Representative RICH. If 33 percent margins cut out part of this gambling, why should we not raise the margin to 100 percent, and cut all of it out?

Secretary ANDERSON. Because, as the Senator from Minnesota pointed out, a minute ago, there are legitimate places for the hedging, and there are times when neither the longs nor the shorts come into perfect balance and when there is a need for a small speculative interest, and so far as I am concerned, I have never claimed that that is not a legitimate function for the grain exchanges to perform.

Representative RICH. If buying and selling on the grain markets only increased the price of foodstuffs, at a time like this, should we not eliminate anything that would be of a speculative character in order that we can get foods at the lowest price to furnish to the ones who are in need?

Secretary ANDERSON. Well, I tried to say that I think there is a legitimate function served by certain types of trades. As long as the operation is confined to that, I do not see any reason why it should be closed. There were times during the war in which it was felt desirable to suspend all operations in certain commodities, and the grain firms and the exchanges ran with speculation in those commodities completely barred.

If that situation arose again, then I would certainly say all speculation should be stopped. I do not think that we are in that position at the present time.

Representative RICH. From the grain purchases that you speak of, do they tend to increase the price of the commodity in which they are dealing?

Secretary ANDERSON. I think rapid and undue speculation does, but you must remember that sometimes there are people who believe the markets will go down and there are both types of selling and buying in the market.

Representative RICH. Under present conditions when the Government is in the business of going in and making these great purchases, it does not take a lot of speculation on the part of the individual to realize that that commodity is going to advance, and therefore he can buy on the market today at the time when he finds out that the Government is going in, and the next day it is up. Is that not the case? Secretary ANDERSON. No; I do not think it is, because the great bulk of our buying is when there are breaks in the market. There was recently 8 or 9 cents in the market.

Representative RICH. You mean to tell me when the Government goes in to purchase for the intent and purpose of trying to furnish foodstuffs for shipment abroad, that after you make those speculations the market goes down?

Secretary ANDERSON. No; I tried to say that we make our largest purchases of grain at times when prices are going down. The more the price breaks, the more we purchase.

We purchased heavily all the way down, simply because we felt that there was an excellent chance for us to pick up some large quantities of grain in a market that was somewhat disturbed by the fact that we had reduced our allocations that month.

Representative RICH. Then according to that statement, I would figure that when the market is at a certain price, the more you go in to buy, the lower the market becomes.

Secretary ANDERSON. Not at all; not at all; we both know that the operation of very heavy buying does not tend to drop the market. I only stated that we try to buy at the most advantageous periods, and usually buy when the breaks are coming into the market instead of when the booms are in.

Representative RICH. All I am interested in is this, that I personally want to recommend that all gambling on the market ceases whenever it increases the price of the foodstuffs that we so badly need, and are trying to furnish for people abroad, and anything that you can recommend to this committee that will do that, under these present-day conditions, that is the recommendation that I want you to make to this committee.

Secretary ANDERSON. Very well.

The CHAIRMAN. Senator Myers.

Senator MYERS. Mr. Secretary, I regret that I was delayed and did not hear your testimony, but I surmise that the testimony thus far has been addressed to the President's second recommendation, namely, to authorize the regulation of speculative trading on the commodity exchanges.

Secretary ANDERSON. That is correct.

Senator MYERS. And I surmise, too, Mr. Secretary, that you believe that speculation on the commodity exchanges has contributed at least in part to the unjustifiable levels of grain prices as of this time. Secretary ANDERSON. I have so testified partially.

Senator MYERS. And, Mr. Secretary, you are presenting that testimony to the full committee of the Joint Committee on the Economic Report.

Secretary ANDERSON. Yes.

Senator MYERS. I wonder if you are aware, Mr. Secretary, that the eastern subcommittee of this joint committee, when it was holding hearings this fall, in many eastern cities, sent a telegram to the President of the United States, which was signed by all members of that subcommittee, recommending, and recommending very vigorously, that the administration take some action to curb speculation on the commodity exchanges.

Secretary ANDERSON. Yes, sir.

Senator MYERS. For the purposes of the record, I would like to read that telegram, Mr. Secretary.

On September 24 of this year, the eastern subcommittee sent the following telegram to the President:

It has become clear to the members of the eastern subcommittee of the Joint Committee on Prices that grains and commodity speculation is accentuating market fluctuations instead of decreasing them, and that presently it is supporting food prices at unjustifiable levels. We therefore urge that your administration use every means within its power to restrain this dangerous activity. In doing so you will have full support. It is incredible that so large operations in the necessities of life should be permitted on such small cash margins. These margins could be greatly increased to the benefit of consumer's food prices, if special provision were made for normal millers hedging operations. We also urge careful study of the manner and timing of governmental food purchases whether for foreign relief or for the armed forces, in order that their speculative effect may be minimized. That telegram was signed by Senator Baldwin, myself, Representative Hart, Representative Rich, Representative Kilburn, and Senator Flanders, the chairman of the subcommittee.

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I surmise that your recommendations are in accord with the recommendations of that subcommittee, which. is a part of the committee before which you are appearing today.

Secretary ANDERSON. That is correct. That occurred at the very time in which additional representations were made to the grain exchanges asking them to increase their marginal requirements and supporting by that statement.

Senator MYERS. Would you say that statement is in full accord with your recommendations of today?

Secretary ANDERSON. It is.

Representative HORAN. As you know, the Pacific coast in my area is based on a wheat economy, and whatever is done here is of tremendous importance to us. There is some danger of course of destroying the raw materials upon which our milling industry is based.

You recognize that, and I notice in your statement, "We believe that this may be accomplished without impairment of the facilities necessary to the hedging of price risks by merchandisers, processors and distributors."

Since we began working on this serious situation, you have made certain estimates of supply, and the effect of any conservation program. My question is, do you feel that we will adeouately protect our domestic industries in wheat, and do you have any comments to make on your proposals that you will forward to the Congress for action?

Secretary ANDERSON. Mr. Horan, I am prepared on Monday to testify before the Appropriations Committee on this question, trying to set forth adequately the grain supplies. I will be very glad if the chairman wishes to introduce some material along that line, but thinking perhaps that it could become available as the result of that testimony, I did not plan to use much of it this afternoon.

I will be glad to abide by the chairman's wishes.

The CHAIRMAN. I prefer if we could get through the specific things by the end of the afternoon, if Representative Horan will be willing to have it then, although that perhaps should be in our record, as well as that of the Appropriations Committee.

Secretary ANDERSON. We will leave it this way, that if after I have gone through the two or three items which I desire to deal with this afternoon, you wish to revert to the question of supplies of grain, and what these shipments will do to our economy, that I will be very happy to start submitting figures and subject myself to question by Mr. Horan.

Representative HORAN. If that is going to be answered Monday, that is all I want. I know it is something we will have to face, and I do not want to clutter up the record or take too much of your time on that.

The CHAIRMAN. I might say we invited members of the Committee on Agriculture to attend this meeting. It might assist them and save them some time later. If there are any members of the Agriculture Committee who wish to ask questions, feel free to do so.

Senator BALL. If the margin requirements for buying and selling futures were increased too much, would you not actually increase the cost of food because the legitimate hedgers and millers and other dealers in food, the country elevators, would have to add that cost then in making their purchases and sales to the cost of the commodity? It would be substantial with very high margins, would it not?

Secretary ANDERSON. I could not answer that, but I do know that we consulted large millers before the change was made in margin specifications, and they advised us it did not make a great deal of difference to them. And I do not believe the ultimate result would be an increase in prices, because I think it might remove from the market some of the speculation which tends to do the thing that the excess trading in cotton did about a year ago. I am frank to confess to you that there is no way by which I can measure the effects of commodity market speculation, but I do depend upon the people who have made a study of it in the Department, and they feel that it would not result in increases in the price by the elimination of some types of speculation.

Senator BALL. I was just thinking, if the cost of hedging goes into the cost of your product, it adds into the cost of flour, and if you increased those margins, say, to 50 to 75 or 100 percent, as Representative Rich was talking about, obviously that might become quite a substantial item.

Secretary ANDERSON. We thought 33% percent was sufficient.

Senator YOUNG. I would like to ask the Secretary, is it not the fact that the shortage of grain cars to get wheat for the market has had more of an effect, bullish effect, on the market than hedging?

Secretary ANDERSON. Well, again you are asking me to evaluate the things that enter into speculation on the grain exchange, and I find it difficult. If I can answer you probably not quite so specific ally, I would like to say that we do know that the shortage of grain cars has had a very pronounced bullish effect on the price of grain. Senator YOUNG. I would like to read, with the permission of the chariman, a very short letter from an average grain elevator in my State. This is from a little town of about 150 population, dated November 13, 1947:

We constantly read in the press that the farmers are holding their grain for higher prices. I feel that this statement is misinterpretation and the real reason is transportation.

We have an order with the Great Northern Railway Co. for 78 grain cars. The last time they brought in an empty grain car was November 6.

We are only a country elevator but we have 135,000 bushels of grain waiting shipment, and which has a total value of $395,000.

We are blocked and have farmers wanting to haul and sell thousands of bushels of grain; but it is impossible to get cars to ship this huge amount of grain.

There must be some way that you people in Washington can make the railroad companies understand that it is imperative that we get grain cars in the Northwest immediately to move this big crop.

Yours very truly,

H. E. LENABURG,

Manager, Portland Farmers Union Elevator, Portland, N. Dak. Two years ago we had about 90,000,000 bushels of grain in my State alone waiting to be marketed in the spring. The Government waited so long that the farmers were in the field and they came along with foolish 30 cent wheat bonus, and I hope that that situation does not prevail again. They want to sell the wheat and cannot do it. If they could sell their wheat it would force the market down. The CHAIRMAN. Any other questions on this particular issue? I have just one or two questions I wanted to ask.

If you obtain this power today, would you use it by imposing a 33% percent margin? Is that your opinion of what the margin should be under present conditions?

Secretary ANDERSON. Yes, Senator, if we obtain this power today, the margin will remain where it now is.

The CHAIRMAN. Would you propose to vary that as the price went up and down, or what would be your general policy in using this power?

Secretary ANDERSON. To vary it in accordance with the degree of speculation, not in accordance with the amount of price. We think the percentage measure is the desire we have to curb, but if the price just moves within limited areas, or ranges, than it would not make any great difference. But if we saw a sudden development of a speculative trend, then there should be a change in margin require

ments.

The CHAIRMAN. I should not like to give you the right to impose 100 percent margin. Is there some limit, would you be prepared to accept some limitation on the total margin that could be imposed?

Secretary ANDERSON. Well, Senator, I think I would prefer to confer with the people in the Department who are more familiar with it than I am, but I would think that we would like to have full authority, because you might want to impose a very heavy margin requirement if we got something in the nature of wild speculation.

The CHAIRMAN. I mean I do not know enough about it to have a definite conclusion, and we will hear other witnesses, but it occurs to me that we might want to protect this hedging right on the part of the legitimate operators.

Secretary ANDERSON. I would prefer to say at this time that we would not like to put a limitation on it.

The CHAIRMAN. Any limitation?

Secretary ANDERSON. No.

The CHAIRMAN. May I ask you the question whether this raises prices?

Secretary ANDERSON. Mr. Chairman, I would like to say that for legislative history, if you desire it, we would say that we think 50 percent is as high as the margin would need to go, and still preserve the legitimate hedging operations. We would prefer not to have that written into the law, but rather then to make a statement by the Secretary that he would not expect to use it above 50 percent unless extreme conditions obtained.

The CHAIRMAN. You stated that the fact that prices went up when these margins were imposed was no particular evidence, because they might have gone still higher if the margins had not been imposed. Secretary ANDERSON. I find it very difficult to estimate where markets would go under any set of circumstances.

The CHAIRMAN. In other words, the effect on prices of a margin is a matter of opinion; it is very difficult to prove one way or the other; is that not correct?

Secretary ANDERSON. That is very correct, Senator.

The CHAIRMAN. Is it your opinion that excessive speculation permanently increases prices or that it makes greater ups and downs? After all, those that go in have to come out some time.

Secretary ANDERSON. I am thinking right now of an operation which was quite widely publicized some time ago in which a man in New Orleans became very heavily involved in the cotton market. It did involve pretty substantial rises in the cotton market, and then some very tragic collapses that caught a lot of perfectly well inten