Senator O'MAHONEY. There was considerable production abroad was there not?

Mr. UHLMANN. Yes, sir.

Senator O'MAHONEY. How does it compare with Argentina, fo example?

Mr. UHLMANN. You mean the European production compared with Argentine production? The Argentine production in a norma year is only about 250,000,000 bushels.

Senator O'MAHONEY. The European production is greater that that?

Mr. UHLMANN. Much greater.

Senator O'MAHONEY. Would you agree that anything that can be done to restore European production will result in decreasing the demand upon our own production for export?

Mr. UHLMANN. Absolutely.

Senator KEM. Mr. Uhlmann, I think you were about to comment on the English practice with reference to margins. Would you do that? I think that would be of interest.

Mr. UHLMANN. I shall be very happy to. A friend of mine in London said to me, "It is a funny thing the way you call margins in America."

I said, "How does it differ from your system?" He said, "If an account is so bad that we have to call a margin, we don't want him at all and we won't take his business.'

I would like to say, while there is a slight lull here in the questioning, I am a great believer in this law of supply and demand. I think it is doing a perfectly wonderful job. While it does make prices, sometimes high prices and sometimes low prices, I think that it is something that should go into the record here.

Senator O'MAHONEY. What does the speculator add to the supply? Mr. UHLMANN. Ordinarily, nothing.

Senator O'MAHONEY. Does he do anything to demand?

Mr. UHLMANN. Temporarily; yes.

Senator O'MAHONEY. So you believe in supply and demand. Representative HORAN. I would like to ask Mr. Uhlmann some questions. I happen to be a producer of farm crops, not grains, and I have seen the time when I had to consign carloads of farm commodities as far as 7,000 miles from my market. So, I have been trying to get at the facts in this case. I think one thing that bothers most of us-and I would like for you to corroborate me if you can-is that all speculators, of course, enter the market to make money, do they not? Mr. UHLMANN. Absolutely.

Representative HORAN. They do that by anticipating that the market will rise?

Mr. UHLMANN. Yes, sir; or fall.

Representative HORAN. Or fall. And when they anticipate that the market will fall they are bearish.

Mr. UHLMANN. That is right.

Representative HORAN. They drive the price of grains down.
Mr. UHLMANN. Not necessarily.

Representative HORAN. Not necessarily?

Mr. UHLMANN. No, sir.

Representative HORAN. Would you enlarge on that?

Mr. UHLMANN. Well, if the market is in a position to absorb it and there happens to be more buyers at a price-it is true that almost

very day that at some price or other, the Commodity Credit Corpoation has instructions to various people to buy. It is like hitting your head up against a stone wall. My little 10,000 or 20,000 bushels hat I might want to sell would simply run into a buying order, and the market would go down.

Representative HORAN. Right now they are anticipating that the market will rise?

Mr. UHLMANN. Who is?

Representative HORAN. The speculators.

Mr. UHLMANN. Some are. On the books of speculative houses, commission_houses, there are probably a good many shorts and a good many longs. I don't think that there is an unanimity of feeling on that. Some people have been fighting this market every since it left $2.50 because they thought that price was too high, and they have paid for their error. They have been wrong.

Representative HORAN. Anybody who is active in society does one of two things if he makes constructive contributions. Either he produces a commodity or he performs a service.

Mr. UHLMANN. Correct.

Representative HORAN. Then what we have to determine here is whether a speculator in a well-organized grain exchange performs a service. We admit he is producing nothing.

Mr. UHLMANN. That is right.

Representative HORAN. You are a member of the Chicago Grain Exchange?

Mr. UHLMANN. Yes, sir.

Representative HORAN. You are vice president.

Mr. UHLMANN. I am for this year; yes.

Representative HORAN. It has come to my attention that the responsible men in the grain trade last year on July 16, came to Washington because they had analyzed the situation and were immensely disturbed. I want them to receive full credit for everything done in that respect.

Mr. UHLMANN. Thank you.

Representative HORAN. It is my understanding that they discussed with the President of the United States well in advance of popular knowledge, the facts of the case and the situation which they anticipated.

I would like to know if you or your institution or organization made any contribution, representation or suggestions to the President as to procedures that should be entered into in anticipation of the very situation which now exists.

Mr. UHLMANN. That question is in two parts. My own firm did not. My own firm privately engages in business. As vice president of the exchange, I naturally discussed this with Mr. McClintock. We decided it was a service rather than a disservice to call attention to certain pertinent facts even though they might not be wanted, but we were so imbued with the fact that even with the largest crop in the history of the country, there were certain inherent dangers of price advance, and we knew that this flight toward higher prices was something that we would be just as much interested in as anyone else in the country, and we wanted to call attention to that fact, very largely for the reason that for the past 2 years our reserve stocks have been

permitted to go down to dangerously low levels, and we were afraid of repetition.

Representative HORAN. Did you have any exchange of letters with the Government, or with the White House?

Mr. UHLMANN. I couldn't answer that. I had none. Mr. McClintock may have had a letter of thanks from the President. I don't know. I really can't answer that.

Representative HORAN. It is my understanding that somewhere in the fabric of the grain trade, either among the processors or among the grain dealers, an exchange of letters indicating some things that should be at least explored was had, and I trust that this committee will be supplied with that information sooner or later.

Mr. SLAUGHTER. Those letters will go into the record by a later witness.

Representative HORAN. Thank you.

Mr. UHLMANN. I am advised if it is permissible by Mr. McClintock, that there was such an exchange of letters and they will be provided. Representative HORAN. You see how responsible it is. If we have responsible overtures from responsible parties of the fabric of our economy and we do not take full advantage of it, the whole structure of freedom and individualism is at stake.

Mr. UHLMANN. Yes, sir.

Representative HORAN. We progressively move in the direction of depositing all social responsibilities in the Government, and we approach an approximation of the very communism that we are fighting in Europe. If we are going to save America, we have to respect those who are honestly trying to do that.

Representative POULSON. I would like to ask the amount, or limitation on the amount, of grain any one man can deal in, in any one day. Mr. UHLMANN. The longest amount any one trader may have long or short is 2,000,000 bushels.

Representative POULSON. Is that not the answer to the question brought up by Senator O'Mahoney? If, as you say, speculation on the market does not affect it, why would you say that the statements made by responsible authority here in Washington would affect it, for instance, by men handling the Commodity Credit and the like? The buyer can only effect 2,000,000 bushels, which is inconsequential in view of the fact that you said they exchanged 50,000,000 bushels in 1 day. Is that not true?

Mr. UHLMANN. I don't think I made that statement, but it is correct that the volume in a single day has been that large.

Representative POULSON. All right. A statement made by the head of the Department of Agriculture or any Department directly dealing in wheat, if they make a statement one day they are going to buy 50,000,000 or 400,000,000 or 100,000,000, that in itself would affect the market far more than the mere 2,000,000 that the limitation is placed on.

Mr. UHLMANN. Far more. The peculiar part of markets is that there is generally somebody on the other side willing to bet that the person making the trade is wrong.

Representative POULSON. I just wanted you to verify that. In other words, the administration might think that inasmuch as these statements are affecting the market, it might be easier to close up the stock market than it is to close up the statements made by the various heads of our Government.

Mr. UHLMANN. That is right.

The CHAIRMAN. Are there any other questions? If not, we thank ou very much, Mr. Uhlmann.

Mr. SLAUGHTER. Shall we proceed?

The CHAIRMAN. Yes. Mr. Slaughter, we have had some of the ther commodity exchanges set for this afternoon. I do not know what to suggest. We are not going to be able, I am afraid, to finish verybody today. We still have some more tomorrow morning. How fast can you get through the rest of this list? You have

ve more.

Mr. SLAUGHTER. We had anticipated that we would just about nish this morning. Then, you remember, I spoke to you yesterday. Perhaps with an hour tomorrow morning we would wind up.

The CHAIRMAN. I understand they will wait, so we will go ahead nd finish as early this afternoon as we can.

You may call your next witness.

Mr. SLAUGHTER. Mr. Gordon.

TATEMENT OF COLIN S. GORDON, VICE PRESIDENT, QUAKER OATS CO., CHICAGO, ILL.

Mr. GORDON. Mr. Chairman and Members of the Joint Economic Committee: It gives me pleasure to appear before you today. My ame is Colin S. Gordon, and I live at 4300 Lake Shore Drive, Chicago, ll. I am vice president of the Quaker Oats Co.

My principal duty is that of obtaining grains of many types and arieties and kinds used in our cereal feed and processing business. Our company has 13 major plants and numerous smaller specialized nits in the United States as well as affiliated plants in Britain, Europe, Canada, and elsewhere. Grains are our greatest raw material. However, in a small way we are in other lines of business than grain rocessing.

In grains we use quantities of the following:

For cereals: Oats, yellow corn, white corn, barley, wheat, rice, rye, buckwheat; for feeds: Oats, corn, barley, wheat, milo, buckwheat, and many other ingredients.

We are millers of: Oats, corn, wheat, rice, buckwheat, soybeans, and parley.

We produce such products as: Oatmeal, cornmeal, grits, corn lakes, wheat flakes, family, bakers, and pancake flours, pearl barley, ivestock and poultry feeds, dog food, and chemicals.

Prepared cereals and mixes, and numerous other products. Current inventories and commitments required to operate over such wide area of necessity are large-in excess of $35,000,000.

From the foregoing, you can readily understand my interest in the tatements of the people who have appeared before you in the last few lays giving you information on the grain exchanges and their various

unctions.

Our company is constantly looking for ways to spread, minimize, or liminate our risks-what some call speculation. We insure our plants; we inspect our products; we have retirement and wage plans to protect our employees; and we turn to the exchanges to secure protecion against inventory losses, probably using more different futures han most processors because of our many and varied product line.

We caution you gentlemen that these market places must be kept liquid to protect their reflecting the true picture of supply and demand. My personal observation of the market since the administration obtained a 33% percent margin definitely indicates a reduction in volume and an increasing fluctuation when market orders appear. With the large open interest, that lack of liquidity has not been very serious. However, if the margin is maintained and the open interest is greatly reduced, real damage may appear.

Senator FLANDERS. Excuse me, Mr. Gordon. Will you explain what the open interest is?

Mr. GORDON. The open interest is the total commitments that are registered as open at the present time on the board of trade. There was 102,000,000, I believe, bushels open in contracts when the 33% percent margin went in. Today it is, I believe, about 75 or 80.

Senator FLANDERS. Still you do not understand. I think I am a little bit stupid, probably. When you say the contracts are open, what do you mean by that?

Mr. GORDON. That means, Senator, when I want to hedge, there are other people who have an interest in the market that may take it from me.

Senator FLANDERS. Yes.

Mr. GORDON. That is the open interest that I am talking about.
Senator FLANDERS. They stand ready to take over.

Mr. GORDON. Still they are going to close up. They may take mine.
Senator FLANDERS. I see.
All right.

Mr. GORDON. My sincere desire is to impress on you gentlemen that the exchanges are of tremendous value to grain processing companies like our own as well as large merchandisers of grain and to the whole economy of agriculture. Any action that limits their proper functioning will tend to narrow the farmers' markets and increase price fluctuations.

The CHAIRMAN. Mr. Gordon, there are a number of these things you cannot hedge, I suppose, are there not; rice and other things? Mr. GORDON. That is true, sir.

The Chairman. What happens there?

Mr. GORDON. We have to take away the margin on those items, to provide a margin of profit, and we carry less inventory and try to avoid that risk. But we do have such as fish meal, of which we may have to buy a year's supply at a time.

Senator FLANDERS. In other words, without the margin you have to take a larger share in the increase of price between the farmer and the

consumer.

Mr. GORDON. That is right.

Senator FLANDERS. So the market, on the basis of what you are saying, has an effect of reducing the spread between the farmer and the consumer.. Would you want to go so far as to say that?

Mr. GORDON. Very definitely, that is my opinion.

Another point I would like to make, with the mechanization of farms, with use of combines for small grains, corn pickers, cotton. pickers, surplus crops that move off the farms are coming to market in a shorter period of time.

To prevent market gluts and the possibility of serious price breaks, because of this movement, that will unjustly punish the farmer, you must have purchasers like ourselves who are willing to buy large quantities of grain.