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Nation: The Great Wheat Deal

4 minute read

President Kennedy, worried about possible political consequences of the sale of wheat to Russia, spent a couple of weeks consulting with leaders of both parties, trying to get their support for the trade. When he failed to win anything resembling unanimous backing, he was forced to weigh the economic merits of the deal against its potential political pitfalls. Balancing the two out, the President decided to go ahead.

Early last week he summoned congressional leaders to the White House to give them the word. Next day, he led off his press conference with the announcement that the Soviet Union, Hungary, Bulgaria and Czechoslovakia wanted to buy some 4,000,000 metric tons (150 million bushels) of U.S. wheat at world market prices. That would amount to about $250 million.

No Guarantee. “This transaction,” said he, “has obvious benefits for the U.S.” Taking note of the fact that U.S. allies in recent weeks have sold between 10 million and 15 million tons of wheat and flour to the Communist bloc, he added: “It would be foolish to halt the sale of our wheat when other countries can buy wheat from us today and then sell it as flour to the Communists.” To turn the deal down, added Kennedy later, would only convince the Kremlin “that we are either too hostile or too timid to take any further steps toward peace, that we are more interested in exploiting their internal difficulties and that the logical course for them to follow is a renewal of the cold war.”

Anticipating criticism, Kennedy said that the wheat would be “for delivery to and use in the Soviet Union and Eastern Europe only.” But Commerce Secretary Luther Hodges conceded that “there is no guarantee that U.S. wheat won’t free Russian wheat for Cuba.” The President also solicited a letter from Brother Bobby’s Justice Department insisting that the sale did not violate the 1934 Johnson Act, which prohibits loans to governments that have defaulted in payments of obligations to the U.S. Though Russia still owes $800 million for World War II lend-lease, the Justice Department argued that no loans would be involved in the present deal.

Congressional reaction was mixed, and the President got praise and blame from both sides. But even before he had made his announcement, one big grain handler—Minneapolis’ Cargill, Inc. (see U.S. BUSINESS)—put in its bid for a piece of the action by applying for an export license. The grain handlers are by no means the only ones who will benefit from the deal. It will fatten the chronically deficit-ridden U.S. balance of payments by a quarter of a billion dollars. Some 81,700 freight cars will be needed to move the wheat to ports. It will take 470 vessels with average capacities of 8,500 long tons apiece to ship it to Communist ports. By reducing the 1,048,000,000-bushel U.S. wheat surplus, the deal will cut storage charges to U.S. taxpayers by $200 million over a five-year span.

Maybe a Loss. In the face of acute crop failures throughout the Communist bloc, the U.S. also was counting on a substantial rise in wheat prices and a consequent boost of perhaps $100 million in U.S. farm income. But Canada last week scotched that hope. The Canadians sold Japan 30 million bushels of wheat in a secret deal, promising delivery over the next eight months at a fixed price. Thus, even if a wheat shortage drives world prices higher—as is likely—the Canadians must deliver at the original lower fixed price. And since Japan is one of the biggest and steadiest buyers of U.S. wheat, American dealers may be virtually compelled to trim their prices to Canada’s. One official figures that the U.S. may lose some $60 million as a result of fixed-price deals in the near future.

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