May, 1932 



THE I. A. A. RECORD 



"Page Seventeen 



No. 1 WHEAT FUTURES ■■ CHICACO-UmfOOL SPREAE) 



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mi 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 



$200,000,000 More for Wheat 



How the Marketing Act Has Narrowed the Chicago-Liverpool Price Spread 



and Helped the American Farmer 



CHICAGO May wheat on April 1, 

 1931, closed at 84/8 cents a bu- 

 shel. On the same date Liverpool May 

 wheat was 61'/4 cents or 22^ cents a 

 bushel under the Chicago price. Win- 

 nipeg May closed at 57 Y^ cents or 27 

 cents under Chicago; and Buenos Aires 

 46 54 cents a bushel or 15 cents under 

 the Liverpool price and 37 5/8 cents a 

 bushel under Chicago. 



Had the Federal Farm Board not been 

 supporting the market at that time it 

 seems certain that wheat prices at Chi- 

 cago would have been depressed to the 

 world parity and reached approximately 

 the same price level as obtained at 

 Buenos Aires. 



Another illustration will show fur- 

 ther the benefits of the Agricultural 

 Marketing Act during the latter part 

 of 1930 and early 1931, when active 

 stabilization operations were under way. 



Stabilization Begins 



The Liverpool May wheat future came 

 on the board on September 19, 1930, the 

 closing price on that date being 965'8 

 cents against a closing price for the 

 Chicago May of 91^, or 5 cents un- 

 der Liverpool. About three months 

 later, or on January 2, 1931, after sta- 

 bilization operations had become fully 

 effective, the May future at Liverpool 

 closed at 6\Y% cents against 81 cents 

 at Chicago. 



The Chicago price at this time was 

 1954 cents higher than the Liverpool 

 price as compared with 5 cents lower 

 on September 19. During this period 

 the Liverpool price declined 3 5 54 cents 

 against a decline of only 10^ cents at 

 Chicago. 



During the five months immediately 

 following, while stabilization operations 

 were in full effect, the average closing 

 price of the May future at Chicago was 



83/4 cents and at Liverpool 63^ cents, 

 or an average spread of 2054 cents in 

 favor of prices at Chicago, whereas 

 under normal conditions the Liverpool 

 price should have been 15 cents a bu- 

 shel higher than the Chicago price. 



Stabilization operations, as previous- 

 ly indicated, resulted in the price of 

 wheat at Chicago being maintained at 

 an average of 35 cents a bushel above 

 world parity, and the American grow- 

 ers who marketed their wheat during 

 that period benefited accordingly. 



Liverpool Higher 



Using the average of all active future prices, 

 Chicago futures were 21^ cents below Liver- 

 pool for the year 1921. In 1922 Chicago fu- 

 tures averaged 23}/2 cents under Liverpool. 

 These were two years of abnormally high trans- 

 portation costs, especially in ocean freights. 

 During the six years 1923 to 1928, Chicago fu- 

 tures averaged 16^ cents, H J'g cents, \6Yi 

 cents, 16% cents, 18 cents, and 14^ cents 

 respectively, below the average prices of Liver- 

 pool futures, making a six year average spread 

 of 1 6 J/g cents. 



The Federal Farm Board was formally con- 

 stituted July 15, 1929. On August 28, 1929, 

 the policy of making loans to co-operatives was 

 inaugurated. The average Chicago-Liverpool 

 spread for the last four months of the year 

 was 5.3 cents a bushel against 14.3 cents for 

 the corresponding period in 1928 and 18.3 

 cents for the corresponding period in 1927. 



In 1930 the effect of the Agricultural Mar- 

 keting Act in keeping wheat prices at Chicago 

 above world parity was still more pronounced. 

 The average spread between Chicago and Liver- 

 pool futures prices for the year 1930 was 5^ 

 cents, making the average price at Chicago 

 approximately 10 cents a bushel above world 

 parity. 



Spread Narrows 



In March, 1930, the Stabilization Corpora- 

 tion, under the direction of the Federal Farm 

 Board began operations in support of higher 

 prices through the purchasing of futures. This 

 was followed by a very distinct narrowing of 

 the spread between Chicago and Liverpool. A 

 comparison of the prices of May futures alone 

 shows Chicago 1 1 cents a bushel below Liver- 

 pool for the week ending January 10, 1930, 



whereas the average for the week ending March 

 1 shows the price of Chicago May futures 1 

 cent a bushel over the Liverpool. 



These stabilization operations were suspended 

 with the expiration of the May future with 

 the result that the average all-future spread 

 widened to 12^ cents a bushel for July. Be- 

 ginning about the middle of August, 1930, 

 support was again given to the market and 

 the spread narrowed to an average of 2J/g 

 cents for October. 



In December, Chicago was 8 J/g cents above 

 Liverpool. For January, 1931, the average of 

 all Chicago futures was 16 cents over the aver- 

 age of Liverpool futures. From the first of 

 January to the end of May the weekly price 

 differences ranged from 16 to 2 3 cents in 

 favor of Chicago. The average difference for 

 the five months was 20^4 cents. Taking 1931 

 as a whole Chicago averaged 1 Yz cents a bushel 

 over Liverpool, whereas under normal condi- 

 tions Liverpool prices would have averaged 

 about 1 5 cents a bushel over Chicago, making 

 the Chicago price for the year average about 

 1 6 J4 cents a bushel over world parity. 



Here Are More Facts 



Summarizing the wheat price situation dur- 

 ing the past three years, it is found that in 

 1929 prices for Chicago futures averaged 7 

 cents under Liverpool, and in 1930 the Chicago 

 prices averaged only 5 ^ cents under Liver- 

 pool. In 1931 Chicago prices averaged 154 

 " cents a bushel over Liverpool. Combining the 

 figures for these three years, an average price 

 spread of 3.7 cents a bushel is shown. With 

 normal transportation charges and other costf 

 prevailing during that period, the spread should 

 have been about 1 5 cents. In other words, for 

 the past three years prices at Chicago average 

 more than 1 1 cents a bushel above world parity. 



The wheat crop of the United States in 1929 

 was 809 million bushels, in 1930 it was 858 

 million bushels, and in 1931 it was 892 million 

 bushels. At 1 1 cents a bushel this figures to a 

 total of $282,930,000 for the three years. After 

 making allowances for the amount used for 

 seed and feed there is still left an increased 

 return of above $200,000,000 to American 

 wheat growers. 



The fact that the Agricultural Marketing 

 Act has been the major factor in maintaining 

 domestic wheat prices well above world parity 

 with increased returns to growers completes 

 only a part of the picture. The support given 

 to wheat prices in turn helped the price of 

 other grains and livestock, especially hogs. 



