COMMODITIES: Bubble Pricked

“Let the speculators go to it; all they’re doing is raising the price of my crops.”

In these jubilant words a Minnesota farmer greeted the news early last week that the price of September corn had reached $2.65½ a bu. on Chicago’s Board of Trade, a new alltime high. Wheat at $2.80 was also close to a record price. But what he forgot was that prices bid up by speculators must come down—when the speculators get frightened.

The first “boo” came from J. M. Mehl, administrator of the Department of Agriculture’s Commodity Exchange Authority. The Board of Trade’s margin requirements, raised only the week before, were still too low, said Mehl. He asked that they be doubled in order to “lessen the danger of a boom-&-bust situation.”

Big Scare. The Chicago Mercantile Exchange was impressed. It raised margins on butter trading by 66%, on eggs 25%. Many a grain broker privately ordered his customers to post higher margins. But the grain-exchange officials took no heed of Mehl. Board of Trade President J. O. McClintock said firmly: “A margin fixed at an extreme limit is likely to throw . . . the market out of gear.”

Next day the market was thrown out of gear with a resounding crash. A flood of selling started when the market opened. By the close, corn and soy beans were down 8¢, their daily legal limit; wheat fell 6 to 8¾¢. Even wholesale meat prices slipped, along with livestock prices. One thing that had finally frightened the speculator into panicky selling was a decision by the Federal Government to cut purchases of grains for November export by some 50 million bu., 42% below the July-October level. And traders who had expected frost to nip the short corn crop, were upset by the Department of Agriculture’s announcement that half the corn crop had matured and was safe from the frost.

Big Surplus? Then Secretary of Agriculture Clinton Anderson dug up some figures as a warning for speculators. The U.S., said he, will have a 250 million-bu. wheat surplus next spring, even after its huge exports. (His own Bureau of Agricultural Economics was less optimistic, gave the surplus as 164 million bu.)

“If the size of the wheat crop were widely known,” said Anderson, “the bottom would drop out of the speculative market.” The bottom did just that in the next two days. By week’s end corn was down 27¢ a bu. to $2.38, wheat 23¢ to $2.57. It had been the biggest week’s drop since Nov. 16 of last year. Said Anderson: “Long overdue. I hope the drop will continue.”

Whether it would was hedged by many “ifs.” Much depended on whether the rest of the corn crop could be harvested before the frosts. Much also depended on whether President Truman would follow Clint Anderson’s proposal this week to cut the year’s grain exports by a whopping 100 million bu.