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Mr. DENHOLM. Do you still sell membership?

Mr. MELAMED. These memberships are on open market, with demand and supply similar to all over the markets. There is a bid price, there is an offer price everyday.

Mr. DENHOLM. And can your members buy and sell in the market, too?

Mr. MELAMED. If they wish-they only own one membership at a time. You mean commodities or the memberships?

Mr. DENHOLM. Memberships?

Mr. MELAMED. Yes.

Mr. DENHOLM. Can they buy commodities in the market?

Mr. MELAMED. Certainly.

Mr. DENHOLM. Is it possible for a few buyers to buy enough in the market to influence price in the Chicago Exchange?

Mr. MELAMED. Well, you cannot buy unless there is a seller, so I do not quite understand. There are not at any given time-for every buyer, there is a seller. I do not really know how to answer your question other than that.

Mr. DENHOLM. Will you indicate if the members do not or they might not?

Mr. MELAMED. Well, the difference being whether a price goes up or down is the feeling whether the buyer wants to reach for a higher price or the seller wants to sell at a lower price and that makes the

movement.

Mr. DENHOLM. I am also concerned about futures trading and the movement of livestock because I have a lot of livestock feeders in my congressional district and across the State line in Iowa that are victims of sizable losses on futures trading. You are probably aware of the fact that there are many of them quite disgruntled at the present time because of the closing of the price in December or thereabouts. What happened on that occasion? Could you explain that?

Mr. MELAMED. Not at the moment. I do not quite know exactly what you are referring to so that I could cogently respond. Mr. DENHOLM. Are you familiar with the term "shortfall"? Mr. MELAMED. Not as such, sir.

Mr. DENHOLM. What do you call it?

Mr. MELAMED. I think what you mean is a decline in the market or a drop in price?

Mr. DENHOLM. I am talking about an increase in the futures and time when producers cannot deliver. It cost many livestock feeders several thousands of dollars because they could not deliver on the day the market closed and it closed over the contracted delivery price.

Mr. MELAMED. If they bought them, they would not be needing to deliver them, so I did not follow you. If they bought them they are long and they are going to take delivery, rather than deliver. The short is the one that would have to be making the delivery.

Mr. DENHOLM. That is exactly the problem. They could not make the delivery at the time the market closed, and they had to pay in the money. You operate on a nonprofit basis. So who got the money paid on the contracts by the producers?

Mr. MELAMED. Well, wait. The fact that he could not deliver means that he was not hedged with cattle. He was speculating in the market.

In that case, he was wrong if he had to pay a higher price and I am sorry for that. That happens to a lot of us.

Mr. DENHOLM. Are you suggesting that people should not speculate in the futures?

Mr. MELAMED. I am suggesting they should speculate when they know there is a risk involved and there is a loss that they can make. When they speculate, they should know that that is speculating. A lot of people should not be speculating, yes, sir.

Mr. DENHOLM. Mr. Melamed, in a concise statement, how does a producer know when he is attempting to hedge that he is not speculating?

Mr. MELAMED. That depends on his crop. If he has a crop-potatoes, cattle, soybeans, or whatever--and he can make a judgment, being an expert in that particular field that he is in, he is in production of that commodity and crop, how much of that crop he wants to hedge. He should certainly not hedge at any time more than he is producing because then he falls into the line of speculator.

Additionally, he should probably not hedge anywhere near what his total is going to be, because he realizes his crop is not going to come in what he estimated it to be. So his hedge should be a percentage of the crop to insure that percentage to at least a crop.

Mr. DENHOLM. Does any monetary advantage result on any futures market, and if so, does it originate from any source other than from producers? Do you have any other source of income other than from producers?

Mr. MELAMED. Well, the speculators-I mean whoever uses the market. The exchange shop charges something like 25 cents a trade. That comes from any one who is using the market. If there is more use by speculators, then the bulk of the money comes from the speculators.

Mr. DENHOLM. But it is at the producers' expense, is it not?

Mr. MELAMED. I would not think so. I think it is for the benefit of the producer who is using it correctly.

Mr. DENHOLM. You are referring to value judgments and that is argumentative. You are entitled to your opinion but that is a matter that reasonable people can differ on.

Mr. MELAMED. With respect to hedging, that is not really a value judgment; that is cost figures that he cannot figure out, in cattle, for instance, down to the decimal place of what it costs to produce and what a profitable price structure for hedging would then be. That is not a value judgment, that is economics and facts and figures. I think most farmers can figure that out pretty closely to the truth. Mr. DENHOLM. I understand the whole system of futures exchange. I do not understand how it has increased the efficiency of marketing at all. That is one of the major problems experienced by producers. We know producers have an excellent record of efficiency in production. We also know that efficiency in marketing has not equalled the efficiency of production. I am in doubt that futures trading is of any benefit to producers, particularly as to perishable commodities, and all of you have failed to convince me that futures trading and speculation by a manipulated system operated by nonproducers, contributes anything to the efficiency of marketing of commodities in the interest

of producers. I have asked you forthright questions to ascertain, if possible and in part-what is wrong with the economy of this great

country.

Mr. MELAMED. I think I tried to answer as honestly as I could that some of the problems are simply better technology in production, thereby cutting down the need for as many people producing as we used to need. And we are producing at a lower cost structure-I mean at a higher cost structure and thereby producing a less profitable structure overall.

Of course, there are many, many other things that economics can point to, what has happened to the profit structure for the farmer. He has been put into a terrible squeeze between production costs and profits at the end of the line.

Mr. DENHOLM. That is exactly the problem. That is why potato producers are discouraged-if I understand them correctly. I do not have a great number of potato producers in my Congressional District, but when the "cost-price squeeze" continues and the "shoe is pinching" the producers, economically speaking, are concerned about the speculation that is occurring at their expense. I am concerned about whether or not the futures trading in the exchange is contributing anything to our country or to the producers or to the consumers in the efficiency of marketing?

Mr. MELAMED. I agree with your statement up to the point that you tried to add the problem to the solution, because the problem, I agree, is there, with the cost-price squeeze on production and so forth as it relates to profits. That is true. But why this can be solved by doing away with the futures market escapes me in your conclusion.

Mr. DENHOLM. I have not made that conclusion. I am simply saying to you that the facts you have related leaves me in doubt as the material value of futures trading. I want to know from you experts that appear before us today, whether or not you are making any major contribution to the efficiency of marketing and if you are, how are you doing so?

Mr. MELAMED. May I answer that at our exchange, and this is the only one I can answer it for, to some extent, at least.

During the last, probably beginning the decade but certainly during the last 5 years, we have spent literally millions in trying to educate farm groups and associations in the proper use of hedging and of futures markets and in the improper use of it. In fact, we have discouraged speculation where the speculator-which is also a problem, because many speculators, as I pointed out, should not be speculating. I would answer to the farm group in Maine, if I could, that I commiserate with their problem and it is a very real problem. I think they are all very honest in their feeling that something should be done, and something should be done. But I do not think the answer lies in the direction that they are going and I think it is a problem with many ramifications toward which you will not find one simple solution, nor this one.

Mr. DENHOLM. Thank you.

Mr. Chairman, I thank you and the other distinguished members of our committee for permitting me to make this rather extensive inquiry.

Mr. FOLEY. It is a very interesting dialog and I wish we had more time to explore further questions with these very distinguished and knowledgeable witnesses. But unfortunately, there are people in the hearing room who have not testified and the Chair would hope we could conclude their testimony this afternoon. A number of witnesses have indicated their willingness to file their statements for the record, but I would hope to conclude with the actual given testimony before we have to adjourn this afternoon.

Gentlemen, thank you very much. You have made very helpful and informative contributions to the committee's consideration and we appreciate your appearance here, all of you.

Dr. GRAY. Thank you, Mr. Chairman.

Mr. WATTS. Thank you, Mr. Chairman.

Mr. MELAMED. Mr. Chairman, could I make one comment by way of offering to any congressman who wants to see how it operates and ask as many questions as he can, in all seriousness, we would like to provide the facility for answering those questions as honestly as we can. We invite anyone who is interested to the exchange so we can have a discourse and explain or answer and we would be glad to listen to any suggestions.

Thank you.

Mr. FOLEY. Thank you very much.

The next witness will be Mr. Lyle Jordan, farmer from the State of Michigan.

Before you begin, Mr. Jordan, any of the witnesses who are to testify this afternoon are invited and even encouraged, if they wish, to summarize their statements orally, with the assurance that their entire written statement will appear in full in the record. Off the record.

(Off-the-record discussion.)

STATEMENT OF LYLE JORDAN, FARMER, JACKSON, MICH.

Mr. JORDAN. I am Lyle Jordan. I live on a farm near Jackson, Mich. I have personally been growing and shipping onions for over 30 years. I have been through the period before and after trading in onion futures, and, believe me, I would rather have the futures trading then be without it. I admit that some of the rules needed to be changed, and both the New York and Chicago mercantile exchanges have agreed to a new set of rules which are set forth in the attached petition form which I recently circulated among quite a representative area of onion production in at least seven States and they were received and signed and mailed to some Senators and Representatives in the District of Columbia. I have not pursued this any further for several months, but I intend to because I hear more favorable comments all the time.

These rule changes, incidentally, were patterned to a large degree after the Maine potato contract, which I consider a good contract for the grower.

I have been raising and shipping potatoes off and on for 30 years; also, I have been trading in potato futures for at least 20 years for my own account and operating as an associate broker for 5 or more

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years, handling futures business for others; and I cannot understand why any grower would object to the opportunity to hedge his potatoes at a good profitable price which is offered to him at sometime during the marketing season almost every year since I can remember. I can understand why some dealers in potatoes don't like futures trading this is very easy to figure out.

The growers have many enemies who call themselves friends, but in my opinion, the efficiency of his planting equipment and the dealer, or processor, who helps to encourage acreage by financing and offering contracts which are little more than a small profit even if everything goes well during the growing season, are his biggest problems In a lot of cases, these same dealers dislike the futures trading and are the real cause behind the objections to futures trading today. Some growers are always looking for a whipping boy and now it is futures trading.

In my opinion, these problems are not futures trading but too many acres planted, and the surplus is just as bad in the varieties that are not traded on the futures market as the varieties that are traded on the futures market, and also in spring and summer crops which are not traded in futures markets at all.

Recently some rhetoric has been made by one onion grower about how happy the onion growers are to be rid of onion futures. Well, in 1970, I had the largest loss per acre in dollars in onion growing I ever had in 30 years because of surplus of supplies, and it would be pretty difficult to blame that in future trading in onions.

During the many years I was president, or on the board of the Michigan, Onion Growers and Michigan Muck Farmers Association and on the Governors Agricultural Advisory Board, I heard objections to futures trading but it seemed as though the objections were nearly always from a dealer or a grower who bought onion futures when he had a storage full at home and lost on both-and I suspicion that these are some of the reasons for the objections to potato futures.

Speculative shorts have been accused of driving markets down, but I don't understand how a speculative short in the market can be accused of depressing the market when he was to be a buyer before the contract expires.

I also think it is disgraceful when a legitimate businessman can be put out of business in this great country. I am wondering what would be next after potatoes will it be grains? Metals? Live hogs? Live cattle? Meats? If you listen to the objections because of perishability of potatoes or onions, then think of meats.

I believe that if H.R. 7287 is passed, it will be a mistake and some of these same people who are asking for passage now will be asking for repeal in a few years—just like some of us in the onion business are at the present time.

I thank you very much for the opportunity to be heard today, and I want to reemphasize that many of us who are growing onions would welcome a futures market with a contract designed to offer us an opportunity like the Maine potato contract has to offer to the Maine potato grower.

Thank you.

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