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The Cuban sugar crop, as you know, is produced in 5 months and marketed over 12 months or longer. During the harvesting period, before the days of the exchange, Cuban sugar producers were forced to sell a substantial portion of their crop in order to liquidate with farmers and bankers regardless of whether the market was high or low. Consequently, prices were easily depressed.
The New York Sugar Exchange, where is possible to buy or sell for future delivery, changed all that. It provided the only kind of insurance where we and our farmers can now market our crops over a longer period instead of on & spot basis.
A free exchange, acting as a price stabilizer, is the only medium which provides a constant. competitive market and facilitates financing and eliminates risks which formerly hampered production and distribution.
W would greatly deplore any attempt to restrict the free functioning of the sugar exchange. Yours very truly,
THE FRANCISCO SUGAR Co.
S. A. SCHONBRUNN & Co., Inc.,
New York, November 28, 1947. Mr. John GARDNER, President, New York Coffee and Sugar Exchange,
113 Pearl Street, New York, N. Y. DEAR Mr. GARDNER: We wish to register a vehement protest against the contemplated plans of the administration to regulate margin requirements on the commodity exchanges and to also put the coffee, cocoa, and sugar exchanges under commodity exchange administration.
It is our opinion that the members of the various exchanges, through their respective clearing house board of managers, have the general welfare uppermost in their minds and fix margin requirements accordingly.
We think you will agree that margins that are set too high will undoubtedly restrict trading in some exchanges to such an extent that their functions will practically cease.
We have been in the coffee roasting, importing and jobbing business since 1899 and have found the facilities of the coffee exchange to have been of great assistance to our growth and progress. We have not only used it to buy futures on occasion and receive coffees for our use, but have used it to hedge purchases against market declines.
Many opportunities present themselves on various occasions whereby planters in the producing countries offer coffees for far off shipments and buyers of these coffees here take advantage of these opportunities to make attractive purchases and protect themselves from market declines by selling futures on the exchange; but to sell futures it is necessary to have a buyer which high 'margins might prevent. The benefit of these attractive purchases, through competition, are passed on to the consumer.
As coffee is an import commodity there are many factors to be taken into consideration when purchasing or selling, and it is our conclusion that the exchange acts as a great stabilizer on harmful prices to the consumer and on ruinous prices to the producer, and any impairment of its functions through governmental interference will be a calamity to the general welfare.
Appreciating your efforts in enlightening the proper governmental authorities so that they may reconsider their plan, we are, Sincerely yours,
S. A. SCHONBRUNN & Co., Inc.,
South Porto Rico SUGAR Co.,
Jersey City, N. J., November 28, 1947. John C. GARDNER, Esq., President, New York Coffee & Sugar Exchange, Inc.,
New York, N. Y. DEAR Mr. GARDNER: In view of newspaper comments that Congress, during the present special session, may consider legislation designed to increase Governmental control over commodity exchanges we wish to emphasize the importance to sugar producers of the maintenance of an exchange where the free forces of
supply and demand may reflect the true value of our product. We believe that arbitrary controls over the size of margins, or restrictions on the use of the exchange by speculators, only serve to narrow the market and thus make the use of the exchange by producers a hazardous operation instead of the protective function it is supposed to afford.
As you know, Puerto Rican producers purchase sugarcane from thousands of cane growers under a contract whose terms are drafted, or approved, by the Department of Agriculture. The price to be paid to these growers is the average as quoted in New York for each fortnight during which the grower delivers his sugarcane. The resulting sụgar is sold in cargo lots as it becomes available, but only as fast as the market can satisfactorily absorb those quantities. More often than not sugar must be marketed over a considerably longer period of time than the delivery period of the sugarcane. As long as Department of Agriculture determinations require the purchase of sugarcane on the simple average of daily quotations during a restricted period and the location of the Puerto Rican producers makes it necessary to sell raw sugar only when suficient quantities are accumulated for cargo shipments over a longer period, there must be available for all producers a free market place where small quantities of sugar can be marketed each day, if necessary.
The most important factor is for the volume of transactions on the sugar exchange to be great enough to reflect truly the real value of that product.
Speculators are helpful in providing that volume.
Although it is not often realized, speculators are both buyers and sellers and usually their net position in any market is small. Primarily they serve to provide the needed volume of orders so producers and users of the product may find a buyer or a seller, at a price, whenever necessary. Very truly yours,
W. C. KEMPER, Assistant to the President.
STATEMENT OF GEORGE C. SCHUTTE, PRESIDENT, NEW YORK
COCOA EXCHANGE, INC., NEW YORK, N. Y.
Mr. SCHUTTE. Mr. Chairman, my name is George C. Schutte I am vice president of Scarburgh Co., Inc., cocoa merchants of New York, and president of the New York Cocoa Exchange, Inc. I am appearing here as spokesman of New York Cocoa Exchange, Inc., of New York.
New York Cocoa Exchange, Inc., desires to register vigorous opposition to requests from the executive branch of the Government for power to fix margins on futures trading in cocoa as being against the public interest.
New York Cocoa Exchange, Inc., believes firmly that the margin power in commodity markets should properly be used for the purpose of guaranteeing the integrity and performance of the contract, and for this purpose only. The rate of margins must never be manipulated for the purpose of attempting to influence price at any time, by anyone.
The public interest requires that the Nation's great public market places be free at all times of any influences that can possibly interfere with the establishment of prices by the forces of supply and demand.
Our public market places exist to perform a vital economic function for the producers, importers, processors and consumers of our basic commodities. They perform this vital economic function efficiently in direct proportion to their breadth and liquidity. They are, above all, markets for hedging purposes, and all of the sound and proper factors which contribute to the efficient placing and removing of a hedge must always be nurtured and protected. They must never be discouraged, and the liquidity of the market place must never be tampered with.
The consummation of the placing and removing of a hedge requires two sides to the transaction. There must be a ready buyer for the hedge the seller must place, and a ready seller for the hedge the buyer must remove. The immediate availability of the other side of the hedger's transaction is one of the primary considerations necessary to the efficient functioning of the futures markets.
The highly complex economic factors behind this consideration have been exhaustively presented to your honorable committee by the grain trades over the past 2 days. Rather than burden your committee with further repetition of the basic exchange economics herein involved, in behalf of the New York Cocoa Exchange, Inc., I wish to enter into the record the fact that the same technical and mechanical conditions rule in the cocoa futures market as in the futures markets for the domestic commodities. Our exchange subscribes fully to the statement of the case as set forth by the grain exchanges on this matter. Excessive margins would damage the utility of the cocoa futures market, for the cocoa trade and for the public.
Cocoa is an import commodity. As such, unique and peculiar trade customs and conditions apply to its importation to these shores and its distribution to our people. We in the cocoa-import trade believe that a thorough and basic knowledge of all of these conditions is necessary at all times to the proper regulations of our market, including the proper rate of margins to assure its most efficient functioning. We believe that whenever new regulatory measures are necessary, the board of managers and members of the New York Cocoa Exchange are better qualified to determine them than any Government agency.
Current high prices of cocoa beans, wholly an imported product, can be attributed to the following causes:
1. General price increases and inflationary conditions not only here but in producing countries.
2. Supply and demand.
Cocoa, for the major part, comes from west Africa and Brazil, and is usually sold on 2- to 3-month shipping period spreads, and allowing for transportation elapsed time, it is not unusual for cocoa to arrive in this country 3 to 4 months after the time of original purchase. This makes the exchange extremely important--one from the standpoint of protection to the importer, and another that it provides a medium for assuring supplies on these shores.
Under the circumstances, it does not tax the imagination to estimate the effect of two monopolistic sellers controlling 78 percent of our requirements; British, 50 percent, Brazil, 28 percent.
The world cocoa market was brought to the United States of America by the establishment of the New York Cocoa Exchange in 1925, from London, Liverpool, and Hamburg. Formerly, a large part of African cocoa was shipped to these places and Amsterdam for transshipment to New York.
World monopolies now threaten the primacy of the New York market. The exchange must be kept as free as possible from any interference in order to fight the battle against monopolies and the exchange must not be throttled by domestic peacetime controls. Government controls in England, Brazil, and Santo Domingo could, in time, destroy free trading and dictate the fate of the American
hocolate industry which consumes over 40 percent of the world's production.
The New York Cocoa Exchange is the lone sentinel in the totalitarian world cocoa markets. It is the sole lighthouse in the sea of darkness which threatens to engulf trading in the cocoa supplies of the world.
Despite pleadings of 3 years, we have had no help from our own Government in combatting foreign monopolies.
The totalitarian controls of the United Kingdom and Brazil have been instrumental in driving spot cocoa up to 54 cents per pound during November. The highest price concurrently quoted for any month on the New York Exchange nearest to the spot price for that month is 45 cents for December futures, and every other active trading month into 1948 on the exchange has been progressively lower, September at one time being 15 cents per pound lower than December.
When spot British west African cocoa and Bahia cocoa in the United States of America commanded 54 cents per pound, September 1948 cocoa futures were being traded in at about 32 cents per pound or about 20 cents per pound lower than spot cocoa.
The exchange has been, and is, a thorn in the side of the foreign cocoa monopolies because it hearlds to the world the truer values of cocoa produced in the free producing markets of the world. If the exchange is throttled with any Government controls whatsoever at this crucial moment, it would be aiding and abetting the world monopolies who could obtain and perpetuate a death group upon our chocolate industries.
The CHAIRMAN. Can you tell us, Mr. Schutte, just how the British monopoly operates?
Mr SCHUTTE. Mr. Chairman, permit me to say I am prepared to discuss the effects of these monopolies, what effect they have had on recent current prices. However, if you would like to discuss the question of the British controls at any length, I would like to suggest that my colleague, Mr. Witkin, who was president of the cocoa exchange up until a month ago and who, with a committee of cocoa merchants, handled this matter for the past 4 years, is here and prepared to testify, if you wish, in a complete report.
The CHAIRMAN. Does the committee wish to go into any other matters on the cocoa exchange?
You may go on into the question of monopolies.
Senator O MAHONEY. I would like very much to have this witness, or any other witness, describe the monopoly. Mr. Schutte says in his paper "Despite the pleadings of 3 years, we have had no help from our own Government in combating foreign monopoly." Mr. SCHUTTE. Exactly, sir. Senator OMAHONEY. Will you tell us what those pleadings were, to whom they were addressed and what the foreign monopolies have been doing to your disadvantage and what you think can be done about it?
The CHAIRMAN. Are you prepared to do that, yourself? Mr. SCHUTTE. In order to save time, Mr. Chairman, inasmuch as Mr. Witkin handled that for 4 years, and can give a very full statement, I suggest he would serve better than I.
The CHAIRMAN. Mr. Witkin, will you take the stand, please?
STATEMENT OF ISAAC WITKIN, PRESIDENT, GENERAL COCOA
CO., NEW YORK, N. Y.
The CHAIRMAN. Will you tell us how the British monopoly operates? Maybe it is all one story. Tell us how that operates, what you have said, and to whom you have complained in the Government
Mr. WITKIN. My name is Isaac Witkin. I am president of the General Cocoa Co., in New York, which imports and distributes cocoa from all parts of the world. I have been in the cocoa business for 33 years.
I was one of the organizers and founders of the New York Cocoa Exchange and its first president, in 1925, and during the 3 years up to November 1, 1946, I was also president of the exchange.
I was also a member of a committee of three representing not only the exchange but the entire cocoa trade, excluding manufacturers. This committee was representing the importers, brokers, and distributors of cocoa, which has been coming to Washington with respect to all the problems of the United States cocoa importing and distributing trades before OPA, Department of Agriculture, State Department, and so forth. In that capacity, I have participated in making attacks upon a British white paper which was published during September 1944, wherein the Colonial Office asked the British Parliament for powers to make permanent its wartime controls of cocoa, carrying their powers into the peacetime period.
Since that paper was published the committee came to Washington, filed briefs with the State Department, had numerous interviews, wrote numerous letters, kept the State Department fully posted on what was being done in Britain to impose these controls.
During the latter part of that period, in fact almost the entire period except possibly the first year, the Department of Agriculture was in charge of regulating import quotas and the distribution of cocoa, regulating the manufacturers' grinding quotas on the basis of prewar years' grindings, and, generally, was fully cognizant of the efforts of our trade committee to induce the State Department to try to prevail upon the British Government not to implement the white paper on cocoa.
Despito all our pleadings and efforts, the white paper on peacetime control was enacted sometime during August or September of this year, possibly earlier and it went into effect with the commencement of the present year, which runs from October 1 to September 30, and this is the period during which the majority of crops from the producing countries of the world are harvested.
The CHAIRMAN. Do you know what the State Department did? Did they take the matter up with the British Government?
Mr. WITKIN. Yes; I think they took it up very, very vigorously from time to time. We were kept posted of what they were doing.
The Senator asked what specific steps we took. On December 11, 1944, my committee addressed a letter to Hon. Edward R. Stettinius, Jr., Secretary of State, giving him a full brief on the proposed control and our objections to it, and there were subsequent papers presented to the State Department. We were in touch with the head of the Commodity Division of the State Department regularly up to the time the paper was finally enacted. Our State Department informed us from time to time that it had assurances that American interests would be protected. At times we thought that the importunities of