What  is the Inflation Adjusted Price of Corn?

Updated- November 16, 2006

by Tim McMahon

A recent article in the "Wall Street Journal" cited the dramatic increase of the price of corn since ethanol became part of the gasoline mix. And actually corn has doubled in price in nominal terms since 2000.

But obviously that is only part of the equation. The real question is, "What is the price of corn in real (inflation adjusted) terms.

That is exactly what we are going to look at in this article.

In the chart at right, the black line represents the nominal (or actual price) per bushel of corn since 1973. As you can see the price has stayed in a defined range of  between $2.00 and $4.00.

But the interesting thing is that when you adjust for inflation you find that the price of corn has actually fallen drastically.

In today's dollars a bushel of corn would have to sell for $14.60 in order to be worth the same as corn in 1974. That means that today's farmer is getting significantly less for planting corn than he would have gotten in the 1970's.

In real terms, the price of corn has fallen fairly steadily with only a slight up-tick in prices due to the use of ethanol as a motor fuel.

See the article on the Inflation implications of Ethanol for more information.

Based on the decline in the real price you can see why farmers have been saying ethanol is the best thing to happen to farming since the invention of the combine.

It is hard to imagine how they can even stay in business with prices declining to that extent. One of the reasons is the increase in productivity using modern farming techniques. Another is the $8 billion in farm subsidies paid by the government every year.

Interestingly, it is not due to lack of demand that corn prices have fallen in real terms, of the roughly 10,000 products on grocery store shelves over 2,500 of them use corn in one way or another. Look at almost any label and you will find corn oil, corn starch, or a variety of other corn products.

This fall in the price of corn has allowed many other food products to remain much cheaper than they would be if corn prices had remained at their inflation adjusted price of $14.60.