Wheat intrigue

by Morton Sosland
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One of the benefits of inaugurating a new century — and a new millennium, for that matter — is the opportunity to look back and see where we've been. One hundred years from now, we'll quite likely review the 21st century and marvel at the changes that will have taken place in every aspect of human kind and its endeavors.

Last year, to mark the approach of the new century and new millennium, World Grain's editor-in-chief, Morton I. Sosland, examined each decade of the 20th century for seminal developments in the grain-based foods industry, and to explore "how the current-day industry owes a debt to its past." This 10-part, decade-by-decade account of the century for World Grain's sister publication, Milling & Baking News, also included the reprinting of a single story from each decade that best illustrated what was happening in the grain industry at that time.

Economic depressions and wars had an influence on grain-based foods, as did revolutionary advances in science and technology. As the century came to a close, the industry watched flour consumption rise, and then fall. The milling industry exploded with growth, and then settled into a period of consolidation. But one event in particular — the massive purchase of U.S. wheat by the former Soviet Union — proved to be a turning point for the industry.

It happened during the 1970s, "a decade marked by disillusionment and cynicism," with the end of the Vietnam war, Watergate and the ensuing resignation of a U.S. president. A few years before a pair of Washington newspaper reporters broke the story that eventually unveiled President Nixon's involvement in the Watergate scandal, the editors at Milling & Baking News scored a journalistic "scoop" of their own — Russia was not only buying U.S. wheat, but staggering amounts. Just as the Washington Post reporters had an anonymous source known only as "Deep Throat," the M&BN editors also had their own anonymous source who supplied them with detailed information about the Russian grain purchases.

For the grain industry worldwide, the repercussions were enormous. China also appeared as a major buyer and wheat prices soon doubled, even tripled, as a result of the grain purchases. Mr. Sosland and his staff found themselves at the center of this intrigue one early Monday morning in July 1972. What follows is a fascinating, behind-the-scenes glimpse at how the story unfolded.

Aconsiderable part of the controversy surrounding the Soviet Union's massive purchases of wheat in the United States has centered on sources of information — who knew what, when and just how accurate it was.

Charges and counter-charges of advance knowledge of the Russian buying intentions provide much of the fabric for great misunderstandings concerning how the business was accomplished. Obvious to knowledgeable observers is that the U.S.S.R. buying officials who made the actual purchases in New York insisted on "secrecy" in their negotiations to the point that the selling companies exercised a high degree of internal control to prevent leakage to the trade and to the press.

That presented the editors of Milling & Baking News with a severe problem. Our usual sources were foreclosed by the demands of the buyers; yet, the urgency of learning what had happened was magnified by the underlying current of unprecedented wheat buying activities.

In the first week that followed President Nixon's California White House announcement on July 8 of the U.S.$750 million credit to the U.S.S.R. to finance grain purchases in the United States, the pressures on this publication's staff were intense in the form of an uninterrupted flow of inquiries as to "what was happening?" All we could do was to report the underlying current in the market itself that told us substantial U.S. sales had been made to the U.S.S.R. Of what grains and how much, there appeared to be no answer.

It was at the very moment of desperation — "How are we going to find out?" — that an incredible series of events began to unfold — we think one of the most startling of many such aspects of the Soviet purchasing. It is a "spy story" in the real sense of the word, and we recount it here in the expectation of adding an important chapter to news gathering as well as to breadstuffs history.

THE FIRST CALL came early in the afternoon (Kansas City time) of Monday, July 17. The phone was picked up and the caller said he was Mr. … (the name was not heard or remembered at this point), an editor of the Financial Times, in London. He wanted to visit about U.S. sales of grain to Russia. Since our phone conversations for the past week had been about nothing else, this interchange was welcomed. We were a trifle flustered and flattered, too, because conversations with Europe are not commonplace among our editorial staff.

The London caller, with a very brisk British accent, said he was writing a story about the Russian business. He wanted to check some of his facts and also some of his impressions about American reactions. Already having a high respect for that London paper, our editor responded very positively and remembers saying, "Fire away . . ."

"You know," the London caller said, "our paper has very fine intelligence sources behind the Iron Curtain. We have learned through an indiscretion on the part of a Russian official that that country has bought 5 million tons each of wheat, corn and barley in the United States. We are going to publish a story to that effect. Do these figures agree with yours?"

First reaction of disbelief

While those remarks are a condensation of what the London caller said, it is a fairly accurate replay of introductory remarks not much longer that that. The editor of Milling & Baking News remembers sitting down hard (he frequently talks on the phone while pacing the floor on the wrong side of his desk), pausing for a number of seconds, wiping his brow and simply saying, "I can't believe it."

Remember that this first conversation was on July 17 — at a time when no one had even said in the press, or even hinted in markets, that the U.S.S.R. was going to buy any significant amount of wheat, say even around a million tons, much less five times that amount. Some talk had been that the Russians would take some wheat along with the feed grains, but 5 million tons was an unthinkable, staggering total.

From that, the conversation (its duration that first day was nearly 30 minutes) covered a wide range of subjects. "In view of the U.S.S.R. business and the obvious strain on the American supplies, would the C.C.C. (Commodity Credit Corp.) be a free seller, trying to hold down the market?" Our editor expressed the view that the C.C.C. would probably make its wheat available in a fashion that would hold prices down to around formula levels (the market at that point was still well below the C.C.C. statutory price). The view was also voiced from Kansas City that President Nixon, in an election year, probably would like to do everything possible to avoid headlines to the effect that Soviet wheat buying was causing an increase in bread prices.

The response from abroad was one of disagreement. Based on his knowledge of American politics, he said he felt that the C.C.C. would not try to hold prices down to the formula level, but would instead prefer for farmers to reap the full benefits of the Soviet buying. The administration's defense of beef price advances was cited. It was his view that Mr. Nixon would not be concerned about bread prices going up, citing the domestic and international economic gains to be obtained from the Soviet buying.

After considerable talk on all of these subjects, it was apparent to the editor in Kansas City that he was not talking to an amateur. The assertions and the questions were highly sophisticated and revealed a depth of knowledge that is not found very often in the American grain industry, much less in Europe.

That conversation of July 17 ended with the editor of Milling & Baking News again asking, "Are you sure about the 5 million tons of wheat and corn?" The very positive and authoritative response from London did little to ease the misgivings about such an unprecedented number.

Feeling like he had just been presented with knowledge of atomic bomb dimensions, so far as the wheat market is concerned, the editor in Kansas City immediately told the other members of the staff concerned with reporting markets what he had just been told by telephone from London. The decision was first to "test" this information on executives of the grain companies who were considered likely to have been involved in any Russian grain sales. All expressed amazement at the figures and cautioned most strongly against publishing such information.

These urgings prevailed and the decision was to publish in the July 18 issue as a guess the possibility that the U.S.S.R. may have bought 100,000,000 bus of wheat in the United States, or only about half of that indicated by the London caller.

Advice ‘absolutely correct'

It is important to remember that at the time of the July 17 call from London, the total of the wheat bought by the Soviet purchasing officials was 5 million tons and that the quantity of feed grains was very close to that figure. In other words, the London informant was absolutely correct, but our staff was just too cautious and too uncertain to print those figures, which no traditional authority would confirm. Each company only knew its own sales, not the total picture.

The decision not to publish the information that came from London was easy to make. Our staff realized then that, with each passing hour, the Russian buying was of tremendous importance as a price-making force. Journalistic responsibility demanded that Milling & Baking News not be a source or a distributor of rumor.

We decided to "sit" on the London information — so that we would "not be used," if that was an intent — and to let it be only an additional input to our own fact-gathering apparatus.

That July 17 conversation was just the beginning of nearly a full month of telephone exchanges. In that very week, he called four or five times — twice in a single day — to visit and to express confidence in his information about the quantities of wheat and feed grains bought, to declare and then to question information in London quarters about Soviet ship chartering and also exchange operations. A careful watch was maintained by the American side for the Financial Times story he said was coming. The story itself did not stir up much excitement in American markets. This publication was still sticking by the "100 million bu" figure.

It was also that week that the conversation turned to asking the London caller's name. By way of excuse for not asking this earlier, the information he proffered in earlier calls was so fascinating that there was little or no time for amenities, especially since the calls were all placed by him, and a mental tabulation showed him building up an immense phone bill. By the way, he always called station to station, direct dial. We thought initially that his paper might have an international WATS line, but found that such were not yet available.

The name he gave was "John Smith." And when it first was said, the editor in Kansas City in all honesty and innocence does not remember even smiling or wondering. He did at one point have his operator call the Financial Times in London, and ask if they had a "Smith" working on the staff, and the answer was affirmative. And, remember, the story he said he had been working on did appear.

Knowledge of Soviet crop

The week of July 24 brought several more calls. Mr. Smith told of severe setbacks in the Russian crop and also the reasons why the Soviet authorities were anxious to avoid any publicity — for market reasons, for fear of the Chinese and to avoid attributions in the Western press that somehow the U.S.S.R. crop troubles were the result of the Communist system. Ever so often he seemed to come up with a far-out thought just to draw out a firm "no" or "that's impossible" on the Kansas City end. He seemed genuinely interested in American bakers and inquired about the efforts under way in baking to obtain price relief as a result of the steadily advancing wheat market.

Not so incidentally, it was in the week of July 24 that Mr. Smith first predicted that all wheat futures in the United States would rise above the $2 a bu mark — a forecast that only brought a gasp from the Kansas City end, since most futures at that point had 25c or more to go. More often than not, he knew daily futures prices, as well as cash wheat premium changes. His conversations often came within an hour after the 1:15 p.m. market close, meaning it was in the middle of the evening in London. His level of understanding about futures contracts, delivery intentions, cash premiums and other technical market aspects was impressive.

Not so gradually, doubts arose as to whether this was an editor or reporter. He knew too much to be either, even in working for one of the world's most prestigious newspapers. Yet, the information he transmitted was so interesting, the calls so anticipated, that we in Kansas City decided not to challenge his "cover," as an editor of the Financial Times.

But such resolve quickly evaporated in the rapidly unfolding events of the next week. Early Monday morning, July 31 (a different time from his usual calls) he telephoned all out of breath, saying he had time only to speak to the operator and would she please give a message to the editor. That message, placed on the editor's desk, read like the bomb it was. It simply said: "Mr. Smith called to say that the Russian buying mission has returned to New York to purchase more grain."

Out of that call emerged one certainty. Mr. Smith was an unparalleled source of information. From conversations with the exporter sellers, it was obvious that we in Kansas City had been informed about the U.S.S.R. buyers returning to New York (after an absence of hardly a week) just as quickly as they had been contacted, in some instances even ahead of time.

Before that day was out, Mr. Smith himself, called, informing us that he had learned that the 5,000,000-ton buying already had been surpassed before the Soviet Buyers had gone back to Moscow and that they now wanted to buy considerably more wheat and other grains. He said the takings stood very near 7 1/2 million tons of wheat.

The reason for the quick return to New York from Moscow, he said, was not only due to deterioration in the Russian crop, but also was because the Soviet authorities had learned that the Chinese planned to buy U.S. wheat. "The Russians," he said, "want to make sure they are fully covered before the Chinese take all your wheat that's left."

These advices from him — reinforced by admiration for what seemed like his impeccable knowledge of the Soviet comings and goings — finally gave the editorial staff courage to publish figures different from the original 100 million bus. On Aug. 2, the staff said the buying by the U.S.S.R. of American wheat was around 7,000,000 metric tons, and that indications were that additional massive purchases were being made.

Offers publication a ‘scoop' The U.S. wheat market at that point really began to move, and the word from Mr. Smith came through with new intensity. On Aug. 4, he said that the additional buying by the Russians was around 5,250,000 tons, bringing the cumulative purchases from the United States to 13,250,000 tons. He also said that the aggregate of the corn buying was 10,000,000 tons. He declared that the Financial Times was going to use these figures in another story, and that he was telling us ahead of publication to let us "have a scoop."

Less resistance on the part of the exporters to Mr. Smith's figures finally prompted the staff on Aug. 4 to state that the U.S.S.R. had bought 250,000,000 bus of U.S. wheat and that strong indications are that another 150,000,000 bus have been contracted to raise the total buying to 400,000,000 bus, or around 10 to 11 million metric tons. Those figures were published in our magazine of Aug. 8, and, after many doubts and many challenges, not only became accepted around the world, but also have now been confirmed for all practical purposes in recent testimony before a Congressional committee.

Early in the morning of Aug. 8, Mr. Smith called again to declare that the U.S.S.R. buying of American wheat was 14 million metric tons, not our figure of near 11 million. He said, "I might be wrong, but by no more that 250,000 tons." He also stuck with a figure of 10,000,000 metric tons of corn.

His conversations were amazing on a number of counts. He discussed with considerable authority — with a knowledge that few in the trade could equal — the problems faced by the U.S. Department of Agriculture in adhering to its commitment to the exporters on maintaining the $60 per metric ton net export price for American hard winter wheat. It was his view that the subsidy was even being discussed in the White House, and he stressed that U.S. exporters "will have to get the subsidy" promised in order to come out. "This is a guarantee of Washington to the shippers," he said.

Exchange with London paper

Soon after the point where it became very apparent to the staff of Milling & Baking News that Mr. Smith was not a reporter or editor, a decision was made to investigate, or at least to inquire. First, a call went to a real editor of the Financial Times — after a brief conversation with a literary editor whose last name is Smith. The non-existence of a John Smith on the paper's staff was confirmed. But conversations with the F.T. agricultural staff produced no information, particularly on the intriguing point of that paper remembering where it had secured the information to report the original story in early July on the 5-million-ton buying of wheat and corn.

Another interesting thing happened early in August. On Aug. 4, Mr. Smith told us in Kansas City what the Financial Times was going to say in a story about the additional Russian buying. On Tuesday, Aug. 8, after talking with Kansas City on the day of Milling & Baking News publication about the use of the 400,000,000-bu figure and challenging it as being too low, he called the Financial Times to say that the magazine in Kansas City was going to use that very figure.

In other words, he was telling the paper in Kansas City and the paper in London what the other was going to publish. The result was an exchange between editors on the two staffs. The Financial Times of Aug. 9, with our permission, carried the 400,000,000-bu figure under a banner headline, giving the Kansas City publication credit for originating the story.

Out of the editors' exchange came a startling fact, the disclosure by the London paper that in his conversations with them, Mr. Smith said his name was Veovosky and that he was an East German interested in Soviet grain buying activities.

On Aug. 7, the staff of Milling & Baking News decided that during the next call from London, Mr. Smith would be unmasked. When that did happen, he was not the least bit perturbed by our editor telling him that we knew he did not work on the staff of the Financial Times. He said he was part of a "secret information office" headquartered in London. We had previously learned of the existence in London of secret, "James Bondish" type organizations that were extra-governmental organizations expert in all kinds of intelligence.

We had little to say in response to his open admission of affiliation with such an organization. We did tell him that one of the world's leading grain trading companies, impressed by Mr. Smith's knowledge on the basis of our conversations, had asked us to tell him they would like to become a client. His response was a plain put-down. "Oh, we don't need that kind of client," he said in dismissing a company that ranks as one of the world's foremost trading organizations.

Our last (as of this moment) conversation with Mr. Smith was on Aug. 10. He called from another capital (we are withholding the city and country to protect him, even though he probably does not need our help in this regard), to say that he was about to leave on an important trip. He said he had called to inquire as to what we had been hearing about Chinese buying of wheat. He said it was his impression that the Chinese Embassy in Paris will be negotiating for U.S. wheat through a French company (ies) that has U.S. connections. The Chinese, he said, have already begun discussions on U.S. wheat buying, and he had heard guesses of their initial needs at around 3,000,000 metric tons. He added he knew that the Chinese had booked 500,000 tons of ocean freight, including U.S.

For the moment, Mr. Smith indicated, the Chinese buying would be a "token quantity" to test the political angles and to make a point to the world that China indeed has been given access to the U.S. wheat market.

Remember that this China conversation with Mr. Smith was on Aug. 10. Much of the way in which he said the Chinese wheat buying would evolve actually has occurred, according to reports that finally were published by Milling & Baking News a month later, after information was obtained from other sources.

A good deal of flavor in the conversations with Mr. Smith emanated from his knowledge of what Soviet authorities were doing in the United States. He told us from London about trips made by the Russian officials outside of New York on several occasions, including visits that were conducted in secrecy by the host companies. One of the latter was dumbfounded that we had learned of the trip by a call from London. Similarly fascinating was the information, even gossip, he told us of the impressions of the Russian buyers of individuals and companies with whom negotiations were being conducted — who came for lunch, and even of some American negotiators being asked to leave. It was information in incredible detail.

Friendly exhange in last call

From the start, the editor and one other staff member who visited with Mr. Smith from time to time felt the compunction to ask, "Why do you call us?" He replied that we had been recommended to him by a trade source and that he learned of American attitudes from conversations with us. He acknowledged he frequently said outrageous things simply to challenge us into giving a frank opinion.

He said he enjoyed talking with us, and we replied in kind. In fact, our last words to him were, "Don't get hit by a truck." That was a sincere wish for someone who is in a hazardous occupation. He was a real joy to visit with, spy or not.

This story has two footnotes. At one point, we asked him for a phone number in London, saying that he called us so often, we should call him and bear some of the expense. He laughingly rejected that offer, but at the same time promised he would come see us in the United States some day. In fact, it was our impression he had been in the U.S. several times during the course of our month-long exchange.

The second footnote has to do with an unusual conversational habit that came to mind when visiting with a linguist friend about who Mr. Smith could be. Whenever we were having a disagreement on some aspect of the Russian-Chinese grain buying, Mr. Smith in his British tones, more often than not would address me as "Mr. Morton Sosland," not as "Mr. Sosland." My linguist expert tells me that there is only one people in the world who use complete names like that in everyday conversation, and that is the Russians themselves.