THE wheat growers of the United States, like those of other countries where production is in excess of domestic requirements, are subjected to forces of supply and demand worldwide in origin. That was the situation before the war, and it is the situation today. In the interval, however, changes in competitive conditions, decidedly adverse to American farmers, have taken place. In order to set forth the more important of these changes clearly, certain factors in the world's trade in wheat during the decade ending with the year 1913 must be sketched in as background.

During the decade 1904-1913 the annual wheat crop of the world amounted, in round numbers, to from 3,000 million to 4,000 million bushels. Of the total production during those ten years Europe (excluding Russia) produced 34 percent, Russia and the United States 20 percent each, India 9½ percent, Canada and the Argentine 4½ percent each, Australia 2½ percent, and other countries together 5 percent.

The general trend in world production was upward, due mainly to increased crops in the exporting countries. A nation-by-nation comparison of the average crops of the first five years of the decade with those of the last five years shows that Canada and Australia (figuring in percentages) effected the greatest increases. Russia also made substantial progress. In the United States, the gain in production about kept pace with the increase in population. Argentina's production, on the other hand, decreased, owing to unfavorable seasons. But the underlying trend of wheat production is indicated less surely by the quantities of wheat harvested, which are largely affected by conditions beyond the farmers' control, than by the areas devoted to the crop in different countries. During these ten years the Canadian acreage was expanded by more than 100 percent, and the acreages of Argentina and Australia by upwards of 40 percent. By comparison, the United States and Russia made slow progress. In western Europe the acreage remained practically constant. Thus even before the war the disposition to go more largely into wheat-growing was most apparent in those countries which have since become our strongest competitors.

Ocean shipments of wheat during these same ten years ranged from 479 million to 665 million bushels. The main flow was towards the industrial areas of western Europe (including the United Kingdom) from Russia, India, and Australia on the east, and from the United States, Canada, and Argentina on the west. Wheat was exported from the Balkans also, but as the Balkan crops are regarded as a part of Europe's domestic supply these shipments may be considered as an inter-state movement. Of the total amount of wheat exported by countries outside of Europe, 98 percent was furnished by the six countries just mentioned, as follows: Russia 27 percent, the United States 22 percent, Argentina 19 percent, Canada 14 percent, Australia 8 percent, and India 8 percent. Year by year the volume of world shipments, just as of world production, tended to increase. Canada increased her exports by 183 percent, Australia by 70 percent, and Russia and India by 32 percent. But the movement from the United States and Argentina decreased. The falling off in exports from the United States, however, was considerable only in 1910-11 and 1911-12; and in the case of the Argentine the decrease in shipments is attributable to poor vields and is not therefore indicative of any permanent change.

Among all these events the significant developments for the United States were the increases in acreage in Canada, the Argentine and Australia, and the large export shipments from Canada and Russia. Both pointed to a much more intense competition in the future.

The statistical records of the decade are evidence of the close relationship between world crops and world prices, and between world prices and world shipments. Charts correlating the size of the world's crops and the corresponding averages of Liverpool quotations show clearly both the depressing effect of increased production and the response of the market to smaller crops. Similar charts illustrating the relation between the volume of world shipments and Liverpool prices, which are generally accepted as fairly representative of world values, demonstrate that the amount of wheat purchased by importing countries increased when prices were relatively low, and decreased when rices were relatively high. A third point of interest brought out by the statistics is that the wheat imported, when added to home grown crops, did not provide a uniform annual supply for the importing countries. Instead of balancing domestic production

and theoretical requirements by imports, the practice of importing countries appears to have been to take only what they could afford at the prevailing price. In years when prices were relatively high the practice seems to have been to resort more generally to alternatives and substitutes.

These three simple market facts have real meaning for American wheat growers, since they suggest that in the future large exports cannot be relied upon to sustain prices in the face of expanding world production. Large exports, as a rule, are the result of relatively low prices and not the cause of high prices.

The war, of course, dislocated the whole international trade in breadstuffs. The main shift in production was from east to west. The closing of the Dardanelles blocked the outward movement of wheat from Russia. The length of the sea routes and the hazards of the voyage restricted the flow from Australia and the Argentine. India's exports fell off sharply. In western Europe itself production greatly decreased. The responsibility of meeting the new demand devolved upon North America, and influenced both by the rising price of wheat and by patriotic motives the United States and Canada responded with enlarged acreages and heavier shipments.

This profound shift in the accustomed sources of supply for practically all importing nations produced new competitive factors in the markets of the world, and these persisted even when peace returned. We have seen that in the five years before the war the six principal countries growing a surplus of wheat were the United States, Russia, India, Canada, Argentina, and Australia. The average annual production of the United States, Canada, Argentina, and Australia in these years was about 1,126 million bushels, and that of Russia and India 1,015 million bushels, making a total production for the six countries of 2,141 million bushels. In sharp contrast, the average annual production of the United States, Canada, Argentina, and Australia for the post-war period 1920-1923 was 1,507 million bushels, and that of Russia and India 621 million bushels. In other words, the first four countries increased their production by 381 million bushels, and the other two countries decreased their production by 394 million bushels. The basis for the remarkable gains of the first group of nations is the increase in acreage, which in Canada amounted to 129 percent, in Australia to 32 percent, in the United States to 16 percent, and in Argentina to 6 percent. It is of interest to note that the increased crops of Canada and Australia have rendered the British Empire self-supporting in wheat.

The six countries named above together exported annually from 1910 to 1914 about 550 million bushels of wheat, and from 1920 to 1923 about 700 million bushels. But in the war interval Russian and Indian shipments were reduced, on the average, by some 200 million bushels. Hence, the increase in exports from the United States, Canada, Argentina, and Australia not only made up for the decrease in shipments from Russia and India, but provided 150 million bushels a year in addition. The greatly enlarged offerings of these countries, notwithstanding lower production in Europe, created a "buyers' market," in which importing countries were able, from time to time, to purchase immense quantities of wheat at practically their own price. Available data indicate that they were able, as a whole, to fill their most pressing requirements at such prices.

The accumulated demand at the close of the war, reinforced by a fresh resort to credits, caused wheat prices to turn upward in the spring of 1919 and to move at high levels until the fall of 1920. During the crop year 1920-21 prices fell abruptly and the decline continued in 1921-22; while in 1922-23 and 1923-24 the market may be said to have hovered usually near the level of 1913. American farmers have been told more than once that the low prices of the last three years--ruinously low when the exchange value of wheat is taken into account--have been caused by a lack of export business. But, as a matter of fact, the importing countries both in western Europe and outside of Europe took more foreign wheat during these three years than in any equal period prior to the war. A more logical explanation of the prevailing prices is found in the statistical record of the large stocks available for export in the United States, Canada, Argentina and Australia. The weight of these stocks on the market depressed prices to levels at which wheat could move abroad freely even in the face of Europe's subnormal purchasing power.

As an exporter of wheat the United States must compete chiefly with Canada, Argentina, and Australia. The increase in the average yearly exports of these countries (165 percent, 59 percent, and 70 percent, respectively) above their pre-war averages, has left less room for American wheat in the world's markets. The back-pressure of more bountiful harvests in importing countries, and the reappearance of Russian wheat in quantity--developments which may be expected to occur--would render competitive conditions still more difficult. With such an outlook any advantages or disadvantages which the United States may possess as an exporter of wheat become significant. And they must be sought in the cost of production, the period of harvesting, the transportation and marketing charges, the character of the American wheat shipped abroad, and other factors affecting the merchandising of our crop.

The "cost of producing a bushel of wheat"--an elusive term at best--cannot be ascertained for the various exporting countries. But it is not necessary to know the exact figures before conceding that production costs in the United States run higher than in Canada, Argentina, or Australia. The higher charge against the American crop for the use of land or labor, or both, as compared with the charge in any one of the competing countries, is good evidence of the fact; while the progressive decrease since 1919 in wheat acreage in the United States, compared with the steady increase in the areas under cultivation in Canada, Argentina, and Australia, again indicates a lower cost of production in these three countries. A recent report of the United States Tariff Commission on the average cost of production in the prairie provinces of Canada and in certain of our spring wheat states shows a difference in favor of the Canadians of 48 cents a bushel, figuring the land charge at interest on stated values. This was largely due to differences in land values and yields per acre. Not many reliable facts as to cost are available for Argentina or Australia, but the average price of wheat land is probably twice as high in the United States as in either of those two countries or Canada, while farm wages in Argentina are much lower than in the United States and Canada. American wheat growers, then, when weighing their chances of survival in the export trade, would be wise, in the light of such facts as are known, to make allowance for production costs substantially higher than those of their competitors.

The practice of importing countries to forecast their requirements and to provide for them by entering into contracts for future deliveries prevents any one country from gaining a decided advantage over another. Yet it is fortunate for Argentina, in competing with the United States, Canada and Russia, all of whose harvest periods occur near together, that her harvest follows theirs at an interval of several months. Otherwise the ocean freights for Argentine shippers would be considerably higher. Australia is in a similar favored position.

When the farmers of the United States export wheat they receive for it the current price paid in the world markets. Since the same rule applies equally to the wheat growers of other surplus-producing countries it develops that transportation becomes a prime factor in the struggle for overseas orders.

Broadly speaking, the wheat growers of Australia and Argentina have the advantage of short hauls by rail, those in the United States and Canada the advantage of lower ocean freights. In Australia the wheat districts are close to the seaboard, but as rail rates per mile are probably twice those in the United States or Canada this advantage is offset by the fact that Sidney and Melbourne are some 8,000 miles farther from Liverpool than either Montreal or New York, with ocean freights to western Europe ranging from 16 to 22 cents per bushel. On the whole, the rather limited information at hand does not seem to show that Australia enjoys any material advantage over North America in the cost of moving wheat from the farm to European markets.

But our other southern competitor, Argentina, has quite decided shipping advantages. The wheat lands occupy a crescentshaped area lying along both sides of the Parana River and stretching 500 miles inland. From Rosario, twenty-two miles up the river, and from Buenos Aires, on the estuary of the Rio de la Plata, the railroads spread a network of lines through the wheat fields. The length of the rail hauls to ship-side range from a few miles up to 360 miles, but do not average over 150. (In the United States much wheat must travel a good deal further in order to reach Duluth, Chicago, or Kansas City, where it is still far from the seaboard. In fact, no other large exporting country can put its wheat aboard ship as cheaply as Argentina.) But the ocean freights for full cargoes from the La Plata to Liverpool are much higher than from ports in the North Atlantic, running as high as 12 to 15 cents a bushel for the 5,000-mile voyage, as against 6 to 9 cents for the 3,500-mile voyage from New York; and neither Rosario nor Buenos Aires enjoys the very low "parcel rates" prevailing for great quantities of the wheat moving abroad from New York and Philadelphia. Yet, on the basis of recent estimates published by the Great Lakes-St. Lawrence Tidewater Association, it appears to cost, on the average, some 10 cents less a bushel to move wheat from farms in Argentina to western Europe than from farms in the wheat districts of the United States. Without attempting any exact comparison of through rates, it seems safe to say that the difference in favor of Argentine farmers is enough to constitute an important competitive advantage. And cheap rates, cheap labor, cheap land, together with the depression in the cattle business, are reasons for anticipating still further expansion of the Argentine wheat industry.

Our most formidable competitor, however, is Canada. In 1922-23 she took first place from the United States as an exporter of wheat and in 1923-24 increased her lead. From every point of view Canada appears to be in the wheat business to stay,--and, undoubtedly, on an expanding scale. This fact stands out very clearly in the studies of agricultural export problems which are being made by Dr. Frank M. Surface of the Department of Commerce. The strong points of Canada's position are low production costs, excellent wheat, splendid elevator equipment, and a remarkably well organized marketing system; her big problem, --as in the United States,--is transportation, for her wheat fields lie far inland.

The limits of this article forbid a full description of the Canadian grain trade, but a few of its outstanding features which are of special importance to wheat growers south of the border must be outlined. Canada's foreign markets are all-important to her, as the quantity of wheat she must sell abroad far exceeds the amount she consumes at home. In 1922-23 more than 85 percent of Canadian commercial wheat was exported as grain and flour, and a higher percentage is likely to be sent abroad in 1923-24. As a natural result the trade is organized upon an export basis. Practically speaking, but one kind of wheat (hard spring wheat) is grown in the prairie provinces of Manitoba, Saskatchewan, and Alberta, which contain about 95 percent of the total acreage of the Dominion; little of the soft winter wheat of the eastern provinces enters export channels. The main movement is eastward. The lines of the Canadian Pacific and Canadian National Railways which tap the wheat belt converge on Winnipeg, the central inspection point, through which the wheat moves on to Fort William and Port Arthur, the twin cities at the head of Lake Superior where the principal terminal elevators are located. Thence the grain flows to eastern lake ports, both Canadian and American, and thence to Montreal or seaports in the United States. The crop is harvested in the late summer, and the bulk of it exported between the middle of September and the middle of December in order to take advantage of cheap water transportation and avoid the expense of winter storage. During this busy period the great streams of wheat that originate in the 4,500 country elevators of the West are passed through the terminals at the lake front and loaded aboard the boats at a rate which is made possible only by close teamwork among the elevator operators, the railway and shipping companies, the Dominion inspection department, and the banks. American and Canadian vessels alike are employed for the lake carry, and American as well as Canadian railways carry the grain from the eastern lake ports to tidewater. In 1922-23 more wheat was shipped in American bottoms than in Canadian; and Buffalo, Erie, and Toledo received more Canadian grain than all of the Canadian ports on the eastern lakes.

The trading in Canadian wheat is conducted at Winnipeg, the only important wheat market in the Dominion and the largest primary wheat market in the world. The price structure is surprisingly simple. The country prices are derived from Winnipeg quotations covering grain in store at the lake terminal; and the Winnipeg quotations, both cash and futures, are the direct reflection of the prices obtainable for deliveries in the United Kingdom and western Europe. The Dominion Government exercises close supervision over those branches of the trade in which the farmers are associated, and one sees enormous quantities of wheat, localized as to production and of essentially one kind, moving year after year in the same general direction, through well defined and splendidly equipped transportation and commercial channels, to a limited number of principal destinations. Not only do the conditions which are maintained greatly facilitate orderly marketing, but, further, the milling industry cooperates rather than competes with the export trade in grain, for Canadian flour prices, as well as wheat prices, are rarely much out of line with foreign markets.

With production far in excess of her home requirements Canada must sell the bulk of the crop abroad, whatever the price may be, and she has equipped herself to do so in a most efficient manner. Her chief obstacle is the great distances that much of the wheat must be carried by rail, but this competitive handicap has been reduced by the liberal rate policy adopted by the railway companies. From the grain belt to Fort William (which corresponds to Duluth and Chicago) wheat rates on a mileage basis are lower than for similar hauls in the United States. And at Fort William Canadian wheat has virtually as ready an access to the North Atlantic ports of the United States as American wheat has at Duluth or Chicago. On the eastern lines, too, congestion promises to be relieved by the larger use of the Vancouver-Panama route.

Russia, although at present eclipsed as an exporter, is still the natural food base of western Europe and should not be lost sight of as a powerful potential competitor. During the five years preceding the war Russia's exports of wheat ranged from 80 million to 220 million bushels a year. The low plane of living of the peasant farmers, and the short routes to markets outside the empire, made extensive wheat growing practicable even with low prices. These basic conditions have not changed and may bring about a resumption of liberal shipping sooner or later, unless the attainment of a stronger economic and political position by the peasants leads to a higher per capita home consumption than before the war.

A decided handicap which the United States faces in its competition for foreign markets is that the wheat which it exports is for the most part mediocre in quality. The United States affords a better home market than is enjoyed by the farmers of any other surplus-producing country, domestic consumption exceeding exports by about four to one, and consequently our best wheat is kept out of foreign markets. In Canada, Argentina, and Australia the population is small and the crop large, which permits their best and most representative wheats to be exported. In the United States this is not the case. American bakers and housewives are exacting, and the mills grind the best of the wheat, paying a premium for the privilege, while foreign buyers must content themselves with what is left. This is the basis for the allegation that American offerings lack quality. The premium our fancy wheats carry in the home market is, of course, a boon to our wheat growers, but it does not strengthen the position of the United States as an exporter.

Whether it is expedient for the United States, all things considered, to devote to the growing of wheat sufficient land, labor, and capital to produce a surplus for export is a pressing question. The farmers, of course, will decide it for themselves. The progressive reduction of the planted acreage from 76,683,000 acres in 1919 to 57,111,000 acres in 1924 suggests that many farmers may have come to the conclusion that a reduction of production to the capacity of the home market is the safest policy. If so, the hasty review of competitive conditions given in the preceding paragraphs would seem to support their judgment.

Just now, at the beginning of the crop year 1924-25, trade reports indicate a smaller exportable surplus in Canada and the United States and a greater European demand than in 1923-24, a prospect for which allowance is being made in current prices. Only about one-sixth of the world's wheat crop usually enters into international trade, so a decrease of even five percent of the total production brings about a sharp reduction in exportable supplies. The world market may rule higher in the coming year than in the last. We hope it will. But that is not the main point. In deciding upon a permanent wheat policy for the United States, the long view is more important than the short, and the long view lends little encouragement to the belief that large scale production of wheat on the part of the United States will prove profitable.

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  • THEODORE D. HAMMATT, Special Agent of the Department of Commerce, engaged at present on a study of the American wheat situation
  • More By Theodore D. Hammatt