Financial History Issue 132 (Winter 2020) | Page 27

Essentially, the futures contract makes a
market in which (risk-averse) hedgers trade
away price risk—by preemptively selling
grain for future delivery—to speculators. At
the turn of the 20th century, many farmers
loathed this “form of business in which one
man sold what he did not own to another
who did not want it.” Instead, they argued
for orderly marketing, whereby farmers’
cooperatives or, perhaps, the government
would support grain prices—during the
harvest or at other times of the year—by
withholding from the market necessarily
unhedged grain; hedging was tantamount
to selling, if only for future delivery, and
thus constituted disorderly marketing. On
balance, North American governments,
judiciaries and independent commissions
generally ruled in favor of the private trade,
which governments reasoned benefited the
agricultural economy, including, presum-
ably, its producers.
The private trade remained unregu-
lated by government into World War I.
Indeed, in the first two years of the war,
as Europe’s grain output declined and the
Allies increasingly relied on North Ameri-
can crops, grain prices rose and, conse-
quently, agrarian opposition to the private
trade—and, thus, futures trading—waned.
From late summer 1914 to late spring 1915,
North American wheat prices rose from
about $1 per bushel to over $1.50; after
briefly settling back to $1, prices exceed
$3 by May 1917. The Allies relied on the
private grain trade until October 1916,
when the British government suspended
futures trading on the Liverpool Exchange
and, instead, established the Royal Com-
mission on Wheat Supplies to manage the
flow of wheat and flour. As a central buy-
ing agency—a monopsony, in effect—the
commission purchased grain from North
America and elsewhere on behalf of the
United Kingdom, France and Italy.
In spring 1917, the national governments
of the United States and Canada responded
to the Royal Commission (and its pricing
power) by nationalizing their respective
grain industries, thereby suspending pri-
vate grain marketing and, along with it,
grain futures trading. The US Food Admin-
istration Grain Corporation was estab-
lished (under the Food Control Act) in
August 1917; in Canada, the Board of Grain
Supervisors was established in June of that
year. The Food Administration Grain Cor-
poration, led by Julian Barnes (president)
and Herbert Hoover (chairman of the
board), set the price of wheat produced in
President Franklin D. Roosevelt signs the farm relief bill, May 12, 1933.
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