UNLOOKED-FOR UPTURNS IN ECONOMICS INFLUENCE BUSINESS ACROSS CANADA
BUSINESS & INESTMENTS
Two Dollar Wheat Has Strengthened Agrarian Buying Power, Notably in Western Canada; Uplift to Pound Sterling Renews Hope of British Capital Inflow; U. S. Buying Abroad Insures Our Export.
J. HERBERT HODGINS
ALEXANDER D. NOYES, the
financial writer, in a recent analysis , of the financial situation, remarked on the difficulty of understanding the completeness of a reversal in the economic situation except by contrasting the salient phenomena of the moment with those of a year before.
At this time in 1924 no three forecasts would have been given a more incredulous reception than a prediction that within twelve months a large, although not a record, Canadian wheat crop would be bringing two dollars a bushel, that the United States would be exporting gold at the rate of eighty to ninety million dollars monthly (the greatest monthly shipment in United States history) and that the pound sterling would have risen almost to par, with London forecasting early British resumption of gold payments.
Actually, people were prophesying at this time last year a continuance of dollar wheat and agrarian distress; continuance of America’s gold importations; and continued depression of English currency due to further confusion of European politics.
Three unlooked for upturns in our economics have been accepted with more or less complacency; although the current of business would make it appear that Canada had not fully adjusted itself to the sweeping changes.
Canadians are more immediately concerned, of course, with the influences of two-dollar wheat. That concerns individual purses the soonest. The influences, within the Dominion, of a healthier pound sterling pertain more to the future and, so far as the average Canadian can see, the United States gold situation is likely to exert only a remote influence upon general conditions in Canada. Our ultimate hope with the pound sterling returned to par, concerns the possibility of British capital once more finding its way into the Dominion for participation in national development upon something like a pre-war basis.
Actually this triple turn of events had its beginning in the closing months of 1924. But the winter season is rarely a time for finance or industry in this country to shape itself in a new direction; it is, more commonly, a season in which influences set in motion during the autumn continue in effect, although, perhaps, with diminishing force.
Canadian business men, emerging from this indefinite period, are entering the second quarter of 1925 with the recurring hopefulness characteristic of the spring season. Spring, for Canada, brings its return of normal activities on the land and the resumption of water navigation, invariably a stimulant to general business. The uncertainties of the winter are at least definitely out of the way. Men begin, even thus early, to think of planting and planting begets harvest hopes and thus runs the cycle of Canadian optimism.
Psychology Versus Reality
T TP UNTIL the last few weeks the effect of two-dollar wheat has been more psychological than actual. The export movement in wheat has been slower than in other years; there has not been the quantity of cereals to ship, and,
then, too, the existence of the wheat pools in the three prairie provinces, whatever their ultimate benefit to the producer, have at least had the effect of retarding return to the farmers. In Alberta, for instance, the farmers were reported in actual distress before the initial disbursement was brought about.
Winnipeg announced, in the first week of March, the interim payment of the wheat pool, which would release for Manitoba approximately $25,000,000. A few days later the initial payment in Alberta was reported to have released a further seven million dollars. Just how the distribution of these pools will stimulate general business in Canada is a matter for speculation.
“This interim payment” according to the Winnipeg Tribune, “represents a net addition to prairie buying power, since it has not been hypothecated in advance.” The Tribune argues that this payment, “representing a clear cash profit after costs of production and freight have been paid is a very considerable sum of money even to the man who has farmed on a small scale and it will enable him to buy many necessaries whose purchase has been postponed.
“The phenomenon which has been somewhat mistakenly called a ‘buyers’ strike,’ ” says the Winnipeg paper, “should now give place to a lively season of spring buying.”
Lessening Bank Credits
ON THE other hand The Financial Post holds that this payment is not likely to result in immediately increasing purchases except of farm implements and supplies. “A great deal of this money.” the Post points out, “is already earmarked for payment on debts for the pool farmer who up to date has received only on the basis of one dollar a bushel for his wheat, (No. 1 N.) out of which he has had to pay elevator and freight charges, has had no great surplus as yet to pay out. Wholesale houses in the cities have been receiving assurances from country retailers who are on their books for heavy amounts that as soon as the wheat pool payment is made they expect to collect large sums from farmers and make remittances. In other cases the effect of the payment will be to enable a farmer to finance summer operations instead of borrowing, so the demand on the banks for credit will be considerably lightened.”
Wheat to be Marketed
CORA HIND’S estimate is that 25,000,000 bushels of wheat remains in farmers’ hands, to be marketed, of which 22,000,000 will he suitable for flour. This estimate is considered high by many in the trade and is much higher than that of the North West Grain Dealers. Miss Hind explains: “At the first of March, the situation was about as follows: In
round figures 45,000,000 bushels were in store at the head of the lakes, Canadian eastern ports and afloat; 14,000,000 in American ports; 23,000,000 in interior elevators; 22,000,000 to 25,000,000 in farmers’ hands and 7,000,000 in the shape Continued on page 7
Continued, from page 4 of flour in store in Canada. Flour requirements for home consumption will run around 7,000,000 bushels and leaving, say, from 12,000,000 to 15,000,000 for grain in transit and a carryover, there should be around 90,000,000 bushels for export as either wheat or flour.”
Twenty-five million bushels of wheat remaining means another forty-five or fifty “million dollars for the farmers’ pockets. A healthy spending power for general business to contemplate! Not surprising that the automobile men who have been touring western Canada come back to the East with promises of healthy business for 1925 on the prairies!
The Wheat Drama
TWO dollar wheat, with its sensational fluctuations, has brought us one of the most dramatic situations in Canadian agriculture of many years.
As the Baltimore News notes, “twodollar wheat has been unheard of, save only on two historic occasions—one, the war and post-war period of 1916-21; the other, the post-war period of 1868.”
“While the price of wheat looks high to a trader who remembers the days when it sold for seventy-five cents a bushel and under, there has never been a situation in the memory of the present generation that resembles the one prevailing now,” says a Chicago correspondent of the New York Times; for, “from a statistical standpoint, the world’s theoretical demand exceeds the amount of wheat and rye that exporting countries have to spare, and the market in advancing to record figures has reflected supply and demand.”
Grain market authorities like the International Institute of Agriculture at Rome; the United States Department of Agriculture; the United States Grain Futures Administration; Julius H. Barnes, former president of the United States Chamber of Commerce, and one-time head of the United States Grain Corporation; and B. W. Snow, of the Bartlett Frazier Company, all agree that the high prices for wheat are due fundamentally to a short world crop in 1924. “The fortunately large crop of America is needed in every corner of the world,” says Mr. Barnes. The prevailing high price of wheat, we. are told by the United States department of agriculture, “is due not alone to a ten per cent, reduction in a world crop, but also to an increase in a world demand, which since 1918 has been on a definitely lower level than it was before the war.” A few pertinent facts bearing on the situation are thus briefly stated in a Chicago dispatch to the New York Journal of Commerce :
“The government figures months ago indicated that the world raised 760,000,000 bushels less bread grain than the previous year. This occurred after a year of overproduction and low prices, which resulted in heavy waste of supplies, and hence a small carryover. Cash wheat in all markets of the world still commands fancy premiums over the future price, and as long as this situation prevails the world supply will be, theoretically at least, inadequate.
“The half-crop raised in Canada this year, 214,000,000 bushels less than last year, short crops in Europe, and the smaller yields in the Argentine have been the foundation for the present high wheat prices. The shortage of wheat in Europe is wide-spread. Countries that usually export wheat are seeking grain in the world market to-day.
“During the last few weeks Turkey, Roumania, Bulgaria, Russia, Egypt and Hungary have been competing with France, Italy, Germany and the United Kingdom, the latter four countries always being importers, for offerings of cash wheat. The United States cleared 180,000,000 bushels of wheat up to the first of the fiscal year out of an estimated surplus of 250,000,000 bushels. Canada cleared 110,000,000 bushels of wheat out of an estimated surplus of 160,000,000 bushels. This left theoretically 100,000,000 in North America to take care of the foreign demand for the next six to eight months.
Canada’s Productive Powers
SIR GEORGE PAISH, British economist of international repute, has brought a significant message to the Dominion in his statement to the Canadian Club in Toronto that Canada’s hopes for future prosperity lie in her ability as an agricultural producer. Canada will come to be regarded as one of the world
“feeders” in Sir George’s opinion; which is heartening to our farmers.
Will the United States become a great world-trading nation? “In the reply to that question, as the future may provide it,” according to Sir George Paish, “lies the prosperity not only of the United States but of Canada.” Sir George points out, that before the war it was necessary for the United States to sell £ 60,000,000 of produce in Europe to retire debt charges; to-day it is necessary for the United States to buy £ 100,000,000 of produce from Europe to receive payments for United States’ exports.
“The solution lies in the willingness of the United States to buy,” says the Britisher. “Hitherto the United States has been willing to sell but not to buy. All efforts were devoted to finding markets; now the United States must turn attention to finding home markets for the overseas produce which must be sold in the United States. If she succeeds in that, there is no limit to the possibilities of United States prosperity—and to the prosperity of Canada. The limit will only be set by the buying power of the people of the world.”
Disappointment is expressed in business circles that trade, so far this year, has not responded to the stimulus of increased revenue to the extent anticipated. To what extent this may be corrected by reason of the interim and pending payments from the western wheat pools remains to be seen, but it would appear that their effect would be considerable. Canada’s field crops, according to govern-, mental returns which, however, are based upon earlier and lower prices are reported to have yielded $996,000,000 but with the subsequent rise in wheat, since this computation, there is no doubt the ultimate income will rise above $1,000,000,000.
Canada’s foreign trade balance for the twelve months ended January 30 is $145,000,000 above the previous year and the argument that the import decline is based on business quietness tends to be disproven as trade expands without stopping the decline in imports. The increased volume of funds, at any rate, remains in the country. Basic production expanded during February as shown by steel and iron products figures, and dry goods manufacturers report distinct improvement in orders from distributors. All this finds its reflection in railroad loadings, which have risen steadily since December, and for the first two months of 1925 show a four per cent. gain. The latest government report, too, shows a larger number of men employed.
“But why has all this not stimulated general business?” asks the Financial Post, proceeding to answer the question: “Two factors enter into the answer. These two months are a more or less barren period for businesss, and a decided improvement is rarely recorded. In addition, our expectations were rather too high. The truth is that with our burden of debt we do well to register any advance at all. The best proof that a steady and satisfactory recovery is being made is in statements of collections and debt liquidation. A leading finance corporation states that its collections in the West are the best for years, and that back debts are being met better than ever before. Other commercial organizations report a similar situation. The money, fortunately, is going into the payment of back obligations before new commitments are made, which is the only sane way. This is the reason why there has been no spectacular business advance, but only a steady, gradual pull; nor is business likely to become suddenly better. The movement is slow, but inherently sound.”
America’s Gold Shipments
AMERICA’S disposition to release gold for export is of more immediate concern to Canadian economics than would appear on the surface, particularly if we follow the reasoning as lately advanced by Mr. Goodenough, chairman of Barclay’s Bank of London, England. Canada’s reaction to the neighboring republic’s gold trend will be in proportion to the effect of this movement upon commodity prices both on this continent and abroad.
The release of gold from America has been likened to the gold movement which brought the first real renewal of activity and fresh creations of credit as the world recovered from Napoleonic wars. In the years following the period of the French revolution and during the Napoleonic
wars, the general tendency of prices, except for occasional upward movements caused by bad harvests or other temporary causes, was downward. During that time, scientific discoveries and developments took place which reduced costs of production and broadened the basis of world trade. These forces served to keep prices down. Then came the great gold discoveries in South Africa when prices again rose gradually to the period of the world war.
“Now,” accordingto Mr. Goodenough’s reasoning, “the release of gold from America may possibly have a similar effect. On the other hand, much of the gold now accumulated there will, as and when it is released, be appropriated for the support of existing currency, and it seems that even in Russia, gold is now beginning to be utilized for that purpose, thus showing that the unsound theories in regard to currency are dying out even in that
country. At the same time, as ci\ ilization develops, there is a tendency towards economy in the use of gold for purposes of currency and credit. Besides this utilization of gold to replace purely fiduciary currency, there may be new factors which may tend to cheapen production of commodities, and finally there may be an absorption of gold not destined to be utilized as a basis for currency or credit. The large imports of gold into India have been a factor of great importance in affecting price-levels in the past.
“The future level of prices, therefore, is uncertain, but at all events we may feel confident that, with the return to the gold standard, the general level of prices throughout the world will, subject to special conditions affecting certain areas, tend to gradual uniformity, and that any subsequent tendencies, either upward or downward, will be necessarily slow.”