Mr. MEHL. No, I do not.

Senator MYERS. You think you should be given at least authority in excess of 50 percent?

Mr. MEHL. Yes, sir.

The CHAIRMAN. Mr. Horan?

Representative HORAN. Mr. Mehl, in testimony before our western subcommittee in Portland, Mr. Barbery, the head of the Portland Grain Exchange, made quite a case charging that Government operations, purchases of Government wheat, was the main cause for the skyrocketing of the grain prices. That has been refuted in statements to me by the Department stating that they got in early, bought heavily, and have stayed out since then.

In an attempt to stabilize the grain market, how are you going to use any authority we might give you to control speculation margins and to regulate Government activities in the grain market?

Mr. MEHL. Well, I would not have anything to do with regulating Government purchasing activities. The witnesses who follow me will be able to give you more authoritative information on the purchase program and its effect on prices than I could.

Representative HORAN. Who will correlate those two forces?

Mr. MEHL. As between speculation and Government purchases? Representative HORAN. Government purchases and regulation of speculative markets. They should be related and should be controlled by someone.

Mr. MEHL. Well, I assume that self-interest on the part of the Government would tend to insure an intelligent and orderly purchase program. But, as I say, that is outside of my field. As far as I might have anything to do with the margin program, I would be looking simply at the speculative market-the futures market.

Representative HORAN. Do I understand that the Secretary of Agriculture, then, would handle those two forces in addition to his other duties or would not someone under him have that initial responsibility to be checked on by the Secretary?

Mr. MEHL. I assume someone under him.
Representative HORAN. Who would that be?

Mr. MEHL. I believe perhaps Commodity Credit Corporation, Production and Marketing Administration. Mr. Carl Farrington is going to follow me, I believe, and that is his field.

Representative HORAN. That is all, Mr. Chairman.

Senator FLANDERS. Mr. Mehl, I find this table 2 exceedingly interesting. One of the things in grains that I see, glancing over it roughly, is that it seems to be the case that the nonprofessional accounts are mostly on the long side whereas the whole thing balances up, but the outside traders seem to be predominantly or, rather, overwhelmingly on the long side, as I look it over.

Now, does that in your mind indicate that the prices of wheat may have been pushed up? Does that make for a bull market and perhaps a higher price than would have existed if that large outside volume of accounts had not existed?

Mr. MEHL. That would put the pressure on price on the upside, of

course.

Senator FLANDERS. I was just trying to find out some point at which you could make a case for a margin control as a means of keeping

the price of wheat down somewhat, and as the chairman just said, that is the purpose of these hearings-to keep prices down.

I was just wondering if that were an indication that prices might be lower if those outside accounts had not been so large.

Mr. MEHL. That is entirely possible. As I said, it is very difficult to measure precisely what the effect is of that trading, or what it might be on the price. But we do know, as I say, from experience, and I think it is common knowledge, that when speculators get to buying, whether it is land or anything else, it exerts an upward pressure on price.

As to these people being predominantly long, I think the average fellow who is not in the business knows more about buying than he does about selling short, and over the years, I would say that the general public is found more often on the buying side than on the selling side. That was true here.

The CHAIRMAN. Are there any other questions?

Representative PATMAN. I would like to ask a question, Mr. Chairman.

The CHAIRMAN. Mr. Patman.

Representative PATMAN. You stated, in answer to a question from Senator O'Mahoney, that about 20 percent of these transactions are for hedging, which you considered worth while and helpful and legitimate, of course. That is about 20 percent. The other 80 percent, I assume, are speculative; is that right?

Mr. MEHL. The accounts are so classified; yes, sir.

Representative PATMAN. Well, do you believe that the 80 percent is necessary for the purposes that you have stated?

Mr. MEHL. Oh, there are some of these people that I do not believe have any business in the market at any time-bankers, bank officials and trust officers-but I do not know how you could eliminate them. Representative PATMAN. Well, you state that the exchanges are operating for a good purpose-to provide a real service for 20 percent. How would you eliminate the 80 percent in order to confine it to just the good part, the 20 percent?

Mr. MEHL. Well, I believe you could eliminate a good many in these classifications here without any damage to the market, but I think it is fundamental that if you are going to have a hedging market to serve the needs of the processors, that you must provide for some outside spéculation.

Representative PATMAN. But 80 percent is rather top-heavy?

Mr. MEHL. Well, this is in number. Of course, some of these have rather small accounts.

Representative PATMAN. In quantity, how would they be?

Mr. MEHL. I do not know how this would split. Yes: their trading amounts to a considerable quantity also.

The CHAIRMAN. Speculative accounts are 123,000,000 bushels compared to 86,000,000 bushels of the hedging. In other words, about 60 to 40.

Representative PATMAN. That is all, Mr. Chairman.

The CHAIRMAN. Are there any more questions?
Representative WOLCOTT. Mr. Chairman?

The CHAIRMAN. Mr. Wolcott.

за

Mr. WOLCOTT. You indicated that control over margin requirements on the Commodity Exchange were not necessary during the war because we had price controls.

The President has asked to invoke price controls and also controls over commodity markets.

Do you think both are necessary?

Mr. MEHL. Well, I have no business in expressing any views on price control. I do think that control over margins is necessary and desirable in these times.

Representative WOLCOTT. Would it be necessary if we gave the President the authority to control prices?

Mr. MEHL. If you had price control which fixed the prices on everything at prices below what they would sell for in the black market, there would not be any futures trading, but during the war, when there were price controls, there were many commodities in which futures trading continued.

Representative WOLCOTT. Is that because of the black market? Mr. MEHL. No, it would be when prices were below the controlled price. We had a fairly active market in cotton, you know, throughout the war. There were no price controls on the raw cotton, but there was price control on cotton goods. There was trading in wheat and also in corn.

Representative WOLCOTT. Do you recommend that we make no statutory limitation, or provide for no statutory limitation on the amount of the margin requirement?

Mr. MEHL. Yes, sir; I do.

Representative WOLCOTT. That would give the administrators, theoretically, the power to stop all trading on commodity exchanges; would it not?

Mr. MEHL. All except hedging trading; yes. Yes, it would practically give them power to stop trading in futures.

Representative WOLCOTT. Thank you.

The CHAIRMAN. Any further questions? Mr. Talle.

Representative TALLE. Mr. Chairman, perhaps I did not hear what the witness said, but I thought in answer to a question by the senior Senator from Wyoming, that Mr. Mehl said that there was no better reason for organized markets in.dealing with commodities than for iron ore. Did I misunderstand that?

Mr. MEHL. I did not quite understand you, sir.

Representative TALLE. Will you repeat what you said with reference to commodities in organized markets in relation to, say, the iron ore market?

Mr. MEHL. Well, I do not know about iron ore. I know that there were markets in copper and zinc before the war, and the principles of futures trading in those markets, of course, are the same as in agricultural commodities. I do not know what class of trade patronized the futures markets in metals. I have no information on that. But, generally speaking, an active futures market, such as the Chicago Board of Trade, the New York and the New Orleans cotton market, does attract considerable volume of speculation, and they become really the dominant markets insofar as futures prices are concerned. For example, I would say that the Chicago Board of Trade, on which 80 percent or possibly 90 percent of all of the trading in wheat

futures concentrates, is where the speculative trading centers. While the smaller markets are used for hedging, frequently such trading is reflected again in the larger market.

Representative TALLE. Well, is it not true that the nature of these commodities is so different, production methods are so different, that they really are not comparable? Metals are depleted whereas your commodities are recurring crops.

Mr. MEHL. Oh, yes; that is true. I was just saying that the principle of futures trading is the same in all commodities. The CHAIRMAN. Are there any other questions?

If not, we thank you, Mr. Mehl.

Mr. MEHL. Thank you, sir.

The CHAIRMAN. Is it possible to put that chart in the record?
Mr. MEHL. I will get you a photostatic copy.

The CHAIRMAN. I think it is very interesting.

Mr. MEHL. Yes, sir.

(The chart, and additional information supplied by Mr. Mehl, is as follows:)

UNITED STATES DEPARTMENT OF AGRICULTURE,

COMMODITY EXCHANGE AUTHORITY,
Washington 25, D. C., November 29, 1947.

Hon. ROBERT A. TAFT,
Chairman, Joint Committee on the Economic Report,

United States Senate.

DFAR SENATOR TAFT: As indicated at the hearings before the committee on Monday, the chart shown at that time has been reproduced, and 25 copies are enclosed for use of the committee. I am also enclosing copies of the table upon which the chart is based.

I am not sure whether full explanation was made as to the relation between cash and futures prices. There are a number of pricing elements, of course, which determine the size of cash premiums or discounts as compared to futures. Among these elements are grades, protein content of cash wheat, and time and place factors. The time factor is of special importance where comparison is made between cash contracts calling for immediate delivery and a future with maturity several months later. As the delivery month approaches, it is natural to expect the prices of cash wheat and futures to come together, allowing for any differences in grade and other factors.

Premiums for cash wheat over futures declined substantially between June and September. This is indicated in the attached table showing for midmonth dates the price of No. 2 Hard Winter cash wheat at Kansas City, the closing price of the near future on the Kansas City Board of Trade, and the cash premium. Kansas City is the most active cash market, whereas cash quotations at Chicago are infrequent. The relation between futures prices at Kansas City and Chicago has shown little change during the year.

As indicated by the table, futures prices rose substantially as compared to cash prices between June and September. It may have been noted from the table showing commitments of various classes of traders attached to my letter of November 19 that in this period the long speculative positions of reporting traders increased substantially while their short positions declined. The same type of change was reflected in the positions of small (nonreporting) traders, most of whom are known to be speculators. As of the end of June, small traders were still net short of the market and subsequently bought heavily, resulting in net long positions.

Comparison of positions of all speculators as shown by the survey of February 28 and the survey of September 17 also reflect this shift of speculative interest to the long side.

Very truly yours,

J. M. MEHL, Administrator.

Closing prices of near future, Kansas City Board of Trade, weighted average cash prices for carlot sales at Kansas City, and premium of cash wheat over future, on midmonth dates, January to November 1947

The CHAIRMAN. Is Mr. Carl C. Farrington here?

Mr. Farrington, we will go on until 12 o'clock and then I think I will take a chance on meeting at 3 o'clock again this afternoon, if that is possible, because I think that probably after the opening statements on this European aid, in the Senate, that we will probably recess.

Representative WOLCOTT. Mr. Chairman, I should call to your attention that there are several very controversial matters on the House side. I doubt if the House will be in adjournment by 3 o'clock. We have up the question of those people who refused to answer the questions as to whether they were Communists before the Committee on Un-American Activities. It is very doubtful that the House Members could be here.

The CHAIRMAN. If we cannot meet this afternoon, we will have to meet next week.

Representative WOLCOTT. May I suggest that you set the meeting tentatively and we will notify you as to whether we can appear.