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speculate on potato futures and have no outlet for potatoes. These people are forced to take delivery and have no method of disposing other than open consigned market. This has a tendency and usually results in an overburden supply at the end of May.
The history of the potato industry will show a deteriorated market condition at this time of the year, June.
However, if potatoes are to be traded on the mercantile exchange, they should be traded from all areas all seasons. If users or producers want to use this type of marketing for the purpose of hedging, there would probably not be a sudden dumping of unusual burdensome supply at the end of the year.
I do not have to tell you that for the past 20 years, the price of potatoes has not changed significantly. The other economy of American is roughly 100 percent above what it was 20 years ago. Farm supplies today cost roughly 52 percent more than they did 20 years. ago. If the economy of the farmer is any barometer of the economy of the nation, I think we are really headed for trouble and I think that anything that the U.S. Congress can do to help the economy of the farmer will certainly reflect in the rest of the country.
Thank you for your time.
Mr. FOLEY. Thank you very much, Mr. James. I want to say that your full statement will be included in the record.
Off the record for a moment.
Mr. FOLEY. The next witness will be Arnold Roach of the State of Maine.
STATEMENT OF ARNOLD ROACH, GROWER-MEMBER, MAINE POTATO COMMISSION, SMYRNA MILLS, MAINE
Mr. ROACH. Gentlemen of the subcommittee, I am a potato grower from Smyrna Mills, Maine. My name is Arnold Roach and I grow about 150 acres of potatoes, which are designed for the fresh market. I have been farming all of my life. I own and operate, for the past 20 years, farms which date back to the days of my grandfather. I am also a grower-member of the Maine Potato Commission which, as a group, is opposed to the potato futures exchange.
I appreciate the opportunity of being able to testify before you here today. I think you realize it is not often that an old dirt farmer like myself from the State of Maine has the opportunity to present his views before such a distinguished panel as this.
Now, I am here in support of H.R. 7287. I am wholeheartedly in favor of eliminating the speculation of my livelihood by the New York Mercantile Exchange. I am bitterly resentful of the fact that futures speculation has such an adverse effect on my efforts to merchandise my product in an orderly fashion. The exchange is a parasite. It lives off me and hundreds more like me. It offers very little of value to the Maine potato industry and it disrupts orderly marketing. Farming is an uncertain business at best. We fight the uncertainties of the weather, plant disease, farm labor shortages, chronic money shortages, acts of nature, supply and demand, and various other
hazards. There is very little we can do about the weather or other acts of nature, but, we can protest a manmade hazard; namely the New York Mercantile Exchange.
I don't contend that elimination of futures trading will solve all of the ills of our potato industry. It won't. But, by eliminating the futures trading of potatoes, we can go a long way towards restoring good merchandising practices in the potato industry. I am sure that you are aware that successful merchandising of any product is the goal of any industry. When this goal is disrupted by outside influences over which we have no control, and the exchange is just such an outside disruptive influence, then the industry is in deep trouble; trouble which is not of our own making.
I know that the USDA says that futures trading is good for us. On paper, that is a theory that reads well. In practice, futures trading does a great deal of damage, and their theory is utterly false. For example, they say that hedging of potatoes, a perishable commodity, is good business. In reality, hedging on the exchange comes back to haunt the entire industry in the merchandising of our crop.
A good example of the damage being done to our industry is that of some fertilizer and chemical companies and their hedging policies. These companies will advance fertilizer and chemicals to the grower for the planting of his crop. In return, the companies require the grower to hedge on the exchange enough carlots of potatoes to cover the cost of their fertilizers and chemicals. This hedging is normally required to be done by August 1. Since the summer months are usually the lower points of the exchange, this means that the carlots of potatoes are often hedged below the cost of production. These hedged potatoes are left on the exchange until the late winter months. -the same months in which our heaviest shipments to market occur. At this time, these companies, in order to receive the money for their fertilizer and chemicals, call the farmer who made the hedges, and tell him when to load the hedged potatoes. These companies, many of which are also buyers and sellers of potatoes, then begin overloading the market and cutting prices. They saturate the market with cheap potatoes. Their main objective is to liquidate their potatoes. This objective is in direct conflict with the industry objective, which is responsible merchandising. A chaotic market results. The farmer's hedged potatoes have returned to haunt, and to hurt him.
So I say who benefits from hedging on the exchange? The major commodity dealers lose. Potatoes for which they may have paid a fair price are now worth less than when they bought them. The former is hurt financially. The Maine potato industry receives another black eye. We have lost our orderly market, and now must sell our product cheaply or else hold the remaining crop and pray for better times. The whole industry has lost.
Hedging, prior to the advent of the exchange, was a common practice, and worked well for the industry. In this type of hedging, a dealer bought potatoes during the spring and through the early winter months. The farmer delivered these potatoes at an agreed upon date and for an agreed upon price. In this way, the dealer had the same objective as the farmer; higher prices. The dealer wished better prices for the potatoes he had purchased, and the farmer wished better prices for his remaining crop.
I have found that many of the large commodity dealers from the major markets with whom I have spoken, are also in favor of eliminating Maine potatoes from the New York Mercantile Exchange. They have told me that the exchange has a detriemntal effect on their merchandising of the Maine crop. Some dealers have said that they hesitate to handle Maine potatoes because of the erratic movements of the exchange, which makes the Maine product too hot an item to handle. They prefer to deal with other areas which do not have a potato exchange.
In conclusion, I would like to say that potatoes are a perishable commodity, and no perishable commodity should be traded on any exchange.
Thank you, gentlemen, for your time and courtesy.
Mr. FOLEY. Thank you very much. We appreciate your testimony, Mr. Roach, and we will call you back with the other witnesses in a short time.
Mr. ROACH. Yes, sir.
Mr. FOLEY. The next witness will be Mr. Danny Baldwin of Jackson, Mich. Mr. Baldwin.
STATEMENT OF DANNY BALDWIN, JACKSON, MICH.
Mr. BALDWIN. Mr. Chairman and members of the committee, my name is Danny Baldwin and I reside in Jackson, Mich. I am the president of the Michigan Onion Growers Association and also the vice president of the National Onion Association. My family is currently and has been involved in growing and marketing of onions for over 50 years.
As you know, years ago, the onion industry was united to rid themselves of futures trading. Thankfully, Congress responded favorably to this legislation. I wish to assure you, the onion people today are still and continue to be thankful to be rid of futures trading. Opposition to onion futures continues in our industry.
Since onion futures have been removed, our industry has not been problem-free. No one expected it to end our problems. We did return to normal supply and demand marketing methods.
We have not missed the suggested benefits of futures trading in a perishable product. In trade circles, onions and potatoes are considered similar perishable produce products. In many areas, the growers and shippers are involved with both products. City produce houses generally handle both products.
These potato growers here supporting this legislation are not suggesting it will end all their problems. These potato growers and shippers who have furnished the industry investment are the rightful representatives of the potato industry. Their only wish is to return to normal supply and demand free trade procedures. Their main message is a perishable product, like potatoes, does not lend itself to futures trading.
All pertinent agricultural organizations favor this legislation, with resolutions having been passed and submitted for the record. None of these agricultural organizations opposes this legislation. This is an amazing contrast: Several hundred thousand industry people
favor this legislation; a handful of brokers, speculators, or boardconnected people oppose. There seems to be minimum opposition in numbers of people affected by this legislation.
There have been volumes of books written on the advantages of futures and apparent success in some stable items, and this is not being challenged. No question of services to some, but perishable produce is different. In practice, the book is thrown away and the speculator is busy writing his own book.
These economic expert people have not lived through a chaotic futures market in a perishable commodity which results in an impossible cash market affecting in many instances innocent people.
The practice of hedging by growers-I feel some clasification on this subject is necessary. Hedging is a detriment, not an advantage. Hedging, first of all, encourages acreage and acreage produces surpluses. Most of the time, the hedged price offered is 10 cents per bag below cost, or sometimes, if lucky, a break-even price. In addition, if hedged and if the unusual happens and a good market came along, you are deprived of the opportunity of profit on an advance cash market.
The speculators' role also needs clarification. He is the grower's worst enemy. He soon learns it is easier to depress markets than build them. So he plays the short side of the market. He went short before the grower got out of bed in the morning, therefore resulting in a lack of buying power.
In addition, in practice, chain stores and produce people in normal marketing channels buy produce direct from shipping point when they need it. No common use as a buying hedge, like in grain markets, again resulting in a lack of buying.
Ridiculous situations can develop, where producers buy on the board to protect their investment in the cash market. Imagine this: Board representatives state the advantages to the potato industry are grower hedging and pass their risks on to the speculator. I state this is not true with a perishable product. In actual practice, most of the time, the hedged price is below cost of production and the speculator is the grower's worst enemy because he is playing the short side of the market. He is very anxious to depress, pressure, and sometimes manipulate down both cash and futures markets. He then can buy his paper at much cheaper levels.
Growers and shippers are the proper spokesmen of this potato industry. They have furnished the industry investment and raised the crop. Since this industry belongs to them, then their testimony must come to the forefront. Exchange brokers, speculators, and university professors can't speak for this potato industry. The board spokesman's only interest is less brokerage fees and quick profits at the expense of the industry.
In conclusion, I wish to assure you again that the onion industry today continues to be thankful to Congress that they are rid of futures trading. I believe the potato industry would benefit by the passage of H.R. 7287, to prohibit potato futures trading.
Thank you very much for your time and attention.
Mr. FOLEY. Thank you very much, Mr. Baldwin. If you could remain, we will call you back at the conclusion of the witnesses.
Mr. BALDWIN. Yes, sir.
Mr. FOLEY. The next witness will be Mr. Ronald Barnes of Fort Fairfield, Maine.
STATEMENT OF RONALD BARNES, FORT FAIRFIELD, MAINE
Mr. BARNES. Mr. Chairman, members of the subcommittee, my name is Ronald Barnes and I am a potato farmer from Fort Fairfield, Maine. In a partnership with my son, we produce 250 acres of potatoes for the cash market.
I have been connected with the potato industry in Maine for 30 years. My livelihood is directly affected by its ups and downs. Regrettably, the downs have generally exceeded the ups.
I started to refer to "Maine's potato industry," but I have to face the fact that for 18 years or more it has not been Maine's industry but a mixed up sort of operation involving not just the production of actual potatoes but including speculation by thousands of people having nothing whatever to do with raising or selling potatoes. These gamblers, speculators, or outside investors, if you like, far outnumber the farmers and have a direct effect on what the farmers receive for their crop.
This has resulted in the existence of two sharply opposing groups between which there has been a running fight ever since trading in potato futures became of importance. This bill, H.R. 7287, is the current chapter of the several attempts by the farmers to eliminate. the futures trading aspect of their industry. The fact that this question exists to any significant extent only in Maine potatoes, of course, makes the Maine farmers especially determined to rid themselves of what they consider a parasite from which 85 percent of the growers in the Nation do not suffer.
The opposition to futures comes from about 80 percent of those who produce the potatoes and has the endorsement and support of every major farm organization in the country. Those are the people urging passage of this legislation. Their views on the matter have been very constant during the years of controversy. Defense of potato futures trading comes from the mercantile exchange, the futures brokers and a minority group of producers, supported in varying respects by a number of professors and students of economics.
It is easy to understand the attack by the farmers and the defense by the brokers and the exchange.
The Maine farmers are against it because they are convinced that they would be better off without futures speculation, and the brokers are for it because they know it is the source of good commissions. Analyzing the reasons for the support by the professors is not as easy. Examination of the 75 or so statements the mercantile submitted from the professors shows that most of them set forth the uses of futures trading in general as found in textbooks developed since the practice was started over 100 years ago.
They dwell on such long-recognized principles as the basic illustration of a simple hedge in which a trader is long the actual and short the future. They emphasize that the markets provide places for the focusing of supply and demand forces.