I would be glad to have any comments from any of the three of you on that point. Mr. FRAZIER. Well, not having a great number of figures and numbers with me, as I said a moment ago, I cannot produce a great, quick array of facts for you. But I do think of two things that may be helpful, sir. Earlier in the testimony, one of the other witnesses referred to a USDA Report, Marketing Survey Report No. 2. The Chairman was going to make it a part of the files for your consideration. I notice on pages 20 and 21, there are some charts that relate the amount of short hedging as it swings through the months of several years, here, 1964 through 1971, and the relationship of Maine cash prices to the futures market as they are simultaneously quoted for each of these periods. There is, of course, a remarkable correlation between these two price schedules. I think the point I am trying to make is simply this: As compared to our wheat or our cotton or our corn, that is widely held, widely traded, a large part of the crop moving to export and other uses, there would naturally be, if I may coin an expression, a bringing together of market forces in futures trading that might actually contribute to stabilization of the price as you go week-to-week, month-to-month through the years. But if I understand this thing correctly in the case of potatoes, being a smaller crop held in fewer hands, even counting the jeweler and the blacksmith and the Florida housewife, and so on who may play in the futures game, since it is held in so few hands, it might at least be more susceptible to swinging back and forth under the influence of a few smart brokers. And I, of course, have no record to present and I make no accusations at all of the members of the trade. Of course, most of them would surely be honest men and the trading legitimate and in accord with the rules. But at least I believe a number of our producers are convinced that this potato futures market is at least susceptible to influence by a smaller number of men trading in the market, and they at least do fear the consequences that this may bring on their cash prices. Mr. FINDLEY. But the futures market is certainly out in the open. You see what is going on, you see the prices, you see the quantities. In the absence of a futures market, is it not also possible, at least, that the transactions, which would be less in the open, less on the record, less visible to all interested parties, could be really manipulated by still fewer hands and in less obvious ways, to the disadvantages of the producer? Mr. FRAZIER. Possibly, sir; but I believe we have in this country today a pretty good system of market news reporting on cash trading, you know, both in grains and in these perishable commodities. So I think our producers have available to them pretty good quotations on cash trades, surely. Mr. FINDLEY. Thank you, Mr. Chairman. Mr. SISK. Thank you, Mr. Findley. Just one or two very brief questions. Mr. Mercker, just for purposes of the record, I think we should ask, in regard to the Vegetable Growers Association of America, you are not representing them here today? Mr. MERCKER. No, that is right. Mr. SISK. You are here only representing yourself? Mr. SISK. I want to be sure because you have been here previously in support of some of the legislation that we have now. Mr. MERCKER. Yes, several years ago. Mr. SISK. I want that on the record, to be sure we understand. It is not necessary for you to have an opinion, but I wanted to be sure that we have it clear on the record that the organization of which you are executive secretary is, in fact, not opposed to the legislation. Let me post one quick question to you, Mr. Brooks, or to any of you who want to comment on it. Let us assume for the moment that my broker called me last night and told me that he thought a purchase of Maine potatoes on the May futures might be a good investment. So I arrive here in the committee and suggest to some of my colleagues that I understand there is a good chance that potato futures may be going up, I am going to buy a thousand carloads for May. I am requesting my broker to purchase a thousand cars. The 36 members on this committee have some confidence in my broker, so they also purchase. We buy 36,000 cars of Maine potatoes today. What would the normal effect be on futures on a purchase, saythere may have been a number of other purchasers. What would be the effect on the market for May? Could you comment on that, Mr. Brooks? Mr. BROOKS. I have no idea. Mr. MERCKER. 36,000 cars? The price would go through the ceiling. Mr. SISK. All right, let's assume Mr. BROOKS. The limit, I understand-you know, the commodity exchange puts limits on the extent of trade. Mr. SISK. I recognize there are. But you understood I am setting up a hypothetical case. If it were grain, it would be different amounts. But we are talking about Maine potatoes today, and for purposes of illustration, the price would substantially go up, is that not correct, regardless of limitation? I know you do have limitations, but the price would go up. It would not go down? It would go up? Mr. MERCKER. It would go up, yes sir. Mr. WATTS. Not necessarily. Mr. SISK. Why would it not go up? Mr. WATTS. Because there would be sellers. Mr. SISK. I was going to ask you a followup question. Let us assume that the next week, we went in and sold 36,000 carloads of Maine potatoes. What would be the effect then? I think in line with what Mr. Mercker said, he kind of let the cat out of the bag, the price would go through the floor. Now, what I want to know-that brings me to that question that I want to ask--what in the world, what conceivable concern or interest would there be in the effects upon a purchase, whether it was from this group or some other group, of destroying or knocking the bottom out from under future prices for May-what effect would supply and demand have? Is it not a fact that really, these future tradings really have little or no bearing on supply and demand? Mr. BROOKS. Oh, may I say that I think they are the greatest barometer of the results of supply and demand that you can find. Mr. SISK. Well, there again we know-and I understand of course --that there are certain limitations and the market is regulated. But the point is that the opportunity is there to drive the market up or drive it down, depending on the benefits that will accrue to the purchasers or the sellers at any given point, without any respect or regard whatsoever about its effect upon the cash price to the producer who has to sell a perishable commodity. I am not talking about grain or cotton, which frankly I think fall into entirely different categories in futures trading. Is that not a fact, Mr. Brooks? Mr. BROOKS. Well, attempts have been made to make a case for perishables vis-a-vis storables. That one should be one way and one the other. I do not necessarily agree with it. I have seen grain markets start out pretty thin and all of a sudden, there gets to be some substantial interest because of some firm news as to market demands, and a lot of people go into the market. In the short run, when you get a sudden surge of buyers and sellers, there is a surge on the upside or the downside. But it does not last long. Mr. SISK. Now, we had some testimony before this committee that 1 year I think in 1970-there were 560,000 or some 500,000 odd carloads of Maine potatoes traded on the New York Mercantile Exchange. Well, the point I am making, Mr. Brooks, is that was many, many times the total amount of Maine potatoes produced. So what effect had that buying and selling of vast amounts of, really, paper, on the true value of Maine potatoes, and the production and consumption within this country? It had absolutely nothing, in my opinion. That seems to me to be the crux of the concern that my producers have, and I have the feeling that the producers have, and I have the feeling that the producers of Maine potatoes have. They are willing to work on the basis of supply and demand to supply the food and fiber that the people of this country need, but not to have it arbitrarily affected through, let us say, capricious action on the part of individuals as speculators, completely separate and apart from the interests of the producer. That, really, to me, is the guts of the question we are talking about here. Mr. DENHOLM. Will the chairman yield on that point? Mr. SISK. Yes, sir. Mr. DENHOLM. Thank you for yielding, Mr. Chairman-I think Mr. McIntire made the statement about a man who had average good health all of his life, but had poor health on the day he died. You have stated in summary, Mr. Chairman, substantially that in conclusion. Mr. SISK. Well, gentlemen, we appreciate very much your testimony here. I do not mean to beat anybody over the head. I recognize this is a controversial question. It has been before the Congress many times. I notice some statement in here by-I believe you, Mr. Brooks— that the 90th Congress had not recognized this in its amendments to the Commodities Exchange Act. Yet as you are, I am sure, aware, these people from Maine have been before this Congress many, many times, requesting the elimination of futures trading in Maine potatoes. Mr. BROOKS. Yes, sir. Mr. SISK. When I find the Governor coming down here and the State Legislature of the State of Maine unanimously on record on a position, and these people are all elected officials, it leaves me a little bit concerned. I understand the case that people representing the Mercantile exchanges have to make; I recognize their personal interest. We all have our own parochial interests to defend. I am not criticizing the right to defend that position. I think our position as members of this committee is to try to sift through this great amount of testimony and come up with what we hope, in the final analysis, will be action in the best interests of the producers of potatoes. That is the responsibility of this committee, in the final analysis, to the consumers of America. We appreciate very much your attendance. Mr. MERCKER. Mr. Chairman, I would like to add one thing. I did work exclusively on potatoes. I was assigned by the Government in 1929 through when I retired in 1956 and ran all these potatoes. I saw the heartbreaks, the good years, the moderate ones, the too bad ones, and bankruptcy in many, many cases. And to them, I did propose and wrote the Maine Potato Tax Act, to tax for potato advertising. Then I had to write one for Idaho, and I had to write 12 others. All told, I wrote 14 State tax acts, to get funds with which to advertise potatoes. Now, I am entirely in sympathy with all of those programs and would like to see them continue. I just want to get that into the record, because I watched this situation carefully and I have tried to do everything that I can to help the potato grower at all times. Mr. SISK. Well, thank you very much, Mr. Mercker. I know we have some interest in potatoes out in California. My district is not a big producer, but I have an adjoining district which is a very large producer. Again, the committee wishes to thank all of those of you who have taken an interest and who have been here, and I particularly want to express appreciation to the members of this committee, the ones who are here and the ones who have been here, for their patient and concern. Mr. DENHOLM. May I make a comment before adjournment? Mr. DENHOLM. I thank all of the witnesses for appearing and I appreciate the contribution of each to the record, Mr. Watts, in particular, has been very cooperative. I am left in doubt as to exactly why such gentlemen have appeared in opposition to the bill. I think possibly the brokers should have been here instead of you. Obviously, I conclude that you really do not have any personal interest, that you have come here at your own expense to oppose the bill as a matter of principle. Mr. BROOKS. I am located here. I am representing a group that is interested in open and competitive markets. We regard this as that sort of market and believe it should continue. Mr. DENHOLM. Are you appearing here as an individual? Mr. BROOKS. I am appearing here for the organization that I am employed by, the National Grain Trade Council. Mr. DENHOLM. You have heard the testimony of Mr. Watts, have you not? Mr. BROOKS. Yes, sir, I did. Mr. DENHOLM. There is no profit incentive for you to be here personally or for your organization, is that correct? Mr. BROOKS. This is correct. Mr. DENHOLM. You are simply standing on a principle? Mr. BROOKS. This is correct. Mr. DENHOLM. That is why I commend you for coming and for your testimony today. It appears to me the brokers should be here instead of you. Thank you very much. Mr. BROOKS. I am not representing brokers, do not misunderstand me. (The following letters and statements were also submitted to the subcommittee:) STATEMENT OF HENRY H. WILSON, JR., PRESIDENT, BOARD OF TRADE OF THE CITY OF CHICAGO I am deeply grateful for this opportunity to participate in this hearing on H.R. 7287 which proposes to prohibit trading in Irish potatoes for future delivery on any commodity exchange in the United States. As the world's leading futures market for agricultural commodities, our organization is devoted wholeheartedly to the strengthening and expansion of trade in futures because it is good not only for farmers, but for all segments of our society. The closest approach to perfect competition in price making is offered by an active and well conducted futures market. Competitive price making in futures is diametrically opposite imperfect competition and monopoly. One of the great lessons of economic history is that market trading, fairly and freely conducted, is a continuing safeguard against those who rather prefer economic advantages through special or even monopolistic advantages. The commodity futures system became standard commercial practice in the United States because it is associated with the public interest. Moreover, it had proved its capacity-in spite of many trials and errors-to stand as a bulwark against monopolistic forces in marketing. Perhaps even more significant, the futures trading system, notwithstanding imperfections, maintains equitable priciples of trade. Futures trading on commodity exchanges have developed and expanded in importance because it grew up with, and proved adaptable to, our other free institutions. It became an essential segment of commodity marketing because the forces of supply and demand were focused into a changing central price available for one and all, because trading was conducted openly, and because anyone with financial ability to trade could participate in the market, and therefore in the pricemaking process. By offering a proven system for shifting the risk from producers, handlers and processors to those who wish to assume them, the futures market makes possible low cost financing of the crop movement and reduces marketing costs for both producers and consumers. Thus, commodity futures markets serve the public well. These markets serve the world-there is no substitute. This is the reason for existence. |
