University of California College of Agriculture Agricultural Extension Service Berkeley, California FACTORS THAT AFFECTED THE ANNUAL AVERAGE PRICES OF CANNED CLINGSTONE PEACHES, 1921-22 TO 1930-31 H. R. Wellman June 1931 Giannini Contribution from the Foundation of Agricultural Economics 1 FACTORS THAT AFFECTED THE ANNUAL AVERAGE PRICES OF CANNED C LINGSTONE PEACHES , 1921- 22 TO ' 193 0-3_x7" H. R. WeXXman* The purposes of this study are to determine the factors that have been res- ponsible for the variations in the annual average f.o.b. prices of canned clingstone peaches from 1921-22 to 1930-31 and to measure the influence of the more important factors that can be expressed in quantitative terms. It should be clearly recog- nized that the following analysis explains only what has occurred. It does not fore- cast what will occur in the future. In order to use this analysis in forecasting the probable price at which a given supply of canned peaches can be sold or in forecast- ing the probable supply that can be sold at a given price, it is first necessary to determine the future positions of the factors that affect canned peach prices. The analysis has been divided into two parts: (l) factors that affected the prices received for canned peaches sold in the United States and (2) factors that affected the prices received for canned peaches exported to the United Kingdom. Factor s T hat Affected the Averag e Annua l Pr ices of Canned Clingstone Peaches Sold in the United Stat es, 1921-22 to 1930-31 During the past 10 years the prices received for canned peaches sold in the United States have been affected by many factors. Not all of these factors, however, can be measured with the data now available. In this analysis only four factors were measured: (l) domestic shipments, (2) trend of demand, (3) employment, and (4) competing fruit production. While most of the variations that have occurred in the annual average f.o.b, prices of canned peaches can be accounted for by the factors measured, other ones have also had some influence. Of particular importance among these other factors has been the recent decline in the general price level. Relation Between F.O.B. Pric es and Do mestic Shipmen ts of Canned Peaches. Th e closest approximation to the supply of canned peaches consumed in the United States that can be obtained with the data now available is the domestic shipments of canned peaches by canners. Except in years when large stocks are carried over by whole- salers and retailers, these shipments virtually coincide with consumption. The total annual shipments of canned peaches from 1921-22 to 1930-31 were computed from the data on pack and carryover, and are given in table 1. Domestic shipments were obtained by subtracting exports from total shipments (table l). The annual average f.o.b, prices received for canned peaches sold in the United States are given in table 2, column X, In figure 1 the annual domestic shipments of canned peaches are measured along the horizontal scale, the annual average prices along the vertical scale. The diagonal solid line represents the average relation that has existed between domestic shipments and prices adjusted to the situation in 1928-29. From this line it is possible to estimate the prices at which varying quantities of canned peaches could have been sold in 1928-29 if other conditions had been average. 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Trend of Demand for Canned Peaches in the United States -20 o w o -30 &-40 8 - 50 -60 -70 -80 rH to to <£> Z> CO 0"> o C\2 C\2 C\2 C\2 C\2 to CD cn CX> cn cr> C7> cn rH rH rH rH rH rH rH rH rH rH Year beginning June 1 5. shipments in 1923-29 amounted to 10,300,000 cases, the actual price was $3.21 a case. The actual price, however, was slightly lower than would normally be expected chiefly because of the large competing fruit crop. Under normal conditions domestic shipments of 10,800,000 cases could have been sold for $3.26 a case. And if domestic shipments in 1928-29 had been as small as they were in 1924-25 when they amounted to 5,637,000 cases, the normal price would have been around $4.70 a case, or if they had been the same as in 1925-26 - 8,511,000 cases - the normal price would have been around $3.90 a case. The diagonal solid line, therefore, represents the situation that has existed between shipments and prices at a given time; namely, 1928-29. The same situation may also exist over a period of years if there is no change in the demand for canned peaches. Trend of De ma nd for Can ned Pe aches in the Un ited Sta tes. The trend of demand for canned peaches in the United States from 1921-22 to 1929-30 is shown in figure 2. The level of demand in 1923-29 is taken as the base and is shown on the vertical scale as zero. The trend of demand in the other years is measured from the base year. Figure 2 shows that the same volume of canned peaches could have been sold in the United States for 73 cents a case more in 1928-29 than in 1921-22 and for 4 cents a case more in 1930-31 than in 1928-29, provided the actual demand had coin- cided with the trend. The actual demand for canned peaches, however, has seldom coincided with the trend. Instead it has fluctuated about the trend, being sometimes above and some- times below. In those years when the actual demand was below the trend, canners ' prices were, of course, lower than they would have been if the actual demand had coincided with the trend, while in those years when the actual demand was above the trend canners' prices were correspondingly higher. The two most important causes of the fluctuation of demand about the trend have been changes in the buying power of consumers in the United States and changes in the volume of competing products. Relation Betwe en Employment a nd F. O.B. P ri ces of Canned Peaches . As a measure of the buying power of consumers in the United States the Federal Reserve Board index of factory employment has been used. This index is given in table 2, column 3. In figure 3 the index of factory employment is measured along the horizontal scale, the price of canned peaches along the vertical scale. The diagonal line shows the average effect that changes in the index of employment has had upon the price of canned peaches. When the working people in this country are fully employ- ed, canners can sell the same quantity of peaches at a higher price than they can when many people are out of work, other conditions being equal. A decrease in the index of factory employment of 5 per cent has in the past resulted in a decrease of about 10 cents a case in the price received by canners. Relation Between Com peting Frui t Production and F.O.B. Prices of Canned Peaches . Another factor that has affected the demand for canned peaches is the volume of com- peting products on the market. With the information now available it is not possi- ble to determine exactly what products compete with canned peaches and to measure accurately the influence of each of the products. In lieu, therefore, of an index that contains all of the products that compete with canned peaches and only those products, and which gives each product its correct weight, an index consisting of the production of the important tree fruits grown in the United States, the Hawaiian pineapple pack, and banana imports, is used. This index is given in table 2, column 4. and the detailed makeup of the index for 1930-31 is given in table 3. 6. Fig. 3. Relation Between F.O.B. Prices of Canned Peaches and the Federal Reserve Board Index of Factory Employment -60 1 — — ' 1 1 J ' 1 — 75 80 85 90 95 100 105 110 115 120 Employment index Fig. 4. Relation Between F.O.B. Prices of Canned Peaches and the Index of Competing Fruit Production + 40 -20 -30 -40 50 60 70 80 90 100 110 120 130 140 Fruit production index 7. Table 3 Fruits Competing with Canned Peaches and Index of Production for 1930-31 Fruit 1930 production in thousands Unit 1924-1928 average price per unit Value 1 2 3 4 dollars 1,000 dollars Canned Apricots Cherries Pears Pineapples 1,954 1,033 4,164 12,672 case case case case 4.98 6.48 5.62 4.80 9,731 7,018 23,402 60,326 Fresh Apples Apricots Peaches Pears Plums and prunes Grapefruit Oranges (winter) Bananas 155,529 27 36, 203 21,027 144 12,153 28,500 55,360 bushel ton bushel bushel ton box box bunch 2.43 187 . 00 2.29 3.24 160. 00 2.48 3.57 2. 25 377,935 5,049 82,905 68,127 23 , 040 30,139 101,745 124,560 Dried Apricots Prunes 47,618 433,306 pound TS/S V1 y\ H U iiU. pound .168 11 1 .065 8,000 5 775 31,772 Total 960,024 Base value $880,000,000 Index 1930-31 #960,024,000 1330,000,000 109 per cent Sources of data: Column 1. Official estimates of production in the United States except as follows: Canned apricot pack, California; canned pear pack, Pacific Coast; canned cherry pack, Pacific Coast; Hawaiian pine- apple pack; fresh plum and prune production, Pacific Coast; and banana imports. Column 3. Canned fruits, canners* opening prices on 2^ Choice. Fresh fruits, wholesale prices in eastern markets. Dried fruits, export valuation. 8 In figure 4 the index of competing fruit production is measured along the horizontal scale and the price of canned peaches along the vertical scale. The diagonal curve shows the effect that changes in the index of competing fruit produc- tion has had upon the price of canned peaches. In 1927-28 the fruit crop was small - the index of fruit production was 86 - and as a result the price of canned peaches was 7 cents a case higher than if the fruit crop had been average. On the other hand, the large fruit crop in 1923-29 resulted in the price of canned peaches being 4 cents a case lower than it would have been if the fruit crop had been average. Comparison of the Actual P rices with the Prices Accounted for by the Factors Measured . From the four factors of shipments, trend of demand, em- ployment, and competing fruit production, it is possible to explain most of the variations that have occurred in the average annual prices received for canned clingstone peaches sold in the United States during the 10 years of 1921-22 to 1930-31. This is shown in detail in table 4. For example, in 1925-26 domestic shipments amounted to 8,511,000 cases. If domestic shipments in 1928-29 had been only 8,511,000 cases, the normal price would have been around $3.90 a case, (figure l). Figure 2 shows, however, that the trend of demand in 1925-26 was 18 cents a case less than in 1923-29 so we must subtract 18 cents from $3.90. The index of factory employment in 1925-26 was 101.2 and from figure 3 we find that 2 cents must be added. The index of competing fruit production was 98 and from figure 4 we find that 1 cent must be added. The result of these calculations is $3.75. The actual price was $3.79 a case. From table 4 it will be observed that the prices accounted for by the four factors measured in this analysis agree very closely with the actual prices with the exceptions of 1922-23, 1923-24, and 1930-31. In those three years it is probable that most of the difference can be explained by factors which cannot be measured numerically. Factors Other Than Tho se Measu red Have Also Influ enced Pri_ces_. Most of the difference between the actual price in 1930-31 and the price expected from the factors measured can be accounted for by the decline in the general price level. The analysis has been carried through on the assumption that prices are an accurate measure of value. This assumption is valid for the years 1921-22 to 1929-30, since during those years there was virtually no change in the general level of prices. In 1930-31, however, there was a substantial decline in the general price level, and consequently it necessitates a correction of the results obtained on the assumption that money retains a uniform value. While it is not possible, with the data now available, to obtain a precise measure of the decline in the general price level during 1930-31, a rough approximation may be obtained from the indexes of commodity prices given in table 5. For the year June 1930 to May 1931 the index of wholesale prices of all commodities will probably average around 117, while the index of gen- eral prices will probably average around 161. As compared with 1929-30 the former index will show a decline of about 15 per cent, while the latter will show a decline of about 9 per cent. The actual decline in the general price level has probably been somewhere between 9 and 15 per cent. A decline of 9 per cent in the general price level would result in a decrease of 29 cents a case in the price of canned peaches, a decline of 15 per cent would result in a decrease of 52 cents a case, while a decline of 12 per cent (the average of 9 and 15) would result in a decrease of 40 cents a case. The actual price was 38 cents a case below the price estimated from the factors measured. The available evidence indicates that shipments of canned peaches were larger than the consumption in 1922-23 and smaller than the consumption in 1923-24. This 9. o o o o o o o o o 1 — 1 M I— 1 h-» g rj 5 i & 1 • m 0 • 05 • ro • CO o o o 4044 I g i i £0 brj bj ct 4 4 P o o •• 3 3 P o 3 f3 H) H) H) H) H> h- H" H« 0000 0i 0 0 M 1 — 1 8 • 0 0 co '-d 1 pi Hj H* TO i 0 CO H< ts Q O ^ 01 ro m CO ro I 1 — 1 1— 1 I— 1 l — 1 M M t- 1 UD <0 VO vO tO tD to g 05 ro to ro ro w ro ro ro ro P O to CO 0> 05 ro i- 1 0 ro 1 05 1 05 1 ro 1 IV) J ro 1 ro I ro 1 ro l ro 1 ro i. s p hf 1— 1 0 tO CO -a 05 ro P CO _f*-0,- & CO c+ •d H« 0 1 3 05 *^ 01 05 05 05 it* O P • e • s • • • • • • m c+ O ro h-> tD ►f* CO 0 e+ ro to CT> 0 0 CJI QF> Ul CO Pa w 0 0 Hj Q 3 0 Hj O pJ p ^ C_i. + + I 1 1 1 I 1 I O O 0 O O 0 0 0 O 0 CD a- w • • • • • • • 0 » • ro O O 0 O O M 05 Cn cn 0 P ro 3 t{* ro 0 ro CO 0 Ol 05 p y S 09 pi p- P O ro 1 p^ 1 1 1 I + + 1 + 1 1 0 h- 1 Hj pi O 0 0 0 O 0 0 0 O O i-i O O CO • • • • • • e • • • 05 0 0 0 O 0 O 0 O 05 O « O -a M H J IV) CO 05 05 M P ro ro CO 0 c+ rf Hj > di 0 Pi ^d *Tf C_.. 1 + » + 1 + + 1 + + CD O 0 O 0 O 0 O 0 O O hf 0 CO • • • • • • a • • • 9 d" O 0 O 0 O 0 O 0 O 05 O 3 3 05 05 -a C7> 1 — 1 ro ro O P h" t-d ro CO ct- ro jr> 0 CO ct- ct ! 1 m CO S *d ct H- 05 05 05 05 05 H* 3 • • • • © • • • • • O P 05 O ro CTi to 0 M 6 ro ct ro -a 1— • o> en CO 0-5 ro t— 1 P ro CO O O . w 05 05 05 05 if* 05 H" ct • O • • • • • • • O 0 ro 1 — ' 0* -a ro ro I— 1 O ro p CO On CO a> 05 P 1 — 1 CO ro i 1 CO ct H> 3 P ct ro Pj ^> o ct g O ro CO o H) O o g CO ct H" O O P ro pi ro P o ^ J ro w H3 J — ' ro Table 5 Index of Wholesale Prices in the United States Index of wholesale prices of all Index of Year commodities general prices June-May av. 1910-1914=100 1913=100 1 2 1921-22 136 153 1922-23 147 162 1923-24 144 166 1924-25 146 167 1925-26 150 17 2 1926-27 142 171 1927-23 141 173 1923-29 142 178 1929-30 138 177 1930 June X.(j I July lb f August 123 166 September 123 167 October 121 163 November 117 161 December 114 158 1931 January 112 157 February 110 157 March 109 157 April 107 Sources of data: Col. 1. U. S. Dept. Labor, Bur. Labor Statistics. Index obtained by dividing the new series, 1926=100 by its pre-war average 1910-1914, 68.5. Col. 2. Standard Trade and Securities Service. Standard Statistical Bulletins. Index pre- pared by the Federal Reserve Bank of New York. 11 would account in part for the actual prices being 24 cents a case higher in 1922-23 and 28 cents a case lower in 1923-24 than the prices ordinarily expected from the size of the shipments. Wholesalers were active buyers of canned peaches in 1922-23 and as a result canners were able to sell a substantial volume at relatively high prices. It appears, however, that wholesalers were not as fortunate and that they had a considerable volume on hand at the end of the season. This is probably one of the important reasons why they did not buy freely the following year. Data on the carryover of canned peaches in hands of wholesalers are not available and, there- fore, it is impossible at the present time to measure the influence of this factor upon canners 1 prices. It is evident, however, that it cannot be neglected in de- termining the probable price at which a given size pack can be sold. Another factor which may have influenced the prices canners received in 1922- 23, 1923-24, and 1930-31 was the pronounced change in employment. During the year 1922- 23 there was a pronounced upward trend in employment. Under this condition it is likely that the simple average of the monthly indexes which was used in figure 3 gives too low an index of the buying power of consumers. On the other hand, in 1923- 24 and 1930-31, when employment declined rapidly, it is probable that the av- erage for the year gives too high an index of the buying power of consumers. When- ever there is a pronounced change in employment during the year it appears that the direction of the change as well as the average for the year must be taken into con- sideration in measuring the buying power of consumers. Sufficient data are not now available, however, to enable one to measure accurately the influence of the direc- tion of the change in employment during the year upon the annual average prices canners receive. Although practically all of the variation that occurred in the annual average prices can be accounted for by the factors already mentioned, it does not necessar- ily follow that they are the only ones that affected prices. It is entirely con- ceivable that several other factors, such as the quality of the canned peaches, the advance or decline in canners' prices during the year, and the lag of retail prices, have also exerted some influence. It would appear, however, that a change in one of these factors has been largely offset by change in one or more of the other factors, or that they have fluctuated but little from year to year. Factors That Affected the Average Annual Prices Received for Canned Peaches Sold in the United Kingdom, 1923-24 to 1930-31 * In the analysis of the United Kingdom situation three factors were measured: (l) imports, (2) trend of demand, and (3) prices of competing canned fruits. Relation Between Prices Received for California Canned Peaches Exported to the United Kingdom and United Kingdom Imports of Canned Peaches . Imports of canned peaches into the United Kingdom are not separately reported. However, an approxi- mation to the imports may be obtained from the quantities exported from the United States and Australia, (table 6). These two countries furnish nearly all the canned peaches consumed in the United Kingdom. In figure 5 the United Kingdom imports of canned peaches are measured along the horizontal scale, the annual average prices of California canned peaches, f.o.b. Pacific Coast dock, along the vertical scale. The diagonal solid line repre- sents the average relation that has existed between imports and prices adjusted to * It was not possible to include 1921-22 and 1922-23 in the analysis because exports of canned peaches from Australia are not available for those years. o o a o o o 1 — 1 t— ■ 1 | P 1 • 01 • ro • o o 6 f— 1 a to p" jo H" CO O ct O CD O Pj Pj Hj O f-r H* • c+ Co < P 1-3 P 4 O H f£-Q9 o d H" CD H* j-i P. M O CD Pj et pj O a 1 «5 o H> 8 p CO CD CO Cj • o ct h, CD P" pi >d H5 H" o Q M tO 03 O I 01 M CJ> o l- 1 CD & ct ct H- S s H« P p" CO p. h- B I— 1 Pj CD CD P> Hj ct f-S p" o o g P f> o o ct O Q td :_ 5 r o o p, H" CO H f=i g ct B P p' (->■ -s era H- H, Hj O opp 4 co p 3 CD Pi H' P CO O M H" O V- 1 ESI g 9 o y Sd 01 H« P H« B O O O Hj p. 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From this line it is possible to estimate the prices at which varying quantities of canned peaches could have been sold in 1928-29 if other conditions had been average. Imports in 1928-29 amounted to 1,804,000 cases, the actual price was $3,33 a case. The actual price, however, was lower than would nor- mally be expected chiefly because of the low prices of competing canned fruits. Under normal conditions imports of 1,804,000 cases could have been sold for $3.46 a case. And if imports in 1928-29 had been as small as they were in 1924-25 when they amounted to 1,119,000 cases, the normal price would have been around $4.37 a case, or if they had been the same as in 1925-26 - 1,496,000 cases - the normal price would have been around $3.87 a case. The diagonal solid line, therefore, represents the situation that has existed between shipments and prices at a given time; namely, 1928-29. The same situation may also exist over a period of years if there is no change in the demand for canned peaches. Trend o f Demand for Canned Pea ches in the United Kingdom . The trend of demand for canned peaches in the United Kingdom from 1923-24 to 1930-31 is shown in figure 6. The level of demand in 1928-29 is taken as the base and is shown on the vertical scale as 0. The trend of demand in the other years is measured from the base year. Figure 6 shows that the same volume of canned peaches could have been sold for 32 cents a case more in 1923-24 than in 1928-29 and for 7 cents a case more in 1930-31 than in 1928-29. Relation Between Prices Received for California Canned Peaches Exported to the United Kingdom and Index o f Prices of Competing Canned Fruits. The price that consumers will pay for canned peaches at any given time is influenced not only by the supply of canned peaches but also by the prices of products that serve as sub- stitutes for them. If the prices of these alternative products are low relative to the price of canned peaches, consumers will buy more of them and fewer canned peaches. On the other hand, if the prices of the alternative products are high relative to the price of canned peaches, consumers will tend to substitute canned peaches for them. With the information now available it is not possible to determine exactly what products compete with canned peaches and to measure accurately the influence of each of the products. In lieu, therefore, of an index that contains all of the products that compete with canned peaches and only those products and which gives each product its correct weight, an index consisting of the import prices of canned fruits is used, (table 6, column 5), This index reflects not only changes in the supplies of canned fruits from year to year, but in addition it takes into account changes in the supplies of other products which compete with canned fruits and also changes in the buying power of consumers and changes in the general price level. It would, therefore, be a dupli- cation to include these factors in the analysis after having already used an index which reflects them. For reference purposes, however, the United Kingdom production and imports of fresh and canned fruits are given in table 8, and the indexes of com- modity prices and unemployment in the United Kingdom are given in table 9. In figure 7 the index of canned fruit prices is measured along the horizontal scale and the price of canned peaches along the vertical scale. The diagonal line shows the average effect that changes in the index of canned fruit prices have had upon the price of canned peaches. A change of 5 per cent in the index of canned fruit prices has on the average resulted in a change of 29 cents a case in the price of canned peaches. 15. Fig. 7. Relation Between Prices Received for California Canned Peaches Exported to the United Kingdom and Index of Prices of Competing Canned Fruits + 60 + 40 - + 20 o CO O 8 -20 CO £-40 CD O -60 -80 -100 ■ f ! I 1 1 ! — ™ . — • — — — ■ i ! 88 90 92 94 96 98 100 102 104 106 108 Index - canned fruit prices 16 Comparison of the A ctual Prices with the Prices^ Accounted for by the Factors Measured . From the three factors of imports, trend of demand, and index of prices of competing fruits it is possible to explain most of the variations that have oc- curred in the annual average prices received for canned peaches sold in the United Kingdom during the 7 years from 1923-24 to 1930-31. This is shown in detail in table 7. Definite information is not available as to why the estimated prices were 15 cents a case lower in 1925-26 and 13 cents a case higher in 1926-27 than the actual prices. A possible explanation is that wholesalers and retailers had a relatively large stock of canned peaches on hand at the end of the 1925-26 season, and that imports of canned peaches were, therefore, larger than consumption in 1925-26 and smaller than consumption in 1926-27. In addition to the factors already mentioned, it is probable that other ones such as the quality of the canned peaches, the advance or decline in canners' prices during the year, and the lag of retail prices also had some influence upon the prices canners received. Comparison of Prices per Case of All Grades and Sizes of Cans with Prices per Case of No. 2h Choice The prices which canners received for No. Z\ Choice clingstone peaches in 1929-30 averaged 12.1 per cent above the prices received for all grades and sizes of cans. The range among the canners reporting was from 8.3 per cent to 15.3 per cent. Records from two canners were obtained for the years 1922-23 to 1929-30. During those 8 years the prices received for No. 2^ Choice averaged 12.5 per cent above the prices received for all grades and sizes of cans. 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