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The Great Grain Robbery of 1972

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  • The Great Grain Robbery of 1972

    The "Great Grain Robbery" of 1972
    Wednesday, March 24, 2010
    by Eric deCarbonnel

    A financial history of the United States (Google Books) explains “The Great 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).

    This can only end in shortages on supermarket shelves ...

  • #2
    nuffield, i look at eric's blog everyday. Find some posts very interesting. What are your thoughts on hid bean blog?


    • #3
      Nuffield, the Soviet grain robbery occurred before the U.S. established the export sales reporting sustem. At that time the Soviets could make big purchases from 5 or 6 exporters and keep it secret. No longer. all sales of grain over 100,000 mt of the main grains have to be reported the next day and the same for smaller (20,000 mt ?) for soymeal, soyoil, and lesser commodities.

      I cannot recall that the Australian government, EU, or any other government implemented such a system.

      Today it simply is not possible to do what the Soviets did in 1975.

      Besides, for those farmers that still had grain in their bins in 1972 the Soviet grain robbery was a godsend. The same for farmers in Australia who were harvesting 6 months later than US farmers.

      It is called the market.

      Middle America Will Take Back Our Country in 2010


      • #4
        Nah these days they just overstate reserves, understate useage and mobilize Reuters and Bloomberg to report on the two ... Beaner the markets you have so much faith in are corrupt. I don't trust anything peddled by governments anywhere in this world. The USDA has pencilled in a 23mmt wheat crop in Australia this year. At the moment many of farmers are struggling to get finance to plant what they normally plant. Anticipate crop acreages to be slashed in 2010 here ... land is hitting the market in large swaths now. Haven't seen anything like it since the 1980s.

        John I like to keep an eye on Eric's analysis pieces. The Indian Wheat piece he did yesterday was sent out to all Man Financial clients today.

        This can only end in shortages on supermarket shelves ...


        • #5
          Nuffield, I posted this on another thread, I think it goes hand in hand with your lead in post... it's satire.

          Tom Ont, well here is the deal now that you can get twice as much out of corn and its demand is much higher with all the ethanol plants... there is much more breather room for the carry out predictions to be pooped in by the coin collectors at the obammanation office there is washington. Gotta keep that mind control over the folks involved in the obese-poverty-bondage-hypnosis caused by the food creators going here, you know. OK so are you still with me sir?

          And so anyway>>>

          So since corn is about half again as much more useful because of making gas out of it and the dollar is worth maybe half what it was to you Canadians four or five years ago... doesn't it make sense that corn should be worth about half as much as it was back then?

          So in the mind of our government corn should be worth about .65 a bushel. Make sense?

          "This is a big *****ing deal" Vice president Joe Biden


          • #6
            Nuffield there was so much more at work than what this person apparently alludes. Markets began to go up in the summer of 1971. Beans were the first and went from $2.50 to $3.70 and then sold off in the harvest to sub $3/bu. We had the baby boomers beginning to have babies. We began to see a large increase in broiler production. The Humboldt current was much worse than witnessed for the demand at the time. It created a surge in protein demand. The Russians had a bad wheat harvest and began buying wheat initially from a relatively small grain company, Cook Industries. I know a lot of people who use to host them on their (Russian) buying missions. They scattered their purchases and the composite number was greater than the total comprehended. The major factor was a very weather hindered harvest with much greater field losses than any had seen in recent memory. My father ran a grain elevator and had a lot of forward contracts that fell into default and had to be rolled forward. The YSB broke $4 in November during harvest due to the adverse weather. They traded higher and settled north of $5. The report that caught everyone off guard was the April stocks in all position report. I think it was a $.15 limit at the time. It was increased to $.20 and then $.30. Corn at the time was $.08, wheat was $.10. It took awhile for beans to go from $6 to $12.90. Cocoa had huge price increases as well as copper and other markets besides grains. Their was a lot of inflation following guns and butter trade of Viet Nam and LBJ's social welfare programs. There was also a small problem with Nixon and Watergate and crisis in the government. Dan Morgan wrote a book Merchants of Grain in 1979. I last read it in 1980 and portrays a different analysis than you propose. Not everyone made money and a lot of grain companies went out of business. Why did we have such consolidation during that time period. Markets are great in hindsight but a ***** while trying to trade them.