodities travel pretty much the same road.

Following 1952 the nonsupported group slides off badly for several years. I think the explanation for the parallel movement of supported and nonsupported commodities from 1940 through 1952 is that throughout most of this period prices for both types of commodities were above the support level, while substitution on the consumption side by consumers and on the production side among crops by farmers caused these two types of commodities to move along very closely together.

But beginning in 1952 we had a sharp decline in export demand. Also, this is when the technological revolution was beginning to really roll, so we had an expansion in output, and a serious slowing down of demand. The result was a price-depressing effect on both supported and nonsupported commodities. But the supported commodities come to rest on price supports, and you see in 1953 and 1954 that group of commodities declines at a much slower rate, and then begins to level off and stabilize following 1955. On the other hand, there was nothing comparable to stop the decline of the nonsupported group and they slide off rather badly to 1956.

As

But they didn't slide off indefinitely for a number of reasons. prices go down, consumers buy more of these commodities and this puts some support under them. Also, farmers, to the extent they are able, switch out of nonsupported commodities and into supported ones. These two interactions ultimately put a bottom under these nonsupported commodities. Prices stop falling and gradually move

up.

From about 1959 on you see that both groups of these commodities have moved roughly sideways, with no big variation in either grouping.

FARM INCOME

Dr. COCHRANE. This chart, Mr. Chairman, is again a familiar one, and I will just direct your attention to the last 8 years, since 1955. (The chart referred to follows:)

Realized net farm income was around $12.3 billion in 1963 according to prelimnary estimates. This compares with $12.6 billion for 1962. Cash receipts from farm marketings were responsible for a small increase in realized gross income. However an increase of $600 million in production expenses more than offset the increase in gross income and as a result net income declined.

If present legislation remains in effect, realized net farm income in 1964 probably will be lower than in 1963, largely as a result of sharply reduced income from wheat and a continued rise in farm production expenses. Under current legislation a substantial drop in cash income including Government payments from wheat is anticipated. This will probably more than offset the gain expected in cash income from other commodities. The persistent rise in prices paid by farmers for goods and services used in production is expected to push production expenses to a new record high in 1964. Thus aggregate realized net farm income will likely be lower in 1964, possibly by 5 percent or more from 1963 or roughly to the level of 1960.

The increase in farm production expenses has averaged nearly three-quarters of a billion dollars a year for the past decade. The increase in prices paid by farmers shown in the first chart is an important factor in this increase. Thus a substantial increase in gross farm income is required annually if farmers are just to stand still income wise.

This forecast assumes that the program provided by present legislation will be in effect for wheat. If some other program providing higher levels of price support and/or payments is in effect the outlook will be improved.

Realized net income per farm in 1963 was $3,430, fractionally higher than in 1962. Aggregate realized net income and the number of farms both declined by about the same percentage from 1962 to 1963. From 1960 to 1963 net income per farm increased 16 percent with about 5 percent more income divided among nearly 10 percent fewer farms.

While average income per farm is a useful measure it should not be taken to mean that all farms did about as well in 1963 as in 1962. Some farms, particularly livestock farms had lower incomes in 1963.

Although the number of farms is expected to continue to decline in 1964 the number of farms may not be down as much aggregate net income. Hence average net income per farm may be down some with farms in wheat areas bearing the brunt of the impact.

Dr. COCHRANE. Realized gross income from farming increased rather importantly over this period. It increased from $33.3 billion in 1955 to $41.1 billion in 1963. But production expenses increased at a rate of about three-quarters of a billion a year, and just about absorbed the increase in gross income. Thus production expenses have in large measure offset the increase in realized gross, leaving realized net income about constant; though there are a few little up and down movements. In 1961, through various actions taken by this administration, realized income went up. It stayed flat in 1962, and then we had a little falloff in 1963. But in the main the big story here is that production expenses have eaten up the increase in gross income with the result that realized net farm income has held just about constant.

PER CAPITA INCOME OF FARM AND NONFARM POPULATION

This chart, Mr. Chairman, is one we presented last year for the first time, and I thought it did a pretty good job of showing the disparity between incomes of farm and nonfarm people. We have included it again this year.

(The chart referred to follows:)

PER CAPITA PERSONAL INCOME OF THE
FARM AND NONFARM POPULATION

*

BASED ON REVISED ESTIMATES OF THE FARM POPULATION AND A CHANGE IN CONCEPT TO A PERSONAL INCOME BASIS.
1963 PRELIMINARY.

U. S. DEPARTMENT OF AGRICULTURE

NEG. ERS 1512-64 (1) ECONOMIC RESEARCH SERVICE

PER CAPITA PERSONAL INCOME OF THE FARM AND NONFARM POPULATION

Per capita personal income of the farm population from all sources is estimated at $1,480 in 1963. This is 3 percent higher than in 1962 and is highest on record. The decline in the number of persons living on farms was the most important factor in this increase. Personal income of the farm population was 59 percent of the nonfarm figure. In 1961-63 per capita personal income of the farm popu

lation was the highest percentage of nonfarm since 1951. Despite this increase in per capita farm income relative to nonfarm, the per capita income of nonfarm people which averaged $2,515 in 1963 was higher than for farm people. Personal income of the farm population averaged $970 from farm sources and $510 from nonfarm sources.

In 1964, the per capita personal income of people living on farms from all sources is likely to be about as high as in 1963. Per capita personal income of nonfarm people is expected to rise substantially.

Dr. COCHRANE. As you see, over the whole long period 1935 to 1963, the per capita personal income of the farm population has been far below that of the nonfarm population. I would direct your attention primarily to what has happened from 1955 through 1963. In 1955 there was just about a thousand dollars difference between the per capita personal income of farm people and nonfarm. Nonfarm people had a per capita income of $2,000, farm people of $1,000. The rates of gain for both the farm and the nonfarm people have been almost equal over the period since 1955.

The slopes of those two lines are just about the same. You will see when we get to 1963 the disparity between farm and nonfarm income is still a thousand dollars, just about the same as in 1955.

Now, nonfarm people have per capita income of $2,500 per person, and the farm people a per capita income of $1,500 per person. The spread on an absolute basis has held almost constant.

FOOD COSTS AND CONSUMER INCOMES

This chart, Mr. Chairman, is another that your committee has seen many times. It seems to me the big story in this chart is the very great gain in per capita disposable income that we have experienced in this country over the years from 1940 on.