Price War in Wheat

COMMODITIES

Through the wheat markets of the world last week ran a two-word scare: price war. To move more of its towering wheat stocks into export, the U.S. raised its subsidy to exporters, thus permitted them to cut export prices 10-c- a bushel (to about $1.75). Canada promptly followed suit, and Trade Minister. C. D. Howe warned that more price cuts would be made if necessary. Wheat trading slowed to a halt in England and other European markets. Argentina's Minister of Economic Affairs Alfredo Gomez Morales charged the U.S. with "dumping." Said Sir John Teasdale, chairman of the Australian Wheat Board: the cuts could result in "a repetition of the depression story when a similar price war

forced wheat below 2 shillings [then 50-c-] a bushel."

Actually, the price cutting was started, not by the U.S., but by Canada, which made a preliminary cut of 7-c- a bushel in February, quickly matched by the U.S. But what concerned the wheat trade last week was not who started the bargain sales, but how they might end.

Supply & Demand. The price cutting was the result of too much wheat. Five years ago, 46 nations formed the International Wheat Agreement, and such big producing nations as Canada, the U.S. and Australia agreed to allot a certain amount of their wheat for export in a stipulated price range (not to exceed $1.80 a bushel). When inflation, the Korean war and poor foreign crops put wheat in tight supply, the International Wheat Agreement worked fine, at least for the importing nations, which got what they needed at bargain prices. But recently, with wheat in surplus, I.W.A. has not worked so well. Such nations as France and India, which have had good crops, have fallen far short of importing their quotas. And Britain last year refused to renew its I.W.A. commitments, complaining that the new maximum price demanded ($2.05 a bushel) was too high.

The U.S. has been hardest hit by the slump in wheat exports. For the seven-year period ending in 1952, the U.S. was the world's leading wheat exporter, with an average 417 million bushels a year--46% of the total trade. Last year shipments fell by almost one-third to 317 million bushels, and this year they are estimated at no more than 215 million, or only 30% of the total (Canada's share: 40%). To enable its exporters to compete in world markets (instead of just unloading on the government) the U.S. has had to boost its subsidy to as high as 50-c- a bushel, to make up the difference between the domestic and world price.

More than half of wheat exports move under the International Wheat Agreement. But with importers waiting for more price cuts, the U.S. has not even filled half this year's I.W.A. quota of 210 million bushels.

Growing Mountain. Last week it was plain that the wheat problem will get worse before it gets better. Agriculture Secretary Ezra Taft Benson predicted that this year's U.S. crop will total 999,561,000 bushels, almost 100 million more than predicted only two months ago. While 15% below last year, because of acreage reductions, the harvest would still be 140 million bushels more than the U.S. expects to need for domestic and foreign markets. Barring some unforeseen new demand, the record U.S. wheat stocks of 875 million bushels (previous record: 1942's 631 million) will top a billion a year from now.

In London this week, the International Wheat Council is meeting to discuss the world's wheat worries. The U.S. delegates will try to persuade importing nations to take their full quotas. If they refuse--as seems likely--it is quite possible that the U.S. may cut its export price from $1.75 a bushel to the minimum $1.55 allowed under I.W.A. That would give Wheat Agreement members the clear choice of honoring the agreement or welshing--and other exporters little choice but to meet the new U.S. price.

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