Soviet Shorts (Cont.)

If Secretary of Agriculture Arthur Mastick Hyde expected to provide U. S. farmers with better prices for their wheat by his charge that the Soviet Government was selling short on the Chicago Board of Trade, he must have been a sorely disappointed man last week. The Board of Trade barred short sales by foreign governments. Soviet shorts covered their position. The Federal Farm Board, through its grain corporation, began to buy again. Yet within the week September wheat slumped 7 cents per bu. to a 24-year-rec-ord low of 74 1/2 cents, as compared with the 5 cent-per-bu. decline the week Soviet traders were accused of deliberately trying to depress the market to demoralize U. S. husbandmen (TIME, Sept. 29).

Red Explanation. The extent of Red short sales was definitely established when the House committee investigating Communism questioned E. Y. Belitzky, vice president of the all-Russian textile syndicate, and the three New York grain brokers to whom he gave his selling orders. Comrade Belitzky revealed that he received by trans-Atlantic telephone instructions from Chlebtorg, Hamburg agency of the Russian grain trust, to sell 7,765,000 bu. of wheat in Chicago. According to this witness, Russia had the wheat to sell abroad but, pending delivery, decided to use the Chicago market to hedge the sale as a form of price insurance. Hedging, he said, seemed necessary because of London estimates of a larger world crop with consequently lower prices. Declared Comrade Belitzky: "To say the syndicate was selling wheat short to depress the price is fantastic. The logic and the facts refute this charge."

Brokers' Explanation. Brokers for this Soviet sale were: Harold L. Bache of the Manhattan firm of J. S. Bache & Co., who disposed of 2,300,000 bu.; Alvin Wachsman of Wachsman & Wassail who sold 3,110,000 bu.; Adolph E. Norden of A. Norden & Co., whose sales totalled 2,335,000 bu. The House committee members seemed dazed by the intricacies of grain trading as described by Broker Bache, who denied that the Soviet sales were large enough to affect the pit price, explained that if Russia had wanted to manipulate the world price, it would have sold short in a narrow market such as Liverpool rather than on the world's biggest at Chicago.

Board, Hyde, Kipling. Meanwhile to satisfy Secretary Hyde, the Chicago Board's business conduct committee was making its own investigation of the Soviet sales. Because Secretary Hyde did not complete his trip to Chicago to help Board of Trade's investigation, Board officials, led by their counsel, Silas Hardy Strawn, travelled to Washington to see him. When their "free, frank and friendly" conference broke up, they were still miles apart on interpreting the influence of the Red short sales upon wheat prices. Counsel Strawn voiced the opinion of practically all experienced grain traders when he said: "Short selling of 7,500,000 bu. of wheat would not depress its price." Secretary Hyde stoutly repeated that the Board must "clean house." added: "if it doesn't, that, as Kipling would say, is another story."

What the Board Did. When Counsel Strawn and friends returned to Chicago next day, they reported to Board President John Bunnell that Secretary Hyde, backed by President Hoover, was in an intransigent mood and that something had to be done to pacify him. Well did President Bunnell know that Secretary Hyde (with Attorney General Mitchell) had the legal power to suspend the Board's license as a grain exchange. Promptly therefore the Board's directors were summoned to adopt this resolution:

"It is the conclusion of the Board that the selling of futures upon our exchange by any foreign government is a new development of commerce of seriously objectionable character, and it must be brought to an end.

"The Board through its business conduct committee, has always discountenanced bear raids and manipulations of prices, and it again instructs that commit tee to take particularly vigorous measures to prevent such activities. In formulating their judgment as to such activities, unduly large short selling as distinguished from hedging may be considered as evidence."

President Bunnell immediately telegraphed the resolution to Secretary Hyde in Washington. Though Secretary Hyde said he was "glad to see the Board is making an effort," it was obvious that he did not consider the resolution as all the action necessary.*

Meaning? Just what the resolution meant nobody was quite sure. It certainly obstructed short sales by foreign governments by making them unethical orders for pit traders to handle. But, it was argued, the Soviet sales were technically hedges, not shorts. And many a trader wanted to know just what "unduly large short selling" was. Another question: If future sales by foreign governments were barred, why did not the Board, to be consistent, also prohibit future purchases which might tend to up the price?

World Wheat. Behind last week's domestic developments were larger international factors which went far to explain the fall in wheat prices (see p. 20). Secretary Hyde had made much of the fact that Russia could not deliver wheat on its Chicago sales over the 42 cent-per-bu. tariff wall. But Russian delivery, as every economist knew, was not actually necessary to affect the U. S. market. Russia could, as it was already reported doing, sell its wheat abroad at 10 cents under the U. S. export price and thereby bring U. S. wheat exports to a standstill, pile up the U. S. surplus. Observers thought they saw some such cycle taking place last week as Russian wheat sales abroad increased, U. S. exports decreased and the U. S. visible supply of wheat rose to an all-time high record of 202,620,000 bu.

Next Four Years. A long-range view of world wheat was taken by James Clifton Stone, Vice Chairman of the Federal Farm Board, who declared that prices would tend downward for the next four years largely because of increasing Russian competition abroad. Such a trend would give pricking point to the Farm Board's demand that U. S. wheat growers reduce their acreage, raise wheat only for U. S. consumption, thereby realizing the protection of the tariff.

*Only by a vote of its 1,600 members can the Chicago Board change its rules. The Directors' resolution had the moral effect but not the legal force of a change in the rules.

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