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No Benefit to Farmers from Higher Food Prices

(West Lafayette, IN) - Don’t blame farmers for the skyrocketing food prices in grocery stores.


An agricultural economist at Purdue University, Michael Langemeier, said farmers strictly receive the market based on supply and demand commands. Langemeier said higher food prices are from the increased cost of taking corn, livestock, and other raw materials from farms and delivering the finished products to store shelves.


Rising operating costs include higher salaries for labor at food processing plants and transportation from increased fuel prices. However, Langemeier said the average net income for a farmer in 2021, despite inflation, will be healthy mainly because the cost of fertilizer and other materials needed to raise crops was locked in before inflation took off.


Farmers also benefitted financially because the price they received for soybeans, corn, and other farm commodities on the market started rising before inflation, primarily from greater demand from other countries like China, he said.


Langemeier believes farmers will feel the pinch, though, if inflation continues into 2022. Producers will have to pay more than last year for fertilizer, fuel, and other inputs needed for producing food in 2021. Unlike many businesses, Langemeier said farmers couldn’t simply raise their prices to offset inflation.


The price of raising corn in 2022 has already gone up by 15 to 20-percent, and the market decides what farmers are paid for their products. Therefore, farmers receiving good prices like they are now will deal with high inflation if it continues next year. However, the situation would become more troublesome if inflation persists and a drop in the commodities market.


“Some of the same things impacting consumers are impacting farmers,” he said.

For example, pork producers are being struck financially despite the average consumer paying more than $7 a pound for bacon. In June, once more than $120, hog futures have plummeted to $79 while pork producers have to absorb higher operating expenses.


Langemeier said average net farm incomes in 2022 unless inflation subsides won’t be a good as this year but should be better than 2014 to 2019. During those years, market prices for corn and soybeans pretty much hit and stayed at rock bottom, and inflation then was meager.


“Commodity prices weren’t very high during that time period.  Even though the input prices were lower the margins still weren’t very good,” Langemeier said.

Another challenge presented to farmers by inflation is deciding whether to purchase machinery and other assets and grow to achieve the highest price. In addition, operating costs are more difficult to predict during periods of high inflation compared to when expenses are more stable.


“You don’t know if it’s going to be four percent, six percent, eight percent. That’s going to be true with any business,” Langemeier explained.

Langemeier does not know if any farm commodities will be impacted more or less by inflation. For example, beef seems to be weathering the storm better than pork, but inflation will be felt across the agriculture community.


According to USDA’s Economic Research Service, beef prices are expected to increase 6.5% to 7.5%, two percentage points more than the last ERS report.


“There’s really no commodity that is going to escape this,” he said.

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