A financial history of the United States (Google Books) explains “The Great Grain Robbery”.
The Grain Robbery The Soviet Union purchased 3 million tons of United States feed grains in November of 1971. This constituted about 25 percent of the United States wheat crop and caused large price increases. It was initially thought that the Soviets were planning to buy only $150 million worth of grain. In July of 1972, however, the United States government signed a three-year agreement with the Soviet Union under which the Soviets agreed to purchase large amounts of grain from the United States. The Soviets made additional grain purchases from grain exporters. The Soviets used $750 million of credit supplied by the United States, plus $500 million of their own hard currency, to purchase corn, wheat, and soybeans. The Soviets bought when prices were still low. Prices exploded when the Soviet grain sales were announced. This episode was called the “Great Grain Robbery” of 1972. It “was one of those economic events. . . that. . . can truly be said to have changed the world.” The Soviet’s buying drove grain prices to unheard-of levels. Those purchases were not announced publicly for some months. That secrecy a allowed grain firms, and others who had knowledge of those sales, to hedge their grain positions and to achieve large profits by speculation when prices jumped. “This brought charges, never proved and probably untrue, of insider trading and other scandals.” It was claimed that the Soviets were secretly buying large future positions in order to obtain profits that would offset the costs of their purchases. The Senate found no evidence to support the allegation that the Russians had deliberately engaged in market manipulation. The result for consumers was, in any event, higher prices for their grain products. The increased agriculture export subsidies that occurred as a result of the Soviet grain sales cost taxpayers another $300 million. A bull market in commodities was raging between 1972 and 1973. Grain prices reached a 125-year high in Chicago. Soybean prices increased by $8 a bushel in a period of five months in 1973. In a period of little over one month, soybean prices on the Chicago Board of Trade reached $12.90 per bushel. Ten months earlier, soybeans had been selling for $3.31 a bushel. President Nixon imposed export controls on soybeans to slow further soybean price increases. This partial embargo engendered much criticism from abroad because U.S. contracts were being abrogated. A cotton crisis arose in 1973 and 1974 after cotton prices nearly doubled in a six-month period. Some 500 lawsuits were filed over cotton contracts that had been based on lower prices. Corn prices were increasing. In total, world food prices rose some 50 percent in the first six months of 1973. Food prices exploded again in 1974.
My reaction: The “Great Grain Robbery” is a perfect example of what happens when supply and demand get thrown out of order in grain markets. 1) The USDA’s dishonest estimates are creating the same effect today as the soviet’s secret grain purchases did back in 1972. 2) As a result of the "Great Grain Robbery" of 1972, soybeans went from $3.31 to $12.90 in ten months, a 390% increase! Conclusion: The US financial system and the dollar are to weak to survive another “Great Grain Robbery” (fear of higher food prices is why the USDA is lying in the first place).
Eric de Carbonnel
Market Skeptics
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