Bread & Butter

Back for another run last week was that familiar U. S. drama concerning joy in the market place and despair on the farm. While drought withered crops and pastures in a score of states, the nation's commodity markets staged the most exciting show since the great drought of 1934. A large part of the entire U. S. spring wheat crop was but worthless stubble. Winter wheat on the other hand had already been mostly harvested. Early in June the price of wheat was less than 85-c- per bu. Last week it sold as high as $1.10. In corn the damage could still be averted by a few good rains, but the possibilities of serious crop failure boosted corn prices from about 60-c- per bu. in May to last week's high of 85-c-. Oats were up from a low this year of 25-c- per bu. to 40-c- barley from 36-c- to 65-c- rye from 50-c- to 76-c-. On the Chicago Board of Trade, grains frequently jumped the full day's limit long before the close of trading, and speculation became so rampant that conservative commission houses forehandedly raised their margin requirements.

Bread and feedstuffs were not the only commodities to enjoy the boom. Though little affected by drought except in the Southeast, cotton soared above 13 1/2-c- per lb. The year's low was about 10-c-, and in cotton a 1-c- change means at least $50,000,000 to the South. What gave cotton its big push last week was a government report estimating the total planting on July 1 at 30,600,000 acres. Though that was a gain over last year's unusually small acreage, it was still 26% below the old-time average. Meantime world cotton consumption has climbed to new records, and further reductions are expected in the U. S. carry-over of 7,000,000 bales, last of the U. S. Depression surpluses. About half of this carry-over is controlled by the Government. But the Government did get out of the futures market last week for the first time since 1929, when Herbert Hoover's Farm Board first plunged headlong into the private cotton business. Reports were that the Cotton Pool cleared its books by selling a 25,000-bale futures contract to Speculator Jesse Livermore who is currently making one of his perennial comebacks.

Even imported commodities had a part in last week's show. Rubber sold above 16 1/2-c- per lb. for the first time since 1929. In one day silk shot up 5-c- per lb. to $1.67. The Annalist's wholesale commodity index registered the sharpest weekly gain since the 1933 inflation scare. Only items likely to be depressed by drought are meat and hides, and those only temporarily. Slaughtering of cattle in drought areas increases the immediate supply. No trade was more agog about the commodity boom last week than the butter market. Like eggs, butter has an annual cycle in prices and production. Production of both butter and eggs touches bottom in November and December, then rises to a spring peak, eggs in May, butter in June, when pastures are usually greenest. Consequently butter prices are generally lower in summer than in winter. But in the past eight weeks butter has gone up, not down, faster than at any time since the post-War inflation when butter sold wholesale at 60-c- per lb. At last week's quotation of 33#&162; per lb. butter was about 30% above the May figure and at the highest summer level in six years.

One reason for the butter boom has been an almost complete cessation of foreign imports. Last year butter prices were relatively high in the U. S., low in Europe. Big butter exporters like Denmark, Poland, Argentina and New Zealand were dumping over the 14-c--per-lb. U. S. tariff wall. Butter consumption follows purchasing power very closely, and Europe, particularly Britain and Germany, was then using oleomargarine. Even in the U. S. last year's high butter prices caused a rise in oleo production from 263,000,000 lb. in 1934 to 379,000,000 lb. in 1935. This year Britain is using more butter, Germany is bartering manufactured goods for butter, and Argentine butter production suffered from drought. Result: foreign butter is too dear to be profitably exported to the U. S.

With the weight of foreign dumping removed, U. S. markets were all set for any upward move when drought gave the starting signal. Sparse pastures have a direct effect on total milk production and even more on butter. Since fresh milk consumption continues at about the same level regardless, any reduction in the milk supply falls on the elastic margin provided by so-called "solid" milk--butter, cheese, ice cream. During the past few weeks the American Association of Creamery Butter Manufacturers has reported that weekly "makes" were running more than 16% below the same periods a year ago.

Drought not only affects summer pastures but reduces the quantity & quality of winter feed like hay and ensilage. Farmers feed their stock less grain because of its high cost, consequently get less milk. In stricken areas some cows have to be butchered that the rest may live. There are 1,400,000 fewer milk cows in the U. S. today than in the peak year 1933, the total being 25,600,000 about one cow to every five citizens. Though thousands of animals have been slaughtered in an effort to stamp out Bang's disease (contagious abortion), no small part of that reduction was due to the drought of 1934.

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