Dollar Wheat

Every family in the U. S. last week owned a bushel of wheat. Nobody wanted it. Anyone would have preferred to have the money to pay his income tax. This unwelcome possession came about through the entry of the U. S. Government, disguised as the Federal Farm Board, into the wheat pit where it traded in grain like any common speculator. When it closed its week's transactions it was some 25 million bushels long. Because of low prices, its holdings--theoretically the property of all U. S. taxpayers--represented a poor bargain.

Dollar wheat stalked back into the Chicago Board of Trade. Prices tumbled to less than 99-c- per bushel for March deliveries. The Farm Board had "pegged" wheat at $1.18 in Chicago, $1.25 in Minneapolis last October--that is, its agencies would loan farmers' cooperatives that amount on each bushel regardless of the market price. When the wheat market first began to slide down last week, Chair-man Alexander Legge of the Farm Board insisted that he was "not concerned," declared that "the farmers can't lose." When cash prices at Chicago skidded toward $1 per bushel Chairman Legge became less unconcerned, hastened to confer with President Hoover at the White House. It was at that point that the Farm Board tossed aside all conservative theories about "orderly marketing" to jump headlong into the wheat pit as a bullish buyer.

To execute its transactions the Farm Board worked through two agencies it had set up and financially supported--the Farmers National Grain Corporation and the Grain Stabilization Corporation. National Corp. dealt with member cooperatives ; Stabilization Corp. traded in the pit.

The Farm Board had set a wheat loan price which was some 10 to 20-c- above the market price. Hence to maintain that price with farmer cooperatives, when the market broke, it was necessary for the Board to purchase at the loan price or leave member cooperatives to sell in the depressed open market. National Corp. bought hundreds of carloads of wheat from member cooperatives, at $1.18 per bushel when the pit price was around $1.03. Such a bargain price attracted wheat held by non-farmers, who tried to slip it to National Corp. as "country run." Declared Chairman Legge:

"When we learned that rolltop desk farmers were taking wheat out of elevators and offering it to us as country wheat to get the advanced price, we had to shut down. They were having a good time cackling about the way they were gypping the Board."

While National Corp. was buying direct from cooperatives, Stabilization Corp. was buying May futures in the open Chicago market. Explained Chairman Legge: "The purpose of buying May futures was to halt downward price trends, rather than to speculate." When the U. S. became a wheat futures dealer, the Chicago market rallied spectacularly. May wheat closed the week at $1.15.

The Farm Board's activities last week caused widespread commotion among private wheat dealers. No man has opposed "price-fixing" more vehemently as a feature of farm relief than President Hoover. But wheat dealers, forced aside by National Corp.'s policy of buying only from member cooeperatives, could see no difference between "price-pegging" and "price-fixing." They bombarded the White House and Congress with angry protests, claimed that they were being discriminated against as taxpayers by the Government, called the Farm Board's policy "Communistic" and "Socialistic." Eastern editors deplored the spectacle of the U. S. "gambling in wheat." The Omaha Grain Exchange came to a standstill. From Kansas City Charles W. Lonsdale, Vice President of the U. S. Chamber of Commerce, flayed "price-fixing," and the Farm Board's "heavyhanded policy." The Minneapolis Chamber of Commerce roared angry protests, claimed the Board would ruin grain dealers. Chairman Legge, sitting on 25 million bushels of wheat, scorned these protests as "propaganda" to discredit the Board, bragged:

"The Board has a credit balance big enough to buy every bushel of wheat on the American market."

Sympathetic to any farm excitement, the Senate bumbled and buzzed, passed a resolution asking Secretary of Agriculture Hyde what ought to be done, suggested closing the exchanges.

The Farm Board's wheat loans and purchases put it in a position that would have given any good banker nervous prostration. Chairman Legge and Secretary Hyde hastened to Chicago to confer with agency officials. The Government had more wheat than storage space. In Chicago, Chairman Legge, almost as if confessing an error, changed the Board's policy, announced:

"On account of impending congestion of grain on many terminal markets and the measurable passing of the emergency in grain prices we will discontinue buying grain on the arbitrary loan price basis. . . . Some adjustment from last Fall's price schedule seems necessary."

Stabilization Corp., however, would stay in the market to bull any large slump in prices.

Although Chairman Legge and Secretary Hyde insisted that private speculators were largely responsible for last week's wheat break, other economic reasons were obviously responsible: 1) an extraordinary world wheat surplus, with a consequent lack of foreign demand; 2) a "holding policy" promoted by the Farm Board which could not withstand a falling market; 3) falling due of farm taxes and mortgage payments requiring cash.

A basic challenge to the soundness of the Farm Board's policies was vigorously sounded by Jesse E. Pope, able Washington statistician, in the March Atlantic Monthly. He warned that the Board's practice of "setting aside economic law" and fixing an arbitrary loan price for crops will lead directly to overproduction and the piling up of unmarketable surpluses. He cited past prices to prove that the Board's exhortation to "hold wheat" makes the farmer "far more likely to lose than to gain by the delay." Said he:

"The carried-over surplus is the rock on which all ventures in holding have sooner or later foundered. . . . This action of the Farm Board is so radical a departure from ordinary business practice that it amounts to a veritable revolution."

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