The Deluge

The men in the Chicago grain pits were nervous. Wheat and corn prices "had been slipping for two weeks (TIME, Feb. 9), and traders were afraid it meant trouble. On Tuesday last week the trouble came. It swept in on a wave of selling in corn.

Next morning the panicky selling spread to other grains, drove both wheat and corn futures down their full permissible limits (10-c- a bushel for wheat, 8-c- for corn) for the day. In New York City the stockmarket, alarmed by the tumble in grains, had its worst break since last April.

On Thursday, wheat and corn again tumbled the limit and securities slumped some more. Then Secretary of Agriculture Clinton P. Anderson, whose boss has been sounding off about high prices, did what seemed to be his flap-jawed best to keep them up. He announced that the Government might boost its export buying by an additional 50 million bushels of wheat.

On Friday morning, after another sharp dip, U.S. grain prices rallied. Some grain speculators thought the worst might be over. Richard Uhlmann, president of the Board of Trade, thought it was safe to speak some reassuring words for a CBS broadcast. As he finished speaking, an assistant rushed up and cried: "The rally's oyer! Corn fell 8-c- while you were talking."

Saturday morning, the groggy traders tried to sell before the gong rang. In 20 minutes, May corn fell another 8-c- limit. One flustered trader put a sell order in the wrong pocket of his coat. Before he found it, the price drop had cost him $5,000.

At noon, the closing gong ended the worst week the pits had seen in seven years. Cash wheat had fallen 41 5/8-c- a bushel to $2.46 1/2. Cash corn was down 49 3/4-c- to $2.13. In sympathetic spasms, almost every other commodity had tumbled with them. The stockmarket had steadied by week's end, but before it leveled off, the Dow-Jones industrial average had dropped 6.24 points to 168.81, lowest since June.

Cause. The reasons for the break were obvious. The swift rise in grain prices in the last year had been caused chiefly by 1) huge Government buying for export, and 2) fears of a poor U.S. grain crop this year. Now the Government has almost completed its buying. Furthermore, 1948 crop prospects have turned out to be good, both here and abroad, and they are getting better all the time. Australia and Argentina last month shipped two and a half times as much wheat as in the same period a year before. France expects to double her 1947 crops. Russia was shipping wheat to Britain last week. Rumania, considered to have no food to spare, offered to sell 40 million bushels of corn.

By last week, the estimates on world grain available for export had been upped 4 to 5 million tons, enough to close the gap between supply and minimum, needs. So some U.S. farmers and grain dealers who had been hoarding grain for higher prices were frightened into selling.

Effect. The commodity break posed a big question. Was it the start of a healthy general shake-out of inflated prices, or the ominous warning of a recession? When grains broke in 1920 (see chart), other commodity prices sank with them and threw the whole economy into a temporary tailspin. Before last week's break, wholesale commodity prices (as measured by the Bureau of Labor Statistics) were within 3.5 points of their 1920 peak. The grain prices had gone far above their post World War I high. Though the break had come too fast for official tabulation to keep up, it was unofficially reckoned that the slide so far was as steep as in 1920.

Yet most businessmen welcomed the drop. They hoped it would lessen the shock of the readjustment in prices that had to come. They did not think it would shake the economy into a recession. Said Morris Sayre, president of the National Association of Manufacturers: "I suspect we are now on our way to taking the cap off the high cost of living."

This week, the cap started coming off the biggest item in the average family's budget: food (see NATIONAL AFFAIRS). In the livestock market, hog prices this week dropped $2 to $22.50 a hundredweight, lowest in a year. Consumers waited for cheaper pork. The sympathetic break in hides, fats and oils, and cotton suggested possible future reductions in the prices of shirts, shoes and soap.

There would have to be many more price cuts to prove whether food, and many other prices, were turning down for good. The experts had been badly burned last spring when prices seemed on the way down. But the evidence this time seemed to be that the turn in commodity prices had finally come.

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