Merchants of Grain

I am enjoying (re) reading Merchants of Grain, written by Dan Morgan and published in 1979. Many of the comments and observations in the book are still relevant today. Perhaps the most important one is this:

“..the (trading) companies managed to stay in the shadows most of the time. Perhaps it was the ancient nightmare of the middleman-merchant that made them so aloof and secretive—the old fear that in moments of scarcity or famine, the people would blame them for all misfortunes, march upon their granaries, drag them into the town square and confiscate their stocks.”

Government intervention has always been a threat. Socrates once wrote, “No man qualifies as a statesman who is entirely ignorant of the problems of wheat”, while Lenin is credited with saying “Grain is the currencies of currencies”.

Describing the beginning of the US wheat trade in the 1850s, Dan Morgan writes:

“…margins of profit had to be extracted “upstream”—along the railway lines and at the storage terminals in the interior. In the struggle among farmers, merchants, millers, and exporters for their share of the wheat price that was determined in world markets, the advantage always went to those who controlled the storage and transportation of grain.”

But even, or perhaps especially, back then, technology was changing the way food was produced and distributed. Dan Morgan writes, “In 1837, it took 148 man-hours to plant, cultivate, and harvest an acre of wheat; in 1890 it was down to only 37 hours”. As for distribution, “In 1890, the four-masted Shenandoah, driven by a spread of two acres of canvas, left san Francisco with 5200 tons of wheat, the largest grain cargo on record up to that time.” One hundred years later it is now commonplace to ship cargoes of ten times that amount.

Profit margins have also changed in the past one hundred years. Dan Morgan writes, “Between 1883 and 1889, two large terminals in Minneapolis (Empire Grain and Minnesota and Northern Grain) averaged annual returns on capital investment of 40 percent and 30 percent respectively.” And in the 1920s a Federal Trade Commission study showed that US wheat exporters were making returns of more than 20 per cent on their funds deployed.

However, the good times were not to last forever. In the late 1940s a grain surplus “made for dull markets and extremely thin margins, and the zip went out of the business. It was a time when traders had to fight for a quarter of a cent a bushel, and this situation indelibly stamped and indeed altered the essential character of the companies…The grain trade was becoming not much more than a service business, which eked out a living on costs plus commissions”.

And as a reminder to those who forget the cyclical nature of our business, margins picked up with Russian imports in the 1960s and hit a zenith in the “Great Grain Robbery” of 1972 when millions of tons of grains were exported to Russia, restoring the fortunes of some traders and making the fortunes of others.

Dan Morgan describes the events of 1972 as “one of those economic events that, like the OPEC oil embargo the following year or the repeal of the Corn Laws more than a century earlier, can be truly to be said to have changed the world”. (He couldn’t get everything right!)

But most of his observations are still valid today. On the subject of farm surpluses, Dan Morgan writes, “Farm surpluses tended to occur in rich, industrial nations where had powerful, well-organised lobbies, rather than in developing countries where farmers were usually weak and underrepresented.”

And on the strength of character of the Russians. “If anything characterized the Soviet Union since the Revolution, it was its economic isolation and its determination to survive on its own. It was a Yugoslav Communist politician…who had told American officials in Washington in the late 1940s that his countrymen would rather eat grass than accept help from the West with strings attached.” (President Putin said the same thing last year.)

In 1912 Leopold Louis-Dreyfus wrote, “Our business fills a great human and economic need”. It did then, and it does now.

But I would like to leave the final word to Dan Morgan who sums it all up with, “Study grain long enough and the world shrinks”.

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