Monday, Sep. 22, 1947

Devil Hunt

In the search for the devil responsible for soaring food prices, the hunt turned last week to Chicago's grain pits. As corn for future delivery rose to $2.63 1/4 a bushel, an alltime high, and wheat soared to $2.87, Vermont's Senator Ralph E. Flanders, ex-president of Boston's Federal Reserve Bank, thought he had spotted the devil. It was Speculation. "The situation today in the commodity markets is comparable to that in the stockmarket in 1929," said he, "and it could have the same disastrous results." He demanded that trading on margin be eliminated and that trading in grains be put on a cash basis.

No doubt there was plenty of wild speculation. The commodity exchange division of the Department of Agriculture reported that 90% of all corn futures was held by speculators. This was partly due to the fact that many of Wall Street's speculators, curbed by the 75% margin requirement, had shifted their money to the commodity markets. There they could buy on margins as small as 9%.

The Chicago Board of Trade is not under federal regulation of its margin requirements. But it was jittery; attacks like Flanders' might bring regulation. Shortly after Flanders' statement, grain prices had their sharpest break in days; wheat fell 10 to 12-c- a bushel. As the session ended, the Board's directors, who increased margins the week before, voluntarily upped them again, from 35-c- to 45-c- a bushel for corn and wheat. That brought the margin to about 17%. But at week's end, grain prices crept back up again. Plainly, speculation was not the only devil.

Devil No. 2. Grain brokers themselves thought that they knew who the devil was: the Federal Government. As long as the Government kept on buying for export, they thought that they could count on rising.prices, even though corn is now 30% higher than in 1920's boom. Until recently, the U.S. has not been exporting any more food than it did after World War I. But in July and August, grain exports increased to an alltime peak. The traders also put the blame on the blundering way the Government bought. Instead of buying only in dull markets, it hopped in & out of the market, paying no attention to the available supply of spot grain.

The Federal Government thought that the devil was simply the boom. "People have more money to spend," said Secretary of Commerce Harriman, "and they are bidding against each other." For example, meat consumption this year--155 lbs. per capita--is the highest since 1909.

The Fall to Come? Spurred by all these devils, Dun & Bradstreet's index of the wholesale price per pound of 31 staple foods last week hit $7.02, an alltime record (a year ago it was $4.99). Wholesale prices, which had been dragged up by the skyrocketing food prices, were within 7% of the alltime high reached in 1920--and the rise in recent weeks has been far sharper than it was after World War I. Would there be the same drop s? Nobody knew for sure, but there was another flurry of nervous talk of recession and buyers' strikes.

Merchants were sure of one thing; the more money consumers were forced to spend on food, the less they could spend on clothing, autos, etc. Department-store sales in the last four weeks dropped 3% from the 1946 level. And sales in some stores, notably specialty shops, were down as much as 21%.

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