The Secret Wheat Deal

by James C. Thomas

12/06/2016

In 1968, Richard Nixon began calling for an end to the Vietnam War. As a candidate for the presidency in 1968, he gave his pledge to the voters that, if he were elected president, his administration would end the war. He repeated this pledge throughout the 1968 campaign, but always without revealing details, insisting that public disclosure would weaken his bargaining position. Positioning himself as a candidate for peace, Nixon was elected president over Johnson’s Vice President Hubert Humphrey, albeit by a razor-thin margin of 510,000 votes. Vietnam suddenly became Nixon’s war, and it became time for him to put into effect his secret plan to end it. A brilliant political strategist, Nixon believed both the “Domino Theory”—an international communist movement toward world domination—and its inverse—that the road to peace in Vietnam ran through Moscow and Peking, not Hanoi. After all, North Vietnam’s continued military capability relied on uninterrupted military and economic assistance from the Communist superpowers. History has shown that the Americans misunderstood the national motivations and grossly underestimated the local commitment of the Viet Cong and its leadership.

One day after taking office, President Nixon assembled his National Security Council to begin a fresh start toward his reach for peace. Henry Kissinger, Nixon’s national security advisor and later secretary of state, had set an ambitious goal of reaching a settlement of the war before early February, the first year of the Nixon administration. The new president believed he could persuade the Communist superpowers to pressure North Vietnam into a settlement. But all the diplomatic efforts during his first two years failed.

After two years into his first term as president, Nixon saw the war in Vietnam still raging and American casualties mounting. He was well aware of the jeopardy he faced. His secret plan remained secret.

“The first months of 1971 were the lowest point of my first term as President,” he wrote in his memoirs. He saw his problems as being “so overwhelming and so apparently impervious” to change that it would cost him a re-election in 1972. He simply could not find a breakthrough with Moscow and Peking toward settling the Vietnam War, and without this intervention, “the war could drag on indefinitely.”1 Nixon’s political future came down to one single fact: end the war or perish politically.

1. This was something that voters would never accept.

Nixon’s loss of public support created a deep level of desperation within the administration. Then, at the moment of Nixon’s lowest point of his presidency, the weather changed. Literally. A hard winter freeze in 1972 destroyed the Soviets’ winter wheat crop at the moment of its increasing domestic consumption; the incident offered the president the breakthrough he needed.

The Soviets had historically produced nearly three times more wheat than the United States. But now, the winter freeze reduced the Soviets’ wheat harvest by over a billion bushels from 1971 through 1972. The United States held an absolute monopoly in the world wheat market, and Moscow suddenly became dependent on President Richard Nixon and American farmers, railroads, and longshoremen.2 The United States was the only country in the world that had a measurable supply of the wheat, and Moscow needed it.

2. As early as January of 1972, the American Embassy in the Netherlands had informed agriculture that U.S. wheat was dominating the world market, and that little competition was expected for the balance of the year. This notice of U. S. dominance in the world wheat market was then confirmed in a letter to Secretary Butz, dated February 28, 1972, from the Director of Research, Manitoba Pool Elevators. The Canadian Wheat Board advised Butz that Canada’s wheat supply had been over-committed, thereby leaving the United States with the only major stocks available in the world.

Moving large amounts of wheat requires monumental effort and cooperation. The Kansas City Board of Trade, which plays a key role in the commodities market, informed Nixon’s White House that nothing was “more important in the long run than finding or developing a way to prevent transportation strikes.” It needed two years of labor peace in the railroad industry to build confidence in the uninterrupted delivery of the huge volume of wheat Kissinger had offered to Moscow.

Nixon took his first step toward implementing the needed transportation strategy on February 9, 1971, when he met for 65 minutes with his top administration officials, including Treasury Secretary John Connally; John Ehrlichman, counsel and assistant to the president on domestic affairs; Secretary of Labor James D. Hodgson; and Alex C. Caldwell, the chairperson of the Commodity Exchange Authority. They discussed the progress being made in the railroad collective bargaining. On April 27, 1971, he directed John Ehrlichman to arrange a meeting at the White House with the railroad executives involved in the negotiations with the labor unions. Chief executives from 10 rail lines arrived at the White House on June 10, 1971. At the top of their wish list was a relaxation of the restrictive work rules supported by the unions.

Four days after meeting with railroad management, Nixon next met with the railroad union officials. He was prepared to use strong-arm tactics if necessary. In a rather direct fashion, Nixon informed the union leaders of his plan to propose legislation for a quick strike settlement. He told them that such labor legislation could be averted, if they would agree to a common terminating date for all labor contracts and an acceptance of “work rule modifications,” two things railroad management required to insure labor peace. Faced with this presidential threat of emergency labor legislation, six railway unions quickly concurred in the demands. These two years represented the period of time needed to transport the wheat to the Soviets.

Nixon had another major obstacle: the maritime unions opposed all trade with Moscow, as long as the Viet Cong held Americans as prisoners of war. After being informed by the White House about the planned sale of wheat to the Soviets, the maritime union leaders expressed their total opposition to the Russian wheat deal. On April 9, 1971, Helen Delich Bentley, chairperson of the Federal Maritime Commission, advised the White House of the maritime unions’ hard line. She wrote: “For the ILA to load any [grain] whatsoever on the Russian ships, they would have to make an exchange of [Vietnam] POWs such as Thomas W. Gleason proposed earlier. He would take five POWs for each Russian shipload.” Then she added, “I don’t think you’d find any wavering on this.” These staunchly patriotic unions would just as soon see the war continue until all the Communists on the battlefields were defeated. Notwithstanding the unions’ hard line, Nixon had to find a way to convince these anti-Communist unions to load wheat on Soviet vessels. Without this agreement, Kissinger’s plans for an end to the Vietnam War would be blocked.

Kissinger, however, was confident he could persuade the unions to load the Soviet ships, using his highly touted skills in diplomacy. So, on June 9, 1971, Kissinger invited Jay Lovestone, international affairs director for the AFL-CIO, and Thomas W. “Teddy” Gleason, president of the International Longshoremen’s
Association, for a meeting at the White House. The hardened union leaders figuratively slammed the door on Kissinger, not even giving him a considerate reception.

“We won’t let you sell the American people down the Volga or down the Yangtze,” Teddy Gleason told him harshly. After Kissinger failed, President Nixon called in Charles Colson, his trusted assistant, known for using tactics that were less diplomatic.

Nixon believed that if anyone could persuade the maritime unions to load the Soviet grain ships, it was Colson. Colson, however, was pragmatic enough to know that there would be a heavy price to gain the unions’ cooperation. From the moment Nixon became president and Colson joined his administration, he worked to cultivate favor with labor unions, including the maritime union leaders. He gave the union leaders personal attention from the White House. Now, he expected his personal attention to pay big dividends. On June 21, 1971, he addressed the problem of union persuasion in a memo to George P. Shultz, Nixon’s secretary of labor: If “we can’t find some way to mitigate the opposition [of the maritime union], this is likely to continue as a hot, tough issue,” Colson wrote. Still, he continued to express confidence that a deal could be struck before the end of 1971. Less than a month later, on July 19, 1971, Colson informed Henry Kissinger that he had taken “several approaches from the maritime unions to the effect that they would like to work out an accommodation.”

Colson could not get the maritime unions to budge off their hardline position regarding prisoners of war. Progress, he reasoned, might be gained by ratcheting up the unions’ economic self-interest. After shifting the strategy, Colson reached a firm agreement with the unions on November 4, 1971. His success was reported in a memo to Presidential Advisor on International Trade Peter Flanigan. In the memo, Colson stressed the need to maintain absolute secrecy warning that “all parties would be embarrassed by its release or disclosure and, in fact, could very well under-cut the agreement that has been reached. White House documents, made public later by the National Archives Nixon Project, revealed that the concessions Colson committed to the maritime unions called for the construction of 16 new advanced-design merchant ships in five U.S. shipyards, at a cost of $660 million. These contracts were disclosed one year later, on July 1, 1972, exactly a week before the announcement of the major Soviet wheat deal. Nixon was pleased with Colson’s deal-making and personally called the labor leaders to thank them for their help and support.

Secrecy was always important to the Nixon administration for many reasons. The wheat deal was among them.3 On February 4, 1971, President Nixon directed Attorney General John Mitchell to implement the White House internal security operations. This sensitive decision to create a White House internal security unit came after Nixon met for two hours with Attorney General John Mitchell and his Chief of Staff H.R. Haldeman. A follow-up memo from Haldeman to the president that same day discloses additional details of the proposed White House internal security unit and its planned structure. Attorney General Mitchell was to set up “an outside organization on a low-key basis to handle current activities … [with] the Attorney General [having] overall total authority.” Second in command, Haldeman was charged with “White House contact and all White House dealings” regarding the internal security plan. The president’s internal security unit, created on February 4, 1971, was intended to handle all White House security matters without involvement of the FBI. But, this single security decision alone was not enough to totally remove the FBI from White House security matters.

3. The 1972 Soviet wheat deal explicitly violated the International Wheat Agreement, an agreement that President Nixon submitted to the U.S. Senate for ratification on June 2, 1971. More seriously, though, the wheat deal was surrounded by White House’s shielded-pervasive criminal and fraudulent activity by private grain exporters, reaching a level of a billion dollars in 1970s dollars. It was only after Nixon’s presidential powers were weakened by the Watergate conflagration that a grand jury released a series of grain indictments. The first of several of these criminal indictments was handed down against the Bunge Corporation, on August 7, 1975.

The FBI retained a presence within the White House security circles through its monitoring of intercepted calls from wire-tapped phones, previously ordered by the president or Henry Kissinger. Thus, for more complete security independence, the White House ordered all wiretaps previously initiated by the White House to be discontinued. One week after the creation of the White House internal security unit, President Nixon ordered the FBI to eliminate all FBI wiretaps at the White House. The removal of wiretaps, however, created a gap in White House security against leaks of information. A day later, Nixon ordered the Secret Service to install the White House secret taping system, which was placed in full service on February 16, 1971. Now with a tight White House internal security in place, Kissinger could advance Nixon’s secret wheat deal.

Negotiations with the Soviets for the hoped-for trade of wheat for a peace agreement were set into motion during early 1971 and through the first half of 1972. Following the previous feed-grain sales to the Soviets during 1971, the wheat deal with Moscow began in early 1972. On January 31, 1972, Henry Kissinger’s first confidential memorandum was transmitted to the secretaries of Commerce, State, and Agriculture, calling on Agriculture to prepare a negotiating scenario for trading with the Soviets. If all went as planned, President Nixon could fulfill his campaign promise to end the Vietnam War. Congress, the general public, and the farmers were kept in the dark, with no access to knowledge of the wheat sales. Secrecy had to continue until the Soviets had fully completed the purchase of all the wheat the United States owned, in August of 1972.4 At that point, six private grain exporters became contractually committed to transport this wheat to the Soviet Union.5

4.Legal title to the wheat was transferred from the farmers to the government’s Commodity Credit Corporation under the price support programs enacted by Congress’s New Deal programs. Under the program for wheat, the farmers were given an option to either sell their current crop of wheat on the open market, or take a non-recourse loan and hope market price for wheat advanced high enough to pay the interest on the loan and storage cost and redeeming the physical possession of the wheat to be sold on the open market at a price higher than government loan. On the other hand, if the market price did not advance to a sufficient level, the farmers defaulted on loan and then title to the wheat transferred to the government, which added to the growing surplus owed by the government.

5.It was not until September 14, 1972, that the House Committee on Agriculture conducted the first investigation of the Soviet grain deal.

The principal negotiators for the U.S. were Clarence Palmby and Clifford Pulvermacher, two administration officials within the Department of Agriculture. They started their work on the wheat deal in late 1971. Kissinger’s second confidential memo on February 14 placed greater urgency on the completion of the negotiations and called for the final memo to be in the hands of the president no later than February 28. Kissinger required that the grain shipments be handled exclusively through private grain exporters. On February 25, Secretary of Agriculture Earl L. Butz transmitted this negotiating scenario to Henry Kissinger and Peter Flanigan, the president’s advisor on international trade. Paragraph one of the document read: “Agriculture recommends working toward an understanding whereby CCC (Commodity Credit Corporation) would agree to approve an adequate credit line for the export financing of privately-owned grain stocks under unannounced terms of its CCC Export Credit Sales Program.” For this feed grain sale, made through private trade channels, the administration made clear to the press that no wheat was involved in the sale.

Paragraph one of the scenario shifted the visible responsibility from the Commodity Credit Corporation (CCC) to private companies, effectively moving the transaction out of the open corridors of government into the secret back channels of privately held corporations. Shortly before leaving for Moscow to finalize wheat negotiations, Secretary Butz, on March 27, wrote to President Nixon advising him that he expected a final grain agreement to be reached with the Soviets within a few days after his arrival in Moscow.

“[P]ublic knowledge or other disclosure of the impending agreement will be avoided as much as possible under the circumstances,” Butz wrote. Nixon, too, called for confidentiality in a three-page memo sent earlier to Henry Kissinger.

Secretary Butz and Assistant Secretary Clarence Palmby each led a separate team to Moscow. On April 11, 1971, Secretary Butz officially opened the grain talks in Moscow with the Soviet minister of agriculture, V.V. Matskevich, and other Soviet agriculture officials. With the protocol fulfilled, Secretary Butz left the meeting to return to Washington, leaving Clarence Palmby and his team to complete the negotiation. The level of excitement back in Washington was apparent. Within the private audience of the president and select few in the White House, optimism was expressed in Haldeman’s personal diary, entry for April 12.

“The Russians are really falling all over us and that they had a glowing meeting with Butz,” he wrote.

The truth of the successful negotiations with the Soviets had to be tightly withheld from the public, and more importantly from the wheat farmers. The slightest hint of optimism of the Soviets’ intent to buy wheat in large amounts could jeopardize the success of Kissinger’s wheat for peace program. Success toward peace in Vietnam would be jeopardized absent the wheat deal with the Soviets, for Moscow might be less likely to join with China in pressuring North Vietnam into settling the war. As Nixon was known to say, the road to peace ran through Moscow and Peking; he needed both. With Moscow, wheat was the quid pro quo for peace, and if secrecy were prematurely breached, wheat farmers might be motivated to withhold their 1972 wheat crop from the market. Such market decision would likely be a serious threat to Kissinger’s peace plan.

Part of Palmby’s job involved disinformation: the public had to believe Palmby had failed in his negotiations with the Soviets. After the negotiations concluded, one day ahead of schedule, Assistant Secretary Palmby returned to Washington, where he expressed disappointment that no agreement had been reached. Palmby claimed the Soviets insisted on concessions that went far beyond his authority to grant.

While Palmby’s grain talks took place in Moscow, representatives of the six private grain exporters were secretly meeting at the Kansas City Board of Trade. On the very day Butz opened the Moscow talks, the six private exporters met secretly with government officials to plan for the intricate logistics involved in transporting massive quantities of wheat for export. The meetings were held within the heart of geographic wheat production areas served by major rail lines. Representatives from the six private grain exporters met secretly with railroad executives, the executive director of the American Association of Railroads, and government representatives from the Interstate Commerce Commission and the Department of Agriculture.

Secretary Butz and his assistant Palmby soon completed the wheat negotiations with the Soviets. In order to clinch the wheat deal with the Soviets, Henry Kissinger needed to link the commercial aspects of the grain deal to Nixon’s political conditions—the settlement of the Vietnam War. Kissinger left for Moscow in what would be one of his most secretive and bizarre diplomatic missions. There would be no mention of Kissinger’s trip in the press, until his return to Washington. During Kissinger’s absence, Haldeman was responsible for handling the details of the cover-up of Kissinger’s mission and maintaining absolute secrecy. Except for the small White House inner circle, “no substance or content” about Kissinger’s trip could be disclosed.

“Move directly to Vietnam,” Nixon instructed Kissinger in a lengthy memo. “And insist that they get the Vietnam discussion completed before they move to anything else.”

Should the Soviets gain access to the American grown wheat it so desperately needed, Moscow had to assure President Nixon that the Vietnam War would end.

Once the stages of Kissinger’s “wheat for peace” plan were in place, the architects of the deal, Assistant Secretary Clarence Palmby and his assistant Clifford Pulvermacher, treaded a fine line in shielding secrecy. As the two most knowledgeable people about the deal, Palmby and Pulvermacher were acting in their official capacity at the Department of Agriculture and thus obligated by the Agricultural Act of 1954 to provide full and accurate market information to the wheat farmers, including information about the Soviet wheat deal. Ordinarily information to the farmers was disseminated through a department publication called Wheat Situation. However, neither Palmby nor Pulvermacher ever disclosed any relevant information to be disseminated to the farmers.

Soon after Secretary Butz opened the negotiations
on April 11, private grain exporters contacted both
Palmby and Pulvermacher with job offers. Clarence Palmby was contacted by Michel Fribourg, president
and principal owner of Continental Grain Company, and on May 12, Palmby called and accepted his offer. At
about the same time, Clifford Pulvermacher was contacted by Walter Klein, president of the Bunge Corporation,
who personally extended a job offer to him, which he accepted. With their government-employee status
ended, Palmby and Pulvermacher were no longer obligated to convey to the wheat farmers the vast breadth of information they had accumulated about the massive sale of wheat to the Soviets.6

6. 6 Critics of the wheat deal assumed erroneously that Palmby and Clifford Pulvermacher had breached their fiduciary duty to the public by furnishing advance confidential USDA information about the Soviet wheat deal to the private grain exporters in return for jobs. Against such charges, the two former government employees vigorously defended themselves. Pulvermacher, more so than Palmby, became outwardly indignant about such accusations: “I always had a strong, almost religious, feeling about the responsibility of people in government,” he testified. “I did not take one government record with me.”

Sensing something afoot, members of the press probed but failed to ask the right questions to uncover the wheat deal. This failure by the media may be attributed to the extraordinary effectiveness of the White House’s veil of secrecy and cover-up. Secrecy, in fact, was never broken until after the private grain companies, standing in for the Nixon administration, had sold to the Soviets all the committed wheat held in storage, 400 million bushels. This was in August of 1972, when the Soviets held contractual commitments from the private exporters. Once the wheat deal became public, and all details surrounding Kissinger’s actions surfaced, members of the press failed to connect the wheat deal to efforts to end the Vietnam War. The Nixon administration never publicly acknowledged the connections between the wheat deal and the Vietnam War.

The normal market forces of supply and demand were also kept in the dark, especially on the Southern Plains as Texas and Oklahoma wheat farmers were first to harvest the hard red winter wheat crop in early 1972. They relied upon the USDA’s incomplete market forecasts published in Wheat Situation, and subsequently sold their wheat on the open market at uneconomic prices. The wheat farmers had no reason to suspect their government might withhold information from them. Wheat Situation was published quarterly and distributed to the wheat farmers during the months of February, May, August, and November.

During the ‘70s, the USDA’s Wheat Situation was the farmers’ bible for making decisions on supply and demand, the forces which drive market prices for wheat. Based on this information, the farmers would decide whether to sell or hold their wheat harvest off the market until market prices increased. But in 1972, the USDA’s Wheat Situation became less reliable. As part of Kissinger’s wheat deal with Moscow, the USDA’s publication for February 1972, released on January 28, failed to anticipate—or even indicate the possibility of—a negotiated sale of wheat to the Soviets. This first quarterly report indicated that the record harvest of 1971 had pushed wheat supplies “to the highest level since 1962/63.” All information about the massive sale of wheat to the Soviets, along with the U.S. monopoly position in wheat, was withheld from the wheat farmers intentionally. The February issue of Wheat Situation also inaccurately reported that the expected reduction in the wheat surplus could be eight percent lower than the previous season. The truth was that Kissinger’s Soviet wheat deal eliminated the U.S. wheat surplus entirely, and created a shortage for American consumers.

Based on falsified economic indicators included in both the February and May issues of Wheat Situation, Oklahoma farmers sold their 1972 wheat crop shortly after harvest and at depressed prices—just as the White House intended. Texas and Oklahoma wheat farmers bore the weight of heavy economic losses. President Nixon commented that he “took the farmer out of his own selfish little role and made him play a big role in the world.”

The intentional deception of wheat farmers was an essential part to Kissinger’s wheat-for-peace deal. On June 27, 1972, Kissinger received the highly confidential message from the Soviets that they were “sending a man over to negotiate the grain deal—at quite a substantial level, and that we can move on it whenever we want to.” Right at that moment, Henry Kissinger and President Nixon had reason to believe that American-grown wheat had successfully brought the Vietnam War to an end. Nonetheless, President Nixon continued the U.S. involvement in that war until closer to the election in November. North Vietnamese Premier Pham Van Dong announced the settlement agreement on October 21, 1972, which may have been a little earlier than Nixon’s expected announcement closer to Election Day. Nixon knew that ending the Vietnam War too quickly was “the one way we can lose the election.”

Candidate Nixon promised voters during his 1968 campaign that U.S. involvement in Vietnam would come to an end, and people did not care how it ended. It appeared for a moment that he had succeeded prior to his reelection in 1972. The U.S. withdrew and South Vietnam stood alone against the Viet Cong and military forces of North Vietnam, the power of which the United States military had been unable to defeat. North Vietnam conquered South Vietnam on April 30, 1975.


Originally published in This Land: Fall 2016