STANFORD LIBRARIES moval of the hedge, and/or the profit or loss, will be reflected in the actual shipment at the time of delivery. The mortgagee and the grower have accepted and enjoy the practice of using the Exchange in this manner. 5. Future prices reflected on the New York Mercantile Exchange has considerable effect on potato shipments to market. (Future prices are weighed against present day street prices.) STATEMENT OF LAWRENCE GOOD, MONTICELLO, MAINE Mr. Chairman and members of the committee, my name is Lawrence Good. I live and farm in the town of Monticello, Maine. In that town I am in partnership with my son in the growing and shipping of potatoes. We own and operate 300 acres of cultivated cropland and we plant each year approximately 200 acres of potatoes and 100 acres of oats. We have our own potato storage on track which holds 55000 cwt where we pack and ship our potatoes during the winter months and also buy from local growers. We ship approximately 200 trucks and carlots a year, which means that we buy and package about half of our shipments. We feel that the Mercantile has been of considerable help to us as a grower. Drought, weather conditions and various trouble factors during the growing season, many times raises a question as to the anticipated yield, and this, more often than not is reflected on the Mercantile Board in higher prices than the national acreage planted seems to warrant. When this happens, and it does almost every year, we usually hedge 20% of our crop by harvest time. As producers and sellers, the more places we have to sell and more time to choose some of the peaks helps us to market our crop to better advantage. The Mercantile is one medium where we can sell instantly and spread the sale of the crop over the year. We do use the Board to some extent when buying potatoes and it has been most helpful. The opportunity the futures market offers o protect a sizable purchase against an unexpected drop in the actual market, makes it possible to pay a grower more for his potatoes, as the risk is less. Both as grower and shipper I would feel more vulnerable without its support. STATEMENT OF GERALD ELLIS, POTATO BUYER AND SHIPPER FOR A. E. MOOERS Mr. Chairman and Honorable members of the Subcommittee on Domestic Marketing and the House Committee on Agriculture, I am Gerald Ellis, potato buyer and shipper employed by A. E. Mooers Company, Inc. of Houlton, Maine. I have been employed for six years in this capacity, and I wish to tell you I am strongly opposed to H. R. 7287 and wish to see futures trading of our potatoes continued without interruption. A. E. Mooers Company, Inc., as well as being buyer and shipper of potatoes, also for many years has been a clearing house member of the New York Mercantile Exchange. For the past six years I have been in an excellent position to see all aspects of the potato market from the purchase and sale of fresh potatoes to the sale and delivery of futures contracts through the mercantile exchange. I have seen both "good" and "bad" potato years and have had an opportunity to see various farmers and observe how they use both the fresh market and the futures contracts in their business. I would say that almost without exception there are farmers in both the "good" and "bad" years who make a profit in their business regardless of what the fluctuations of price are during any given potato year. These farmers are invariably the ones who sell a portion of their crop through the mercantile exchange for future delivery at times when they consider the price to be at a level sufficiently high so that they might assure themsleves of a profit. The farmer who appears to lose money year after year, even in years where at various times the sales price is well above their cost of production, is generally a farmer who does not take advantage of high prices offered in future contracts. It is generally the farmer who had little or no business background and merely hangs onto his potatoes from late fall until May or June with the gambler's hope that prices will be unrealistically high at that moment in history. It has been my observaion that a great percentage of those individuals who actually openly oppose the mercantile and futures trading actually use futures tradings at various times during the year. A great many farmers, however. do not understand the concept of futures trading and are either incapable of comprehending the concept or simply too stubborn to attempt to try to. It has been my experience in viewing futures prices that any price fluctuation caused by speculation usually results during the year in higher prices than supply and demand would warrant under the circumstances. This is due mainly to the rather normal phenomenon caused by ordinary speculators buying the commodity rather than "selling short." I sincerely feel that the majority of the individuals who locally oppose the futures trading actually want to make the New York Mercantile Exchange a whipping boy for the bad marketing conditions for Maine potatoes. These farmers want to blame something other than their own incompetence for personal busines failures. The smart farmer who uses futures trading is not in financial trouble in the State of Maine and makes a profit year after year. The Maine Potato Counsel, who year after year has been so strong in advocating eliminating futures trading, might better use the money spent to either educate the farmers in how to best use future trading or show the smaller ineffectual growers how to both produce and market their potatoes better. If it is not obvious to you gentlemen, it certainly would be obvious to your wives that the problem with the Maine potato industry is in the marketplace and not in the mercantile exchange. There certainly are good growers and shippers, but the housewife's opinion of Maine potatoes has been well earned over the past several years in that they are taking "pot luck" whenever they grab a bag of Maine potatoes in the store rather than a bag of Idaho potatoes, whose quality is under much better control. I have noticed in the last few years an increase in the use of futures commodities by farmers and fertilizer companies using this method for crop financing without the farmer having to go to his local bank or to the Farmers Home Administration for crop loans in order to help finance planting the crop. The fertilizer company on behalf of the farmer merely sells at some particular time that is deemed advantageous to both parties with a sufficient number of carloads on the futures market in order to guarantee payment. Futures trading enables the farmer to at any time during the year to sell some or all his crop at one time rather than to have to wait for the whim of a buyer in one of the large metropolitan areas. If futures trading does nothing more, it at least gives the farmer another choice in the marketing of his crop. STATEMENT OF BRIAN KETCHUM, POTATO DEALER, MARS HILL, MAINE Mr. Chairman and Honorable Members of the Subcommittee on Domestic Marketing of the House Committee on Agriculture. I am Brian Ketchum, a potato dealer in Mars Hill, Maine. I have been a potato dealer for 10 years, the last 6 years I have spent operating my own potato sales agency. I have been a director of the Maine Potato Council and past president of the Maine Potato Sales Assoc. In the Maine potato marketing system, I perform the role of a shippingpoint buyer. I purchase potatoes from growers, FOB, (all graded and packaged) and resell them to terminal-market buyers, chain stores, processors, seed receivers, and whatever other outlets I can uncover. Since being in business, a number of growers have become dependent upon me to market all or part of their crop. In turn, I have become dependent on them for a large percentage of my supplies. This mutual dependency has turned thes growers and myself into a loosely knit but viable working unit. My office performs a number of services for these growers. The value of these services is dependent on my having access to a potato futures market. For example, I supply seed, fertilizer, spray material, cash financing and machinery to these growers. The grower pays for these services by contracting potatoes for delivery to me at a later date. In turn, I use the potato futures market to hedge my contracts. There are occasions when the contract price will be higher than the potato futures market. Therefore, a profitable hedge cannot always be placed at the time the contracts are made. However, it can be expected that sometime during the season there will be ample speculation to fluctuate the futures market to where a profitable hedge can be placed. Without a potato futures market, I cannot continue to contract potatoes at the same price levels as in the past. In order to get the protection I need, it must come in the form of lower priced contracts to the grower. It is good business for any farmer to hedge potatoes on the futures market when he can sell at a profit. Any grower that markets through my office can hedge potatoes. I have made various agreements with the local lending institutions so I can provide hedging services to any of these growers. I am not qualified to debate the theoretical aspects of potato futures trading. However, I feel qualified to state the practical and monetary value of a potato futures market. Three such statements are listed below: 1. Many of the growers I work with are still farming only because they have taken advantage of profitable hedging opportunities. 2. Use of potato futures trading has helped build my office into a successful business. 3. By using the New York Mercantile Exchange, I am able to perform services for the growers at prices they can afford. Based on the previous statements, I have found the potato futures market to be an advantage to both the growers and myself. The State of Maine is losing potato growers at an alarming rate. Eliminating potato futures trading will not alter this situation. Banning potato futures will result in removing one very important tool the grower has to guarantee himself a profit. STATEMENT OF JOHN FINDLEN, POTATO GROWER, FORT FAIRFIELD, MAINE Mr. Chairman and Honorable Members of the Subcommittee on Domestic Marketing of the House Committee on Agriculture. I am John Findlen, a potato grower in Fort Fairfield, Maine. I have farmed for 18 years and have used the New York Mercantile Exchange to hedge my crop effectively. I use the Exchange for price protection with the full realization that there is still some risk involved. Nevertheless, future prices generally moved in the same direction as the price for the actual cash commodity involved. This is the axiom on which the hedging rests. In either market, the price direction will generally be the same, although the size of the price moves may differ. This difference still leaves the hedger with some risk-just like the businessman with his fire insurance that may not pay the full replacement cost when a building burns. But this same difference also gives the hedger an extra opportunity. At times he may realize an "extra profit" on his operations by using futures. I have operated the home farm for 18 years and my father before me for 35 years. Today larger buyers are concentrated in smaller groups, thus they have a tendency to dictate price. The New York Mercantile Exchange is the only avenue open for a free market to operate. Thus "The Truth in pricing." If this market is ever closed, then the farmer would lose his choice of selling to the cash versus future. When this happens, he would lose not only his freedom of choice, but his price advantage of competition. Over one hundred years ago, Oliver Wendell Holmes wrote, "I find the greatest thing in this world is not so much where we stand, as in what direction we are moving. We must sail sometimes with the wind and sometimes against it. But we must sail, and not drift, nor lie at anchor." This is true today, as it was then, even more so. It is unfortunate that so many today are unwilling to appraise their own situations and realistically take complete inventory of themselves as to whether they are moving ahead, falling behind, or just drifting aimlessly. So it is with the Mercantile Exchange. One must not be apprehensive about getting himself out of old routines, ruts or the like. It is only when we open up our minds to new and "fresh" ideas that real satisfaction and accomplishment will be both felt and recognized. It is essential to set ones course by the basic principles and standards which are the guide to good trading, good business management and worthwhile achievement. I feel the Exchange should evaluate their rules and see if they are going forward or aft. For example, why not cease trading March on the last day of February so that deliveries could be made thru the month of March. Potatoes could be "ex-pit" traded 10 to 15 days before the close of the trading of the near term month. Proper markups could be established. For example, 20 -$1 cwt.; 10-$1.40 cwt.; 5 -$2 cwt.; plus $.30 cwt. for washing and $.25 cwt. for additional sizing. I would much rather sell potatoes on the futures market than to sell futures on the cash market. By selling the futures or hedging, then lifting my hedge and selling the cash, the buyer has bought the daily market and is happy. The speculator has taken all the risk. STATEMENT OF MELFORD SJOSTEDT, STOCKHOLM, MAINE Mr. Chairman and Honorable Members of the Subcommittee on Domestic Marketing of the House Committee on Agriculture. I am Melford Sjostedt, a potato farmer in Stockholm, Maine. I have been a potato producer for 30 years and I now farm 75 acres. I feel that the Mercantile has a place in a potato farming operation. When the board price is up to cost of production or better, a farmer has the privilege of hedging a portion or all of his crop against future fluctuations. Except for the processor, where you contract 6 to 12 months in advance, this is the only place a table-stock producer can go to sell 5, 10, or 20 cars for future delivery. Although many cars are traded on the board, there is a small percentage that are delivered. However, if you do make deliveries, you receive a check by return mail when the potatoes are accepted. In most cases, selling to the trade you wait up to 30 days and sometimes longer. In the past 2 months we have had a good example where the board could be beneficial to the farmer. Prices have been from $.50 to $1.25 cwt. above the cash market for future deliveries. With the over-supply of potatoes the government says we have a hedge on the board that could mean the difference between staying in business or suffering a large loss. The cash market would have to improve considerably within the next 2 months to reflute this argument. STATEMENT OF PETER JOHNSTON, POTATO GROWER, FORT FAIRFIELD, MAINE Mr. Chairman and Honorable Members of the Subcommittee on Domestic Marketing of the House Committee on Agriculture. I am Peter Johnston, a potato grower from Fort Fairfield, Maine. I raise 240 acres of potatoes as well as peas and grain. I have been farming my father-in-law's farm and have been using the futures market. In my 4 years in marketing the crop, I have used the futures exchange. In the previous years, my father-in-law used the New York Mercantile Exchange extensively in marketing his crops. I feel this was and is a smart business practice. I am presently an Agway Cooperative grower and raise foundation and certified seed exclusively. It has been my experience that Agway takes 60% of the total production; the balance of 40% I market myself as table stock. In order to obtain a profitable price for these potatoes, I hedge them on the New York Mercantile Exchange for prices substantially better than current cash prices and better than my cost of production every year. In my opinion, the depressed prices that exist in the potato market today and have existed over the past few years cannot be attributed to the future market and so I urge this Committee to vote against H. R. 7287 as I feel the Maine farmer needs this marketing device to keep them in business and help assure better returns on their potatoes. STATEMENT OF ROGER A. MELVIN, POTATO GROWER, MONTICELLO, MAINE Mr. Chairman and Honorable Members of the Subcommittee on Domestic Marketing of the House Committee on Agriculture: I fully believe that future trading of Maine potatoes on the New York Mercantile Exchange should be continued. Going back somewhat in time, the STANFORD LIBRARIES only form of speculation that benefited Maine potato farmers were buyers from out of state markets. They would come into the state and purchase by the lot, therefore creating a demand through that form of speculation. That form of purchasing potatoes has long become obsolete. It has been replaced by a more effective method, the Mercantile Exchange. This exchange has given both the buyer and seller, regardless of size or volume of their business, an equal opportunity to trade potatoes. It is also my belief that with the daily report of the Exchange through brokers offices, radio, newspapers and television, the entire spectrum of the trading of Maine potatoes has broadened enormously, creating more speculation than we have ever experienced, consequently increasing demand and we cannot have demand without speculation. STATEMENT OF ROBERT R. MICHAUD, GRAND ISLE, MAINE Mr. Chairman and honorable members, I am Robert R. Michaud of Grand Isle, Maine, a farm equipment dealer very much opposed to HR 7287 presently pending before you. I am of agricultural background, and have been a resident of Grand Isle, Maine for the entirety of my business career. In addition to dealing in farm equipment, I operate and own a general supply store which caters to most of our area agricultural needs. I have personally been involved in growing, although I am still a potato dealer and merchant. I am oposed to HR 7287 because it would abolish the New York Mercantile Exchange with reference to its involvement with potatoes. I favor the Mercantile because I feel it is a valuable tool which, when properly used by farmers, provides safe, dependable, and profitable hedging and covering of future expenses by future sales at certain profitable prices. The Mercantile is there, and is being used by farmers in Aroostook County to a limited extent to protect the payment of certain expenses to be incurred in the future in growing a potato crop by future selling at prices at least equal to, if not above, the actual cost of production. There have been many abuses of the Mercantile, and these abuses are brought about not by the Mercantile, but by the people who use it, and use it improperly. The Mercantile is designed to be a tool to protect the farmer. It can be used by speculators, and speculators do admittedly use it with a fair degree of success, because they are professionals in the trading on futures markets, and because their business is that of investing and speculating. As long as speculators do the speculating on the Mercantile, no farmers will be hurt. The problem arises, however, when farmers attempt to follow their natural instinct to make an easy dollar by engaging in speculating activities when they know not enough about the operations of the futures markets. The result is historically documented as farmer money loss and sometimes farmer ruin. Again, I say this is because the Mercantile is being misused by a farmer who tries to speculate, and this is no fault of the Mercantile. In addition to being a valuable hedging tool and protection for the farmer, the Mercantile is now one of the very few remaining marketing tools for fresh potatoes. The economy of the potato industry has signficantly changed in the last ten to fifteen years. Processing trends are evident and prominent. A removal of the Mercantile at this time would accentuate the trend toward processing control of the potato market, and this to my mind would be undesirable since the farmer should have the option to process or sell on the fresh market and use the Mercantile as a tool, whichever he feels best suits his needs and desires. In summary, let me state that I am in favor of the New York Mercantile Exchange with reference to its handling of potato futures, in particular, Maine potato futures. I am against present bill HR 7287 for the above reasons. I appreciate your consideration of my thoughts in this letter, and invite any inquiry or requests for substantiation of my position at any time. STATEMENT OF RALPH G. SMITH, POTATO GROWER, CORINNA, MAINE |