The Business Outlook
Editor of The Financial Post
EDITOR’S NOTE.—Mr. Appleton believes that the Imperial Government will, as a result of the Canadian wheat crop being earmarked for the use of the Empire, see to it that the Canadian producer will get a normal price for his product which will mean, despite the uncertainty as to the value of the pound sterling, a better return in money than has hitherto been the case in Canada.
BUSINESS men during August, especially the early part, were somewhat disturbed with respect to the value of the pound sterling. There was ground for anxiety. If a Canadian sold to a miller in the United Kingdom 20 bushels of wheat for £5 the banker in Canada would only give the seller $23.50 for the £5, whereas when exchange is normal the seller would get $1 more or say $24.50. The discount on the British pound at the time of writing is practically 4 per cent. On the other hand a merchant buying goods from England would be able to settle for them at the rate of $4.71 or thereabouts, whereas under normal conditions he would have to pay $4.86. But Canadians sell more to England than they buy from that country and consequently when the English pound is not worth as much as usual it is to their disadvantage, generally speaking.
Some misleading statements have been made with regard to the effect of exchange upon prices of wheat. Let this fact stand out in the minds of the farmer who has wheat to sell : When the elevator man offers him a price he has the rate of exchange in view. Buyers of wheat on the Winnipeg Exchange or elsewhere in Canada watch the exchange rate very closely. If the English pound is worth $4.71 the price of grain drops accordingly and if the value of the English pound sterling goes higher then the buyer of grain will give more for wheat. If, however, there was a very great demand for wheat on the other side of the Atlantic Ocean the price of wheat in Canada would rise in the same ratio as the value of the English £ declined. If the English, Scotch or Irish people or even the people of any of the allied countries were really suffering for want of bread they would send more pounds, more roubles or francs or their equivalent in goods to pay for the necessary wheat. As it happens they have for the time being, all the wheat they need. Being shrewd, however, under present circumstances they like to have a great reserve and for that reason they keep on buying. In this the hope of wheat prices keeping up lies. A week or two ago some orders from the eastern side of the Atlantic placed at Chicago were cancelled. Quite a number of people became alarmed and as a result prophesied that the war was about to come to an end. Our opinion is that these cancellations were the result of the huge accumulation of foodstuffs in the allied countries. While that is the case we cannot look for higher prices for wheat. What will keep up the price is the fact that the allies will always take the precaution, a very wise precaution, of
having big reserves in store. It is realized by the best naval authorities that the possibility of the submarines are as yet far from being fully determined or exploited. All the naval resources of the United Kingdom and those of France have not availed in entirely suppressing the operations of the few submarines which Germany has. Damage from that source has no doubt been kept down to a minimum. But we have been made to understand that the submarine is a dangerous force to be at large and in a position to imperil the food supplies of such vast populations as those of France and the United Kingdom. Until the submarines of the enemy are entirely under control the allies will be reaching out for such a first necessity of life as the grain of our prairies.
About a month ago we expressed the opinion that the wheat of the prairies would not exceed 200,000,000 from this year’s crop. It is a month Ideal weather since that estimate was Increases made and during that inGrain Yield, terval the weather has been ideal. We based the estimate upon normal weather instead of which we have weather that ranks very much higher than that and consequently the crop will be larger. We can say that at the moment of writing, near the end of August, the outlook for the prairies is that the wheat yield will be approximately 215,000,000 bushels. Of course the larger output may mean lower prices. It is our opinion, however, that the farmers of the West will derive from their field produce this year fully $100,000,000 ■ more than they did a year ago.
It is satisfactory to note also that the storm in Ontario did not do as much damage as anticipated. The Minister of Agriculture, Mr. Duif, ventured the estimate that the loss to Ontario farmers would be approximately $20,000,000. We doubt that figure. During the past week or two the weather in the principal grain producing province of the Dominion has not been at all satisfactory but nevertheless much of the grain that appeared to be utterly destroyed will to a certain extent be recovered. On the whole the products of Ontario will be above normal.
If the farmer cannot get a good price for his grain he can feed it to cattle and in that way get a good return. The United States packers and those in Canada are sending vast quanProducts of tities of the produce of Mixed animals to the allied coun-
Farming. tries and we regret to say to the enemy also. We absolve Canadian manufacturers from all blame as to the feeding of the enemy but
it is all too evident that the packers in the United States are doing their best to sell as much as possible, not only for the use of our own soldiers but for the use of those of the enemy. While all packing plants are apparently busy preparing food for the war fields there will be a good level of prices for the domestic animals of the farms. Authorities in the United States and those who give particular attention to the Canadian market hold to the opinion that prices, although they may go up and down to accommodate the whims of the speculators, will on the whole rule high and the cause of their doing so is that the demand for animal products will be very heavy as long as the war lasts. How long the war will last we cannot say but it is safe to prophesy that the armies at present in the field and those to take the field will require feeding for at least another twelve months. This being the case the price of the farm animal as well as the price of the field produce will remain high.
We therefore can say that the Canadian producer has no cause for sleepless nights as the result of the ups and downs of exchange. It would not What Will be safe for anyone to prothe War phesy that the lowest point Bring Forth, in the value of the British pound has been touched. No one can tell what this war may bring forth in the way of surprises. Whatever happens the Allies will win. Before that desired end is attained we must expect reverses and periods of depression, trials and disappointments, and other forms of untoward happenings which tend to breed pessimism and consequently the neutral countries will have less faith in England’s cause and the value of the English pound.
Mr. Lloyd George at a recent meeting in Wales said that all parties of a political character had been eliminated. There were now no Liberals, no Tories, no Socialists, no independent laborites, no aristocrats and no paupers. There were just two—optimists and pessimists. With every reverse sustained there will come some depression. Great Britain’s credit will probably move up and down to some extent in accordance with varying successes of her forces during the course of the war. Britain always has paid her debts and always will. Those who are able to buy English pounds at a discount at the present time will be able to sell them ere long at their full face value of $4.86. Already let it be noted United States bankers have protested against England sending to the United States more gold. What they require is that responsible British bankers should come across to this side of the Atlantic and arrange the necessary credit. No sooner had steps towards this end been definitely taken and two such men as Lord Aldwyn and Sir E. Holden been named as a deputation to visit the United States than the price of the British pound in New York was again in the ascendant. Canada can rest assured that the allies will require the wheat of Canada and they will be able to pay for it.
An embargo on the export of Canadian wheat except to the allies should be taken into cognizance by business men. It is
understood that the matter is under consideraion by Sir Robert Borden in London and probably his mission there was in a measure to ascertain definitely what the attitude of the allies would be with respect to the Canadian crop. With our markets limited solely to meet Imperial exigencies it would be reasonable to expect that producers in Canada will receive for their output a price not below normal.
The nation as a whole would not hesitate to make any sacrifice necessary for the defence of the Empire. It is in respect of the latter objective that the embargo on wheat exports was placed. If our freedom as to its disposal is restricted, there should be protection in the matter of price. On steadiness of the latter the future of Canadian business—the immediate future—materially depends. Stability and certainty would be imparted if some definite policy with regard to price—on the part of the Government— was determined upon.
With October ranging around 90c, which would ensure to the producer at the remotest point in the Canadian West approximately 75c per bushel, the question of price is not for the time being a pressing one. But there are big crops and big supplies elsewhere than in Canada that will be available for export to the allied countries. If these supplies are pressed on the market the price may weaken to such an extent as to necessitate its being dealt with from an Imperial standpoint.
Being assured of a very substantial crop in the entire Dominion—a crop that will measure both in quantity and value higher than any other crop War as yet recorded—there will
Munitions and be in the country some very General active buying of general
Business. commodities. Although,
while the war lasts, the tendency of the average individual will be to spend as little as possible, he will be compelled to buy essentials. The average Canadian household has put its affairs upon a more economical basis, than existed a year or two ago. Old shoes that were discarded have been made to serve and old clothes have been patched and repaired to take the place of new garments. The stock of old boots and reserve pants will not last for ever. Fashion also decrees that “my lady’s boudoir” must be replenished at least once a year. The extreme economy of the past twelve months and the great economy of the antecedent twelve months has had the natural result of exhausting the private reserves of many necessities, as well as reducing the stock on the shelves of storekeepers and warehouse. There is more than a grain of truth in the joke of a contractor who said that when he needed half a dozen of wheelbarrows he had to go to half a dozen big warehouses to get them. Two years ago bankers advised their customers to get rid of their accumulated stock. In other words they were given the tip to liquidate. If the tip was not taken the banks used pressure. When war broke out the average storekeeper and jobber was as desirous as the bank to get stock reduced, and some very excellent work has been accomplished along that line. Bearing in mind the fact that
stock reducing and liquidation set in long before war was declared, it will be quite evident that the process must result in a scarcity of commodities when a normal demand for them arises. The average business man is endowed with enough native sagacity to know that following a good crop and following a period of economy by the people as a whole there must arise some buying of commodities despite the utmost frugality around the domestic hearth. While the economy practised by Canadians and the inability of manufacturers to liquidate their stock practically put a stop to movement of industrial wheels, that was a very anxious time for manufacturers generally when they saw nothing for it but to close down. Like other human beings manufacturers do not lightly send notices to a few thousand workpeople that there is no further work for them in sight. A year ago, however, there was nothing else for them to do. Dividends were passed, orders were not in sight, and the future was enshrouded with clouds impenetrable by the shrewdest business eye. However, we were willing to fight and to send our men and equipment. This provided an opening and an opportunity for manufacturers that could adapt themselves and their plants to the turning out of war materials. The beginning in this respect was beset with many real difficulties, the nature of which the public generally do not fully appreciate. Most of these difficulties have now been overcome with the result that every factory that can be has been utilized for the manufacturing of munitions. An official statement made a few days ago is to the effect that orders to the extent of $230,000,000 have been in Canada since the war began. While this figure will not fully cover the loss of ordinary business it will go a long way towards giving employment to staffs equal to those employed in normal times. That official statement was a great relief inasmuch as some enterprising journalist had given currency to statements that orders placed in Canada and being executed in Canada aggregated approximately $400,000,000. That seemed too good to be true, and so it was. Sir George Foster has given in one of the Trade and Commerce bulletins figures that may be relied upon, although in our opinion they are somewhat in excess of the actual value of the orders placed. It will appear also that Mr. Thomas, Mr. Lloyd George’s representative in Canada, is satisfied with the work being done here and we understand he is also somewhat surprised at the magnitude of our industrial plants available for turning the kind of munitions effective in destroying Prussianism. We have demonstrated that we have the right type of fighting men and now the entire Dominion will demonstrate that it has the right kind of industrial plant to forge the missiles that will open the road to Berlin. We no doubt want the war materials first. Always our first duty is to squelch and obliterate the enemy. Without any intention of detracting from that good work we would point out that when so much of our factory plant is employed what is going to be the result when our normal demands, such as can be reasonably expected to follow an abun-
dant crop, begin to present themselves and knock at the doors of our manufacturers? Our great wheat fields, our rich pastures and our mines have been talked about a good deal and they are now beginning to count. We are making good use of these resources now as attested to by the official trade figures issued by the Department of Commerce.
Just about the middle of August Sir George Foster, the Minister of Trade and Commerce, told us that the exports for
July amounted to $61,Paying 600,000. Of this about
Our Debts $16,000,000 were in the Abroad. form of foreign produce.
This leaves a balance of approximately $45,000,000 of purely domestic produce, which exceeds the total of our imports for July by practically $9,000,000. Since March last our exports have steadily exceeded our imports. We are now on the verge of our big exporting season. By the end of the year if Great Britain takes our available surplus for exports, the trade balance will be very much in our favor. It is a long time since it has been in this position, and the result will be impressive in the United Kngdom, where it is still of the utmost importance that our credit should stand high. But it is almost of equal importance that the investor of the United States should appreciate the fact that although Canada during the past five or six years has borrowed very largely— if too rapidly — but nevertheless the money has been expended on productive plant in the form of railways and equipment of cities that will be turned to account. We borrowed the money in the belief that we had as productive wheat fields as there are in any part of the world, and that we have other resources which compare favorably with those elsewhere and moreover we have the nucleus of population that can turn them all to account. In this, the time of great emergencies, Canada has acquitted herself creditably. As rapidly as we assumed an air of extravagance we have dropped it and got into line in real earnest not only in fighting, but in providing munitions of war necessary at this juncture. For the first seven months of the present calendar year the exports of Canada amounted to $261,774,018, as compared with imports of $240,731,638. These figures apply to domestic produce only. A month ago we gave figures covering the first six months of the present calendar year. We now give the returns of the exports and imports as covering the first seven months of the current year:
Exports of Domestic Products. 1913. 1914. 1915. I Jan......$ 19,370,5t4 $ 25,218,737 $ 28,595,59S J Feb...... 22,857,169 20,553.387 28,8S1,277 March ... 34,874,752 26,700,991 45,118,922 April ---22.016.8SO 17,753,071 2S,691,8S9 May ..... 27,883,971 30.005,635 42,080,486 June ..... 33,619,425 28,000,200 42,805,846 July ..... 33,660,716 41,807,648 45,600,000 $194,2S3,437 .$190,039,609 s261,774,018 Imports of Merchandise. 1913. 1914. 1915. Jan......$ 52,751,901 $ 40.921,240 $ 30,300,157 Feb...... 52,951.309 38,540,045 35,012,910 March ... 67,603.976 53,111,104 40,411,384 i April ---4S,488,280 36,937,713 28.391,640 May ..... 60,514.284 45.076,939 34.390,80S June ..... 57,957,006 45,750.793 35,324,739 July ..... 59,926,232 42,964,467 36,000,000 $400,193,488 $303,322,301 $240,731,638
Our readers interested in conning the horizon of business will no doubt have noticed that from Winnipeg and Western cities there are no complaints with regard to the abundance of employment. They will have noted also that in the East farm laborers are being sent West in numbers as large as in previous years. This means that within a few weeks a very large sum of money will be distributed for harvest purposes. Merchants in Winnipeg will look for a harvest as these laborers return from the field some time before Christmas. Much of the money which will be paid out in wages to these men will come back to Eastern Canada before Christmas. At the same time factories making war munitions are picking up men and training them. Hitherto they have not been classed as skilled laborers. It is more than likely therefore that during the next few months business will tend more definitely in the direction of normal.
The liquid resources of Canadian banks at the end of June were approximately $56,000,000 greater than at the end of June, 1914. At the time of writing the bank statement for July has not appeared, so that we have to base these figures upon the month of June Government returns. It will be found at the end of July that very little change took place in the figures. The larger cash reserves of to-day, are not greater than prudent
banking demands and do not leave the banks much room within which to work. It must be remembered that last year’s crop was not a large one, and that of this year will be not only greater in bulk but greater in value very considerably. The question of exchange is also an awkward one for the banks. Hitherto they could sell their bills on London with confidence, but they are not in this position this year unless the representatives of the British Government are able to arrange satisfactorily a credit at New York that will make exchange more normal. But even though some satisfactory arrangement is arrived at, it must not be assumed that conditions then will be normal and the exchange market will be subject to fluctuations that have not hitherto stood in the way of grain and crop financing. The London banks, which in past years have aided the movement substantially, may not at present be able to do so. When the actual work of crop moving is under way we doubt not but that the experienced bankers of Canada will devise some way of handling the crop satisfactorily. There will be no surfeit of money, however, nor will there be a dollar more than is necessary to purchase from the producers the great crop that will be gathered in this, the most trying year in the Empire’s history, but nevertheless a year that is not without its promise of greater things for Canada.