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Veteran Advisor

Some 1971 comparisons

I just thought on this labor day which is supposed to be a day off to think about the fruits of our labor. ( totally commi deal I think)  We should as farmers think about those laborers and their impact on us.

 

Being one step closer to the consumer than the average corn and bean guy gets me to wondering about some things.

 

These musings come from a conversation I had a week ago with an employee at a shop I do business with.  He has been working at this company for about 9 months. He is in the livestock equipment business.

 

We were talking about dairy farming in Particular. He talked about how tough it was to sell anything in this environment.  I asked him if he was on Commissions?

 

He said no. For the first year he was in training and was on a hourly wage.

 

Now this guy is kinda local so doesn't range far and doesn't work for a national company. 

 

He was also talking about how tough it was to make it feeding his young family and all that goes into it. HE said he has been outa college for 15 years. and it just seems to get tougher.

 

So then he kinda made a snide remark about all the money most farmers were making.

 

My ears picked up and I thought here is a teachable moment.

 

I asked him if he ever heard of the gold standard?

 

HE said no.

 

I said in 1971 Richard Nixon (republican) took us off the gold standard which was a fixed price of 35 dollars an ounce.( which was the price that FDR  democrat set Gold at in 19.33 before that it had been fixed at 20.67/per ounce since basically we won our independence.) his action then took all real backing away from our dollar and replaced that hard asset with the full faith and credit of our Government.

 

Yea so? He says.

 

Well in 1970 Iowa farmland was 419/per acre. It took 11.97 ounces of gold to buy an acre of land in Iowa.

 

Today not farm from where we were standing, I told him land sold for !!,500 an acre.

 

He said see Land has been helped by going off the gold standard.

 

No it hasn't I said. with Fridays close of 1690 an ounce for gold it now takes 6.8 ounces to buy an acre of land. In terms of gold land is now cheaper than it was in 1970!

 

HUMMMMM he says.

 

Yea but corn is lots higher so farmers are making a lot more money.

 

Really? I replied.

 

in 1970 it took the value of 3.8 acres of corn to buy an acre of land. average yield that year was 86 bu. average price was 1.25/bu.

 

this year in with corn at 7.79/ a bushel and my historical yield of 172 it takes 8.6 acres to buy an acre of land!  Corn has less purchasing power today than it did in 1970!

 

Yea but he says how did that effect me?  I work 50 hours a week and can't make all the ends meet and besides oil has got to be equal in value to what gold has done.

 

I smiled and he just said uh oh.

 

In 1970 crude was $3.00 per barrel. With an ounce of Gold you could buy 11.6 barrels of oil.  With the Fri. close of Gold and the Fri. close of oil at 96.37 per barrel.  you can buy 17.5 barrels of oil with an ounce of gold. So in terms of Gold Oil is actually about 66% the price it was in 1970.

 

The average wage in 1970 I told him was about 10,500 a year.  Today the average wage is about 30,000.  That equates to a real gold wage in 1970 of 300 ounces and in 2012 of 17.75 ounces!  No wonder the American consumer is under so much pressure.  This is also why our farm gate products are so much cheaper in terms of post gold standard prices.

 

SO another way to look at it is that gold has gone up by a factor of 48,  oil has gone up by a factor of 32.  corn has gone up by a factor of 6.2.  Milk has gone up by a factor of 2.8 and the average wage has gone up by a factor of 3.

 

Folks just remember that the average farmer is doing far better than the average Joe six pack. 

 

We are constantly told we feed the world. Today lets appreciate the consumers who purchase our products.

 

 

13 Replies
Veteran Contributor

Re: Some 1971 comparisons

Thanks for the sobering comparison JR, it really puts things in to perspective.

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Veteran Contributor

Re: Some 1971 comparisons

I like your analyses JR. Puts it in perspective.

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Senior Advisor

Re: Some 1971 comparisons

So based on those numbers......either gold is expensive or corn is cheap.......??????
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Frequent Contributor

Re: Some 1971 comparisons

I had about $5000 saved about 10 years ago, just from working/saving...  I had 2 things in mind to do with this money...A? Buy gold B? Take a cruise....  My wife had the final say so we took the cruise...  It was fun, good time...  Afterwards I kind of got off the gold kick (just before that I had read a book on the economic problems we were facing as a country because of our debt, or more importantly the interest on that debt).  Now the bad part... At that time gold was around $320/oz ... 

 

Its right around $1700 this morning and I'm pretty sure cruises are even cheaper now then back then... ****!    Although I guess I could have invested in Apple ...

 

When my brother's and I bought land (around 60 acres) back in the early 90's, we were finding land for a few 100 an acre.  We paid $18K for 60 acres at that time...   We found large chunks back then for even cheaper...  Today the same land around here sells for close to $3K/acre (southwest WI)...  Also recall that oil dropped to nearly $10/barrel in the late 90's...I remember filling my tank for under $10 (gas was $.90/gallon). 

 

I guess my point is, there have been some very good buying opportunities since 1970...and there may be more..especially if the stock market melts down again (although I have a feeling the powers that be have it rigged pretty well for that not to happen). 

 

 

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Honored Advisor

Re: Some 1971 comparisons

Value is always relative.  It is all exchange----------------look at the extreme bidders have gone to the last few years to get rid of dollars and trade them for land, which they think is a better long term value to own.  One might think that lots of land should be for sale.  But people hold land for the same reason.

Does that mean than more land changes hands when land prices are down, because owners see the $$ as a better value when interest rates are up or the stock market is returning 10+%?

I have heard farmers say they payed a high price for a parcel of land because the high price created opportunity.  I am sure that is true in a few cases, but I have not seen large amounts of ground on the market.  Am I just missing the advertising, or is it possible that more ground changes hands with low land prices?

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Veteran Advisor

Re: Some 1971 comparisons

Corn is cheap but milk is even cheaper!

 

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Senior Contributor

Re: Some 1971 comparisons

thanks, JR. the purchasing power of a dollar has tanked. gold is only holding its value. but that does not help the man you were talking to.

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Senior Contributor

Re: Some 1971 comparisons

  jr, In 1983 the American farmer recieved 33cents out of every food dollar. In 2011 it was about 16 cents. There are are more middleman along the way taking a bigger share of the food dollar. The second problem here is the dollar has eroded in value . The measurement of the value in gold by dollars  demonstrates that. Nixon also tried freezing prices to keep inflation in check. That didn't work very well either. Todays looming inflation problem will have much greater ramifications

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Veteran Advisor

Re: Some 1971 comparisons

Frank232,
there is always opportunity in the market every single day. just because you missed one yesterday doesn't mean the opportunities are counting down. Be patient.
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