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There was no thought of coercing them, and in the conditions they ere not only reluctant to sell, but positively refused to sell freely. i that period it was found necessary to increase the ceiling price two mes, and also to offer a bonus of 30 cents per bushel in order to prevail on the farmers to release their grain. It should be remembered that the very existence of a ceiling price i grain tells the farmer that he is asked to sell his grain for less than s market value, otherwise there would be no need of a ceiling price. he farmer naturally resists efforts to make him sell his grain at less an its fair market value, and this innate resistance would again operte to dry up the movement of wheat off the farms if ceiling prices hould again be imposed. Legislation is also sought to confer upon the administration power
allocate supplies. The argument for this grant of power is that applies could be channeled in such a way as to effect substantial avings of grain which might be diverted to foreign relief. Here again, experience shows that this power, if granted, would be ffective in only slight degree. In the first place, it would not be nough to force farmers to reduce their feeding programs. The comination of ceiling prices and allocations authority would again tend o keep the feeding grains on the farm, to build up the livestock popuation on the farm where the grain is grown, and proposed restrictions f feeding would only operate to the disadvantage of livestock prolucers in areas where the feeding grains are not grown in abundance.
Moreover, experience has shown definitely that the power to allocate annot be wisely administered because of the many conditions and he changing conditions which affect the exercise of the power. Flour pills should not be left to Government edict to obtain the supplies of wheat necessary to run their mills.
I am opposed to granting the administration's requests on principle. Who should have power in such a country as ours to regulate the volume of business and to control prices? A free market in a free country should do these things without the bungling intervention of men. Does Congress want to grant power to a bureau to turn trade off and on with the purpose to influence prices? If so, shall that power be used to benefit the producer or the consumer?
No bureau can safely be trusted with such immense powers.
The flush movement of wheat is after the harvest is over. Wheat that went on the ground for lack of bin room has been moved out. Farmers have all their wheat now under cover, and all the urgency to sell has passed. Information gathered over the whole territory indicates that now the farmer is little disposed to sell his wheat, for three compelling reasons:
First, because of the record-breaking crop this year, farmers are in relatively high income-tax brackets. To sell more wheat would only increase their taxes, but to hold into the next tax year may result in a substantial saving in taxes, for the reason that the crop next year may be less, and the tax rate may be lower.
Second, over the entire southwestern wheat area the weather for the last 3 months has been extremely dry. In many important sections until recently only a very small portion of the intended winter wheat crop has been planted. The entire area should have been seeded by November 1. The weather continues dry, and for that reason alone, farmers would ordinarily hold until their new crop prospects are more definitely determined.
Third, the farmer is well aware of the national and internationa wheat situation. He has heard the desprate call for wheat. Hi radio and his papers constantly bring him news of the shortage of wheat. He has learned that it often pays to hold. In 1946 the hold ing of wheat by farmres resulted in two increases in price ceilings and a bonus of 30 cents over the ceiling price. Early in 1947 he saw wheat touch $3. With the general price level and wgaes in this country up to 10 or 15 percent as compared with last year, and the coarse-grain production off about 1,200,000,000 bushels, it is not strange that the farmer expects wheat to sell substantially higher than during the last crop year.
The result of these conditions is that the flow of wheat into the market off the farms has been seriously reduced. It will be little more than a dribble from here to the end of the year, and beyond that is uncertainty. As mills work out their supply of wheat and begin to search for more, this condition will not tend to make prices any cheaper. There will be no speculator in the cash market. The mills will have to have wheat, and when they go out for wheat they will meet the competition of the Federal Government.
In the face of the farmers' tendency to hold wheat and the present poor prospects for the 1948 winter wheat crop, the huge demands for foreign shipment cannot fail to have a profound effect upon the market. It must be clear to this committee, as it is to those in the grain and milling trades, that great as the grain resources of this country are, they are not sufficient to meet the extraordinary demands which have been made without causing higher prices.
The policy of overseas relief is determined by the highest Government authority, and we must comply with that policy. Presumably, the people support the policy, and if so, the price necessary to bring the supplies out should be accepted as inevitable.
We get nowhere by blaming the prices on speculators, for if there were no speculators, or for that matter, if there were no exchanges, grain exchanges, the shortage of supplies would still result, as it always does in any market, in increased prices.
As a matter of fact, the only conceivable way to export the goal of 570,000,000 bushels is to conserve the supply of grain in this country, and that can only be done through an increase in price to such a point that consumption for animal and poultry feeding will be reduced. This can best be done by the free operation of the law of supply and demand as expressed through the medium of the organized grain exchanges of this country.
To give the Government power to allocate grain for domestic consumption, to control margins, to ration at any level, and to control prices, in my opinion, could only have disastrous consequences for all concerned, producers, consumers, the grain trade, flour millers, bakers, and even the starving peoples abroad that we are trying to help.
The use of such powers, if granted, will lead to widespread inequities, maldistribution, higher and not lower prices, black market operations on a broad scale, reduce the amount of grain as grain available both for domestic consumption and for shipment abroad, and do irreparable damage to the economy of this country,
Mr. SLAUGHTER. This is Mr. Crawford.
TATEMENT OF ROY D. CRAWFORD, SECRETARY AND GENERAL
My position is that of secretary and general manager of the Farmers nion Jobbing Association, a terminal cooperative marketing and surchasing agency, owned and controlled by farmers. In other words, entlemen, we operate not for profit, except for the account of our armer members.
Some 250 local cooperative associations comprise our membership ind these local associations are, in turn, owned and controlled by producers themselves.
We operate principally in Kansas, but to some extent in the four zurrounding States. Our association has been in business 33 years. My employment by the organization covers 23 of those 33 years. My interest, and that of my organization, is to secure on behalf of armers the lowest possible marketing cost for their products. We ire interested in the grain futures market only as it affects the marketng system of the grain industry and the public welfare. We have 20 interest whatsoever in the futures market from the standpoint of commissions received for handling speculative accounts.
Our association does not accept such accounts.
The futures market of the grain exchanges, in our case principally Kansas City and, to some extent Chicago, are vital cogs in the marketng machinery of the present distributive system which we use in disposing of the farmers' grain.
My observation over the years has convinced me that there is probably no segment of our national distributing system that is so widely misunderstood and regarding which such basic misconception exists as the grain futures market, especially in its relationship to the marketing of cash grain under our present distributive system.
It has been the target of attacks for years, and I must say that prior to the passage of the Commodity Exchange Act the criticisms were well-founded in some instances.
Loose trading practices of various natures were permitted to the detriment of agriculture and the public welfare. I feel, however, that such abuses were largely corrected by passage and enforcement of the act, and that further regulatory and restrictive measures would swing the pendulum too far, that damage to the futures market, as an integral part of our distributive system would far outweigh benefits, if any, that would come from further restriction of speculative trade.
Future markets meet a vital need in the marketing of farmers' crops. To function efficiently as a hedging medium, it requires constant volume to permit its use for hedging or price insurance by either producers or consuming interests.
It is almost universally agreed that our present marketing machinery puts our farmers' grain through the channels of distribution at a lower distribution cost than any other commodity or merchandise.
That is as it should be, food being the basic factor of life, but I am convinced that it would not be such in the absence of a fluid and liquid futures market.
No substitute system has ever been offered which could promise near approach to its worth in a free market. Our marketing system requires a market which stands ready at all times to absorb what thi farmer wishes to sell, whenever he wishes to sell it, not just when flow mills happen to be in the market.
Conversely, the flour millers want a fluid market for price protection at any given moment, not just when farmers are in a selling mood Such buying and selling volume to reflect properly sustained year round demand must be able to marshal all elements and categories of our economy which can be brought to bear in taking a share of this risk burden.
I, for one, do not want to see the farmer left to the mercy of the individual needs of individual buyers and be forced to sell them just when they want to buy and at whatever price they may be willing to pay at any specific time.
The machinery set up in the grain futures market provides this buying power by concentrating in one general market place demand from all sources, including the millers, the processors, domestic dealers exporters, and the individual risk dealers or speculators.
It is the speculator who gives to our markets breadth and liquidity Animated by the profit motive, the speculator risks his money to back his judgment on the future course of price, and in doing this he voluntarily bridges the gap between selling demand and buying demand in a way that no one else achieves for the market.
Speaking as one primarily interested in the market as the servant of the farmer, I wish to place in the record a fact that without the liquidity of the futures market as this feature is afforded by the speculator, we could not conduct our business in the way it is possible to do at the present time.
Perhaps, an example could clarify this. Let us say, for instance that our organization wishes to buy futures, or hedges, as we commonly call them, against a sizable quantity of wheat that we may have sold to a flour mill or Commodity Credit Corporation.
If it is necessary that we find some one interest, or some few inter ests, who may be willing to sell these futures, or hedges, to us at ou price, if we have to try to match up our buying interest with a specific selling interest on the other side, we may well find it difficult of impossible to accomplish this at any given time.
This would be the case frequently if trade in the futures markets were confined to those like ourselves, engaged in specific operations against specific quantities of wheat.
If we had to stand-by waiting for the right quantity of hedges to be available at the right price, we would either stand the chance of losing entirely the opportunity to do the business, or we would be forced to quote a price for our wheat that would be sufficiently high to protect us against the risk of any foreseeable market movement.
In such an event the distributive cost in the grain business, which I mentioned earlier, would immediately be increased tremendously Where we now do business on margins of 1, 2, and 3 cents per bushel. we would then be forced to take margins of 5, 10, or 15 cents per bushel to compensate for the risks involved. A futures market of that character would be of little service to those I represent.
What we, and others like us, need is a futures market in which the interest is so broad that at any time we can enter this market and
ecure from the multitude who are trading therein, the large men, he small men, the producers, the dealers, the processors, and the peculators, the contracts we need on the spot to cover our cashrain commitments. That is what I mean by a liquid and fluid market.
It is the only kind of market, as time and practical experience has hown, that will serve us. With it, we can quote prices in fractions or our wheat for we are enabled to move quickly in a broad market o either buy or sell our hedges for price protection.
In my opinion, those who would further restrict the action of the rain futures market would do no service to the farmer.
The CHAIRMAN. Have you had actual experience in the last 3 or 4 nonths compared to the market before and after the 3342-percent margin was put on? Mr. CRAWFORD. Yes, sir. The Chairman. What was your experience in the two periods?
Mr. CRAWFORD. Let me give you an example. For instance, we recently sold to Commodity Credit Corporation 150,000 bushels of wheat, and we were unable to do that except at 25,000 bushels at a time, Commodity Credit Corporation's buyer telling us that he did not wish to enter the market, it being so thin, that he did not wish to enter the market on more than that amount at any one time. That is a pretty good example, I think.
The CHAIRMAN. Does that mean that he is entering the cash market, is he not, or is that a futures market?
Mr. CRAWFORD. He is entering the futures market in this way. We sold the wheat to him only after we were able to lift our hedges. In other words, as we sold the cash wheat to him we had to lift the hedges and, of course, we would not sell the wheat to him unless we would be given the opportunity to lift the hedges. By lifting the hedges I mean buying the hedges which we had previously sold; when we had bought the wheat we sold futures as a protection. When we sold the cash wheat to Commodity Credit Corporation we at the same time had to lift the hedges and by that I mean to buy those hedges in to balance our position.
The CHAIRMAN. You were not able to sell more than 25,000 bushels at a time because you could not be sure of buying more than that.
Mr. CRAWFORD. Commodity Credit would not give us an order for 150,000 bushels of hedges; they said, “Buy 25,000, and when you get that let us know," and then they said to let them know; that is an excellent example, a concrete current example of the thinness of the market. The CHAIRMAN. That is all that I have.
Senator O’MAHONEY. What is the Farmers Union Jobbing Association. Mr. Crawford ?
Mr. CRAWFORD. I beg your pardon, Senator?
Mr. CRAWFORD. Do you want me to elaborate on what I have stated in my prepared statement?
Senator O’MAHONEY. I want to know what that association is itself.
Mr. CRAWFORD. It is a cooperative terminal marketing agency, cooperative, owned and controlled by farmers, operating chiefly