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<br />3 <br /> <br />recognize that changes are somewhat unpredictable. Relatively <br />frequent adjustments may be necessary to reflect the impact of <br />new conditions and forces, such as fuel supplies and their impact <br />on costs and prices. This situation has existed in Fiscal Year 1974, <br />thus it was recommended that the normalized prices be updated. <br /> <br />'-: <br /> <br />Computational Procedures <br /> <br />"' <br /> <br />Procedures for updating the normalized prices as outlined in <br />Water Resources Council Guideline No.2, "Agricultural Price <br />Standards," February 1974, called for a 10 percent maximum <br />adjustment to prices annually. The actual percentage change was <br />to be dependent upon the magnitude of change in the indexes of <br />prices paid and prices received by farmers. However, the per- <br />sistence of high prices, due to high world demand for farm products <br />and limited production, led to a reconsideration of this plan. <br /> <br />The estimates of current normalized prices shown in the following <br />tables were derived from a three-step process: (1) the generation <br />of price relatives among agricultural commodities and among cost <br />items; (2) review and selection of price relatives to better reflect <br />current price levels; and (3) the development of price estimates for <br />States. <br /> <br />')' <br /> <br />Price Relatives- -Price relationships among agricultural commodities <br />and among production cost items are based on an analysis of price <br />movement over a relatively short historical period. For most <br />commodities, price relatives represent 1973 trend values derived <br />from an II-year (1963-1973) linear regression procedure. For <br />cotton and wheat 9- and la-year averages, respectively, were used <br />in order to eliminate the influence of major agricultural program <br />changes in the early part of the II-year period, which otherwise <br />distort the resultant trend values. <br /> <br />p' <br /> <br />Price Level Adjustments--ln order to more adequately reflect <br />recent price levels, the following criteria were used in sele~ting <br />the U. S. normalized price or index. <br /> <br />1. <br /> <br />The trend price computed from the regression referred <br />to above was 8elected if the trend price was greater than <br />or equal to the previous year's normalized price (pub- <br />lished in February 1974). <br /> <br />f)190 <br />