- The Empire Club of Canada Addresses (Toronto, Canada), 13 Mar 1930, p. 103-113
- Oliver, Honourable Frank, Speaker
- Media Type
- Item Type
- Wheat production as a national matter. The speaker's comments an expression of his conclusions after a length of time of interest in public affairs, and particularly in western affairs. Wheat as Canada's principal source of wealth at the present time. The expansion of the production of wheat the greatest contribution to Canada's rapid expansion during recent years. Some production figures since 1904. The difference between our exports of last year and our exports of this year also representative of a substantial difference in the financial condition of the country. Some other economic figures and indicators of recession. Why Canada has held her wheat while competitors have been selling. Some facts and figures on world wheat markets. Figures on the recession of prices. Comments on wheat prices. Financing of dealers in wheat by the banks. Functions and activities of the Wheat Pool. Some history of the organization of the Pool. Control of wheat production. Price comparisons between Canada and the United States. Steps taken to improve the United States price. The great exporters of wheat before the war. How Bolshevism destroyed Russia as a wheat exporter and gave Canada her opportunity. The difficult situation current in the marketing of our chief source of national wealth.
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- 13 Mar 1930
- Language of Item
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- CANADA AND HER WHEAT
AN ADDRESS BY HONOURABLE FRANK OLIVER.
13th March, 1930.
MR. WILLIAM TYRRELL was in the chair and introduced Horn. MR. OLIVER, who spoke as follows: I feel it a great honour to have this opportunity of discussing a subject of such national importance, and I would like to suggest that it is not purely a western subject. I wish to discuss it as a national subject in its national bearings. A subject of such widespread interest, and having so many contentious features in it, can not be dealt with in detail within the time at your disposal or at mine. The best I can do is to touch on a few of the high lights, in the hope that by doing so I can help to secure a better understanding, in this centre of population and of influence, than has possibly hitherto prevailed. I am making the best contribution I can to this subject, and can assure you that what I have to say is an expression of my conclusions after the length of time in which I have been interested in public affairs, and particularly in western affairs, and yet not more in western affairs than in national affairs.
As I see it, and, I fancy, as you see it, at the present time her wheat is Canada's principal source of wealth. It is the expansion in the production of her wheat that has contributed most greatly to her own rapid expansion during recent years. In 1904 our total production of wheat, that is, western wheat, was 54 million bushels. In 1928 our total production was 540 million bushels. In the year between July 31, 1928, and July 31, 1929, Canada exported 407 million bushels of wheat and wheat flour, having a value of 450 million dollars. It is clear that the inflow of such a vast volume of new money into this country of less than ten million people must have had an enormous influence in stimulating prosperity.
Last year our crop was only 272 million bushels, or only half that of the year before. Instead of exporting 407 million bushels, the difference between the number of bushels that our farmers have delivered up to date and the amount that we now have in storage in elevators is only five million bushels. We have delivered 216 million bushels, and we have in storage 211 million bushels. Clearly the difference between our exports of last year and our exports of this year must mean a substantial difference in the financial condition of the country. There has been a recession of that condition of prosperity which prevailed a year ago. If I have read the figures correctly, our railways show a loss of earnings last year of $37,000,000. Our steamboats, both lake and ocean, are worse off, comparatively, than our railways. Our bank clearings have shown a great recession. I read that in this good city of Toronto, in the week ending March 6th, the bank clearings of this city were 27 million dollars less than they were in the corresponding week of last year. The Canadian dollar has been at a discount in New York for a period of eight months. It appears to me that there is an intimate connection between, first, the crop shortage, and, next, the failure to export the crop that we did harvest, and the financial condition that is now facing this country.
We did not fail to sell because the world would not buy. Our competitors, the United States, Argentina, Australia, have sold continuously. They have supplied the world's market, while we have held our wheat. It would appear to me that the difference in judgment between Canada and her competitors in the wheat business is worthy of very very serious consideration by ourselves, having in view the apparent results. When the great crop of 1928 began to come forward in the fall of that year--the greatest crop of course that we ever harvested-those into whose hands the wheat had come entered upon a policy of restriction of sales. There was, as a result, a tremendous transportation congestion upon the lakes and at the ocean ports. Port Colborne and Montreal were congested as, up to that time, they had never been before. When navigation opened a year ago, that is in April of last year, we had 185 million bushels of wheat of the previous year's crop in store in our elevators, to go forward overseas. I call attention to this point in criticising the policy that was pursued, that when we had by far the largest crop in our history, the largest volume of wheat to sell, and when because of unfortunate harvesting conditions a large part of that crop was below its usual standard of quality, our business was to push sales and look for wider markets. Instead of doing so, we restricted sales and held back our wheat off the market, so that, as I say, in the spring when navigation opened, we had 185 million bushels of wheat in store. When this wheat began to go forward on the lakes in the spring, the wheat of the United States also began to go forward. They had enjoyed as great a crop as we had. The Argentine, which came on in the intervening period following ours, had also had a large crop. The United States and the Argentine had supplied the world's market during the winter of 1928-29. When navigation opened, our wheat began to come forward in large quantity, and the wheat of the United States began to come forward in large quantity; naturally the price began to go down. The United States sold, but we still held. As you will recall, at the suggestion of President Hoover, the trunk roads of the United States reduced their rates a year ago for the express purpose of enabling the United States wheat to reach market at the price then prevailing. That was the United States attitude, while our attitude was that the blockade, which had been begun in the fall of 1928, was accentuated and increased in the spring of 1929. Nothwithstanding the continuation of the Canadian blockade, prices kept going down, until the price of $1.2'7 in March. I am speaking of the average cash price for the month, and I get that from the Canadian Bureau of Statistics. That average cash price of $1.27 for March became an average price of $1.13 for May. We had been holding back our wheat, while the United States and the Argentine had been selling; their sales had depressed the price. We had not been able to maintain the high price by holding our wheat off the market. In June reports began to come in of a prospective crop failure in the season of 1929. As a result of those reports, the prices that had gone down climbed even more rapidly than they had decreased, and in July the average cash price at Winnipeg rose from $1.18 for June to $1.60 for July. The highest cash figure in July was $1.78 3/4, and the lowest cash figure for July was $1.34 1/2. After July a recession of price began. July, $1.60; August, $1.38; September, $1.49 1/2; October, $1.38 1/2; November, $1.33 1/2; December, $1.33 1/4; January, $1.30 3/4.
At the end of July, 1929, we had still on hand 106 million bushels of wheat. This 106 million bushels could obviously have been cleared to the consumer during the high prices of July and August at an advance of from twenty to thirty cents over the price that had been paid for that identical wheat. But that 106 million bushels had not been sold; it had been held, and therefore and thereby became an addition to the crop, the short crop, of the current year, bringing that short crop up to the level of the average volume of Canadian wheat in an ordinary year, and thereby depriving a producer of the short crop from getting the advantage in the world's market of that shortage. The recession of prices has continued since January. At the close of market on Wednesday, March 12th, wheat quotations closed in Winnipeg at $1.04 1/4 for May delivery, and in Chicago at $1.09 1/4. The quotation for cash wheat in Winnipeg was $1.01 3/8, but at one time during the day it was down to 98 3/4 cents. Our policy of holding back our wheat has brought about, or has resulted--or the result, in any case, is that we have the wheat on hand and the price is lower, or as low as it has been at any time within the last eight or ten years.
I want to make this remark: From July, 1929, until January, 1930, wheat prices have been above the average, the ordinary average. Increase of price has in the nature of things decreased consumption, until a world surplus has been built up that has broken the back of the market.
It is an important part of the functions of our banks to finance the wheat crop, that is to say, to provide the money that makes the payment for the storage of the wheat and carries it to the port of export. Hitherto it has been banking practice to require the dealer who has borrowed from the bank to keep down his line of credit by timely sales, and approximately to clear the obligation incurred in respect of one crop year before the commencement of another. Had this practice been followed in July and August of last year, there is no probability that the present condition would have arisen. At any rate we would have had only half as much grain on hand as we now have-we had 106 million bushels, remember, and we have 211 now-and therefore the Canadian pressure on the market would have been only half what it is. An outsider-and I may say I am very much of an outsider of the banking business-has no means of knowing by what process of reasoning the banks reached the conclusion that they were warranted in so far departing from banking practice as to lock up their funds in carrying 100 million bushels of wheat from one crop into another, through a period in which the market offered prices twenty or thirty cents in advance of those at which the wheat had been purchased. They could only have done it in the full confidence that the price would not only go higher, but go much higher. They were aware, as the whole country was aware, that the grain blockade had already caused immense losses to all transportation and other interests. They must have been made aware of, and assented to, the intention of the dealers to continue the blockade throughout the then and into the now coming season of navigation. Mere maintenance of price level could not be justification for action having such disastrous and farreaching results as followed the grain blockade. The banks must have believed that a continued blockade would result in a further great advance in price. That is to say, they became the main partner in a colossal gamble in wheat; for without the money from the banks the wheat dealers, whoever they were, must have sold when prices warranted. (Applause.) Since 1923 the banks have financed two classes of dealers in wheat-the grain trade, handling approximately 45% of the crop, and the Pool, handling 55%. Transactions between individuals or companies in the grain trade and the banks are ordinary business affairs, in which, indeed, ordinary business principles are followed. The grain dealer must have capital which is pledged to the bank, and he gains or loses as the price afterward advances or recedes. If he cannot keep up his margins the bank sells him out. Until the present crisis arose, following the continued rise in wheat prices, the relationship between the banks and the Pool was similar, although not identical. The Pool is a co-operative organization of 140,000 farmers. The business is transacted by an elected executive. The executive pays the individual farmer his share of the wheat, less cost and charges. The first payment is made when the wheat is delivered, and subsequent payments are made from time to time during the succeeding year. The difference between the first payment on delivery and the final amount paid is, in fact, an advance by the farmer to the Pool executive--to assist in financing the marketing of the crop. The Pool executive needs to borrow from the banks only the amount of the first payment, with carrying and storage charges. Subsequent payments to Pool members are made out of the proceeds of sale. In the crop year 1927-28 the first payment was 85 cents, on the Fort William basis. In 1928-29 it was one dollar. Roughly, by this method, the farmer is expected to finance about one third of his own crop. In 1927-28 he did more; as prices stood at the be inning of the present year, he was doing the same. But the subsequent price recession has materially altered the situation for him as well as for the banks. It is now a matter of public record that the banks consider the Pool's resources either unavailable or inadequate as security, for it has become necessary for the Legislatures of the three Prairie Provinces to pledge the provincial credit, protecting the banks against loss, whatever it may be, when the wheat is ultimately sold. The Legislatures of the three Provinces assumed responsibility for the advances made by the banks to the Wheat Pool, and a question of high finance became one of high politics. The Pool had been in politics indirectly from the first, but it has now definitely become a major political issue. The demand has already been voiced that the 45% of western farmers who market their own wheat should be compelled to market through the Pool. Under present circumstances it would be remarkable if that demand is not strongly repeated, possibly with far-reaching results. A difficult situation has been created. There is a burden to be borne; the minority who had no part in creating it are now being compelled as citizens to bear a share. In the present temper of the majority members of the Pool, they may be expected to use their political power to compel the minority independent growers also to hand their wheat over to the Pool executive.
The Pool gospel was first preached in Canada by Aaron Sapiro of California. The Alberta Pool was organized in 1923 as the result of his missionary effort. Organization in the other two Provinces followed in the succeeding year. Due to the war, there had been a period of two-dollar wheat and oats, which lasted from the spring of 1917 until the end of 1920. In September, 1922, wheat was down to one dollar, and from October, 1923, to April, 1924, it was below one dollar. The commodity prices were still in large part at war level; business was out of joint, and the farmer sufferers looked for a remedy. There was wide opening for a campaign of class war. According to Sapiro, as the manufacturer controlled prices by holding his goods off the market, if the farmers combined they could increase the price of their wheat by holding it off the market. This theory took no account of the fact that the manufacturer could absolutely control the volume of production, while the farmer as absolutely could not. The crop of 540 million bushels in 1928, and half that amount on a larger acreage in 1929, is proof of that point. In Sapiro's argument he made it appear that control of distribution by the farmer would have the same result as control of production by the manufacturer. In the autumn of 1923-24, when the Pool was being organized, the promise was that by holding back wheat from the market, that is, by controlling distribution, the price would be increased. The Pool executive has consistently followed that policy so far as circumstances permit it, in handling the wheat of its members. In addition, from time to time, it has bought millions of bushels of non-pool wheat on the Winnipeg Grain Exchange, to support the market. You gentlemen know what that word means. (Laughter.) In view of the promises made, the results are startling. The following are the payments made by their central selling agency to the provincial Pool, storage, bank and operating charges deducted, on the basis of Fort William: In 1924-25, $1.66; on the basis of a Fort William market price of $1.69; 1925-26, Pool payment $1.45, average market price $1.52.2; 1926-27, Pool payment $1.42, average market price $1.46.2; 1928-29, Pool payment $1.42Y2, average market price $1.46.3; 1928-29, the final payment has not yet been made for the crop of 1929, and the amount paid by the Pool so far is $1.18Y2. That is, the farmer is carrying whatever difference there is or may be between $1.18Y2 that he has received and the price that that wheat is, or ought to be at the present time. In 1929-30, the initial payment made was one dollar. The present crisis in the Pool's affairs occurs because the world price has reached a point so low that the banks lack adequate security for their advances, although the Pool establishes and maintains a complete blockade in the movement of Canadian wheat to market. If a gentleman picks up any paper any day, he can see that that statement is correct. This is certainly one case in which control of distribution has not forced up the price.
In the six years of its existence the Pool has handled a billion bushels of wheat. It owns 613 elevators, having a capacity of 58 million bushels. It has contracts with 140,000 farmers that they must deliver to it the whole of five successive crops of wheat. These members have contracted themselves--that is, Pool members have contracted themselves--out of the right of audit of Pool finances, or of action at law in protection of their interests as against the executive. Membership of the Pool executive is a place of power to make ordinary men dizzy. In the U.F.A., that is, the Pool paper, published in Alberta, of January 15th, President McPhail is quoted as having said at Indian Head, "Because of its ramifications, the Pool knows when there is a demand for wheat, is familiar with world conditions, has an accurate knowledge of all the world factors which rule in the business of fixing wheat prices, how much wheat is available at any time, what the prospects are for some time to come, and we are in a better position to judge than any individual, and exercise some measure of judgment as to the selling policy we should pursue." This is the sort of talk that has been fed the Pool members for years, and which at last was accepted as gospel by the banks. (Laughter.) But within a month of that announcement the banks were demanding security for their advance of one dollar a bushel, and the credit of the Prairie Provinces had to be pledged in the hope of preventing a market catastrophe that the Pool as a business organization was powerless to avoid.
A comparison between Winnipeg and Chicago quotations on wheat rated as of like quality shows that, in December, 1928, the Winnipeg price was two cents over Chicago. In May, 1929, when prices had slumped, Winnipeg was 5Y2 cents over Chicago. In July, 1929, when prices were at the peak, Winnipeg was 22 cents higher than Chicago. Yesterday, March 12th, when the market had slumped again, wheat for May delivery closed five cents higher in Chicago than in Winnipeg. These figures indicate that, during the varied fluctuations of the 1929 season of navigation, the United States was clearing out her wheat at world prices, while Canada was holding hers. Now, however, the United States is giving effect to the policy that was expressed in the McNary-Haugen Bill of some years ago; government money is being drafted to purchase wheat and take it off the United States market. This naturally improves the United States price. But what is to happen to the wheat as purchased, in case of an average United States crop? It must be offered on the world market in competition with Canadian wheat. In such a case it can only be expected that it will be offered at lower than Canadian prices, as in the season of 1929. While government purchases of United States wheat in some measure improve or stabilize the price to the United States seller, the effect of the surplus so purchased must be to stabilize lower prices to the world buyers. This feature of the case is of intense interest to Canada. The United States is still a large exporter of wheat, but that country consumes more than four times as much as it exports, just as Canada exports more than four times as much as she consumes. The United States can afford to sacrifice its export surplus as a means of keeping up the home price, and has actually entered upon a policy of doing so. The wheat now being purchased by the United States Farm Board will meet Canada's next crop in the world's market.
Before the war, Russia and the United States were the great exporters of wheat. Bolshevism destroyed Russia as a wheat exporter and gave Canada her opportunity. Canada owes her expansion of wheat production to Lenin and Trotsky, as much as to any other cause. Russian wheat exports came from great estates, worked by the cheapest of labour. As a result of the revolution, the estates were divided up among the peasants and production for export practically ceased. The Russian Government has entered upon a new policy of collectivism; the peasant holdings are being confiscated and thrown into state farms, similar to the old private estates. The peasants will work as labourers and the State will provide the latest machinery, supervise the work of production, and market the crop. The purpose is to bring Russia back into the world's wheat market. Barring famine years, there is every prospect of its success.
We have reached a difficult situation in the marketing of our chief source of national wealth, and have done so chiefly through the attempt to prove that Aaron Sapiro's theories were true. It is a high price to pay for a national excursion into the realm of economic fiction. (Laughter.) That the present crisis will have the result of bringing our people back to a realization that the law of supply and demand is still operative, is our best hope for the future--that increase of price means decrease of consumption. In the present tragic circumstances, we must surely realize that we cannot build up our business by fighting our customers, that in the last call it is the buyer who must furnish the money that makes the market. The Pool Executive, the grain dealers, and the banks, have backed Canada's wheat crop of last year on a world shortage this year. They are looking forward hopefully to a bad harvest-(Laughter)-for they have created a situation that only a greatly reduced crop or a bad harvest can relieve. (Applause.)
The Chairman tendered to the speaker the thanks of the Club.