INTERNATIONAL TRADING IN GRAIN
AN ADDRESS BY ROBERT MAGILL, M.A., PH.D.
2nd February, 1928
The speaker was introduced by PRESIDENT FENNELL and was greeted with applause. He spoke as follows: I suppose your only interest in wheat is the importance of the wheat in our financial structure. Not many of you are actively concerned in the marketing of grain. Consequently I will say a few things about the grain situation just as it is, particularly in reference to our last crop. Our last crop in the three prairie provinces will turn out to be over four hundred million bushels, one of the largest crops in the history of Canada. On the other hand, our crop as it is running, is very short in quality, far below the average crop to which we have been accustomed in the past. On the first of February the total number of cars of wheat that came down to the head of the lake was something over a thousand. Out of that total there were only four cars of No. 1 Northern, that is the top grade. A very few cars of No. 2 Northern, but there were about 780 cars of no grade wheat in that day's inspection. What does that mean? No grade wheat means wheat with too much water. That tells a story of this year's crop. We had bad weather at the seeding time, we had bad weather at the harvest time, we had frost in July, we had a heavy attack of rust all over Saskatchewan and Manitoba; and the result is that on the average this year our wheat crop will not go higher than say No. 4. No. 1 Northern sold yesterday at $1.41-1/2, or thereabouts, No. 4 sold only at $1.10-1/2. There is that difference between No. 1 and No. 4. So that we shall realize on this crop nothing like the profits that we had hoped to realize. It is not much better, than No. 4 on the whole. Now the reason of this is the weather conditions, which are hard to fight, and adequate protection against rust is still in the future. These are the great difficulties that we labor under in the western provinces, and the result is the low quality of our enormous grain crop. That makes the crop this year pretty difficult to sell. On the average, year in and year out, our western crop has been of such a quality that the English and the Germans were glad to get it, because they could mix it with grains from other countries that were not so strong as ours, but the low quality of our crop this year does not make it especially valuable for mixing with other grains. Now, the tendency of the English miller and the German miller, is to look to the Argentine Republic for the kind of wheat he used to get in Canada. If he secures good hard dry wheat in any of these countries we shall find it still more difficult to sell our present wheat crop at good prices.
It is not the easiest thing in the world to sell wheat from Canada. Whatever may be the popular opinion, it is a rather difficult thing to sell Canadian wheat in the markets of the world. We have so much wheat produced all over the world, and every country that has a surplus exports its wheat to Great Britain and Western Europe. Chinese wheat does not come out very much, except in the form of an inferior flour, but China produces more wheat than we do by a long way. And that cheap wheat is a favorite food in China, and where they do not use that they use cheaper foods, such as millet and rice;--which they prefer to Canadian wheat. With all our talk about our Oriental markets, the Oriental markets for Canadian wheat are still small. In average years the Oriental market may absorb a total of forty million bushels, being a part from Australia, a part from the American Pacific slope, and part from us. The ordinary Chinaman is not overburdened with cash. He cannot buy our high quality flour; he does not pretend to. The result is that the market for our western wheat or flour in the Orient is a limited market. Our market in Europe, again, is limited. It may surprise some of you to know that a favorite bread for many Europeans, perhaps a majority of Europeans, is rye bread. When rye is plentiful and is cheap, we cannot sell our flour or our wheat in continental Europe at high prices; and when you take other competing foods, you will realize that there is a limit to the price those people will pay for our wheat. Put it above that limit and they won't buy it at all; they will live without it. That limit is there, fixed as the Rockies, something we cannot overcome, something arising directly out of the financial conditions of the people; reinforced, of course, in the Orient, by age-long custom and habit, and reinforced in Europe by the stringent conditions of finance that are the aftermath of the war there.
Have you considered what that aftermath is like? Britain, which a few years ago was the richest country in the world in international trading, is today one of the poorest countries of the world in the matter of international trade. The British still need cotton and wheat and meat and oil and a hundred and one things which she must import if she is to survive. How is she to pay for those things? Gold? She hasn't gold enough left to buy any one of them,--the amount that she needs in one year. She cannot pay in gold. We do not want her paper money. Securities? Well, she has some securities left; she destroyed the securities accumulated by three centuries of wonderful commerce, but to pledge the balance of her securities would mean the end of her industrial career. The one way a great nation pays another is by goods or services. There is no other way. But on the North American continent we are not anxious, not particularly anxious, to take her goods, or her services either. We have a tariff wall, to which I do not object,--I am only speaking of the conditions--and I repeat that the enormous national debt over there, terrific taxation, the exhaustion of securities, make it very difficult for Britain to buy in the international markets, the raw materials and food supplies she requires. We have so much wheat to sell; we try to sell that in England first, then in Germany, then in Italy and France and soon. These nations are our best consumers, but are from an international point of view in poverty.
We have also conditions arising from the nature of our business, that an open market is always liable to. The Winnipeg Grain Exchange, is international in its organization. It is not restricted to Canadians. We admit men of all nationalities. Great English importing firms have offices in our Grain Exchange. In Winnipeg they are exporters of our wheat. In England they are importers trying to buy at the lowest possible price. It makes rather a difficult competition. The same is true of other countries. The greatest of the French importers has offices in our building and sends men there. In France he is an importer, one of the greatest in the world. In Winnipeg he is an exporter, and that wonderful firm uses all its brains and all its energies and whatever capital it has to secure wheat cheaply. It means strenuous competition. We have thirty or forty or fifty firms of the United States, members in our market, with their representatives and their offices there, all engaged in the work of shipping, forwarding and exporting grain. We have that keen competition, and the competition and conditions of the European market, which I have outlined. So as I say, the export of wheat is not a game for lazy men, it is not a game for stupid men, and the importers among the exporters of wheat are a very considerable proportion. There is no more difficult business than that of exporting wheat from Canada to the markets of the world.
But perhaps you may think we ought to get all our Canadian wheat into the control of one company, feed the market, and control the flow of wheat to Europe, so that the supply offered never will exceed the demand; or a point below the demand, then your difficulties would disappear and the price go higher. Very well. Let us suppose all our wheat in the west was in the hands of one great corporation, a government body, a grain exchange firm, or a pool. Would it then be possible to keep the supply offered always a little below the demand, and keep the price up? We have to sell our crop before the new crop appears; we cannot afford to hold it. That is the first point. The second point is that we have geography. It is cheaper for us to get our wheat across the lakes, from the point of view of transportation than to hold it over for the all-rail freight rate. But beyond such points as these there is this: If we hold back our wheat certain months, if we try to spread it out, what will the other fellow do who has good wheat to sell and to export? What will the United States do? Her wheat appears on the British and other markets just before ours appears. Australian and Argentine wheat comes on the market this time of year. If we hold our wheat back what will those countries do? If we hold our wheat back they will jump in and sell while the selling is good. And so on; I will not enlarge upon it; you can see my point immediately; I think it is clear enough; it cannot be denied. All these wheat-exporting countries, compel us to sell our wheat when our buyers want it and if we hold back and they sell, we shall be left at the end of the grain year carrying the bag, and be left possibly with a load of wheat that we can ill afford to carry into a new crop year.
All such schemes as holding back the supply are on paper only. Our pool in this country, very eager, very sincere in their faith, most of them, eager and willing to put up the price for the Canadian farmer, especially eager to close the grain exchange and put the grain trade out of business, after three or four years' actual experience, do not hold back the wheat. They sell when they think they can sell at a good price. It is the wisest thing, the best thing they could do, the necessary thing to do. They have a very large quantity of wheat to sell, and they are selling it, I imagine, when they think the price best suits them. The theory on which the pool is founded is simplicity itself. The fundamental thing about their way of handling grain is that if they can control the supply they can put up the price. If they can feed the market, the market value is bound to go up. But what happens? Well, in the first instance it is very hard to get control of the whole Canadian supply. After several years, the pool handled, including the coarse grains, about 216 million bushels, and the trade handled 277, that is, wheat and the coarse grains. In wheat alone the pool handled 53% last year of the wheat crop. Well, suppose they go up to 55% or thereabouts this year, how can they control the supply of wheat to England? How can they control it so that they can put up the price?--with the wheat from all other countries, with the wheat in Canada not handled in that organization? It is a pleasant kind of dream, but the fairly wise men who are running the business of the pool are not prepared to run it merely on a dream. And with regard to an international pool, that is hardly so much a dream as a nightmare. If every country in the world had a pool, if each nation had a national pool, if each national pool in each nation controlled 100% of the wheat crop, and if they all got together to see what they could do, what would be the result? I remember Mr. Shapiro describing it (in a western town) he said: In that case we will open offices in Liverpool, we will tell English buyers how much we will sell them from month to month and what price we will take, and they will have to come to us. We will cut the "liver" out, and leave the "pool." (Laughter.) But imagine those countries, so diverse in their nationalities and geographical position and in their interests, forming one great international pool. It would be impossible. It is more relevant to consider what would happen if the United States formed a national pool. After several years of testing pools in nearly every commodity you can think of, from hogs to wheat, the pool notion has faded in the United States, and you will notice that the representatives of the farmers in Washington are not looking that way for a solution of their troubles. They are looking in a very different direction. The number of States that grow grain is large and their interests are very different. The States have practically given up the notion of a national pool. There is very little talk about it, partly of course, because the difficulties of organizing it all over the States are so great and also because after ten or twelve years of experimenting with pools in different commodities, the general record of pool organization in the United States has not been a great success, on the whole. There were pools in California that set themselves to improve the quality of the crop, and to assist in the production of their crops. For instance, they took charge of the spraying, and they took charge of what we call the reaping; they took charge of the packing and of the grading and standardizing. Many of those pools in California did magnificent work along those lines, which nobody who knows can object to, and everybody who knows can only commend. Some of them devoted their attention chiefly to selling, however, on the theory that by controlling the supply they could put the price up. That was the pool notion that came into our country. Nothing about production, packing or grading; the emphasis was on selling. The result is that we might as well, in the meantime, forget the possibility of an international pool, and forget the possibility even of national pools in countries like the United States.
We are going on just as before. There are many changes in our industrial and commercial structure. Changes must come. In no department of human experience has evolution stopped. In all it continues, in all it varies, and in every one of them it produces new forms. Evolution has not yet stopped in Canadian commerce or in international trading. It is still going on but while all these changes are taking place, the mountains are still where they were a year ago, or ten years ago, or a hundred years ago. The sun and the moon still keep going on. The fundamental laws of international trade are mighty hard to change. Wrapped up as they are, and implicated with transportation, banking, exchange, and all the rest of it. It is pretty hard to change them artificially by either law or any association. We tamper with them only at our own peril. We should be sure of the new in these matters of international trade before we discard the experience of hundreds of years, in favor of some fad or scheme of our own. We are just going on as we were in the Grain Exchange. This experiment of the pool had to come; our farmers demanded it. It was their right to have it, and they are having it, and they are still members of the Grain Exchange, and members of all our institutions connected with it. They are still trading in futures, and I am sure in a city like Toronto nobody can approve of trading in futures. (Laughter.) And they are selling as we are selling just when they think they can get the best price. And there is no infallibility in the judgment of the men in charge, nothing like it; they do not claim it. There is a limit to what they do claim, after all. If you take the nine good men who are in charge of the selling of the immense amount of wheat they handle, not one of the nine would dream of claiming an infallibility of judgment. The pool of course satisfies the farmers; they are learning more about doing business, they are learning more about the troubles and difficulties. It is perhaps better to have a self-satisfied farmer perhaps than a prosperous farmer. The experiment is being worked out; there are no difficulties being put in the way. Some day we shall know exactly whether there is anything in this scheme that is going to become permanent, whether there is anything more than an interesting and valuable experiment. But in the meantime we are still going on with our work, and I am glad to be able to say to this audience that in spite of the frost and the rain and the rust, and of pools and prohibitionists and of all the crowd of troubles that come, we still are optimistic in Western Canada, we still look forward with unabated confidence to the prosperity of the west, and if it were prosperous, I would venture to say that Toronto will get the most of it. (Applause.)
The thanks of the Club were tendered to the speaker by a visitor from Australia, Mr. J. H. C. Julius, Chairman of the Committee for Scientific and Industrial Research for that Commonwealth going on as we were in the Grain Exchange. This experiment of the pool had to come; our farmers demanded it. It was their right to have it, and they are having it, and they are still members of the Grain Exchange, and members of all our institutions connected with it. They are still trading in futures, and I am sure in a city like Toronto nobody can approve of trading in futures. (Laughter.) And they are selling as we are selling just when they think they can get the best price. And there is no infallibility in the judgment of the men in charge, nothing like it; they do not claim it. There is a limit to what they do claim, after all. If you take the nine good men who are in charge of the selling of the immense amount of wheat they handle, not one of the nine would dream of claiming an infallibility of judgment. The pool of course satisfies the farmers; they are learning more about doing business, they are learning more about the troubles and difficulties. It is perhaps better to have a self-satisfied farmer perhaps than a prosperous farmer. The experiment is being worked out; there are no difficulties being put in the way. Some day we shall know exactly whether there is anything in this scheme that is going to become permanent, whether there is anything more than an interesting and valuable experiment. But in the meantime we are still going on with our work, and I am glad to be able to say to this audience that in spite of the frost and the rain and the rust, and of pools and prohibitionists and of all the crowd of troubles that come, we still are optimistic in Western Canada, we still look forward with unabated confidence to the prosperity of the west, and if it were prosperous, I would venture to say that Toronto will get the most of it. (Applause.)
The thanks of the Club were tendered to the speaker by a visitor from Australia, Mr. J. H. C. Julius, Chairman of the Committee for Scientific and Industrial Research for that Commonwealth.