TUESDAY, MARCH 18, 1958.

MARKETING OF AGRICULTURAL COMMODITIES

WITNESSES

CARL C. FARRINGTON, CHAIRMAN, REPRESENTING GRAIN TRADE COUNCIL

RAYMOND J. BARNE, REPRESENTING NORTH AMERICAN EXPORT GRAIIN ASSOCIATION

DEAN EVANS, REPRESENTING GRAIN & FEED DEALERS NATIONAL ASSOCIATION

RALPH HAGMAN, REPRESENTING FEDERATION OF CASH GRAIN

COMMISSION MERCHANTS ASSOCIATION

ROY F. HENDRICKSON, REPRESENTING NATIONAL FEDERATION OF GRAIN COOPERATIVES

JULIUS MAYER, REPRESENTING CHICAGO BOARD OF TRADE WARREN E. ROOT, REPRESENTING KANSAS CITY BOARD OF TRADE ROBERT C. WOODWORTH, REPRESENTING TERMINAL ELEVATOR GRAIN MERCHANTS ASSOCIATION

WILLIAM F. BROOKS, SECRETARY, NATIONAL GRAIN TRADE COUNCIL

Mr. WHITTEN. Mr. Hendrickson discussed with me the possibility of coming before the committee to discuss some matters in which his group is interested, and also some matters that the committee would be interested in, in connection with the handling of commodities by the Commodity Credit Corporation, including exports and things of that nature.

Now, I presume, Mr. Farrington, you are the chief spokesman. You might for the record explain your position and that of your organization as well, and introduce the people who are here. Then you might proceed on such basis as you like and we will follow with questions. Mr. FARRINGTON. Thank you.

I do appreciate very much this opportunity for our group to meet with the committee.

STATEMENT OF CARL C. FARRINGTON

My name is Carl C. Farrington, and I am vice president of the Archer Daniels Midland Co. with headquarters in Minneapolis, Minn. I am here today, however, as chairman of a grain-marketing committee representing all phases of grain marketing.

This is a committee of nine persons selected by various markets and organizations within the grain trade. This committee was appointed and charged with the job of improving the situation with respect to the marketing of Commodity Credit Corporation grain.

We, after considerable work, have come up with a set of recommendations, and we have set forth these recommendations and an explanation of them and a justification for them in the form of a letter to the Secretary of Agriculture.

I might just point out who are the members of the committee. As chairman of the committee, I am representing the National Grain Trade Council.

Next is Mr. Raymond J. Barnes, representing the North American Export Grain Association.

Representing the Grain and Feed Dealers National Association the committee member is Mr. E. B. Evans, but he was not able to be here because of the death of his father, but Mr. Dean Evans is here representing that organization.

Next is Mr. Donald E. Fraser, representing the Minneapolis Grain Exchange.

Next is Mr. Ralph Hegman, representing the Federation of Cash Grain Commission Merchants Association.

Next is Mr. Roy F. Hendrickson, representing the National Federation of Grain Cooperatives.

Next is Mr. Julius Mayer, representing the Chicago Board of Trade. Next is Mr. Warren E. Root, representing the Kansas City Board of Trade.

Next is Mr. Robert C. Woodworth, representing the Terminal Elevator Grain Merchants Association.

Next is Mr. William F. Brooks, secretary of the committee, with the National Grain Trade Council here in Washington.

This set of recommendations, and the justification therefor, have been unanimously approved by the members of this committee, with the National Grain Trade Council here in Washington.

This set of recommendations and the justification therefor, have been unanimously approved by the members of this committee, and I think, if it meets with your pleasure, since it is a statement that covers the reasons as well as setting forth in detail the recommendations, I would like for our secretary to read this letter to the committee.

Mr. WHITTEN. We would be glad to hear it.

Mr. FARRINGTON. I might say that all the members of the committee. are active in the grain trade except Roy Hendrickson, who is representing the National Federation of Grain Cooperatives.

Mr. BROOKS. This letter was presented to the Department on March 7. I will read it for the benefit of the committee.

Hon. EZRA TAFT BENSON,

Secretary of Agriculture,

Department of Agriculture, Washington, D. C.

DEAR MR. SECRETARY: You and the President repeatedly have expressed your conviction that the Federal Government should perform only those functions which cannot be performed adequately and effectively by private persons or State and local governmental units. Americans generally recognize the all-important role of private and competitive enterprise in constantly improving our standard of living. They believe that the Federal Government, instead of competing with its citizens or usurping their functions, should continually strive to promote and encourage private initiative and competitive enterprise.

The marketing of agricultural products is one-among-many segments of economic activity where private enterprise should be encouraged and direct Federal participation should be minimized. This policy was clearly set forth by the Congress in section 5 of the CCC Charter Act wherein it is stated that

"In the Corporation's purchasing and selling operations with respect to agricultural commodities (except sales to other Government agencies), and in the warehousing, transporting, processing, or handling of agricultural commodities, the Corporation shall, to the maxi-. mum extend practicable consistent with the fulfillment of the Corporation's purposes and the effective and efficient conduct of its business, utilize the usual and customary channels, facilities, and arrangements of trade and commerce."

In the case of grain there has been evolved over the years an efficient and highly competitive marketing system. In the interest of grain producers and consumers, CCC and the public generally, this private grain marketing system should be encouraged by being utilized to the maximum degree instead of being weakened by Government competition, encroachment, and domination. Without an established efficient marketing system our entire economy will suffer. With a view toward assisting CCC in achieving the most efficient marketing of its grain and insuring that grain producers, processors and consumers have available at all times the broadest possible markets and the benefits of a competitive and fully operative commercial sales organization, we-a committee representing all phases of grain marketing-duly appointed by the organizations listed hereunder, unanimously recommend the adoption of the following grain (including oilseeds where applicable) sales policy:

1. "In conducting its selling operations with respect to grain (except sales to other Governmental agencies or sales for export purposes), the Corporation shall cause grain to be sold competitively into private trade channels at the marketing point nearest the point of acquisition by the Corporation. Country grain elevators and Corporation-owned storage facilities, as well as terminal markets, are marketing points. Such sales shall be made only by use of normal trade outlets and marketing methods which regularly serve such a marketing point. Specifically, the Corporation will first offer to sell grain to the operator of the storage facility in which such grain is being stored, or to the elevator nearest the Corporation-owned binsite, as the case may be, before offering to other on the same terms.

"The foregoing sales policy in no way alters existing operating procedures and responsibilities as regards the handling of grain stored in country elevators for the account of the Commodity Credit Corporation. Specifically, when grain which has been offered for sale to, but is not purchased by, the owner or operator of the elevator in which it is stored, such grain will be loaded and then sold only by use of normal trade outlets and marketing methods which regularly serve such a marketing point. Under no circumstances shall storage tickets or warehouse receipts issued by elevators be sold by the Corporation to a third party.

"When grain in a position where official weights and grades are available has been offered to, but not purchased by, the owner or operator of the elevator, such grain will be sold competitively f. o. b. elevator for shipment via rail, truck, barge or ship, as appropriate. 2. "Where a subsidy is required in order to export surplus grains, the Commodity Credit Corporation will accomplish such exportation by the granting of cash subsidies or subsidies-in-kind at the seaboard as appropriate."

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EXPLANATORY COMMENTS

The purpose of the first section of the above policy is to establish an absolute and binding restriction on CCC grain handling, requiring that domestic sales be made at the earliest possible point in the marketing system. For the most part this concerns unrestricted sales, particularly feed grain sales, where the grain shows a loss of quality or is in danger of going out of condition, in addition to those sales of any grain where such sales are made at the so-called formula price or higher.

It is also the intention of the first section to accomplish domestic sales by the use of local marketers only. For example, this means that CCC grain should not be loaded and then merchandised by the Government to a distant buyer, thus bypassing markets in the area where the grain is produced as is done now. The actual mechanics of such sales might include a local elevator acting as agent in making the sale for the Government, or for his own account. Whichever sysstem may work best in each area, the basic intention is to make the sale locally. Sales made by a centrally located CSS office to a buyer who does not normally serve the point where the grain is loaded would be outside the intent and spirit of this portion of the policy.

In the first section there is also a restatement of the trade custom of offering grain to the warehouseman before selling to another buyer. As regards binsites, it may be logical in some instances to offer the grain competitively to two or more elevators in the immediate area. This is a discretionary matter so long as the sale made is truly a local one.

There is also a portion concerned with the country elevator operator in his continuing role as a warehouseman for CCC. Country elevators have a running account of credits (or debits) with CCC covering variations in quality of Government grain. It is only when such grain is shipped and has received terminal weights and grades that these variations can be brought into account. It is patently unworkable for sales to be made to a third party without providing for this adjustment in the accounting between the elevator and CCC.

The second portion of the policy covers export movement only, and extends the subsidy-in-kind system (currently in use for wheat) to all other grains. This proposal also allows for use of a cash subsidy at the discretion of the Government for those instances where Government stocks might be unusable as a subsidy due to insufficient quantity, unsuitable quality, or position. In addition, the cash subsidy is the simplest to administer and has merit of funneling 100 percent of the export demand into domestic markets. This has the desirable effect of maximizing producer sales in the market place, and minimizing producer dependence on Government loans.

We believe that whenever CCC determines that any of its grain should be sold, and it has authority to sell such grain for unrestricted use, such grain should be sold at the earliest possible point in the marketing system. For example, if grain is deteriorating, or in danger of deteriorating, it should be sold then and there for unrestricted use. This will insure the broadest possible market and therefore the highest possible return to the Government, and private grain marketers will then have the opportunity and responsibility of mov

ing that grain into consumption in the most economical manner. Any restriction as to use naturally circumscribes the demand and tends to lower prices. If the sale of unwarehouseable or deteriorated CCC grain is forced into an export outlet or other restricted use, lower returns to the Government and excessive transportation costs, together with poor foreign acceptance of our shipments, are certain to result.

Present CCC sales policy too often links the sellout of CCC grain to an export outlet, and tends to limit export grain to CCC stocksexcept in the case of wheat, for which an export subsidy program similar to that recommended herein is already in effect.

The wheat subsidy-in-kind export program has been in effect since September 4, 1956. It has been clearly demonstrated that this program has broadened the market and increased the price of producerowned wheat, it has greatly reduced the takeover of wheat by CCC, it has promoted efficiency and trade participation in the marketing of wheat for export, and-by reducing the takeover-it has eased CCC's inventory management problem with respect to wheat.

A similar program applied to the other grains will produce results of a similar nature, but to a greater or lesser degree, depending upon the economic situation prevailing with respect to each grain.

During 1954-55 and 1955-56 approximately 80 percent of the United States exports of wheat came directly from CCC stocks. With the export subsidy program in effect for 10 months in 1956-57 and 1957-58, the percentage of export wheat supplied directly from CCC stocks fell to about 45 percent and an estimated 35 percent, respectively. On the other hand, the percentage of the wheat crop taken over by CCC through deliveries against loans and purchase agreements fell from about 35 percent on the average in 1954-55 and 1955-56 to about 14 percent of the 1956-57 crop. The percentage taken over in 1956-57 would have been even lower if the subsidy-inkind export program had been in effect for the entire year.

The CCC is still supplying from its stocks 80 to 100 percent of the grains other than wheat being exported from the United States. The export markets, in effect, are being denied to producers for their current crops of corn, oats, barley, grain sorghums, and rye. Under the present programs, with nearly all export grain being supplied from CCC stocks, it is inevitable that a good portion of each year's production must be acquired by CCC through the loan program, thereby adding to the surplus stocks from which exports are made during subsequent years. The result is lowered market prices for these grains, excessive costs to the Government and taxpayers, an increasingly difficult inventory management problem for CCC, and restricted participation of private grain firms in the marketing of grain.

It is recognized that under present supply and demand conditions it is essential that the Government use its powers and resources in fostering and encouraging exports of United States grain through (1) making United States grain available for export at all times at competitive prices, and (2) extending credits and grants to potential foreign users of United States grain. It is not essential or proper, however, that export grain be supplied entirely or largely from CCC stocks, that surplus disposal accomplishments be measured by the volume or dollar value of sales of CCC stocks, or that the manage