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are also sold by Britain at the full world-market price. Why, asks this association of farmers, should our farmers be the only people required to subsidize Britain with the cheap product?

If we were dealing justly with this matter, we would have to give consideration to the farmers' right in the light of his experience during the depression, when he certainly produced at a loss


Representative HORAN. To recoup through the years a reasonable return upon his time, investment, and knowledge, is that not right, Mr. Strange?

The CHAIRMAN. Are there any other questions? Thank you very much, Major Strange.

Mr. STRANGE. Thank you, sir.
The CHAIRMAN. Mr. Sanford.


NENTAL GRAIN CO., PORTLAND, OREG. Mr. SANFORD. Mr. Chairman, my name is H. E. Sanford, and my address is 500 Lewis Building, Portland, Oreg. I am Pacific manager

, of Continental Grain Co. During the war in 1943 and 1944, I was given a leave of absence to serve in Washington as Chief of the Feed Section of OPA, in order to assist in drafting the maximum price regulations covering grains.

I think that all of us enjoyed hearing Major Strange, and I feel a little bit as if I were trying to sing opera right after John Charles Thomas.

I have been asked as a last-minute proposition to try to ɖo a little job of summing up, so to speak, sweep out the corners in some of the questions that have been gsked, and that some of us have felt have not been answered to your satisfaction, or perhaps entirely to our own,

We also have in mind that we should close by making as definite an answer as possible to charges that have been made against the grain trade in connection with gambling on grain exchanges, forcing up prices of grains, and contributing to the increase of the cost of living.

The other is the accusation that the grain trade are "greedy men, trafficking in human misery.'

Then we think, in closing, that we should give an outline, at least, of our suggestions as to what should be done. I think it is only fair that we should be asked to do that; that is particularly true, because whether it was the purpose of this hearing or not, the matter of the President's proposals in his message to Congress on November 17, and some of the recommendations of Secretary Anderson and his aids, have been injected into this hearing.

You may want to limit us in our comment on that, and I assure you that it will be brief. You have been very liberal as to time, and we appreciate it. I want to be as economic of your time and attention as possible.

I have made some notes, and I can say that perhaps one of my greatest problems at this moment is to read my own writing. These are notes of some of the questions that have come up during the last day, or at least, the ones that I have heard.

The first one that I have on my list is in regard to the subject of speculation and its effect upon the grain markets, and to what extent the speculation has been responsible for the rise in price.

Most of our witnesses have answered categorically in the negative, Ithough several have admitted that great speculative buying might ave a temporary effect on prices. I do not think that our witnesses ave succeeded in convincing Senator O’Mahoney, at least, that peculation is not doing the job.

I do not know whether the Senator's conviction or lack of coniction is intellectual or emotional or what the nature of it may be. frankly, I despair of changing his mind.

I would like to add my few words on this subject. I have been in he grain business for 30 years, and in the course of that business have lad considerable contacts with futures markets, but I would like to ay now that I have never made a trade for my own personal account n any commodity or, as it happens, even in any security.

That is not from any moral objection to doing that. I think there is nothing wrong about it for people who are in that public sort of position.

In our company, for instance, any employee who speculates in the commodity in which we are trading or even any other commodity would be immediately dismissed, if he were discovered. We do that because we want their entire time and attention devoted to our business and not to the business of speculation which, in our opinion, is a business of its own.

With that introduction, I would like to add that I had the pleasure of being a witness before Senator Watkins' committee in Portland. I was called on extemporaneously, and the president of the Portland Exchange, Mr. Barbaree, presented a statement which was prepared, and then I perhaps participated more in cross-examination than anyone else.

With your permission, I would like to read to you a few paragraphs from that statement in connection with the philosophy of speculation, you might say, the philosophy of price risk.

I had this in mind to do before I heard Major Strange, and I think he contributed quite a bit to that.

I also would like to say at this point that we had planned this hearing a little differently from the way it turned out. The arrangements had been made for a succession of papers to be presented which would deal with each of these subjects.

Owing to the length of the cross-examination, that had to be changed all around, to shorten things up, and I do not think that was adequately done.

I think, for example, that the hearing should have started off with certain definitions of the terminology that we use in the grain business, the definition of cash grain, a definition of just what a futures contract is, and a definition of a futures market.

I am not sure that Senator O’Mahoney still understands what a futures contract is, because yesterday, in cross-examining Mr. Cate, who represented the flour mills in this hearing, he talked about this matter of buying spot wheat at $2.88 a bushel in Kansas City, and how could he sell it in the future and deliver it at $2.68 in Kansas City.

Well, that is an indication, at least, that the full operation of the futures market had not registered with him.

We should have defined hedging, and we should have gone on with these other discussions.


I would like to read those paragraphs anyway because they do lead up to some of the things I am trying to say to you.

After some preliminary discussion of the situation on the Pacific coast, where we do not have hedging markets or futures markets on the Pacific coast. Except we attempted about 20 years ago, and did

, establish in Portland and Seattle grain futures contract markets. They were moderately successful for a time, but during the depression speculation died out, and trading died out until we reached the point where they are useless for hedging purposes.

For example, in 1930, the trading on the Seattle futures market was 15,000,000 bushels; the next year it was 12,000,000, the next year it was 5,000,000, and the next year it was 2,000,000, and this year it has been 544,000 bushels, to date.

Portland, in 1930, we traded in 197 million bushels; by 1942 we were down to 36,000 bushels; there has not been a single trade madein Portland futures market since 1942.

Now, we had discussed why hedging was necessary, which I am not going to repeat, but we went on to say, which you know I am sure, that it is in balancing the purchases and sale.

Senator MYERS. Might I interrupt you there? I wonder why you have no futures markets on the Pacific coast? You said trading fell

? off during the depression, but why do they not serve a useful purpose today and why therefore, have you not reestablished them on the Pacific Coast?

Mr. SANFORD. Speculation died out entirely during the depression.

Senator MYERS. I understand that. But why should they not now serve a useful purpose?

Mr. SANFORD. We have no speculators out there; they had such a bad experience when they got into the markets in the early thirties and could not get out of them. In other words, if they wanted to get in the market they had to bid the price up as much as 2, 3, 4, 5 cents a bushel.

Senator MYERS. How do you provide for your hedging operations?
Mr. SANFORD. We do not hedge.
Senator MYERS You do not hedge?

Mr. SANFORD. Unless you want to hedge them in Chicago or one of the eastern markets, and I might say that, owing to the pricemarket differentials between our market and the Chicago market and Minneapolis and Kansas City markets, hedging and these differentials are so uncertain and they vary so much that hedging there, to say the least, is a very dubious safeguard. Frequently it is much easier to guess whether the whole market is going to go up or down than it is to guess whether a hedge in Chicago is going to work out.

Senator Myers. I am merely seeking information. Then, why should hedging and speculation play such a vital part in other parts of the country if they play no part and are not necessary on the Pacific coast?

Mr. SANFORD. I might say, Senator, that on the Pacific coast we have had to resort to a rather primitive type of cash-grain business, where we have to match our purchases of wheat every day against the kind of wheat and the quantity of wheat which we can sell on that particular day.

The result of this is that, many days at a time, the farmers have no market for their wheat, and that happens, particularly, if there is a

rig price break. You get a rapidly falling market, and the farmer is tuck until that break is all finished.

Now, I must qualify that. That is an incorrect statement. He is tuck until the Portland price drops to a point where the grain can be hipped to Kansas City or to Minneapolis or to Chicago. On the basis of present freight rates, the minute the price reaches a point where he grain can be shipped to those markets and sell at the same price hat cash grain is selling at in those eastern markets, then we become ributaries to Kansas City, Minneapolis, and Chicago, just as much as ities in those States are tributaries. We have been that way several imes since I have been in the grain business, conspicuously late in 1933 and early in 1940. The CHAIRMAN. The freight reduces the price the farmer gets?

Mr. SANFORD. Ordinarily our price will range in Portland from 10 to 15 or 20 cents under the Chicago rate price.

Representative HORAN. What is the cash rate?

Mr. SANFORD. 55 cents a bushel. That is a bushel. T is a blanket rate from all over that territory into Chicago. Naturally, as we begin to come into line with the Chicago market, the point taking the highest freight rate is Portland. At those points the price is made by the Portland price less the freight. The higher the freight is in Portland, the lower the price is f. o. b. the country shipping point.

Then, you can add 55 cents to that, and that point begins to come in line. Do you want to pursue that any further? At that point we become a tributary to the eastern markets and we can then hedge safely. That does put a backstop under the decline which the farmer suffers. We can start buying the wheat then in unlimited volume. The rest of the time we have to wait until someone wants to buy some actual wheat from us.

I started to say that it was in balancing the purchases and sales of futures by bona fide hedgers that the speculator is a requisite to the marketing process. Without adequate volume of speculative buying and selling, no futures market can long exist.

While speculators are always on both sides of the market, some buying and others selling, prices must always move to a point where the net speculative buying or selling will exactly offset the net selling or buying by hedgers.

Maybe I went too fast for you, but the net position of all speculators, that is, sales minus purchases, exactly equals the net position of all hedgers, purchases minus sales. The two must equal. The excess of speculation above that must have speculators on one side and also speculators on the other.

For example, I won't read this paragraph because I just said it to you. Anyway, it describes how that net speculative position must exactly equal the net hedging position. I explained that with an example similar to the one I just gave you. I said, without the speculative trading, only 2,000,000 bushels of hedges could have been sold in this example. I think I had better give it to you because it doesn't make sense.

The CHAIRMAN. Mr. Sanford, really, we have had all of this testimony and there are three or four gentlemen waiting. It seems to me if you have something specific to add to what has been given, you should go ahead. It seems to me this is entirely cumulative up to

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this time, except for the portion about the Portland Exchang I would very much like, if we can, to get through and get som New York commodity people.

Mr. SANFORD. Yes, sir. I was not aware that you were tryin to get them on this afternoon.

We also had in the definition of speculation, which I won't repea because Major Strange gave it to you.

A question came up of who these speculators are, housewives an clergymen and so on. I don't know whether the objection to this on account of the effect on the market or whether it is a social problen whether you think that they should be protected from their folly Whatever that reason may be, I think that the indirect method margins controlling that, in spite of the jeopardy it might place o the market, is not the way to do it. If you don't want housewives t speculate, or clergymen to speculate, better pass a regulation tha housewives and clergymen cannot speculate. On the other hand the risk is very similar to your insurance risk. Housewives probabl own stock in insurance companies, perhaps. That is just as much speculation as in grain. Our rate on the grain elevator is % of 1 percen We have a 1,000,000-bushel elevator where we have 3,000,000 bushel of wheat. An insurance company would bet us $3,000,000 that tha elevator won't break down, and will bet $3,000,000 against our $3,750

We question why it is that the Secretary asked for authority uj to 100 percent margins. This is testimony before you on the 21s of November, Secretary Anderson said:

The Department believes that speculative activity may be curbed effectivel through regulation of margins on speculative positions in the commodity futures I believe it would impair the facilities necessary to hedging.

He goes on to say:

I would say that throughout nearly all of the war the exchanges were extremel cooperative in what the Department requested. The exchanges did regulat margins at our request. At the present time, as you are well familiar with, th exchanges have put through a change in margin specifications at the request o the Department of Agriculture.

Why, then, does he need power to regulate margins clear up to the 100-percent point. He knows that would close the markets. I would like to leave the question in your minds of the connection between that request and the request made days later that they be given full control and authority to take all wheat from the farmer and handle the entire thing themselves. I think if you refused allocations and price controls but grant the other request, you really will have been doing the same thing.

The CHAIRMAN. I got the impression the Secretary was willing to take 50 percent as the limit of his power to increase margins.

Mr. SANFORD. I am not going to repeat our testimony, Senator, that we think the margin should be an amount sufficient to guarantee the financial integrity of the contract, and that is the only bearing that margins should have on this subject. Who is the best judge of that? I don't know, but I should think it was the people whose money is being risked.

Representative HORAN. Is it not true, also, Mr. Chairman, that be did not want the thing written into the bill?

The CHAIRMAN. I gathered he did not particularly want it, but he did not particularly mind.

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