I’ve spent a lot of time recently studying the crop markets of the 1970s to see how they actually behaved in that golden period of high commodity prices. I’ve done that because one of the most compelling arguments of the past decade is that we’re in the midst of a long term commodity boom like that of the 70s, so why not see what really happened then? After all, those years offered many farmers the chance to build up some equity after years of low prices in the 1950s and 1960s and into the early 1970s.
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But there’s another historical scenario that is also compelling: the 1930s Great Depression. That period did not begin with a massive spike in commodity prices and a subsequent collapse, so it’s a bit different from what happened last summer, but many of the other macro measures with the general economy and worldwide situation are more similar to now than the 1970s, so what happened to commodities in the 1930s bears examining, just in case that’s where we’ve gone back to. (I realize that the period we’re in now will be unique, as all historical periods are, and will not copy the 70s, 30s, 1960s, 1840s, etc. exactly, but if you don’t learn from history . . . )
The Great Depression began in October 1929 and commodity prices collapsed, similar to the way they have done since last spring/summer (depending on the commodity.) Among the edible crops, wheat fell from $1.40 to less than 50 cents; corn fell from $1.00 to less than 30 cents; sugar fell from 2 cents to .75 cents. That’s about a two-thirds cut to the price. It was worse for other commodities. Industrial commodities like copper fell much further, from about $1.50 to 22 cents, or a seven times collapse. Rubber, useful for both industrial applications and consumer goods like automobile tires, fell from 26 cents to 3 cents, a whopping almost-nine times drop.Â
And how long did this collapse in values go on for? Was it a short, sweet drop followed by a quick rebound? The slumping action lasted two full years, and prices crawled along the floor for a further year. From late 1929 until early 1933 producing commodities was a recipe for losing money. In fact, no significant commodities increased in value during the depths of the Great Depression.
However, as grim as the depression example appears at first glance, it’s not as ugly if you stand back a bit from it. Those four years were brutal for anyone growing crops and expecting to live on their returns. But from 1933 everything got a lot better in the grains. Corn and wheat values more than doubled in 1933, as did sugar. And for the next four years a steady uptrend, albeit a choppy one, took crop prices higher and higher, eventually retracing almost all the way lost since the October 1929 slump.Â
One set of farmers was left out of this: silkworm ranchers. While all the edible crops and cotton recovered, silk prices never arose from the depths of 1932. Apparently economically devastated people around the world lost their taste for silk ties and kimono-style dresses.Â
So, farmers who survived through those three-and-a-bit terrible years, and didn’t also suffer crippling drought like much of the prairies, got a chance to make acceptable returns for a few years, giving them a better chance of survival than many people in the cities, where economic drought carried on its ravages. Along with commodities, the stock market also recovered partially in these years, but few urbanites had any money left to invest.
But there’s a sting in the tail of this story: after the price recovery reached parity with 1929 values in 1937, another terrible slide occurred, dragging crop prices about halfway back down, ruining many farmers hopes for long term recovery. The situation was worse for those urbanites lucky enough to have had enough money to reinvest in the stock market during the 1933-37 rise: they lost their shirts and joined the rest of the broken masses.Â
What’s the moral of the story for farmers? If this is more like the 1930s than the 1970s (this is not my conclusion but something worth pondering), a quick rebound to higher prices isn’t likely. And a couple of bad years are coming. But after that, crop commodities, more than any other commodities, have a chance to rebound sharply, so farmers in that scenario would have a chance to repair some of the damage done. But, looking at what happened in 1937, no one should assume once commodity prices get out of the dumps that they can’t head right back down there again.Â
If we’re lucky this is the 1970s redux. If we’re unlucky this is 1929-33. But in both scenarios farmers got a chance at better prices, they just had to wait longer the first time.
