THE WHEAT POSITION.

Auckland Star, Volume LXII, Issue 4, 6 January 1931, Page 4

THE WHEAT POSITION.

ENTRY OF RUSSIA.

THE "UNKNOWN QUANTITY."

WORKING OF FIVE YEARS' PLAN.

Although the wheat industry is not the principal industry of Australia, it is but natural that it should occupy the foremost place in the world s news, for it is the major primary foodstuff, a.nct further, it has the important distinction of being grown in practically ninety countries, says the "Australasian Business Conrli ons Bulletin." There appears to be no shadow of doubt whatever that stocks of wheat are appallingly large, and ihc nresent prices are but a culmination of many years' downward trend, interspersed with occasional upward mirage-like moves, deceptive and quite impermanent. Apart from the large known crops which have been available to the world, the unknown factor has been Russia, whose operations have constantly perplexed the wheat market. So strong and persistent nas been the opposition from this country that it has been wholly impossible to arrest the downward trend in American wheat, despite the herculean efforts of the Farm Relief Board. The amazing thing has been that, despite rumours to the. contrary, Russian shipments from the Black Sea area have continued right up to the present month, when the Russian midwinter in that region is almost due. Even now shipments of over 4,000,000 bushels per week are reported, which are mostly finding their way into the silos in Great Britain and European ports. It is no wonder, therefore, that American sellers are not disposed to compete with Russian offerings, and that a lessened demand for the wheats of other countries is causing anxiety in the United States," Canada, the Argentine, Australia, and other wheat exporting countries. It is, of course, difficult to interpret the Russian position rightly. Reliable statistics 0,.f production in that country are not available, but the operation of the so-called Russian "Fiveyear Plan" offers a serious challenge to the rest of the world. Part of the financing of this plan, the cost of which has been budgeted at £8,000,000,000 over the five-year period, was to be accomplished by depressing prices, and generally the cost of living, while maintaining wages at a constant level —in other words, by increasing the purchasing power of the rouble. In view of the gigantic nature of the preparation of such a plan, it is by no means impossible that the Soviet authorities should have considered the feasibility of laying tribute on the world by speculatiny in the futures of wheat and other exportable commodities which provide for future contracts.

Unloading Wheat On World. Believing in this possibility, many people outside Russia have, in the light of reccnt events, come to the conclusion tha.t the Russian plan of_ deliberately unloading its wheat was a serious attempt to lay tribute on wheat factors throughout the world, and that, in fact,' the Soviet Government has bo benefited, in that they sold futures contracts at 4/ a bushel and bought them back at 2/ a bushel after unloading large and unknown quantities of wheat on the world to' depress prices, and so permit them buying back futures at a handsome profit. But the selling of futures is no prerogative of the Soviet Union. It is the common practice with all wheat factors throughout the world. It is also the practice that, for every forward contract sold, there is in actual existence the equivalent of the grain mentioned in •the contract. A wholesale disposal, therefore, of futures contracts, for which of course there must be buyers, otherwise obviously there would be no sale, would be a definite warning to the rest of the world of the quantity of wheat which was coming forward. < r While this would be no deterrent to the downward trend of prices, which the quantity coining forward, in conjunction with other large known stocks elsewhere, could not prevent, yet it would be a deterrent to the Soviet Government insisting on selling futures forward at 4/ per bushel. This could only happen if the foreign purchasers were born fools, and wheat factors certainly arc not that. There are only two cases to consider; — First, that the -Soviet Union sold all its futures on a basis of 4/ before the crop began to move, in which case the whole exportable crop would be known in advance; and second, futures were fed to the market over the exporting season, in which case there would be a downward movement" in futures prices in conformity with the downward movement in spot and ■in world prices. Russia Sacrifices Food. While, of course, it is always possible that 6om'e profit was made on this form of transaction, a possibility which is enhanced by Russia continuing to feed wheat to the foreign markets for a few weeks longer than was generally expected, yet the more probable explanation is that at all sacrifices Russia wanted the credits, and has deliberately sacrificed her peoples' food in order to get them, even on so low a basis as 2/ a bushel. There are many who believe that even under the marked increase expected under •the five-year plan, the quantity exported has been so much in excess of expectations that it could only have been at the expense of the well-being of her own people, and that before long Russia will be forced into the market to buy back some of the grain which she ought not to have sold in the first place. Time will show whether this is bo or not. But if Russia is going to adopt the policy of marketing her products at what they will bring in the world's markets, regardless of the ability of those markets to absorb them economically, serious unsettlement in the world markets for many commodities is not impossible unless an understanding with the Soviet Government can _be reached as to marketing methods, a viewpoint which has been recognised and very ably expressed by the London "Economist."