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Most of the academic views presented are subject to little argument, but they are directed to futures trading in general and not particularly to futures trading in the highly perishable products. They seem to recognize no material difference in contracts that much be terminated by May of each year as compared to contracts where the commodity in question can be stored and brought forward indefinitely.
The professors contend that the futures market provides an excellent means of price protection through hedging. A few potato growers testifying in previous hearings stated that they had good results through the use of the futures market. An interesting sidelight on that is that in 1963, on a similar bill, Mr. Fenlon from Fort Fairfield, Maine, introduced into testimony letters from 23 growers and shippers of Maine potatoes stating how hedging had helped them in their farm operation. It is interesting to note that of the 23, one of them, Mr. Gilman Albair, who testified here today, is here in support of this bill. Of the remaining 22, 11 of them are out of business. It seems strange to me that something that was so glowingly praised in 1963 seems to have been completely abandoned since that time.
Those members of the industry who say they have actually experienced good results include some who probably could show success at some time who since have admittedly been badly disillusioned.
The fact is that nearly all of the so-called hedging in potatoes is a combination of an attempt to relate futures trading with cash operations on a ratio determined by the judgment of the hedger. Many questions arise, such as what proportion of the actual commodity to hedge, when to put the hedge on, when to take it off, when to shift to more deferred futures contracts. Problems and questions arise that baffle highly experienced experts and which are completely beyond the time and capabilities of most farmers or other users of the market.
The professors make it sound very simple but in 18 years of effort, the farmers have found it difficult and often disastrous. We see members of the industry support it staunchly and vigorously after a period of success and then appear quite as vigorously seeking relief from its advantages.
Some of the statements question how the potato marketing system would get along if deprived of the futures markets. This seems to either overlook or ignore the fact that about 85 percent of the potatoes are produced and marketed free of futures trading.
The opposition will tell you that future contracts offer the only source of credit for some farmers. This is untrue. I'm privileged to be on the board of directors of a farm credit organization and also serve on an advisory group for a bank and I can tell you that there are plenty of funds available to finance potato crops. This is not to say that everyone can get all the credit he wants; however, any farmer of integrity who has proven his ability to grow a good crop and has a recent net worth statement will find funds available. There are some gaps, of course, especially for young men who are trying to get started and have a limited net worth; but here again the Farmers Home Administration has done a tremendous job in helping deserving young men get started in farming. Many of them here in
this room today were helped by FHA. Of course, there have been some failures and disappointments, but the personnel of FHA need to remember that you don't get chips if you don't chop wood, so they should consider the many successes along with the failures.
But I'm not here to talk credit only to state that credit from futures contracts is great only for the fertilizer or supply companies who want to peddle their waves. They supply materials, sell the farmers potatoes on the board regardless of price to cover the cost. The results are that they get their's, but the gasoline dealer, machinery dealer, insurance man, and town tax collectors don't get paid which only exaggerates an already serious problem.
In any event, there are three main groups involved in this legislative controversy: (1) About 80 percent of the farmers are against futures because after 18 years experience and observation they are convinced-rightly or wrongly-that it is detrimental to their industry; (2) futures brokers and the futures exchange are heartily in favor of futures because it yields profitable commission. It has been estimated that futures commissions alone have averaged in excess-probably much in excess of $3 million per year. This isn't such an impressive figure by current standards, but in the eyes of the 1,850 farmers still trying to eke a livelihood from raising potatoes in Maine it looks pretty big; (3) a number of professors who express opinions generally favorable to the theory of futures trading. Looking back 18 years or more, it seems quite plain, that the divergent views will never be reconciled.
Some of the professors suggest that the growers need education so they will appreciate the futures market and use it properly. These men are expert in the field of education, yet it looks like after 18 years the farmers are still too ignorant to enjoy the blessings offered by futures. Apparently it is hopeless.
This is deadly serious to the Maine potato farmers. Their differences with the brokers and the exchanges cannot possibly be reconciled. It is strictly a question of whether they will be relieved of the speculative burden by H.R. 7287, or forced to work along under a handicap and continue their efforts for equality with the nonfutures area of the Nation.
I want to thank you gentlemen for the opportunity to be able to testify before you.
Mr. FOLEY. Thank you very much, Mr. Barnes.
We have five witnesses scheduled for the rest of the afternoon and the committee has been consulting as to whether to pick up the hearings again tomorrow morning at 10 o'clock. I do not want to inconvenience any of the witnesses that are yet to testify-Mr. McCaleb, Mr. Mooers, Mr. Tarburton, and Mr. Turner. Would any of you gentlemen find it difficult to be here tomorrow morning or would it inconvenience you in any way?
Mr. McCALEB. Mr. Chairman, it would be impossible for me to be. here tomorrow morning. I am Mr. McCaleb. I will not take more than 5 minutes.
Mr. FOLEY. All right, Mr. McCaleb, we are glad to hear your testimony.
STATEMENT OF W. F. McCALEB, JR., EXECUTIVE VICE PRESIDENT, ASSOCIATION OF VIRGINIA POTATO & VEGETABLE GROWERS
Mr. McCALEB. I am W. F. McCaleb, Jr., executive vice president. of the Association of Virginia Potato and Vegetable Growers. I am also the executive secretary of the State Seed Potato Commission of the Commonwealth of Virginia.
We are not directly affected, inasmuch as Virginia potatoes are not traded on the futures market, thank God. We are indirectly affected to a very great extent. To keep this short, I would like to have the privilege, sir, if I may simply file my statement, which you have, and elaborate on one or two of the provisions. I guarantee it will not take long.
The one thing that I want the committee to grasp is how, even though our potatoes are not traded on the futures market, futures trading adversely affects our crop and our growers. We inherit, since we start digging in the middle of June, this chaotic situation which you often have at the end of the futures contract in May on the trading of the Maine potatoes.
You have another situation. Many Maine growers like to hold their potatoes because they know the chaos that often results. They try to hold their potatoes out of their natural marketing period by the use of sprout inhibitors and all this sort of thing to keep the potatoes in condition that they can be sold in June and July. I do not blame them a bit. This is their economic salvation. But nevertheless, they compete directly with us and with North Carolina, for example, as has been already testified, whereas under a more natural marketing situation, this crop would already have been moved into the channels of trade.
From the standpoint of some people, a lot of people do not like to have to eat any more chemicals in their food than necessary. I do not blame the growers at all, because MH-30 is a safe chemical, but nevertheless, this is just one more thing.
I was frankly ashamed of our Department of Agriculture this morning, to see these men get up here and try to justify the shameless gambling that you have in a commodity, a crop that men spend their lives, their whole year's work can be just dissipated by the action of a few speculators.
I believe the figure in December of 1971 for the shipments, the carlot shipments from Maine, I believe was 1,935 cars. The actual contracts-in other words, the carlot contracts that were sold on the Mercantile Exchange in New York on Monday, this week, were 2,600 and some. In other words, they sold more contract in 1 day than Maine shipped potatoes in the whole month of December.
Now, if that doesn't show me, that it is gambling, and not legitimate hedging, then I do not have any common sense at all and I hope I still have a few remnants of that, even if I am closely connected with the potato business.
Mr. MCCALEB. Gentlemen, from the standpoint of the USDA, their statement to me was most unconvincing. To me it was just another executive department whom, I am sure you gentlemen know, never
let go of anything. If the Congress of the United States once gives an executive department a hand on something such as they have on the potato industry through this thing, have you gentlemen ever seen them letting go unless the Congress violently removed the hand? They do not want to let this go. This means more power, more status, more jobs for an executive department. I really do not think that these gentlemen perhaps think this, they do not deliberately believe this, but they instinctively do it. It is the instinct of an executive department to grab hold of something and hang on regardless of the merits of it.
Gentlemen, please free us of this additional burden. Lord knows it is difficult enough to hack it in potatoes without it. Thank you so much, Mr. Chairman. (Prepared statement follows:)
STATEMENT OF W. F. McCALEB, JR., ON BEHALF OF THE ASSOCIATION OF VIRGINIA POTATO & VEGETABLE GROWERS
My name is W. F. McCaleb, Jr., and I am the Executive Vice-President of the Association of Virginia Potato and Vegetable Growers. I have been instructed by the members of our Association, by resolution at its annual meeting to urge the passage of HR7287, a bill to prohibit futures trading in Maine potatoes.
Our potato growers and dealers oppose trading in Maine potato futures, because we feel that it introduces into the normal marketing of Maine potatoes a vicious element of speculation. Speculators are able to operate on much lower margins in speculating in potato futures than the margin requirements for stocks. The extent of the speculators interest is demonstrated by the fact that whereas Maine normally will ship around 60 carlots of potatoes each day, the number of contracts traded on the Mercantile Exchange will often run in the neighborhood of 700 or 800 contracts or even more in a trading day. We think this gambling is at the expense of the potato grower and most directly those of the State of Maine. However, all growers are affected because an artificially depressed price for Maine potatoes hurts the early Summer market for Virginia potatoes.
At the end of the May trading period each year, a large number of cars of Maine potatoes can be dumped on the market with a result that other states, such as Virginia, which begins to ship during the middle of June, are heavily penalized.
We feel that trading in Maine potato futures delays the natural movement of the Maine crop to market. It is natural for a grower to try to hold Maine potatoes into June and July in order to sell them at a time when he hopes that the speculative element will have concluded its fling. This delay in normal movement to market hurts the late Spring and early Summer states.
We would like to point out that it is possible for a legitimate user of Maine potatoes to protect his future needs by contracting directly with Maine growers. This bill would not prohibit a processor from entering into an agreement with a grower for the future sale of all or part of his crop. It would prevent the sepculative trading of that contract.
We do not feel that futures trading should be permitted in the case of perishable crops such as potatoes and onions. The Congress wisely, a few years ago, prohibited trading in onions futures to the great benefit of the onion producer. We respectfully ask your Committee to report HR 7287 favorably. Mr. FOLEY. Thank you, Mr. McCaleb. I am going to ask you if you would for just a moment remain seated because you have to leave and it would not be possible for you to come back tomorrow. If there are any questions of any members of the subcommittee of Mr. McCaleb, he will take them at this time.
Mr. MATSUNAGA. Mr. Chairman, I am late for an appointment now, but prior to leaving, I might make this statement, that when I was chairman of this subcommittee at one time, this matter was taken up and heard at length. I supported the measure then. I wish to reiterate my support so that those who are here testifying for the bill may have a better night's sleep tonight.
With that I leave.
I might say also that we have observed here today that the Congress, if not committee, especially, can do and does perform miracles. We heard not only from a has been, but we also heard from the dead.
Mr. FOLEY. I might just explain to those in the hearing room how it happens that as a junior member, I have taken over the chairmanship of this subcommittee from a very senior member, Mr. Matsunaga. He was elevated a few years ago to a position of great dignity in the Congress. He became a member of the Rules Committee and by a rather rare exception of our practice in the Congress, he came back to the Agriculture Committee. Usually when you are on Rules, that is all you are permitted to be on because it is so powerful a committee. So he came back to the Agriculture Committee. He did not come back in his former status as a subcommittee chairman, but he has a great deal of weight in the Congress broadly speaking, because whenever a bill, particularly our agriculture bills, go to Rules, we always know we have a friend on the Rules Committee in Mr. Matsunaga. He wears two hats and we are always glad to see him when we have to bring a bill before that prestigious committee. Thank you very much.
Mr. MATSUNAGA. Thank you, Mr. Chairman, for your most generous remarks.
Mr. FOLEY. At this juncture, if there is no problem with Mr. Mooers and Mr. Tarburton and Mr. Turner returning tomorrowMr. TARBURTON. I have about a 60-second statement. Mr. FOLEY. All right, we will be glad to hear you.
Thank you very much, Mr. McCaleb. We appreciate your testimony.
STATEMENT OF JACK TARBURTON, DOVER, DEL.
Mr. TARBURTON. My name is John H. Tarburton. My address is R.D. 3, Box 341, Dover, Del. I grow 170 acres of potatoes. I am presently president of the Delaware Potato Growers Association.
At a regular meeting of the Delaware Potato Growers Association on January 12, we again voted to support and ask your support of House bill 7287, an attempt to have potatoes removed from the commodity exchange.
I thank you, Mr. Chairman.
Mr. FOLEY. Thank you very much, Mr. Tarburton. That leaves only cwo witnesses to conclude the witness list. But because some of the committee members will not be able to remain much longer and I have been advised by Mr. Hathaway that particularly the Maine group will not be returning until 1 o'clock tomorrow afternoon, our schedule for tomorrow morning would give the subcommittee a greater opportunity to question the witnesses who have testified.