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like to divide its testimony into several groups. I would like to deal very briefly with recommendation No. 2, and then with recommendation No. 6, and then refer to other people from the Department who will speak in reference to our interest in export controls, then slightly as to the transportation facilities, although I think I can confine our entire testimony to saying we believe that the ODT needs the continuation of the powers of allocation of transportation, but we do not care to deal with that, unless you desire us to file some supplementary statement.
We would then like to discuss the conservation program, and that portion of it which deals with the production of foods in foreign countries, then probably reverting to some of the other items.
The CHAIRMAN. I understand that you yourself cannot be here Monday, so you wish to finish this afternoon so far as your personal testimony is cncerned.
Secretary ANDERSON. If I may, Senator, I would appreciate it, because I have been requested to appear before the Appropriations Committee in its study that it is making of the entire food problem, and they desire to have me as a witness Monday morning. I do not know bow long that testimony will last. I assume that the department would probably be through by the time the other testimony is completed. If not, I will be glad to return at a subsequent date, if you have additional questions of me after you finish with the other witnesses from the Department.
The CHAIRMAN. I thought perhaps we should finish as far as we can with your testimony this afternoon, and then the other representatives of the Department could be here Monday.
Secretary ANDERSON. Yes. They will be here. I would appreciate it if you could handle it that way.
The CHAIRMAN. You may proceed.
Secretary ANDERSON. May I first, then, devote myself to item No. 2, the proposal on commodity exchange regulations.
The proposal to strengthen regulation of speculative trading on commodity exchanges is directed especially to the purpose of curbing inflationary speculation by the large mass of small traders, most of whom are not even remotely connected with the business of merchandising or processing commodities. It is intended to prevent unsound price structures built on speculative fever. The ultimate end of all such speculative booms is sudden collapse and disorderly price movements.
Unrestrained speculation under present conditions constitutes inflationary competition in basic commodities required for domestic needs and for European relief.
The proposal will require amendment of the Commodity Exchange Act. The act contains authority for fixing limits on the trading and commitments of individual speculators. Such limits, however, affect principally the speculative trading of large operators. They do not affect the mass trading of the thousands of small speculators.
The Department believes that speculative activity may be curbed effectively through regulation of margins on speculative positions in commodity futures. We believe that this may be accomplished without impairment of the facilities necessary to the hedging of price risks by merchandisers, processors, and distributors.
Such authority should extend to all agricultural commodities in which futures trading is conducted. The Commodity Exchange Act does not cover such commodities as sugar, coffee, cocoa, pepper, hides, and grease wool. The act should therefore be amended to authorize control of margins with respect to these commodities -as well as those covered by the act.
The CHAIRMAN. Mr. Anderson, have you any figures, or is there any information about the extent of this trading, how it has increased, how it is handled, and so forth?
Secretary ANDERSON. Yes, Mr. Chairman, Mr. Mehl, who is in charge of the Commodity Exchange Administration, had expected to deal with that part of it in more detail. I simply wanted to make a general statement of our interest in it. Mr. Mehl happens to be sick today. I am sure that other representatives of his Administration are available if you would like to go into that at this time. I would like to call the person involved.
The CHAIRMAN. No, I would prefer, if there are questions to you, to have your answer on the question, and have Mr. Mehl on Monday go into it in more detail.
Are there questions of Secretary Anderson on this general question of the commodity exchange, and the addition of the one power? Is that all you ask for, the one power to limit?
Secretary ANDERSON. Yes, Senator, briefly.
The CHAIRMAN. To regulate margins on speculative positions in futures.
Secretary ANDERSON. Yes, that is right.
The CHAIRMAN. Is that the only additional power you ask over what is now in the present act?
Secretary ANDERSON. I will say that throughout nearly all of the war, the exchanges were extremely cooperative and did about what the Department requested. The exchanges did regulate margins at our request, and at the present time, as you are well familiar with, the exchanges have put
through a change in their margin specifications at the request of the Department of Agriculture.
Our feeling, however, is that we would be in a much better position if the regulation, or if the change in margin requirements could be enforced by the Department.
For example, if the commodity exchanges wish to tomorrow, they could completely reverse the position they took some weeks ago, and while we do not believe they contemplate doing it, we still think that regulation with some legal basis is preferable to regulation which may be changed at any moment.
The CHAIRMAN. If I understand, you mean you have no objection, at least you have effective control over the professional speculators, but you think the present act does not give enough control over the casual person who enters into the market.
Secretary ANDERSON. No; I might say it this way: We have regulations which permit the reporting of the various positions of fairly large operators. If, for example, a large speculator moves into the market and buys a very substantial block, giving us a clue that somebody may be cornering the market or manipulating it for improper purposes, those large holdings must be reported to us. Purchases of more than a certain number of bushels must be reported.
But purchases by innumerable small speculators are not reported to us in the ordinary course, and we therefore feel that the easiest way is for us to be able to require certain margin limits straight across the board, feeling that in, should I say, the normal business purposes of speculation, the
operations by which a mill having contracted for the delivery of flour protects itself in the delivery of that contract as to price by a forward purchase of futures, those we do not object to and those are normally reported to us. But the speculation, which deals were just plain venturing into the arena of commodity prices, is something on which we think there should be enforceable regulation.
I have tried to be perfectly fair, and say that during the entire period of the war we have had very good cooperation from the commodity exchanges.
The CHAIRMAN. Have you any evidence that there has been excessive speculation or do you feel that there has been?
Secretary ANDERSON. Yes; I do. I feel that the somewhat limited opportunities to perhaps speculate on the market made it very convenient for people to be in the grain markets. When we persuaded the exchanges to increase their margin requirements to 33% percent, there was a substantial reduction in the amount of speculative trading
The CHAIRMAN. I notice that the Attorney General in Boston on October 8, and I was there at the time, alluded to the grain trade as "greedy men blinded with lust for money, trafficking in human misery.” Did you suggest those words to him?
Secretary ANDERSON. He is much abler than I am to coin his phrases.
The CHAIRMAN. He seemed to be reflecting on the grain trade in that statement, rather than on these casual smaller speculators to whom you refer as the people that you have to control.
Secretary ANDERSON. I have stated the purpose which the Department of Agriculture has in this. Thąt is our purpose. We have fairly ample reporting facilities for large operators and we have followed those operators with some interest at times, but we are also anxious to make sure that when we put a limitation on, we have the power to keep it on during the period that we may think that is necessary.
The CHAIRMAN. Have you felt that the legitimate operators in the grain market have behaved properly within the scope of that. Of course, their business is speculation.
Secretary ANDERSON. I think that they have.
The CHAIRMAN. Have you any great criticism of the way in which the dealers in grain have handled the situation as distinguished from the speculators?
Secretary ANDERSON. Not the legitimate dealers in grain nor the large milling organizations; we have had, and I am pleased to acknowledge it, the first opportunity I have had, we have had extremely fine relationships with the large milling organizations.
It is quite obvious that during these last few months, when there has been competition for grain that we could have been in buying very vigorously at the same times that they were and bid against each other, and produce some bad spirals in the grain trade. They have known at times when we were buying in the market in large quantities. They have somewhat restrained their operations during those times and have picked up their grain at other periods, with the result that, I think, we have both profited by the, what I regard as, decency in which these operators have acted.
The CHAIRMAN. We might go down the line here and start with Senator O'Mahoney. Are there any questions?
Senator O'MAHONEY. My understanding, Mr. Secretary, is that you primarily desire the power to enforce margin requirements.
Secretary ANDERSON. That is correct.
Senator O'MAHONEY. And you desire power to enable the department not only to regulạte the large speculators, but also to follow through on the small speculators, who merely ride the ebb and flow of the purchase and sale of these commodities in this time of crisis.
Secretary ANDERSON. Yes, sir; and we have asked that certain other commodities, such as cocoa, coffee, sugar, pepper, hides, and so forth may be included in the powers. We would be perfectly willing to have you put that on an emergency basis. But I think it is just as well to put it in the normal law and let us use it when, if, and as necessary.
Senator O'MAHONEY. May I ask this additional question: The President, in his message, made reference to a long-range program for agriculture. He pointed out the need to provide for the broader utilization of agricultural products generally, and for the encouragement of production in the United States. I take it you do not intend to discuss that today?
Secretary ANDERSON. I intend to discuss increase in production. Senator O'MaHONEY. Good. I will defer any further questions.
The CHAIRMAN. Any other questions on this question of the commodities exchanges?
Senator BALL. Is it your position that speculation was at least partly responsible for the rise in grain prices in the last few months? Secretary ANDERSON. At least partly responsible, yes.
Senator Ball. It is my understanding that future prices have lagged behind cash prices pretty consistently. How does that jibe with blaming it on speculaion? That does not make sense to me.
Secretary ANDERSON. I know that the commodity exchange authority which studies regularly the transactions taking place on the commodities exchanges have received reports regularly of the interests that are in the speculative markets, and what has taken place on those markets when the amount of grain held for speculative purposes has increased. I think they are in much better position to testify to the exact effects of it than I am, but they have assured me that it is their belief that these activities do represent a cause of rising prices.
I have asked questions to the very point that you have just asked, as to why these future markets are low, and seemingly there are times when shorts are covering in the market as their position runs out, and they become necessarily a cash buyer. I have never bought nor sold a bushel of grain long or short, and therefore it is a mysterious process to me. But the people who deal with it regularly assure me that as the date of settlement comes closer, and a short has to produce the grain which he has agreed to deliver at a given time, as he tries to close that gap which he has been involved in in speculation, he does move into the market and start bidding vigorously.
Senator Ball. You mean in the cash market, then?
Secretary ANDERSON. Yes. That is why the markets move up above the future position.
Senator BALL. It would normally, it seems to me, when you have a lot of speculative trading in grain, it hits the future market hardest. That is where most of the speculation is initially, is it not?
Secretary ANDERSON. I wonder if the normal position might be dependent upon the fact that we usually have a surplus position of grain in the country, instead of the position in which we find ourselves
ith a scarcity to the shipments which we make abroad. I do not know whether that changes the picture or not, but it seems to me that it might.
Senator Ball. Is it your understanding that there has to be some speculation in the futures market in order to permit legitimate traders to hedge?
Secretary ANDERSON. That is correct.
Senator Ball. Because the short hedgers and the long hedgers do not always balance.
Secretary ANDERSON. That is right.
Senator BALL. You do not want to drive them out of the market entirely?
Secretary ANDERSON. No; we do not think the requirement of a 33% margin does drive them out entirely, out of the market. We think it does drive out a portion of the speculation that represents a sort of frenzied purchasing and selling of grains that is not too much of a stabilizing influence.
The CHAIRMAN. Any other questions on the left? Any other questions on the right?
Representative BENDER. I would like to ask a few questions of the Secretary on this subject, Mr. Chairman.
Mr. Secretary, were you consulted by the President in the preparation of his statement of October 5, 1947, in which be said “The cost of living in this country must not be a football to be kicked about by gamblers in grain”?
Secretary ANDERSON. I do not recall whether I was consulted or not in the preparation of the statement. I would have to look at my calendar, and see which days I went to the White House, and which days I did not.
Representative BENDER. Is the cost of living due to such gambling?
Representative BENDER. Mr. Secretary, were you consulted by the President concerning his statement in the press conference of October 16 of this year, that the Attorney General was being instructed to investigate gambling in the market?
Secretary ANDERSON. No, I am never consulted as to what the President is going to say in his press conference.
Representative BENDER. Did you recommend the investigation?
Secretary ANDERSON. I do not believe that a recommendation would be coming from the Department of Agriculture to the De