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In normal times exporters have to meet the competition of other producing countries such as Canada, Argentina, Australia, and someimes Russia. There are times when exporters make a sale of one or more cargoes of wheat or other grain prior to the time the grain an actually be accumulated and ready for shipment.

When such is the case, the hedge would be in the opposite waythe futures would have to be bought immediately as a protection against price rise.

Again, a liquid market is necessary.

It can be readily seen that a constant good volume of trade in futures is required to cushion the impact of a sale or purchase of even one cargo of grain.

Due to keen competition, exporters usually operate on a very small margin of profit-usually less than 1 percent. Violent fluctuations would, of course, be quite disastrous to those in the export grain trade.

This brings us to the point of attempting to influence price levels by the imposition of substantially increased margin requirements.

It can be correctly stated that the present increased margins have failed to hold prices down, in view of the world supply and demand situation, as outlined above.

I think there is another important phase that should be mentioned. Margins of $1 per bushel on wheat, in my opinion, are unfair to the little fellow.

Large operators with plenty of capital at their command are in a much better position to operate than the small trader.

This, perhaps, is one of the reasons the markets have been so sensitive. A widespread number of small orders to either buy or sell is essential to a continuous liquid market.

In our opinion, the usefulness of the futures market would be hampered by further controls.

As above stated, if the Government has the power to regulate exports, it also automatically has the power to control the quantities of grain that remain in this country.

With these powers in the hands of the Government, there is no need for any law to control domestic allocation of grains to processors and users, and if the present export controls are used wisely there will be enough grain left in this country to supply all domestic requirements.

The CHAIRMAN. Thank you, Mr. Barnes.

I asked this before, the figures show 2,300,000 tons of grain and flour. I suppose the flour goes to the Latin American countries. Is that handled through the Government or by private exporters?

Mr. Barnes. Usually by private exporters. Most of it, I believe, is flour. Some wheat is shipped to Mexico.

The CHAIRMAN. They buy from the mills, then. They buy flour, do they?

Mr. BARNES. That is right. Mexico usually buy wheat and flour both, but mostly wheat.

The CHAIRMAN. That is bought by brokers for the Mexican Government, is it, or for Mexican traders?

Mr. BARNES. It is bought by the Mexican Government. But through private traders in this country,

The CHAIRMAN. Do you know anything about the suggestion that the French and Italian Governments went in the market to buy wheat?

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Mr. BARNES. Before the movement of our crop last July 1, number of governments tried to buy wheat here. Some of the exporters made tentative sales to them, but the exporters were not able to obtain a license. All_transactions were cleared through the International Emergency Food Council, and allocations were eventually given.

The CHAIRMAN. Are there questions of Mr. Barnes?

Representative HORAN. How do you finance the exporting of wheat now?

Mr. BARNES. How do we finance it?
Representative HORAN. Yes. How do people pay for it?

Mr. BARNES. Most of the wheat that is exported, a large portion of it, is bought by the Government, and the Government pays the exporter to deliver his wheat aboard steamer.

Representative HORAN. It is far different from the way it was carried on in so-called normal times before the war.

Mr. BARNES. Very much different.

Representative HORAN. Have you any suggestions along the lines of Mr. Gordon, who suggested the need for stabilizing currencies?

Mr. BARNES. I think foreign currencies will eventually have to be revalued or devalued, but perhaps tht time is not ripe yet. hear that a great many people in various European countries have no faith in their own currencies, with the result that there is a lot of grain hoarded. The farmers use the grain' to trade for other commodities.

Representative HORAN. Have you any idea how much?
Mr. BARNES. There is no way of telling that, sir.
Representative HORAN. That is all, Mr. Chairman.

The CHAIRMAN. Any more questions? Thank you very much, Mr. Barnes.

Mr. BARNES. Thank you.
The CHAIRMAN. I understand Mr. Lang has a very brief statement.
Mr. SLAUGHTER. No written statement at all.

We

STATEMENT OF BENJAMIN S. LANG, VICE PRESIDENT, FIRST

NATIONAL BANK, ST. LOUIS, MO. Mr. LANG. I am Benjamin S. Lang, vice president, First National Bank of St. Louis, in charge of grain loans. I specialize in that. I was in grain business many years before I came to the bank. So I am sometimes called a grain man instead of a banker.

I am very glad to appear here inasmuch as we are, of course, vitally interested in the hedging program of our borrowers. I might say that we haven't had a loss on a grain loan in the 25 years and I think that is due largely to the fact that our borrowers are properly hedged. We usually exact a 12% percent margin on warehouse receipts or grain documents that are deposited with us, and to show how dependent we are on the grain exchange, we get hourly quotations from the Kansas City, Chicago, exchanges and at the end of the day if there has been any change of consequence, the figures are put on my desk giving the standing of every borrower. If there are not extreme changes, it is done the following morning.. We are heartily in favor of the limited fluctuations per day. It gives everyone a chance to sort of clean house, you might say, and get in touch with the borrowers if necessary. We, too, are very happy in the fact that the exchanges

ave segregated their customers' accounts. We have several large rokerage accounts, and they are very punctilious about segregation f the customers hedging margins and so on.

The CHAIRMAN. Could you make your loans in the absence of a edging market? Mr. LANG. Yes, but we would have to have a much larger margin. Ve could make it. We would still function, but we couldn't do it rith high prices, as I think they are, on a 12-percent margin. That vould have to be increased.

Then, too, our interest rates, as you all know, are very low. Our verage for all of our grain loans would be about 15 percent. We ust cannot afford to take a loss.

The CHAIRMAN. You would have to increase the rate of interest? s that what you mean?

Mr. Lang. I think if our customers were not hedged, we would have to exact a higher rate of interest. That is my thought. That jasn't been talked over.

Senator KEM. Would there be any disadvantage to the producer, the farmer, if we did not have the open market?

Mr. LANG. I think so. Senator Kem. Would you work that out for us? Mr. LANG. A country elevator or terminal or any buyer of grain when it moves, if he was not in position to hedge, would have to figure, I think, in a wider margin to take care of an emergency, decline, and so forth.

Senator Kem. There would be greater cost in handling the grain and getting it to the market?

Mr. LANG. There would be greater cost in handling the grain and I think the farmers would not profit by it at all. That is my individual thought.

Representative HORAN. I would like to know what motivates those who attack this medium that provides the liquid market where the farmer can sell at will. We have heard from exporters of grain and people who actually perform service and now from one who underwrites the production of next year's crop, which is also important, all supporting the futures market and the grain exchange.

What motivates those who have attempted to place the futures market in disrepute?

Mr. Lang. I have always considered over my years of experience in the grain business and the banking business, that speculation is necessary. I am glad to see that the exchange voluntarily put on restrictions. Maybe you are too young to remember a person who tried to corner the market. The result was substantially a loss. In the meantime it did work a hardship on people while prices were

Representative HORAN. Then you think the attack on the grain exchange is a throw-back to the abuses that did exist at one time?

Mr. LANG. I think that is largely it.

Representative HORAN. Which subsequently has been corrected by the passage of the Commodity Exchange Act and the institution of business conduct committees in the exchanges themselves.

Mr. LANG. I think the officers and directors of the various exchanges are using every effort, you might say, to counteract the feeling that existed when there were abuses.

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Representative HORAN. At this period, Mr. Lang, when we recognize the serious situation, do you think that there is inherent in the personnel and membership of the grain exchange the ability to assist the Government through the period ahead of us?

Mr. LANG. I think they are a very high-class bunch of business Representative Horan. Do you think they have something to offer?

Mr. LANG. They have something to offer and something that would be helpful.

Mr. SLAUGHTER. How many years did you say it had been since you had a loss in a grain transaction?

Mr. LANG. We never had a loss in the 25 years.

Representative HORAN. I think we ought to call on you and your colleagues to supply that assistance. Thank you.

The CHAIRMAN. If there are no more questions, the committee will recess until 2:30, at which time Mr. Sanford and Mr. Strange will testify.

Are those the only two remaining witnesses?
Mr. SLAUGHTER. Yes, Mr. Chairman.

The CHAIRMAN. Then we will proceed with the New York Commodity Exchange.

(Thereupon, at 12:55 o'clock p. m., the committee recessed, to reconvene at 2:30 o'clock, p. m., of the same day.)

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AFTERNOON SESSION

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The committee reconvened at 2:40 p. m., at the expiration of the recess.

Senator FLANDERS. I think there are now a sufficient number of peoples assembled so that their instruction can proceed.

Mr. SLAUGHTER. Major Strange.

Senator FLANDERS. You will be the first witness, Major Strange. You have a prepared manuscript, sir?

Mr. STRANGE. Yes, sir.

Senator FLANDERS. Oh, yes, we have it right in front of us. You may proceed.

STATEMENT OF H. G. L. STRANGE, DIRECTOR, RESEARCH DE

PARTMENT, SEARLE GRAIN CO., LTD., WINNEPEG, CANADA

Mr. STRANGE. Mr. Chairman and members of the Joint Committee on the Economic Report, my name is H. G. L. Strange, and I am the director of the Research Department of the Searle Grain Company, Ltd., Winnepeg.

I thoroughly well appreciate, sir, the high privilege that I, as a Canadian citizen, have of being permitted to appear before your most distinguished committee.

I am asked to present to your committee a picture of the wheat handling and marketing situation as it exists in Canada.

Wheat in Canada is a state monopoly. I will try, as briefly as I can, to show how that sad state of affairs has fallen upon us.

In 1929 our Canadian wheat pools, a cooperative organization, which handle about 40 percent of the Canadian wheat crop, suffered a loss of $23,000,000, which they owed to the banks and could not pay.

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They lost this money because they had adopted a policy of marketag their wheat straight to millers of the world, without using the acilities of the Winnipeg open futures market. Senator O'MAHONEY. Who lost this money? Mr. STRANGE. Beg pardon? Senator O’MAHONEY. Who lost this money?

Mr. STRANGE. The Canadian wheat pools, a cooperative organiation handling 40 percent of the wheat.

Senator KEM. How much did they lose?
Vr. STRANGE. $23,000,000.

Senator FLANDERS. Were the members of these pools wheat raisers or merchants or what?

Mr. STRANGE. Farmers.
Senator Kem. Is that loss in 1 year or over a series of years?
Mr. STRANGE. 1 year.

Fearing political and economic repercussions if the pools went bankrupt, their losses were guaranteed to the banks by the Provincial and Dominion Governments of Canada, and the Dominion appointed an administrator over the pools' affairs.

From such a small beginning started the Canadian Wheat Board which, for some years up to September 27, 1943, functioned primarily as an agency to implement a guaranteed moderate floor" price of wheat, the wheat, however, then being sold through the facilities of the futures market.

This went along quietly until September 27, 1943, when the government decided that wheat was a munition of war, and should be sold to certain countries only and withheld from certain other countries, much of the distribution being a state secret.

The government, then, on September 27, 1943, temporarily suspended the Winnipeg wheat futures market, with the full expectation that it would be reopened as soon as the war was over. The wheat futures market, however, has remained closed to this day, and is still closed.

From 1943, therefore, the sole marketing agency for all Canadian wheat has been the government itself, through its Wheat Board which is headed by three commissioners.

Since 1943 Canadian wheat has become a complete state monopoly. Canada normally has to sell abroad eighty percent of all the wheat offered by sale by prairie farmers from an average crop of around 400 million bushels a year.

For the crop year 1943–44 the Government set the price of wheat to Canadian farmers at a considerably lower figure than the price reflected by the Chicago futures market. For that year, our farmers received $136,000,000 less for their wheat than they would have received bad they enjoyed the same price that American farmers were being paid through the Chicago and other U. S. A. open futures markets.

For the year 1944-45, our farmers received $147,000,000 less, and for the year 1945–46, $126,000,000 less than American farmers received.

Canadian farmers showed little discontent of these losses during the war years, feeling that this was their contribution toward the winning of the war.

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