WHEAT Exporting from Northwest by U. S. Agency Meets Emergency Problem

When the 1933 crop of wheat in the United States began to move from the farms, an emergency arose in the Pacific Northwest. This region, which comprises the States of Washington, Oregon, and Idaho, normally produces much more wheat than is consumed within the area. Therefore, a larger proportion of the wheat from the Pacific Northwest moves into export trade than is true of other parts of the United States. The principal type of wheat produced in this region is white wheat, chiefly used in the manufacture of cracker and biscuit flour.

On July 1, 1933, 41,800,000 bushels of wheat were carried over from the crops of previous years in Washington, Oregon, and Idaho. This carry-over, added to the crop of 83,000,000 bushels, brought total supplies for Washington, Oregon, and Idaho to nearly 125,000,000 bushels as compared with 108,000,000 bushels in 1932 and a 5-year average (1929-33) of 115,000,000 bushels. These excessive supplies in 1933 in the face of demoralized export markets made it practically impossible to dispose of the surplus from the Pacific Northwest without governmental aid.

Meanwhile, the short crop east of the Rocky Mountains had caused prices to advance until they were considerably above an export basis.  Wheat in the Pacific Northwest became distressed because this region is far removed from consuming centers and prices in the region did not follow the rise at Chicago and other markets in the interior. With prices in the Pacific Northwest far below prices in other parts of the country, wheat and flour started to move in alarge volume through the Panama Canal and in smaller amounts overland into the southeastern territory and the Atlantic States. This movement had a depressing effect on the entire domestic price level. Furthermore, growers and exporters faced serious congestion at numerous shipping points. The situation was extremely critical and interests in the Pacific Northwest urged the Department of Agriculture to take steps to relieve the situation. These appeals for assistance came from growers, exporters, millers, bankers, and other interests in the region. Grain dealers and millers in the Southwestern and Southeastern states also urged that steps be taken to protect their markets from the effects of sales of distressed wheat from the Pacific coast.

Marketing Agreement Entered Into

In response to these requests the Department made a careful study of the situation. After several hearings, a marketing agreement was entered into by the Secretary of Agriculture jointly with wheat producers, grain exporters, and millers. The legal authority for this agreement was found in paragraph (2) of section 8 of the Agricultural Adjustment Act which gives the Secretary of Agriculture the power to enter into marketing agreements with those engaged in handling, in interstate or foreign commerce, any agricultural commodity or product thereof. The authority for using proceeds derived from processing and other taxes for the expansion of markets and for the removal of agricultural surpluses was found in paragraph (b) of section 12 of the act.

An association known as the North Pacific Emergency Export Association was formed to serve as a clearing house which arranged, through its members, the details of purchasing, shipping, handling, and selling wheat and flour for export from Washington, Oregon, and Idaho. The agreement provided, further, that the Agricultural Adjustment Administration reimburse exporters for the loss represented by the difference between the price at which the wheat was bought from the producers and the sales price for export in the world’s markets. Purchases and sales of wheat and flour and the terms of such purchases and sales, as well as the approval of ship tonnage and destinations were subject to the approval of the Secretary of Agriculture.  Fixed handling and selling costs, including milling, were provided for in exhibits attached to the agreement. All expenses of the association were prorated among the members who handled the exports.

One of the main features of the association was that its operations were conducted strictly through the existing regular agencies for handling both wheat and flour and the Government merely assisted in the transaction by assuming the loss between the domestic and export price. Another very important feature about the marketing agreement was that the association could never at any time be long more than 1,000,000 bushels of wheat. This preserved an orderly day-to-day merchandising operation and prevented the accumulation in the hands of the association of any large amount of wheat that would be burdensome and difficult to dispose of as was the case during stabilization operations of the Federal Farm Board.

Portland Prices Gradually Worked Up

The association made its first purchases on October 19, 1933, and its first sales on November 1, 1933. Heavy purchases were made during November and Portland prices were gradually worked up to around 10 or 12 cents under Chicago. From December 1933 to May 1934, inclusive, a sufficient amount of wheat was bought to hold Pacific coast prices at about that relationship with Chicago. The activities of the association practically ceased at the time of the longshoremens’ strike which tied up shipping from Pacific coast ports from May 9 to July 31, 1934. After the strike was concluded, the association completed its deliveries on sales which had been made prior to the strike.  By October 1, 1934, the 1933 operations were practically complete, although a few forward sales still remained-to be shipped for export.

The association purchased a total of 28,390,991 bushels of wheat up to and including October 4, 1934. It sold in the export market a total of 28,383,672 bushels, of which 21,846,284 bushels, or about 77 percent, were sold in the form of wheat and 6,537,384 bushels, or about 23 percent, in the form of flour. Approximately two-thirds of the wheat and flour shipped to foreign markets was shipped in foreign vessels, and approximately one-third in vessels flying the American flag. About 76 percent of the wheat sold was shipped to China and Japan. Wheat was sold for shipment to the following destinations, in order of volume shipped: China, Japan, Ireland, England, Belgium, several countries in Central America and South America, the Nether- lands, Germany, and Finland.

The sale of flour, although smaller in total volume, had a more scattered distribution. About 39 percent of the flour was sold to China and about 83 percent to the Philippines. The destinations in order of volume were as follows: China, Philippine Islands, Norway, Manchuria, Scotland, Guatemala, Ecuador, Nicaragua, Haiti, Salvador, Cuba, Peru, the Netherlands, Costa Rica, Panama, Honduras, Finland, Mexico, Japan, Denmark, New Zealand, Guam, Tahita, Saigon, Canary Islands, Egypt, Virgin Islands, Jamaica, Colombia, Venezuela, West Indies, Sumatra, British East Africa, and Mozamique.

The prices at which wheat was bought ranged during most of the marketing year between 70 and 80 cents a bushel. Sales prices of wheat ranged rather widely, but for the most part were around 50 to 52 cents a bushel f.o.b. steamer. The bulk of the flour was sold at prices between $2.40 and $2.80 per barrel. The difference between prices paid and prices received was remitted to the members of the association out of funds collected from the wheat-processing tax. It is estimated that not more than $6,500,000 was spent in this operation.  This amounts to an average of a little less than 23 cents a bushel on the wheat handled.

The Effects of the Export Operation

The operation of the North Pacific Emergency Export Association retarded the movement of distress wheat from the Pacific Northwest into eastern markets. It accounted for about 87 percent of the net exports of wheat including flour from the United States during 1933-34.  The operation of the association reduced the spread between Pacific coast prices and prices east of the Rockies. During July, August, and September 1933, before the association was open for business, farm prices in Washington averaged about 15 cents a bushel under the average farm price for the entire United States; from November 1933 to May 1934, while the association was in operation, farm prices in Washington averaged only 12 cents a bushel under the average farm prices for the country as a whole. = During July, August, and September 1933, Seattle prices averaged about 21 cents under Chicago futures and during a brief period were as low as 26 cents under Chicago. From November to May the average spread between Chicago and Seattle prices was about 12 cents a bushel and on some days the spread was as low as 6 cents.

The operation of this association was an emergency activity. It offered tremendous relief to producers and other interests in the Pacific Northwest in disposing of the burdensome surpluses of the 1933 crop. It also prevented the low price of that wheat from depressing domestic values in the entire United States. This operation, however, does not represent any fixed, permanent policy on the part of the Administration for disposing of export surpluses but was strictly an emergency measure.

Frank A. THEIS, Agricultural Adjustment Administration.