An updated view of the same chart.

http://farmdocdaily.illinois.edu/2016/03/factors-affecting-long-term-corn-soybean-prices.html



 Price of Inputs

Figure 10 presents one of the strongest empirical relationships for the U.S. farm sector - the ratio of prices farmers pay for agricultural production inputs to the prices they receive for all crops compared against total input productivity of the farm sector. The figure begins with 1960, the first year of the productivity data. The close relationship reflects that, as input productivity increases, farmers can afford to pay higher prices for inputs for a given level of output prices. Because input productivity has increased over time, the gap between input and output prices has also widened. This increasing gap is represented by the upward trend in Figure 10.

Figure 10 also implies that, for a given level of input productivity, input and output prices will follow each other. If productivity does not change by much and crop prices decline, input prices will decline, and vice versa. Since 1972, the inflation-adjusted, real price index of all U.S. crops declined by more than 20% over 3 multiple year periods - 1980-1987, 1996-2000, and 2012-2015 (Figure 11). The decline is calculated from the first to last year, with the first year in each period having the highest real price and the last year having the lowest real price. Because general price inflation can affect farm input and output prices and because general price inflation varied across these periods; all price series are deflated using the GDP deflator. The GDP deflator is usually considered the most accurate measure of economy wide inflation.