Why did the wheat terms of trade fall during the Great Depression?

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Why did the wheat terms of trade fall during the Great Depression?

Post by RedRight » 01 Oct 2020 09:56

During the Great Depression the average prices dropped by 34% and the wheat prices by half. Why was that.

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Re: Why did the wheat terms of trade fall during the Great Depression?

Post by paulrward » 01 Oct 2020 16:22

Hello Mr. RedRight :

There were a number of reasons, which, for the farmers of the United States, added up to a perfect

First, we must remember that the vast majority of wheat land in the 1920s was farmed by families
who had gained posession due to the Homestead Act. This created countless farms of 160 acres
( a quarter section ), which, with the horse drawn technology of the 19th century, allowed a farmer
to put about 80 acres a year into wheat with a reasonable chance of harvesting it. Much of the wheat
was ' Spring Wheat ', planted in late April, and harvested in early September. The land was then allowed
to remain in ' stubble ' all winter, gaining moisture from snow melt in the spring, and the cycle was
repeated. By alternating between his two 80 acre halves of his section, the farmer could give the land
a chance to ' rest' between wheat crops, and if a cover crop such as clover were planted and used for
cattle grazing, it added nitrogen to the soil, allowing for continuous high wheat yields.

Right before, and during, WW1, steam technology began to replace the horse in pulling harvesters and,
in some cases, large plows. This allowed the farmer to work all 160 acres of his land.

After WW1, Internal Combustion Tractors and Combine Harvesters further improved the speed of sowing
and harvesting the grain, as well as allowing more land to be put into tillage. As a result, some farmers
began to go into debt, buying up quarter sections adjacent to their own, and working them as one unit,
thus further adding to the efficiency of their mechanization.

At this point, a revolution was sweeping the Wheat Basin - Winter Wheat. Farmers would sow their Spring
crop in late April, grow it all summer, and harvest it in Early September. Then, they would plow
again, and plant Winter Wheat, which would sprout in the rains of October and November, and then survive
under the blanket of snow until the spring thaw, at which point it would grow, and could be harvested in
Mid April as a semi-green wheat which could be dried in special ' Drying Silos ' at the Grain Storage Elevators,
and shipped to market.

Thus, many farmers who a generation before had farmed one crop of wheat on 80 acres of a 160 acre farm,
were now growing TWO crops of wheat on ALL 160 ACRES ! In effect, the amount of grain being harvested
virtually quadrupled. And, with the replacement of the Horse in Urban environments with Automobiles,
the need for wheat, oats, and rye as horse feed diminished. In effect, you quadrupled the amount of available
grain, while the consumption, despite the growth in U.S. Population, had slightly diminished. The resulting
surplus in grains caused a sudden, dramatic drop in prices. The response of the farmers was to PLANT MORE
WHEAT, in order to compensate for the reduced per unit profit on their crops, only exacerbating the problem.

Famers went bankrupt, unable to pay their mortgages or the loans they had floated to buy new equipment .
The banks forclosed on the Farms, and then found themselves choking on land they could not sell, as there
were no buyers. The Rural Banks then began to fail. These bank failures began to spread to the smaller
cities, and then the major bank runs and failures began in New York, Chicago, and other major urban centers.

Hope this is of some help to you.

And, just to clue you in, the same thing is about to happen again, in the next couple of years. We are
sliding into an economic crash which will make the 1930s look like kid stuff.

Respectfully :

Paul R. Ward
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