« AnteriorContinuar »
a given year's crop, he should then hedge a portion of his crop to cover these expenses during the summer or fall on the futures market. Take a 100-acre grower who might raise 50 or 60 cars of potatoes that year, he might hedge 20 cars on the futures market at prices high enough to give him better than his cost of production. Then with careful evaluation of the cash market and the futures market combined, he can market the balance of his crop to give him the desired return on his investment.
With today's investment going up every year, the Maine potato farmer has to be really alert to realize a 10 percent or 15 percent profit on his investment. More and more the business of farming, whether it is just potatoes or more diversified farming, is getting to be an agribusiness on a large scale.
Those who have favored abolition of Maine potato futures trading have expressed the belief that the fluctuation of prices on the exchange has been a detriment to the street price or FOB price of potatoes. I say this past year's market is a realistic answer to this belief.
On September 15, 1971, when every Maine farmer had a crop grown and ready for harvest, the prices on the New York Mercantile cents Exchange were March $3.85/bbl., April $4.15/bbl., and May $5.35/bbl. These prices are realized by taking the prices on the exchange and deducting the freight to New York which is now 93 cents/cwt. I can remember just a few short years ago when the freight rate to New York City was 75 cents or an 18 cent increase or 28 cents/bbl. In just 5 years. But I feel that Maine is still in a lot better position than the Far West in respect to freight rate cost in that California's freight rate is approximately $3/cwt. to New York markets.
Now, on October 15 after the USDA crop report came out announcing a 7 million cwt. increase over last year, the prices on the exchange dropped to March $2.95/bbl., April $3.45/bbl., and May $4.05/bbl. I maintain that you cannot blame the New York Mercantile Exchange for this drop as it is a natural reaction when people who are buying see these figures they immediately look for cheaper prices.
I would like to point out this past marketing season as a good example of how the mercantile exchange helps the Maine farmer. After prices dropped in October, the board stayed relatively inactive, therefore it had no affect on the cash market which many claim upsets orderly marketing. With the board prices below the cash market, the farmer who had hedged a portion of his crop has two alternatives, he can either lift his hedges and take his profit, add this to the cash price and ship his potatoes early, or he can ship a portion of his crop that he hasn't hedged and hold his hedges for the actual month he sold, either March, April, or May.
In April the futures market led the cash market at times as much as 60 cents/cwt., therefore bringing the cash market along with it. This helped growers considerably because the cash market had remained fairly dull all winter staying around $2/cwt. to $2.25/cwt. By the end of April the futures market was still strong and this ulti
mately made the cash market come to its present price of $3.25 to $3.50/cwt. for Maine potatoes. I maintain that without the futures market these prices wouldn't have been reached until farming time when everybody is out on the land planting next year's crop.
Speaking of last year's crop, the Maine farmer had the advantage of hedging his potatoes before he planted them for better than his cost of production. This is why the Maine farmer should be using the exchange rather than trying to eliminate it.
These headlines appeared last year in the trade papers "Too Many Potatoes Again?" The USDA pointed out last spring that the 1971 late summer and fall potato acreage intentions are far in excess of the 9 percent reduction recommended by them in February. With average yields, and believe me the USDA guides are established with the idea that there will be enough potatoes for the country, if these guides are maintained the production from the intended acreage would exceed requirements by a wide margin. This could be expected to result in prices to producers next fall and winter which would be substantially below the cost of production. By using the futures market the Maine farmer could protect himself from these below cost of production prices. I was reading an article the other day in a journal put out by the California potato growers entitled "Dreamers." It read like this:
Most of us would like to go back to the old system of a few years ago-say 1935 when people ate a whopping 142 pounds per person, practically all fresh potatoes. With today's population, this could mean almost unlimited production and at a price you couldn't believe. Perhaps this is an illustration of one of our most serious weaknesses: too many of us are dreaming. Too many of us have our heads in the clouds. Too many of us refuse to face the facts of life. Too many of us have already gone down the drain because all of us failed to face those facts.
So you see, this Maine potato industry needs every tool that is available to them to stay and compete in this highly competitive industry.
The proponents of this bill advocate that the New York Mercantile Exchange prevents early shipping of Maine potatoes. I say that this is not so because we have a November contract and if any farmer wants to move potatoes in November or December, he can lift his hedges and sell on the early cash market.
I think one of the major reasons why Maine can't ship in volume early is because Long Island, New Jersey, Pennsylvania, and others are in the market competing with Maine potatoes at a very distinct freight advantage. They also maintain that price fluctuations hurt or disrupt the cash market. I maintain this can be helpful or harmful according to the supply and demand situation of the current crop today. Fluctuations today are minor as the daily volume of trading is down substantially from a few years ago.
Mr. Chairman, I watched the market situation all over the country this past shipping season and these are some of the headlines that appeared throughout the winter from various potato growing areas. "USDA Will Buy Onions in New York State" through section 32 funds because growers are experiencing marketing difficulties due to abundant supplies. As you undoubtedly know, Congress passed legis
lation to eliminate onion futures a few years ago. I wonder if this was the answer to their problem.
"Potato Diversion Asked" unless a diversion program is approved, many growers will be badly hurt and the effect will extend beyond the individual growers to the State's entire potato industry, a spokesman for the Washington potato industry said.
"California Potato Deal Is a Total Disaster" for growers of fresh market potatoes in Kern and southern Tulare Counties, the 1971 marketing season-now about completed-will be remembered as "a total disaster." Paul Franklin of the Kern County Farm Bureau, told the council of California growers that prices received by growers for the current crop "will average well under $2/cwt." "The most recent cost studies by the University of California show that the grower's break-even point is $3.23," said Francis Pusateri, executive manager of the Potato Growers Association of California.
"Long Island Spuds Gain in Quality but Price Declines"—on August 14, Long Island growers were receiving $2.75/cwt. for bulk delivered potatoes grading U.S. No. 1 size A (2 inch minimum) at central packing sheds. On August 21, one week later in the face of slow demand and plentiful supplies in northeastern markets, prices have been on the decline. On Tuesday, Long Island growers were receiving $2.50/cwt. for bulk delivered potatoes grading U.S. No. 1, size A (2 inch minimum) at central packing sheds. On Wednesday the price dropped another 25 cents to $2.25/cwt. Local operators claimed this was merely an adjustment to bring prices here in line with those in competing areas. This is a substantial price decline in a week's time and this cannot be attributed to the New York Mercantile Exchange which I am sure Maine growers would blame if this happened in Maine. Now, as to the current situation in respect to futures trading, I want to point out our supply and demand and price structure. On January 11, the USDA Stocks on Hand Report was issued showing a very good disappearance of 25.1 million cwt. of potatoes, but an increase in supplies in the eight Eastern and eight Central States of approximately 3.5 million cwts. over a year ago. The futures prices increased substantially the next day closing up for all months. March closed at $3.13, up 15 points; April closed at $3.35, up 17 points; and May closed at $3.95, up 25 points. I maintain this is the advantage the Maine farmer has over other producing areas. Our current FOB prices are $1.85/cwt. to $1.95/cwt. with a very dull market. The board prices converted to FOB prices are for March $2.23/cwt., April $2.45/cwt., and May $3.05/cwt. These prices will keep the Maine farmer from going broke.
Mr. Chairman and members of this subcommittee, I would like to make some comments at this time in regard to my good friend, Mr. Chipman Bull's testimony on January 20. He mentioned the manner in which the poll was conducted in 1970 and stated, and I quote, "No member of the council or any of its officers have had access to the voted ballots and nobody except the attorney knew how any individual grower voted." Now I know that there were several hundred registered letters sent out after the so-called deadline for ballots to be returned which I believe was October 10. My question to Mr. Bull
is "How did the Maine Potato Council know who to send these registered letters to if they had no access to the ballots?" Also, it is very interesting to note that every year from 1957 to 1970 there were from 500 to 2,000 ballots that were never returned. I wonder, Mr. Chairman, how these farmers would have voted had they returned their ballots?
Now, Mr. Chairman, I would like to comment on Mr. Bull's analysis of the USDA figures that show prices received by Maine farmers averaged higher than prices received by Red River Valley and southern Idaho farmers in 11 out of the last 15 years and for northern Idaho farmers in nine out of the last 13 years. Now, Mr. Bull states that you should subtract some exorbitant loading costs out of these figures to give a different story or picture. I submit to you members the cwt. price for the years of 1956-$1.21, 1958-$1.11, and 1961$1.14; now subtract the so-called loading charges that Mr. Bull suggests and what do you realize as a net price paid to Maine farmers for his potatoes? 1956-$1.21-$.70 $.51/cwt. or $.83/bbl., 1958— $1.11 $.70 or $.41 or $.67/bbl., and 1961-$1.14-$.70 $.44 or $.72/bbl. I ask you, does this sound logical to you?
Now as to the Idaho situation, I firmly believe that if the Idaho farmers were so adamantly against futures trading that I am sure they would have had a plane load of farmers here on January 20.
Mr. Chairman and members of this committee, I urge you to vote against H.R. 7287 as I believe the Maine farmer needs futures trading to stay in business in this highly competitive potato industry.
Thank you, Mr. Chairman, for allowing me this time to testify before your committee.
Mr. FOLEY. Thank you very much, Mr. Johnston.
Mr' Zwach, do you have any questions of anybody on the panel?
Mr. Clagett, I am impressed by your long years of experience in this area. You state on page 2 of your testimony that in 1968, there were 9 million futures contracts, in 1969, 11 million-plus; and each year to date, it went up.
Mr. CLAGETT. Yes, sir.
Mr. ZWACH. Now, I suppose these were mainly in agricultural productions, these contracts?
Mr. CLAGETT. I could give you a breakdown if you would like to have that. It would be primarily, though, I can tell you from my own personal knowledge.
Mr. ZWACH. They would be primarily?
Mr. CLAGETT. Primarily in agricultural commodities.
Mr. ZWACH. Was there considerably more profit by all the participants in the trade in each successive year? As the number of contracts grew, profits also grew? Do you have anything on that? Mr. CLAGETT. Sir, what do you mean by "trade?"
Mr. ZWACH. Number of contracts as they mature.
Mr. CLAGETT. Yes; I understand. Profit by what trade?
Mr. ZWACH. By the contracts that were exercised-I am thinking this way. I think the trade has grown wonderfully. But in 1968, 1969 and 1970, 1971, farm prices have continuously stayed down. Mr. CLAGETT. Yes.
Mr. ZWACH. The farm net income, until it looks like it might be reversing, has been down. It has not helped, all this growth has not really helped, seemingly, the return to producers. I wonder to what extent it has helped that trading in commodities and contracts.
Mr. CLAGETT. Well, sir, I think it has helped the producers. I think it has helped the farmer as the producer. I think it has helped each segment of the industry that has handled the agricultural commodities from the production to the time it was sold to the consumer.
I also believe, sir, that by hedging in the futures market by various segments of the industry, whether it be the farmer, the handler, the processor, the warehouseman, or who, he can in fact, sir, reduce the spread between the production and the consumption price.
Mr. ZwACH. You are convinced that without this growth and this market, farm situations would be even worse, would that be your assessment of it?
Mr. CLAGETT. Yes, sir; I think it would hurt the farmer if he did not have the opportunity to hedge in the various agricultural commodities that are traded on the various exchanges.
Mr. ZWACH. A certain small percentage of this trading was by producers themselves?
Mr. CLAGETT. Yes, sir.
Mr. ZWACH. That is all, Mr. Chairman, at this time.
Mr. FOLEY. The Chair would like to ask some questions of the witnesses, but I am, again, concerned with trying to finish today. I might just ask one question of Mr. Donald.
I found your testimony interesting, Mr. Donald, on the individual case you cited.
Mr. DONALD. Thank you.
Mr. FOLEY. In your experience with potato growers, have you had trouble with the growers on the other side of the contract? Mr. DONALD. When they become speculative?
Mr. FOLEY. Do you run into that in your business?
Mr. DONALD. It is a concern of mine in that I frown on it. They have certainly speculative position enough when they put their net worth on the line to raise 100 acres of potatoes. When they become speculative, either to buy on it, if that is what they do, or sell a greater amount than they should safely, I frown on that. It might conceivably affect their credit position.
Mr. FOLEY. I see.
Thank you very much.
Gentlemen, thank you all. As I say, we are under rather pressing time limitations here and all of you made very important and valuable contributions. I hope you will not feel that the lack of questioning from the panel here in any way indicates our lack of interest, but I am the one who has to proceed to get through the hearings and we have 13 additional witnesses to hear from.
Mr. JOHNSTON. Mr. Chairman, some of the group that came from Maine would just as soon turn their testimony in as give it orally. So as you call them, they said they would just as soon do that. Is that all right with you?
Mr. FOLEY. When I say we have 13 more to be heard from, I am counting on assurances I have already had from 18 that they will