The Cycles of Speculation

Cycles of Grain Speculation5

In examining the price movements of wheat and corn for the last ten years, a gradually advancing trend is apparent. That such would be the case was a foregone conclusion; we naturally expect to find wheat and corn in the foremost ranks of a universal movement towards higher prices. The underlying causes for this general appreciation have already been extensively and clearly discussed in Moody’s Magazine.

All Prices Advancing.

The price appreciation of wheat and corn is merely confirmatory of the theory that all prices are advancing, and that they will continue to advance until the balance between gold and other commodities is readjusted.

But there is something else written between the lines of the statistics of price changes in wheat and corn. The relative advance of the two cereals is all out of proportion.

This fact leads us to seek for some specific cause operating either to depress one cereal or enhance the other, irrespective of the influence already named.

The figures for the last ten years are as follows:

WHEAT.

Year	High	Average	Low
1896	94⅜	73¹¹/₁₆	53
1897	109	86⁹/₁₆	64⅛
1898	185	123½	62
1899	79½	71¾	64
1900	87½	74½	61½
1901	79½	71⁵/₁₆	63⅛
1902	95	81¼	67½
1903	93	81¾	70¼
1904	122	101¹⁰/₁₆	81¼
1905	124	100¹⁵/₁₆	77⅞
1906	94¾	81⅞	69⅛

CORN.

Year	High	Average	Low
1896	30⅝	25¹/₁₆	19½
1897	32⅝	27³/₁₆	21¾
1898	38	32	26
1899	38⅛	34¹/₁₆	30
1900	49½	40	30½
1901	67½	51¾	36
1902	88	65⅞	43¾
1903	53	47	41
1904	58⅛	50⁷/₁₆	42¾
1905	64½	53¼	42
1906	54¾	46¾	39

The average price of wheat in the first year (1896) was 73 ¹¹/₁₆ in standard format, in the two following years very high prices were established, and the average may be considered abnormal, as the years 1897 and 1898 cover the rise and fall of Joseph Leiter.

FLUCTUATIONS OF WHEAT PRICES
FOR TEN YEARS.

(The rims of the circles touch the high and
low prices of wheat each year for 10 years.)

Reproduced, by permission, from Moody’s Magazine of August, 1906.

To digress for a moment, it may be interesting to note that efforts to carry prices beyond reasonable limits almost invariably result in disaster to the promoters, no matter how far they may be successful in establishing black-board quotations. With the exception of “Old Hutch” wheat corner in 1888, all the numerous attempts to speculate successfully on wholly artificial prices in commodities, have failed. The Sully cotton campaign, the Leiter wheat deal, the Phillips corn deal, the Coster-Martin corn deal, all ended in ruin for their sponsors.

From 1899 to 1901 inclusive, the average price of wheat was a little above 70 cents, in 1902 and 1903 it rose to 80 cents, and in 1904 and 1905 to $1.00.

In the latter years, allowance must again be made for unusual influences, the Russo-Japanese war naturally helping wheat prices; making due allowance for this, it may be fairly considered that wheat has in the last ten years increased its average selling price from about 70 cents to 90 cents, or approximately 30%.

Why Corn Has Risen More Than Wheat.

Corn prices in the same period have advanced 100%; the comparatively large number of uses to which corn is put may partly account for the disproportionate enhancement of its price, but the discrepancy is too great to be entirely explained away on this account. It is necessary to seek some additional and more powerful reason.

FLUCTUATIONS OF CORN PRICES
FOR TEN YEARS.

(The rims of the circles touch the high and
low prices of corn each year for 10 years.)

Reproduced, by permission, from Moody’s Magazine of May, 1906.

The following statistical facts will make it clear that corn and wheat are in wholly different positions.

The United States raised, in 1905, 693,000,000 bushels of wheat. The world’s wheat crop in the same year was 3,275,200,000 bushels. Therefore, we raised approximately 21% of the world’s wheat crop. The year 1905 is fairly indicative of the proportions for the last ten years.

The acreage of wheat in the United States in 1896 was 43,618,646; in 1905 it was 47,854,079, an increase of 38%.

The world’s wheat acreage as indicated by production, is increasing at about the same rate as is the acreage of the United States.

The United States raised, in 1905, 2,708,000,000 bushels of corn. The world’s corn crop was 3,396,800,000; therefore, we raised 80% of the world’s corn.

The corn acreage of the United States in 1896 was 81,027,156; in 1905 it was 94,011,369, an increase of 16%. The world’s corn acreage, as shown by production, did not keep pace with our own ratio of increase, but remained almost stationary.

These figures show that the world is depending on the United States for only 21% of its wheat, and that wheat acreage the world over has increased about 38% in ten years; but the world is depending on the United States for 80% of its corn, and the world’s corn acreage has increased less than 16%.

In order to grasp the full significance of these figures, our practical monopoly of corn production must be appreciated. Even if we admit an equal ratio of increase in corn acreage the world over, it remains for the United States to provide 80% of the increase.

Corn Area Limited.

The probability of any considerable area of new corn land being exploited, either at home or abroad, is very small. A recent circular letter by a man prominent in the cash corn trade, states that there is not an uncultivated acre of available corn land in the United States. This is a radical statement, and does not allow for the fact that with a sufficient price stimulus, considerable wheat, or even cotton land, would be diverted to corn. But whatever allowances are made for an increased corn production, it must be admitted that the possibilities are largely confined to the United States.

Wheat acreage is not thus circumscribed; in fact, the case is practically reversed; almost 80% of the natural increase in wheat production will come from outside our boundaries. Of the principal wheat producing countries,—France, Germany, Russia, Poland and Caucasus, Italy, Hungary, Spain, Roumania and Argentine Republic—the two first named alone fail to keep pace with the United States in ratio of increased production, and others have made up the deficit of these two laggards.

In a nutshell, the difference between the relative positions of wheat and corn is this: The world’s supply of wheat will be furnished by the world, while the world’s supply of corn must be furnished by the United States.

It appears, therefore, that while wheat and corn may both be expected to gradually seek a higher average price in sympathy with the general upward trend, corn is affected by a specific influence, the effects of which must be added to the homogeneous advance.

It is not possible that the supply of corn should increase as rapidly as the demand, under the circumscribed conditions herein set forth. As has already been suggested, the price of corn may become attractive enough to cause the diversion of wheat and cotton lands to corn growing. The possibilities of such a course, however, are not only limited by nature, but such action would stop itself at a certain point by decreasing the supply of wheat or cotton, and again restoring them to favor with the planter.

The speculator may, therefore, reasonably believe that corn is destined, eventually, to reach much higher prices. He must, of course, allow for the temporary influences of large and small crops, and the numerous other actual and technical conditions which cause intermediate fluctuations, and must furthermore bear steadily in mind the fact that there is a limit beyond which the price of corn can never be sustained.

When a given commodity goes beyond a price where it can be replaced by another commodity, it has gone too far; and when necessities become luxuries, they take their places as such, and demand slackens.

FLUCTUATIONS OF COTTON PRICES
FOR TEN YEARS.

(The rims of the circles touch the average high and
low price of cotton each year for 10 years.)

Reproduced, by permission, from Moody’s Magazine of June, 1906.