Our Wheat Surplus

IF WE look back to the difficult days which immediately followed the formation of the United States we find that even then the country needed a European market for such commodities as it could produce abundantly and cheaply. It needed to trade its raw materials for imports of manufactured goods from the older countries. The Southern States long had such a market in tobacco and, following the invention of the cotton gin in 1793, began the development of a still more important export trade in cotton. From Virginia northward through the Middle States there early grew up, too, a flourishing business in the export of wheat and flour. In 1790 it reached a value of $5,800,000, or about one-third more than the tobacco trade of that year. But as European policy after the Revolution was distinctly unfriendly to the admission of wheat and flour, a considerable part of American exports of these commodities went to the West Indies. Then a peculiar turn of events enlarged the European demand and boosted wheat and flour prices to a degree which greatly improved the American economic situation. The French Revolution and other Continental conflicts, culminating in the Napoleonic Wars, simultaneously impaired production and increased consumption of wheat in Europe. Encouraged by the resulting high prices, farmers from Virginia up to the Connecticut Valley turned to the production of this staple, and the private profits and favorable exchange relations which resulted did not a little to strengthen the economic position of the young republic.

After the close of the Napoleonic Wars and our second war with England the situation changed sharply. "Consumer resistance" again asserted itself in Europe, with blighting effect on our export trade in wheat. Farmers of the northeast seaboard no longer could find a profitable export market, whilst new production areas began to expand in western New York, Ohio, and other parts of the trans-Appalachian region. The opening first of canal and then of railway communication with the West expanded production, lowered freight costs, and brought an increased flow of wheat into the seaboard markets. Thus from the close of the Napoleonic Wars until well into the forties American wheat farmers struggled with a surplus problem.

The problem was solved for the time being by the repeal of the British corn laws in 1846, the Irish famine of the following year as a result of the failure of the potato crop, the Crimean War (1854-56), and several periods of partial crop failure in Europe. These, taken together, caused American wheat exports to maintain a high average during the late forties and throughout the fifties. The period culminated in a succession of partial crop failures in Great Britain in 1860, 1861, and 1862. Incidentally, the large takings of American wheat at relatively high prices in these three years not only contributed to the economic strengthening of the North but probably influenced British policy definitely away from recognition of the Confederacy.

In the period from the Civil War to the World War interesting and often contrary influences were at work. The growing of wheat, a typical pioneer crop, expanded rapidly as a result of our homestead policy, railroad development, and the flood of immigration. Although northeastern Europe was being steadily industrialized, and hence showing a relative neglect for agriculture, supplies from this country tended to outrun this demand, and the prevailing price trend was downwards. However, this did not face American growers with a ruinous surplus situation, since wheat could be grown on pioneer farms at an extremely low cost and railroad freight rates were made advantageous to the man on the frontier. As the wheat-farming area moved westward it was succeeded by general farming, in which wheat was only one of several sources of income; and livestock, dairy products, and other more intensive crops increased in quantity and found an expanding market in the growing cities and industrial regions of our own country. Twice between the Civil War and the end of the century the coincidence of a large crop at home and a partial crop failure abroad brought windfalls to our national economy. In 1878 and 1879 large exports at high prices attracted to our shores a flood of gold which was of great importance in facilitating the resumption of specie payments. In 1891 and 1892 a similar situation bolstered up the national economy at a critical period and mitigated the agricultural phase of the depression which followed.

At this point we must note the entrance of an important new force which has had enormous significance in the evolution of our present agricultural situation. This was the growth of competitive sources of supply in the world wheat market. Until about 1890 the United States occupied a highly favorable position in the international wheat trade. Europe was glad to accord, and we were glad to accept, a position as the "bread basket of Europe." During the nineties, however, Russia began to forge steadily ahead as a producer of wheat and assumed considerable importance in the export market. Her average production practically quadrupled between the beginning of this period and the start of the World War, culminating with a bumper crop of over a billion bushels in 1913. Meanwhile Canada, whose production had been more or less stable during the nineties, advanced from a production of 56 million bushels in 1900 to 232 million bushels in 1913. Argentina likewise had shown little growth until the end of the nineties, but thereafter her production increased rapidly until it averaged around 150 million bushels in the years just preceding the World War as compared with 31 million bushels in 1890. Australia, though showing less spectacular growth, approximately tripled her production during the period.

The significant point is the simultaneous growth of wheat production in these four countries and the fact that all of them had a comparatively inelastic domestic market. Hence the increased production tended to flood into the export market, where it furnished strong competition for the American wheat grower. That this did not create a devastating situation for the United States is evidenced by the fact that wheat prices were somewhat higher at the end of this period than at the beginning, and our exports were somewhat larger in absolute amount, though reduced more than one-half as a percentage of our total crop. We exported on the average 31 percent of the five crops in the years 1898-1902, but only 15 percent of the five crops just preceding 1914.

There is a two-fold explanation of how our agriculture was able to lessen its dependence on the foreign market so rapidly without meeting serious disaster. In the first place, the one-crop type of wheat farming was tending to be superseded in the United States by general farming or, as in California, even by intensive types of horticultural development. This tended to effect an orderly and gradual adjustment of American agriculture away from wheat farming, counteracting in some degree the keener competition from other countries in which the one-crop system seemed destined to maintain a longer or even permanent hold. Simultaneously, the domestic wheat market was expanding rapidly as cities grew and industrialization was accelerated. During nearly two decades, therefore, from the end of the depression of the nineties to the outbreak of the World War, the American wheat industry showed no marked outward signs of developing a chronic surplus, indeed seemed to be better off in this respect than it had been during much of the twenty-year period preceding the depression of 1893.

Looking back, however, an acute observer has no difficulty in seeing that certain of the factors which produce the American wheat surplus of today were already present in embryo, at any rate in the latter part of the pre-war period: 1, the tendency of consumption to decline; and 2, a succession of changes and improvements in the technique of wheat growing.

Despite the difficulties of procuring accurate data bearing on such a question, there seems to be general agreement among the most reliable investigators that whereas the per capita consumption in the United States averaged something like 5⅓ bushels annually at the turn of the century it has probably been less than 4¼ bushels in recent years. This would mean a falling off in domestic demand of something like 150 million bushels, or about 18 percent of our total production. It is not necessary for our present purposes to go into any extended explanation of causes, and at best these are not too clear. But apparently the drop in wheat consumption is chiefly accounted for by the American population's shift from more exposed and more physically violent outdoor occupations to better sheltered and more sedentary industrial employment, and a change in dietary habits away from starchy foods in favor of vegetables, dairy products, and particularly sugar.

Turning to the question of technological changes in the production of wheat, we find a story which is interesting in itself as well as significant for the explanation of the current wheat surplus. The type of wheat culture with which European and particularly British emigrants were familiar, and which they brought to this country, was that of moist-land farming. The abundant rainfall and damp atmosphere of England contributes to the development of a full, starchy kernel -- an extremely "soft" wheat. The Continental areas from which our early agricultural immigrants came were also well watered. But as wheat growing spread westward in the United States it reached lands suitable in terms of soil and temperature but increasingly deficient in moisture; this was strikingly so as settlers moved into the second tier of states beyond the Mississippi River. The lesser humidity conduced to the growing of high-protein or "strong" wheats, and one phase of the development of the new technique of wheat growing consisted in exploring other sub-humid areas (such as Turkestan) to find wheats which would flourish with a comparatively scant supply of moisture.

The development of a hard winter wheat industry in the United States has been greatly facilitated by the fact that the millers wanted such high-protein wheats. They made the type of "strong" flour which the baker desired, because it took up a larger amount of moisture and made more loaves of bread of a desirable texture and appearance. Moreover, this new type of wheat culture showed a differential superiority in that it could be practised on the level lands of our Great Plains and could utilize most fully the labor-saving machinery which had been developed since the application of the gasolene engine to power farming. In other words, the wheat industry of the United States has shown a pronounced shift from the moist regions east of the Mississippi and from the immediate trans-Mississippi section to the dryer areas of the West, where it has used low-cost methods to produce high-quality wheat on lands previously considered suitable only for grazing. In the quarter century from 1906 to 1931 the wheat lands in the 31 Eastern states dropped from 23,100,000 to 12,660,000 acres, while the 17 Western states showed an increase from 24,200,000 to 42,400,000 acres. This development has tended to expand the industry, on a basis of declining costs, along the western margin of our wheat area; at the same time no easy alternative has been offered to the older wheat-growing sections to shift out of this industry. Thus the growing surplus of the Southwest began to bear down heavily on the wheat farmers of Illinois, Indiana, western Maryland, and the Shenandoah Valley much as the wheat from Ohio and Indiana had crowded the New England wheat producers a century ago.

The broader significance of this development in wheat farming technique is to be found in the fact that there are in various parts of the world very considerable areas of land well adapted to these low-cost methods of production. The western provinces of Canada, the wheat-growing regions of Argentina and of Australia, and enormous lands in Russia (particularly in Asia) possess qualities of soil, climate, and topography which have already enabled these areas to expand greatly as suppliers of the world's wheat in competition with our farmers. Canadian wheat, for example, is predominantly of the high-protein grades which are regarded as most superior in the United States; and Canadian production, which, as we said a moment ago, was just establishing itself on the 200 million bushel level at the opening of the World War, advanced to a peak of 567 million bushels in 1928. Many agronomists who have studied the undeveloped resources of western Canada claim that Canadian production could be doubled before a serious barrier was reached. Similarly, a highly expert student of this problem in the United States Department of Agriculture, after a reconnaissance survey of available lands of the type in question, particularly in Asiatic Russia, has forecast a wheat area of over 800 million acres, or perhaps ten times the present area.^[i]

While both these estimates are sharply challenged, it seems clear that the shifting of wheat technique to the use of sub-humid lands and tractors has expanded the competitive area to an extent which is little less than revolutionary. In the light of this development we may call to mind the gloomy prediction of Sir William Crookes, made at the close of the nineteenth century, to the effect that the world was rapidly approaching the limit of its wheat-producing resources, was faced with drastically mounting costs, must of necessity sharply curtail consumption, and might even have to check the cultural advance which had been characterized by the moving of backward peoples from rice, corn, and rye diets onto a white-bread standard of living. In his presidential address before the British Association for the Advancement of Science in 1898 Crookes said:

Land is a limited quantity, and the land that will grow wheat is absolutely dependent on difficult and capricious natural phenomena. I am constrained to show that our wheat-producing soil is totally unequal to the strain put upon it. . . .

Practically there remains no uncultivated prairie land in the United States suitable for wheat-growing. . . . It is almost certain that within a generation the ever increasing population of the United States will consume all the wheat grown within its borders, and will be driven to import, and, like ourselves, will scramble for a lion's share of the wheat crop of the world. . . . Although Russia at present exports so lavishly, this excess is merely provisional and precarious. . . . Prince Hilkoff, Russian Minister of Ways and Communications, declared in 1896 that "Siberia never had produced, and never would produce, wheat and rye enough to feed the Siberian population." And, a year later, Prince Kropotkin backed the statement as substantially correct. . . . The most trustworthy estimates give Canada a wheat area of not more than 6,000,000 acres in the next twelve years, increasing to a maximum of 12,000,000 acres in twenty-five years. . . . There is no prospect of Argentina ever being able to devote more than 30,000,000 acres to wheat; the present wheat area is about 6,000,000 acres, an area that may be doubled in the next twelve years. . . .

The details of the impending catastrophe no one can predict, but its general direction is obvious enough. Should all the wheat-growing countries add to their area to the utmost capacity, on the most careful calculation the yield would give us only an addition of some 100,000,000 acres, supplying at the average world-yield of 12.7 bushels to the acre, 1,270,000,000 bushels, just enough to supply the increase of population among bread-eaters till the year 1931.^[ii]

Although this prediction was qualified by the statement that "starvation will be averted through the laboratory," that escape involved a large use of chemical fertilizers, intensive cultivation, and high production costs. The opposite has transpired. In fact, it was less than a decade after Sir William Crookes made his prediction of a wheat shortage that the general outlines of the new wheat-growing technique began to emerge. Farmers along the semi-arid frontier began experimenting with methods of "dry farming." Gradually drought resistant types of wheat were introduced. Then, about 1910, the tractor began more and more to displace the horse. Tractors were enormously improved during the war period, both as regards construction and the materials used in their manufacture; and various types of tractor-drawn implements were rapidly perfected. The new methods economized man power and made previously submarginal lands available -- indeed superior -- for wheat growing. Simultaneously demand was strong and prices high, and our competitors (particularly Argentina and Australia) were seriously handicapped by their distance from the European market, by a shortage of ocean shipping, and by the difficulties of naval escort. This great stimulus came just at a time when the major details of the new farming technique had been fairly well perfected, and as a result American wheat acreage rose from its pre-war average of less than 50 million acres to over 75 million acres in 1919.

In this development lies the origin of the present American wheat surplus problem. It was unexpectedly easy to increase production in response to war needs; it has proved unbelievably difficult to effect a reduction once the need had passed. The pressure of demand did not lift immediately upon the signing of the Armistice, but it moderated rapidly and cumulatively in the years immediately following. Only a short time passed before the supplies of our chief competitors again began flowing into the European market. Men returning from the armies of Canada and Australia augmented the labor force of those countries and applied themselves to wheat production armed with the laborsaving machinery which had been so rapidly adopted during the period of labor shortage. Argentina also adapted the new methods to a considerable extent. American manufacturers had been the pioneers in developing power-farming equipment, but the farmers of other countries were not slow to take advantage of the new devices. In some years during the post-war decade the exports of American tractors and tractor-drawn implements were greater than the domestic sales. Finally, too, seeing that they would probably be unable to recover their previous industrial and trade position, most of the countries of Europe began to adjust their economic systems in the direction of a greater agricultural self-sufficiency.

It is a curious anomaly that, while the development of low-cost methods and the increasing utilization of low-cost areas have been going forward so aggressively elsewhere, Europe's policy in general has been directed toward increasing the home production of wheat in areas and by methods which entail high unit costs. Caught in the financial demoralization of the post-war period, they have sought to reduce imports to the minimum and have utilized the devices of protective tariffs, milling quotas, and other import restrictions to check the entry of wheats from countries where production costs are lower.

In examining the post-war problem of our wheat surplus we may conveniently divide the discussion into two periods, the first running from 1920 to 1929 and the second that since 1929. During the first half of the first of these periods there was a reduction of acreage well toward the pre-war level; this was followed, during the second half of the period, by a rebound to a point about halfway between the pre-war acreage and the acreage of 1919. A systematic campaign of education brought the acreage of the 1925 harvest down to 52.4 million acres from the 75 million acres harvested in 1919. The apparent reduction is somewhat exaggerated by the fact that the winter wheat sown in the fall of 1924 was abandoned on an unusually large scale. The resulting short crop brought a good price; and this stimulus, added to that supplied by the growing momentum of the development of large mechanized farms, caused acreage to increase rapidly during the next three years, until in 1929 it reached 62.7 million acres.

During this period there was plenty of talk about the "wheat surplus" and plenty of grounds on which to base such talk. However, the drop in the price of wheat had not been ruinous, as shown by the fact that in no year did the December 1 farm price reported by the Department of Agriculture go below 92 cents (as compared with the 1919 peak of $2.15). It was $1.42 and $1.04 respectively in the two short crop years 1925 and 1929. During this period the wheat market was supported by generally prosperous conditions in the domestic market, even when conditions in foreign importing countries were far from satisfactory.

The new and acute phase of the wheat surplus problem was ushered in with the crash of October 1929. Unemployment and reduced purchasing power at home and the further demoralization of economic and financial conditions in Europe and elsewhere dealt the final blow to our over-burdened wheat market. Prices have now dropped to levels which would have been thought impossible a few years ago. The farm price reported by the United States Department of Agriculture for December 15, 1932, was 31.6 cents. Meanwhile the domestic carry-over has risen till on July 1, 1932, it stood at 353 million bushels as compared with about 125 million bushels in 1927 and 1928. The world carry-over has increased about 400 million bushels, of which nearly two-thirds is due to our accumulations. Every effort at the control of production by individual nations or by international agreement has proved futile.

Evidently both temporary and permanent factors enter into the American situation. Their variety and complexity make it extremely difficult to define the real nature of our surplus problem or to draw a base line above which surplus is to be measured. The wheat industry is obviously seeking some formula of adjustment and hoping that some means may be found over the next few years to implement whatever decision a careful analysis of the problem may indicate as necessary. Approaching the matter in a negative sense, I think it may be said that we certainly would not regard as an undesirable surplus all the wheat above that amount which could be sold at a remunerative price in the present depressed domestic market or through the present disorganized channels of international trade. We must hope for a not too remote return of prosperity when the power of the world's non-farming population to absorb wheat will be such as to draw down the present excessive carry-over and create a market for a larger international flow of wheat than any hitherto known. That leaves the question: In what areas can this supply of wheat be most successfully produced in the future?

In this connection the United States faces two major issues. First, is it economically necessary for us to withdraw completely from the world market or regard any export as a surplus destined to wreck our price structure? Second, in what areas within the United States could this quantity of wheat be most economically produced? It is extremely hazardous to venture a prediction in the midst of such disturbed conditions as those which now prevail. At the same time, I believe that three general propositions may be laid down with a good deal of confidence:

1. The competition of other countries favorably situated for the production of wheat using modern low-cost techniques is so keen as to necessitate a withdrawal of the United States from a part of the export position which it has occupied in the past. Our exports have run at approximately the 200 million bushel level. It may be suggested roughly that in future approximately half this amount will have to be eliminated.

2. There are two areas in the United States, one rather large and subject to expansion, the other somewhat smaller and probably stationary, which can produce wheats at a very low unit cost within short and economical haul of cheap ocean transportation. These two regions are the interior Southwest, composed principally of parts of the states of Kansas, Oklahoma, and Texas; and the Pacific Northwest, composed of Oregon, Washington, and a fringe of Idaho. These areas are the only probable sources of continuous exports after the adjustment now in process has been worked out. Some casual exports of the less desirable wheats, non-milling grades, and durum will probably persist for a long time.

3. Considerable parts of the older wheat-producing areas of the United States have been rendered permanently unprofitable under the world system of wheat prices which will be dictated in the future by the competition of some half-dozen important export countries. A large part of the wheat which these older American areas now produce is destined to be classed as a true and permanent economic surplus, which must inevitably be eliminated even though there is no more profitable alternative presented to the farmer and even though the agriculture of these sections is forced to show a net decline as a result of this process of adjustment.

The extreme low prices of the last three years have had a slight effect in reducing acreage in the United States. The area harvested in 1929 was 62,700,000 acres; in 1930 it was 61,100,000 acres; in 1931 it dropped to 55,300,000, and last year to 55,200,000 acres. Since the abandonment of fall-sown wheat was very light in the winter of 1931-32, there probably was more of an effort toward reduction last year than appears on the face of the harvest figures. Sowings of winter wheat last fall were down to 39,900,000 bushels as compared with 43,500,000 bushels in the fall of 1930. Thus far it appears that winter losses will be heavy, and there is also a prospect of a reduced world crop. This might result in some reduction of the excessive carry-over. But only the resumption of industrial employment and a freer commercial interchange over the world as a whole will put us in the way of a permanent solution of the problem. Until we have a better gauge of the purchasing power of the world's consumers during the next decade or so we cannot try intelligently to fix the proper scale of our American production.

^[i] C. F. Marbut: "Russia and the United States in the World's Wheat Market," The Geographical Review, January 1931, pp. 1-21.

^[ii] Sir William Crookes: "The Wheat Problem," pp. 3-28.