Rye Pulls the Plug

Famed for their telescopic eyesight, grain traders long ago spotted a poor rye harvest for this July. They began accumulating large rye commitments, sat back to wait for a price rise. On April 1 they had good news. The rye crop was reported in the poorest condition in 55 years. Persistent lack of rain had parched the grain fields of the Dakotas, biggest of U.S. rye producers. Demand for rye on the other hand, normally 35,000,000 bu. per year, would be bigger, since at least 5,000,000 bu. were needed in the whiskey trade. Only one factor disturbed the waiting traders as they contemplated their market--millions of bushels of Polish rye in bonded warehouses along the Atlantic seaboard. By last week this stock was estimated at 9,000,000 bu., although the Government reported only 2,500,000 bu. on April 1.

For six months the Federal Government had been unable to make up its mind what to do about imported rye. The Polish Government had successfully stimulated foreign trade by paying a bounty of 30-c- a bu. to the exporters of rye. Polish grain traders could thus afford to sell it in the U.S. at the U.S. price or less, even after paying the 15-c- per bu. tariff rate. Domestic rye producers protested that this would be dumping, urged Secretary of the Treasury Morgenthau to use his powers under the Tariff Act of 1930 to raise the duty on rye by an amount equal to the bounty. He ordered some of the rye placed in bond, pending a decision. Fortnight ago he decided that the Polish imports did not constitute dumping as defined by the Tariff Act. The rye was therefore released for sale with no extra duty. Presumably the Secretary was anxious not to disturb the newborn distilling industry or allow a rye shortage to raise the price of rye whiskey, cereals and bread. But domestic rye prices promptly dropped 1 5/8-c-, then another 1 3/4, as traders hastened to liquidate.

For many months there have been large-interests on the long side of the Chicago grain market. President Roosevelt had vowed to boost commodity prices first and at any cost in behalf of the farm producer. Last June wheat ran above $1 per bu. for the first time in three years. But even inflation talk, crop damages and drought could not hold it there, with the result that the long interests grew increasingly impatient. Mr. Morgenthau's pronouncement on rye pulled the plug in the holding dyke. There was not much sense in a heavy long position, traders argued, when the Federal Government, eagerly seeking reciprocal trade agreements, might hand down other rulings as favorable to foreign imports as the decision on rye. Orders to sell began to gush into the whole grain market. On the same day the rye market broke, oats, wheat and barley started down. Last week, while they were still sliding, the Chicago Board of Trade wrote an open letter to the Treasury, blamed Secretary Morgenthau for the general break in prices because he did not slap an extra duty on the Polish rye.

The rye crisis had precipitated the downswing, but something entirely different kept it going. Before grains had had time to recover, word came of President Roosevelt's opposition to any inflationary silver legislation at this session of Congress (see p. 9). The reaction in the grain market was swift. In a single day wheat fell 4 5/8,-c- rye and barley 5-c-, corn 4-c-, oats 3-c-. Traders hastened to announce last week that urgent liquidation of grain holdings was over, that the market would now stabilize.

So it might have, had not Secretary of Agriculture Wallace chosen the next day to do a little inadvertent plug-pulling of his own at a press conference. U. S. wheat prices, said he, must ultimately be put on a parity with world wheat prices. Traders knew that could mean only one thing: the Government's artificial pegging of domestic wheat prices was at an end.

A sea of fresh selling surged across the Chicago Pit. May wheat dropped 4 1/4-c- a bu. Although the price rallied later in the day, it once touched 72 7/8-c- -down more than 14-c- from the high of the previous week. When President Roosevelt took office nearly 14 months ago, wheat was selling in Chicago at 47-c- per bu. Since then the AAA has distributed $65,000,000 in subsidies to wheat growers to reduce production. Yet when last week's selling wave was over, wheat stood at 76-c- per bu. and the present crop carryover promised a surplus of 265,000,000 bu. on July 1.

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