A New Soviet Grain-Buying Spree

Ivan wants more beef, so U.S. crop sales surge again

The hopes of U.S. farmers are as high as an elephant's eye. After several years of bumper crops that left growers dissatisfied with their incomes, they face the unusual and happy prospect of enjoying both substantial grain harvests and rising prices. The key reason for the price surge: widespread expectations in the commodity markets that the Soviet Union may go on another grain-buying binge, in part to make up for an expectedly poor crop this year. That could cause worldwide demand to outstrip production and lead to shortages. Such speculation has driven up prices for corn, wheat and other grains by prompting buyers--domestic and foreign--to increase their orders as a hedge against being caught short.

For the first time in four years, contracts for future delivery of wheat traded on the Chicago Board of Trade have exceeded $4 per bu.--a psychological mark that is as important to grain traders as the $300-an-ounce level is to dealers in gold. Though prices dipped somewhat last week, contracts for wheat and some grains to be delivered in July rose to yearly highs during June. At their peak, contracts for wheat were up to $4.86 per bu., vs. $3.23 for the same period last year. Corn, the major livestock feed, jumped to $3.17 per bu., up from $2.59 last year.

Though the flurry in futures cheers farmers and grain dealers, it is also yet another portent of price trouble for the inflation-battered consumer. At the very least it has clouded earlier Department of Agriculture forecasts that food prices would level off this year. Indeed, the rise of nearly 1% in those prices in May that was reported last week was substantially greater than the Administration had expected, since food supplies were so high.

The run-up in futures prices began early in June, when the DOA confirmed rumors that because of late planting and un usually dry, windy weather this spring, the 1979 Soviet grain crop could come in at between 170 million and 210 million metric tons; that would be far under the record 237 million metric tons harvested in 1978 and as much as 25% below the Kremlin's target for this year.

The Soviets are especially hard up for corn for livestock feed. They need large quantities because they are trying to increase their cattle herds to put more meat into the cereal-heavy Soviet diet.

As it happens, U.S. grain elevators are bulging with enormous stocks, particularly of corn; at last reckoning the corn supply stood at 82.1 million metric tons, which is 14% more than was on hand in 1978. In addition, the winter wheat crop, which is now being gathered in and commonly accounts for three-quarters of the nation's yearly wheat production, is estimated to be a hefty 1.43 billion bu., 8% more than was expected in May. Though beef will remain in short supply until ranchers finish rebuilding their still skimpy herds, pork production is at near record levels and poultry should continue to be plentiful. Last week the DOA reported that acreage planted in wheat is up 8% and corn acreage is about the same as last year. The department is now predicting a substantial harvest, if not a bin-buster, this fall.

The Soviet hunger for U.S. food is unlikely to cause a replay of the great grain debacle of 1973. Then the Soviets, working covertly through major trading houses, bought large quantities of American wheat at bargain prices and drove domestic food prices through the roof. Under the subsequent U.S.-Soviet grain agreement, the limit on U.S. sales to Moscow is 8 million metric tons a year. Any purchases above that level have to be approved by the DOA. Because of huge domestic stocks, the department agreed to allow sales of up to 15 million metric tons during this buying year, which ends Sept. 30. The Soviets are now expected to take the maximum--up to 12 million metric tons of corn, 3 million metric tons of wheat.

The big question is what they will do in 1980. If their crop is relatively weak, the Soviets could have a shortfall in the next buying year of up to 29 million metric tons. Any attempt by the Soviets to make up the shortage by buying in the world market could rapidly intensify demand for U.S. crops. The President can impose export controls if scarcities threaten, but that seems most unlikely. Even so, rising demand for American farm goods could keep upward pressure on domestic food costs. In short, rising grain prices are once again a cause of concern for inflation-scourged consumers.

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