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j_fj_ a: l!x OPI"'CIO MIMDIIIIi CAITER GLASS • Slcfti#.a.-/.OP THI TIIAIU8Y CHAIRJIAII JOHN SKELTON WILLIAMS COIIPTROLLII OP THI CUII:IINCY FEDERAL RESERVE BOARD ADDitESII REPL.Y TO FEDERAL RESERVE BOARD WASHINGTON W. P. HARDING,IIOYIRNOR ALBERT STRAUSS. VICI IOYIRNOl ADOLPH C. MILLER CHARLES S. HAMLIN HENRY A. MOEHLENPAH W. T. CHAPMAN, SECRETARY R. G. EMERSON, ASSISTANT SICitiTARY W, M,IIILAY, FISCAL AOINT CONFIDENt' IAL. January 17. 1920 .. X-1801. Dear Sir: Your attention is directed to the enclosed copy of the circular sent by the United States Wheat Director to all his licensees. This circular sets forth clearly the present situation as it appears to the Director and contains sound ~d Judic:i.ous warnings whiCh the business community should not be permitted to disregard. I am also enclosing for your confidential information copy of a letter written by the Director to the Vice Governor of the Federal Reserve Board in response to the request for copies of this circular. The Wheat Director's letter naturally expresses his views with somewhat less reserve than the c1rcular 1 and is, therefore, important as further e~1zing the views held by that official, who is undoubtedl7 in the best positiOD. to judge the wheat situation. The exportable surplus of · 3Q),«>>,OOO bushels of wheat involves ~t the guaranteed price the sum of aoma $700,000.000 o£ cash. To the ex.tent to vilhich wheat has been either sold abroad on credit, or is being held. back on account of car shortage, or for other reasons, the burden of carr~ i,t has undoubtedl.T been placed either ~irectly or indirectly on our banks, ani in spite of any local information indicating that sales of wbeat for eJ'port have been pai<.l. for in cash, this must be true to the exten-t to which~ cgh has been obtained throu;Jl. export credits financed by the ban!9!__ 1g New York or other centers in the East. We must not lose sight of the fact· that the situation in some, and perhaps in IJ:Ia1l1' other commoa.i tie-s may not be very different f~om the wheat situation and. should so far as poss·ible guide the policy ot member banks accordingly. Very truly yours, 1.12 • X-li301-a JULIUS H. BARNES • UNITED STATES WHEAT DIRECTOR NEW YORK (CONFIDENTIAL COPY) January 13 , 1920 Mr. Albert Strauss, ,Federal Reserve Board, Washington, D. C. My dea.r Mt. Strauss: I have your letter of the 12th. I enclose you a number of licensees by the Wheat Diredor. I me, by letter or phone or wire. for of this office, which wo·1.1ld further copies of the communicat~on to hcpe you will nevex- hesitate to ask any information regarding the conduct team-play in the national service. F:.:·ankly I am very much concerned r egardj.ng the e,•iden t disposi ticn of millers and dealers throughout tile Uni tea States to carr:y considerable commitments in the form of wheat and flour, this coqrse bavj,ng proven so far quite prof:i. tab2e to them on the l.lpward t:rend of prices, bl.lt which on this price-level might, in certain contingencies, lead to considerable loss and possible disaste~. I I reaJ.ize even as I say th:J.s that. ot\I' w:i.£lter wheat prospect, with unfavorable winte:e weather, may be such that the prosent price-level may be JUstified and mere next spr:L'l"lg, bl.i.t I think it my duty to point out the possibilities, so that if they do assume those risks, it will be with open eyes. It is unfortunate that restricted transportation plays such a part in not making fully liquid and available ow:- perfectly adequate wheat and flour supplies. In passing, it will be interesting for you to know that substantially every bushel of wheat owned by the Grain Corporation is contracted in sale abroad and wiU shortly be. sh:tpped, although we still ha'fe large holdings and purchases of flour. I sho·uld welcoxre this shifting of the export trade from a retiring Government Agency to private initiative, which must soon function anyway, if I were not so apprehensive over the risks to that private trade of the present conditions. With personal regards, Yours truly, JHB:H Enclosures. (Signed) JULIUS H. BARNES. 1_13 • JULIUS H. BA.-qNEs UNITED STJ',TES VJh'1J;.AT DIFJ£CTOP.. NE'VJ YOR:r.;: .'1.-1601-b Ja~uary 10, 1920. TO .1\LL LICENSEES OF TEE WHE.AT DIRECTOR: The Wheat Director and the Gl·ain Cotpol"ation approach the last ha)f-yeai· of their official service. For over two years the Gra:tn Corporation has bee11 a dominant influence in grain marke t:i.ng. The enC'.. of that official inf J.t:.ence ancl control is in sight. Forty-two thousand licensees should realh~-.3 that the wi i;hd.:rawa~. of su.ch a market ancl price influence \;an not be made wit.hc..r:.J.t int:.:'odud.ng large hazar::.is to the wheat and f lovr. hand.le:t·. World infJ.uences of great potentiality in price-making exist today. There is no guide to point the way to commercial security. Inaiviiual judgment must sol'.7 e· unusual problems, soon to be faced.. We can only warn of the play of world-wide factors of unprecedented potentiality, and submit information, as accurate as hl.unanly possible, on which business policies mnst construe t. The Grain Corporation 1s weekly reports of trade data will continue until June 1st. They should be studied. Our total wheat crop exceeded that of 1918. ~ch is said of t~e relat\ve scarcity of strong wheats. 'l'he curious fact develops, howevAr, tba:i; >.>y continued replacements from the Southwest and the Pacific (;on.st an:1.. b:~caune Eastern mills will probably draw their smaller needs of stror~g vibe.:~.t.s fz-:)m Canada and the Argentine, the Northwestern mUJs can grind fully e(1nal to last year's large production and still leave, at the end of this crop-year. a larger carryover in the Nor thwe s t than last ye a:r • Exports for past siX months are 33,000,000 bushels less than last year. Difficult finances abroad, forcing utmost cur·~ailment of. :tmrchases, · wiH continue. Present purchases, still to be shipped, largely supply fore:i.gu requirements for a considerable period. Chea:pe:r rye will replace some ;vneat~ The United States can apparently export 50,000,000 bushels rye, against 35,000,000 bushels last year. Flour production in the United States for si• months exceeded last yeat ~s production by l2,ooo,ooo barrels, while exports of flour have been 1,000,000 barrels less. How much of this 13,000,000 barrels represents increased. consuri!Ption of wheat bread, and how much increase in domes tic and coiiiilercial stocks, with its resultant later shrinkage of cr.trrent demands 1 Flour stocks, visible, are very large: 15,000,000 barrels, against S,OOO,OOO last.year. With no Corporation, until we can open to them immediate prospect of further purchases of flour by the Grain it is fairer to ask the mills to discontinue their weekly offertngr advise some prospect of further pw·chases. The export outlet is individually without necessity for pet·mits. .'. ti4 - 2 - Restricted transportation and extraord7.nary indifference to ex:pendi tu.-ee a section of our people have facilitated €asy price advances in certain qualities of flour. Our ovm campatgn of placing the lower-priced flou:rs through the retail trade is demonstrating that there is a section of our people desirous of the practice of thrift. It may become cont~gious as extravagance has been. The extraordinary choice is offered our consumers of standard qualities of flour in the same retail trade at ranges from $1.1·10 to $2.00 for the one•eighth barrel~ b~ New-crop prospects will shortly be a decided price influence. Mueh emphasis is laid on our Fall-sovm acreage this year of 39,qoo~ouo acres, against 50,000,000 a year ago.. It is well to :ce'!lomber that .Arnerica 's secondlargest winter wheat yield (685,000,000 bv.shels) c~e from 37,000v000 acres sown. .Also, that twice in our history the yield fro:m spring sow:i.;?.gs alone has exceeded 350rOOO,OOO bushels. Last year, our total home cons~m2tion for foOd and seed did not exceed 550,000,000 bushels. Import and Export embargo restrictions are now eliminate~, and Canada and Argentina are already making sales, attracted by our prices now ruling above the guarantee level. Farmers, millers and dealers (outside of the Grain Corporation) ovr.n and are carrying 437 ,ooo,ooo bushels of wheat, against 299 ,ooo·,ooo a year ago. Seriously ponder. on this statement. .After June lst, next, the Gra:\n Corporation authority to buy wheat at the guaranteed price expi.res, and thereafter the security of that basis is withdrawn. The fact that present prices l~gely rule above the Government guarantee should not obstruct a study of conditions which may develop, and at a time when that price assurance no l.onger exists. America's comple~ and delicate marketing structure must be preserved, and prepared to function when this agency retires. . Price fluctuation always is followed by distress and loss. Wisdom dictates the reduction of conrni tments to the minimum req,uired for the conduct of: necessary current busines's. We should. not feel that the full responsibility of this office had been discharged without calling attention to the price huard which may exist for many months, knowing that a large pw.·t of the prOdac'ing and distributing trades have been accustomed, by two years of official stabilization and assurance, perhaps not to fully realize the danger of QVer~extended commitments under the present extrao~dinary world sit~ation. JULIUS H. BMNES United States Wheat Director.
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