POSIBLES APLICACIONES DEL VECF

Wheat had represented one of the main agricultural products exchanged in the world market since the beginning of the 20th century. At that time, world wheat production was divided into two areas, 1) northern hemisphere production: North America (the US and Canada), eastern Europe (surplus area), western Europe (deficit area), and India;12

and 2) southern hemisphere production: Argentina and Australia.13

The development of transport and communication systems played a crucial role in favouring the growth of the dealings in this commodity. A seasonal supply (depending on unpredictable factors such as weather conditions, infestations and rusts) had to cope with demand which was, by contrast, continuous and uniform throughout the year. The huge fluctuations in world wheat prices afforded greater scope for the development of an organized market.

Broadly speaking, at least five conditions must be fulfilled by any product before it can be the object of dealings in an organized market: (i) durability, (ii) measurability, (iii) the possibility of grading (all these three conditions amounts to saying that the commodity ‘must be fungible’); (iv) high frequency of exchanges and finally (v) being subject to price fluctuations (Smith 1922: 4-5). The fact that supply cannot rapidly be

12 _{India was basically an import country, which exported wheat only when the world wheat price was}

rising.

13 _{In general, a cereal year dates from 1 August to 31 July in the Northern hemisphere, and practically}

coincides with the calendar year in the Southern hemisphere. The crops of the southern hemisphere were harvested in December and January, while the crops of the northern hemisphere were harvested basically from May to September, with the exception of the Indian crop, which was harvested in March and April. In North America, in particular, the harvesting period was in July and August (Timoshenko 1928: 26).

adapted to demand makes room for the professional dealers and recourse to futures contracts as producers’ hedging instruments. As we know, commodity futures are, in fact, contracts to sell a given commodity at a future date for the price agreed when the contract is stipulated. Of the various agricultural products, wheat in particular met these requirements.

By the interwar period, the US and the Canadian governments—two of the four big export countries—had adopted a grading system, which standardized the different qualities and types of wheat exchanged on the market. This made it possible for the North-American producers to sell abroad on the basis of grades rather than samples (Boyle 1929: 17) and favoured the use of futures contracts as the major instruments for world wheat trading. The object of the dealings was not a specific lot of wheat but, rather, a given quantity of wheat of a defined (and generally recognized) quality, with the proviso that any difference in the quality actually delivered allowed for variations in the pre-fixed price. The seller was given the option to decide the actual day and grade of delivery, and was free to tender the wheat on any day between the first and the last day of the month of maturity of the futures contract. The futures contracts seldom gave rise to actual delivery of the commodity and usually offsetting was achieved by buying/selling an opposite contract before the date of maturity14 (Fantacci et al. 2010).

In the mid-1920s—when Keynes began to invest in wheat futures—Chicago, Winnipeg and Liverpool were the three main trading places in terms of exchanges volume and importance.15 During the 1930s Buenos Aires also became a favourite trading place for wheat futures in accordance with the growing quota acquired by Argentina in the world production and its growing role among export countries.16

Chicago and Winnipeg were close to large wheat-producing and -exporting areas. Hence, futures contracts on these markets, although specified in terms of generic contract wheat, were related to the specific qualities of the wheat produced in North America.

The completion of the Illinois-Michigan Canal (1848), the growth of the Lake Michigan commerce that followed, the establishment of the Chicago Board Trade

14 _{This characteristic distinguishes the futures from the forward contracts.}

15 _{Different measurement systems for quantities traded are adopted in the different markets: bushels (lots}

of 5000, 10,000, 15,000, 20,000 or 50,000) in the North-American markets, loads (1,2,5 or 10) in the Liverpool market and tons in Buenos Aires. The forward prices are expressed in the currency in which the contract is actually denominated, respectively dollars (cents) for Winnipeg and Chicago futures; sterling for Liverpool futures and pesos for Buenos Aires.

16 _{In the period 1927-36 grain export represented more than 50 per cent of all Argentine exports. In} contrast to the United States, Canada and Australia, where wheat often had to travel a thousand and more miles before it reached its port of exportation, wheat production in Argentina was almost entirely confined to an area within no more than 150 miles from the principal seaports (De Hevesy 1940: 333).

(1848), and a confluence of innovations, including grain elevators, railroads and grain exchanges had been boosting trading by means of forward contract as far back as 1863 (Santos 2013). In May 1865, the Chicago Board Trade turned traded forward contracts into futures contracts (Hieronymus 1977). By the late-nineteenth century, the Chicago Board Trade had become the US’s premier organized grain and provision futures exchange, bringing the Chicago market, during the 1920s, to a leading position in the world market (Chandler 1977: 212).

The standard maturities of the wheat futures contracts exchanged on Chicago were: May, July, September, December (KP, SE/11/2/31-59). Six classes of wheat were quoted: Hard Red Spring, Durum, Hard Red Winter, Soft Red Winter, Common White, White Club, five being further sub-divided into two or three other classes. Each of these sub-divisions in turn could embrace two or more grades, e.g. No. 1 or 2 or 3 Dark Hard Winter. Thus on futures contracts in Chicago the seller had a choice of seven (actually fourteen) grades (Smith 1922: 23).

Winnipeg was the other major trading place in the North American market. The region of Manitoba produced a special quality of wheat (which took the same name) that became famous all over the world for its high quality (Boyle 1929: 13). Unlike Chicago, during 1920s Winnipeg had no Board but three Wheat Pools of farmers of Alberta, Manitoba and Saskatchwan, which operated in concert through a jointly owned Central Selling Agency. Pooling was a system in which ‘farmers voluntarily signed an agreement to deliver all their wheat to the pool for five years and would receive, in return, an initial payment per bushel and the remainder in interim and final payments based on the actual return for that grade’ (Friesen 1984: 334). Until 1929 the pools handled over 50 per cent of all Canadian grain; subsequently overestimation of the final market price of wheat led the pools to the bankruptcy (1931) and placed the Central Selling Agency under federal control. The Canadian Wheat Board was established only in 1935 as an alternative to the open market.17

The Canada Grain Act (1912) defined four grades for Manitoba Spring Wheat: No 1 Hard, and Nos 1, 2 and 3 Northern; three each for Alberta Red and White Winter Wheat, and two for Alberta Mixed Winter Wheat (Smith 1922: 22). The standard maturities for the Winnipeg future contracts were: May, July, October, December (KP, SE/11/2/31-59).

In the 1930s Liverpool represented the leading world market for the wheat trade. Wheat was an important crop in the arable areas of the Eastern Counties, where it was not grown alone, but as a part of a rotation which included root crops, rotation grasses

and other grain crops like barley and oats (De Hevesy 1940: 636). This shortage of home production together with, as from the repeal of the Corn Laws (1846), a free trade policy made Great Britain the major import country for wheat. Nevertheless, in response to the drop in wheat price due to the Great Depression—as well as for military reasons—at the beginning of the 1930s the Government decided to increase wheat production. Thus, in 1932, the British Wheat Act provided for a duty of 2s per quarter on non-Empire wheat and direct subsidy to British wheat-growers.18

The standard maturities for the Liverpool wheat futures contracts were: March, May, July, October and December (KP, SE/11/2/31-59; TC/4/3/115). The maturity of March was linked to the harvesting time of the Indian crop.

The development of futures markets went with an increasingly widespread attitude of suspicion towards the ‘evils of speculation’. From the very outset, the press had questioned the legality—as well as the morality—of futures contracts. In June 1887, for instance, the New York Tribune concluded that ‘holding speculation in food products

hostile to public welfare and the gambler in grain an enemy of the American producer’ (quoted in Stevens 1887: 37). Similarly, that year the Londoner St James Gazette,

asked: ‘At what point does legitimate trading suddenly become transformed into mad speculation, involving the public in the greatest inconvenience and entailing loss or ruin upon thousands of innocent people?’ (Ibid.: 38). The main point under discussion lay in the destabilizing effects of speculation on prices, which in the case of wheat, because of its paramount importance in the livelihood, made the debate particularly heated. Not surprisingly, the first American legislation on futures (Hatch and Washburn Bills 1892) aimed at the ‘short seller’ because the ‘illimitable’ quantities of ‘fictitious’ products that could actually be offered on the market ‘must reduce the price’ (quoted in Emery 1896: 71). American Congress made repeated attempts to find some appropriate means of regulation of future trading (Lower 1978).

Legislation and regulation of the wheat futures markets developed along different lines in Great Britain, the US and Canada (Santos 2006). A professional trader operating on the three main market places had to be well aware of their institutional characteristics.

18 _{This duty was abolished as from 1 January, 1939. On the impact of Britain’s trade policy change in}