The Battle for the Wheat Market

In summer 1932, as American industry struggled with insufficient demand and banks contended with impaired liquidity, U.S. farmers suffered collapsing prices for commodities, the consequence of oversupply.

Corn, cotton, oats and especially wheat sold for far less than their 1929 peaks. Wheat returned an average $1.03 per bushel in the crash year but trended erratically downward to 61 cents in 1930, 44 cents in 1931 and 38 cents by mid-1932.

The Herbert Hoover administration recognized a looming agricultural crisis and tried to use voluntary cooperation and market mechanisms to address it. Legislation in spring 1929 created the Federal Farm Board to deal with overhanging surpluses, to seek price stabilization and to organize existing farm cooperatives for more effective marketing.

The president suggested the board attack the wheat problem first, according to “The Hoover Farm Policies” by Martin Fausold. Despite fading returns, wheat farmers continued sowing about 55 million to 60 million acres annually, yielding 800 million to 900 million bushels, far too much for contracting home markets and fast-diminishing exports.

One farm-board initiative created the Farmers National Grain Corporation as a coast-to-coast marketing venue, open to the U.S.’s 3,400 cooperatively owned grain-elevator firms. By 1932, about 1,700 grain co-ops had joined the corporation, and the amount of commodities marketed through co-ops increased 15 percent in one year.

This was good news for farmers, but “private commission men screamed about government interference with their trade,” Fausold writes. This also brought to a head “a long-standing controversy between the Farm Board and the Chicago Board of Trade,” the nation’s premier institution for both cash sales and futures trading of agricultural commodities, the New York Times reported.

Issues of autonomy, supervision and speculation anchored the battle, which was “expected to determine the extent to which the government will go in attempting to regulate the operations of grain exchanges.”

Farmers National, which owned Updike Grain Co., an accredited member of the CBOT, used Updike’s membership to access the CBOT clearing house and finalize its increasing volume of trades. The CBOT canceled the corporation’s privileges, arguing that a federation of co-ops was ineligible for access because it was not a for-profit enterprise based on private shareholding, as CBOT rules stated.

If excluded, Farmers National would have to pay huge commissions on grain trades as a nonmember agent. A third board, the Grain Futures Commission, composed of the secretaries of Agriculture and Commerce and the U.S. attorney general, sought to resolve the impasse.

At a June hearing, the commissioners discovered that the CBOT barred all cooperatives from membership, noted that this directly overrode provisions of the 1922 Grain Futures Act, and dismissed the CBOT’s claim that no existing law could “force it to accept anything or anybody as a member if it did not wish to,” the Washington Post reported.

In July, the commission ruled in favor of Farmers National, ordering a 60-day suspension of CBOT operations for violating the 1922 act. Board President Peter Cary denounced the judgment as coming from Hoover jobholders who “naturally would decide in favor of the subsidiary of Mr. Hoover’s pet Farm Board,” the New York Times reported.

A federal-court appeal postponed the closure, but rhetorical exchanges between free-market champions and critics of speculation, market rigging and aggressive short selling continued.

In 1933, the appeal failed and the Supreme Court declined to review. The U.S. government, indeed, held the power to regulate grain trading and would exercise that power.

(Philip Scranton is a Board of Governors professor of the History of Industry and Technology at the University of Rutgers, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

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