July 21, 1964
Page 16403
PROHIBITION OF TRADING IN IRISH POTATO FUTURES ON COMMODITY EXCHANGES
The PRESIDING OFFICER (Mr. NELSON in the chair). The Chair lays before the Senate the unfinished business.
The Senate resumed the consideration of the bill (S. 332) to prohibit trading in Irish potato futures on commodity exchanges.
The PRESIDING OFFICER. The bill is open to amendment.
The Senator from Maine is recognized.
Mr. MUSKIE. Mr. President, the proposed legislation would remove potatoes from speculation on the futures markets as was done in the case of onions in 1958. After 15 years or more actual experience with the operations of the potato future market it has become apparent to the great majority of the industry from growers to retail outlets that this perishable product is not adaptable to futures trading. Many had hoped that potato futures could become a useful part of the marketing system, as is true of the more storable commodities such as grain and cotton.
Unfortunately and disappointingly, far from promoting orderly marketing, increasing futures activity has been accompanied by increasing demoralization of the industry, erratic price movements unrelated to supply and demand and a steady and drastic deterioration of Maine's position as compared to the producing areas not dominated by the futures market.
Nine principal points have been developed setting forth the need for elimination of this market activity as follows:
Point 1. An overwhelming majority of growers and dealers in actual potatoes are strongly opposed to futures trading and urge its immediate elimination.
The 2,500 growers in Maine in a series of polls over the past 10 years have indicated that about 90 percent support the effort to get rid of what they are convinced is an economic burden. In replying to ballots sent to some 2,500 active growers, some 90 percent of those replying indicated not only a desire to get rid of futures trading, but a willingness to be taxed in order to finance the effort to get the necessary legislation.
Point 2. Futures trading in potatoes is limited to Maine. About 85 percent of the producing areas in the United States do not use futures. Elimination of futures will have no unfavorable impact on any area.
I have in my hand a tabulation designated exhibit A, which I ask unanimous consent to have printed at this point in the RECORD.
There being no objection, the tabulation was ordered to be printed in the RECORD, as follows:
[TABLE OMITTED]
Mr. MUSKIE. Mr. President, that exhibit shows the geographical distribution of traders in the market as of October 27, 1961; it shows that there were 1,470 accounts open on that date, 300 of which were classified as hedging. Two hundred and thirty-three of those 300 were in Maine and nearby areas. Only a negligible number appeared elsewhere.
In Idaho, for example, which is a large producing area, there were only five hedging accounts. Florida had four and North Carolina one. Alabama had none.
Point 3. Maine's situation as regards both actual price and price stability has deteriorated in relation to competitive areas as futures activity has increased in Maine potatoes. Expressed in terms of money value, the price deterioration amounts to about $15 million per year for the 10 years 1951-52 to 1960-61. Growers in the 75 percent of the country where there is no use of futures trading have consistently fared better than those in Maine and the Maine growers' position has progressively worsened as futures speculation has tightened its hold on that market.
Maine's deterioration as compared to other areas, particularly Idaho, is clearly set forth in a tabulation which shows that before futures trading became dominant in Maine, the price of actual potatoes in Maine was approximately 88 percent of that in Idaho. As futures trading took hold in Maine this relationship changed until that market was receiving only 69 percent of the Idaho price. This has resulted in a financial disadvantage to the Maine producers estimated at $15 million per year as set forth in two tabulations and an accompanying explanation which I have before me.
I ask unanimous consent to have printed at this point in the RECORD the explanation and tabulations, which I have designated exhibit B.
There being no objection, the explanation and tabulations were ordered to be printed in the RECORD, as follows:
Exhibit B-1
Comparison of Maine with Idaho
The comparison of wholesale prices of Maine and Idaho potatoes for the 15-year period from 1946-47 through 1961 shows the steadily worsening competitive position of the potato industry of Maine as compared with that of Idaho.
Idaho was selected for this comparison because the harvesting season and volume of production make it more similar to Maine than are any of the other producing areas.
There were no futures trading of any significance in Idaho potatoes at any time during the period, and during the first 5 years there was no such trading of any consequence in the Maine contract. In this 5-year period the wholesale prices of "most Katahdin" potatoes at Aroostook County points averaged 88 percent of the prices of Russet Burbanks at Upper Valley points in Idaho.
During the next 6 years (1952 to 1956) futures trading in Maine potatoes on the New York Mercantile Exchange began to reach sizable proportions, averaging 106,536 carlots per year.
During this period the Maine price declined in relation to Idaho and averaged 76 percent of the latter.
In the third period shown (1957 to 1961) futures trading in Maine potatoes continued to increase, averaging 178,997 cars per year, and this was accompanied by a further decline in Maine's relationship to Idaho to 69 percent.
During the most recent 3 years shown, 1959 to 1961 futures trading averaged about 190,000 cars per year and wholesale prices in Maine declined to an average of 64 percent of those in Idaho.
While the general price level in the two areas may be presumed to reflect a usually higher price for Russets as compared with Katahdins the striking change in the relationship in 15 years seems most significant. It was considered that an increase in Maine production as compared with Idaho production might be expected to bring lower Maine prices as compared to Idaho prices.
The fact is, however, that during the first 5-year period of heavy futures trading Maine produced an average of 34,690,000 hundredweight or 124 percent of Idaho's average of 28,066,000 hundredweight.
During the next 5 years (1957-61) Maine increased production only slightly to an average of 35,797,000 hundredweight, failing to approach Idaho's increase to an average of 42,318,000 hundredweight. Maine's percentage of production declined drastically from 124 to 85 percent. Thus Maine's position (with futures trading) deteriorated sharply in relation to Idaho (without futures trading) both price wise and production wise.
The financial effect of the striking deterioration of Maine's competitive position can be to some extent judged by a calculation of what the Maine crop would have brought if for the 10-year period of heavy futures trading the same relationship with Idaho had existed as during the 5 years before such trading had become an important factor.
If instead of being on a 76-percent basis with Idaho during the 5 years 1951-56 as shown in the tabulation, Maine had been able to maintain its prefutures position of 88 percent, the wholesale price of $2.42 shown on the tabulation would have been $2.79, a difference of 37 cents per hundredweight.
Applying this difference to the 5-year total production of 173,454,000 hundredweight gives the startling figure of $64,177,980 as the additional amount at wholesale prices which would have gone to the Maine potato industry in the 5 crop years of 1951-52 to 1955-56. The average is $12,835,000 per year.
During the next 5-year period of heavy futures activity the financial disadvantage to Maine continued. Applying the figure of $1.89 per hundred to the production of 178,988,000 hundredweight results in a valuation of $338,287,320 or $67,657,464 average per year.
If Maine had remained on its prefutures 88-percent basis with Idaho the price would have averaged $2.39, exactly 50 cents per hundred more than that shown by the table. This would have increased the valuation for the 5-year production by $89,494,000 or $17.898,800 per year.
To summarize, it appears that the decline in Maine's position in relation to Idaho amounted to a financial disadvantage to Maine of an average of $15.366,900 per year over the 10-year period from 1951-52 to 1960-61.
Mr. MUSKIE. Point 4. Perishable products such as potatoes and onions are not adaptable to constructive and orderly futures trading. The price instability of such perishable commodities as onions and potatoes is illustrated in a table which I have designated exhibit C, and which I ask to have printed at this point in the RECORD.
[TABLE OMITTED]
Mr. MUSKIE. Mr. President, that table compares price movements for a number of commodities over a period of approximately 25 years. This shows that onions had an average seasonal price change of more than 45 percent with potatoes next at approximately 38 percent. This instability is partly the result of a reluctance on the part of traders to take delivery of a product which is likely to go out of condition very rapidly. At the same time wide price movements encouraged reckless speculation by persons having no interest or knowledge of the actual supply and demand conditions. The situation in onions finally became so intolerable that trading in onion futures was outlawed in 1958. The potato producers, having observed the improvement in the onion situation, feel very strongly that they should have the same relief.
Point 5. The potato futures market is used only to a negligible extent for hedging and much of this is done in a manner damaging to the price structure and to the average grower. The use of the potato futures market for bona fide hedging is negligible.
I ask to have printed at this point in the RECORD a table which I have designated exhibit D.
There being no objection, the table was ordered to be printed in the RECORD.
[TABLE OMITTED]
Mr. MUSKIE. That table shows the occupational distribution of traders in the market; for example, 206 physicians, lawyers, and other professional persons, 58 housewives, and 103 retired persons. Many of the accounts purporting to be hedging are simply those of persons who have sufficient contact with the potato business to use their actual potatoes as an adjunct to operations which are essentially speculative.
Point 6. Futures trading causes confusion, disorder, and price gyrations.
The potato futures market has a history of price movements which cannot possibly reflect supply and demand. Changes of 40 cents per 100 pounds in one trading season or 15 cents in a few minutes can only be the result of speculators trying to outguess each other.
Point 7. The potato futures market is often completely dominated and controlled by speculative interests.
The Commodity Exchange Authority has proven instances of manipulation in which traders or groups of traders in both potatoes and onions have completely dominated the market. Generally these activities have featured heavy selling accompanied by deliveries and threats of deliveries which cause panic conditions. In addition to the cases which have been legally established as violations of the Commodity Exchange Act, there have been many situations in which the market was pushed out of its normal supply and demand position, but in which the activities were not sufficiently flagrant and provable so as to justify legal proceedings.
Point 8. Growers are demoralized and confused by the antics of the futures market. This causes failure to make constructive efforts to solve other problems.
Many of the growers in Maine have become so discouraged and demoralized by the futures market that they have abandoned their farms. Some 1,400 have dropped away in a 7-year period.
Those who continue the struggle fail to give proper attention to other problems facing the industry because their thinking is so dominated by the antics of the futures market.
Point 9. Legislation as was the case in onions is the only remedy. Those burdened with this activity cannot simply ignore it.
The only way the producers and legitimate handlers of potatoes can get relief from the burden of futures trade is through legislation as was done in onions in 1958. As long as the Exchange exists and the prices are sent out over the network of wires, every person attempting to buy or sell actual potatoes will be forced to use these prices as the starting point in any transaction. This becomes difficult indeed when the "board" prices fluctuate as frequently and drastically as they do.
The need for this legislation is strongly evidenced by the organizations on record as supporting it, which include the National Grange, the American Farm Bureau Federation, the Farmers' Union, the National Council of Farm Cooperatives, the National Potato Council, and the Farmer's Cooperative Council of North Carolina.
The Legislature of Maine, whose members include many persons closely connected with the potato industry, have endorsed this legislation.
I ask unanimous consent to have printed at this point in the RECORD a memorial from the Legislature of Maine.
There being no objection, the memorial was ordered to be printed in the RECORD, as follows:
JOINT RESOLUTION PROPOSING ABOLITION OF FUTURES TRADING OF POTATOES ON THE NEW YORK MERCANTILE EXCHANGE BY THE CONGRESS OF THE UNITED STATES OF AMERICA
We, your memorialists, the Senate and House of Representatives of the State of Maine in the 101st legislative session assembled, most respectfully present and petition your honorable body as follows:
Whereas the Constitution of the United States provides that the Congress may regulate commerce among the several States; and
Whereas potatoes are now traded in futures contracts on the New York Mercantile Exchange, 6 Harrison Street, New York, N.Y.; and
Whereas the price at which future contracts are bought and sold has a direct and immediate effect on cash prices received by producers for potatoes in Maine and all other areas producing potatoes for market; and
Whereas futures prices reflect the effects of manipulations and unlimited speculation to the detriment of producers of potatoes; and
Whereas futures trading of potatoes obstructs all attempts of Maine potato producers to market their product in an orderly fashion; and
Whereas futures trading of potatoes encourages overproduction in Maine and all other producing areas with resulting disastrously low prices for the producer; and
Whereas experience has proven that futures trading can be carried on without detrimental and depressing effect on price only in the case of those commodities which can be stored for extensive periods of time either within the areas of production or the areas of marketing and distribution; and
Whereas Irish potatoes are a perishable commodity that do not lend themselves to extended periods of storage, especially following preparation for market; and
Whereas Irish potatoes historically are one of the most volatile commodities in terms of price range and in degree of sensitivity to myriad market factors, including total volume produced, anticipated production, available supply on track and in the marketplaces, as well as many others; and
Whereas many areas of production have vehemently registered their opposition to the continued trading of Irish potato futures, either with or without the supervision of the Commodity Exchange Authority of the USDA and producers in Maine, by mail ballot, have voted overwhelmingly in favor of abolishing futures trading in Maine potatoes; and
Whereas the Congress of the United States has already established a precedent for the action to be proposed by this resolution in the instance of another perishable commodity, namely onions, leaving potatoes as the only perishable commodity now being traded on the futures market: Now, therefore, be it
Resolved, That we, your memorialists, recommend that the Congress enact legislation abolishing futures trading in Irish potatoes upon the New York Mercantile Exchange or upon any Commodity Exchange; and be it further
Resolved, That a copy of this memorial, duly authenticated by the secretary of state, be immediately transmitted by the secretary of state, by mail, to the Senate and House of Representatives in Congress, to the Members of the said Senate and House of Representatives from this State.
In senate chamber, February 12, 1963, read and adopted, sent down for concurrence.
CHESTER T. WINSLOW,
Secretary.
House of representatives, read and adopted, February 13, 1963, in concurrence.
HARVEY R. PEASE,
Clerk.
I, Paul A. MacDonald, secretary of state of the State of Maine, and custodian of the seal of said State, do hereby certify:
That I have carefully compared the annexed copy of the memorial to the Honorable Senate and House of Representatives of the United States of America assembled, with the original thereof, and that it is a full, true, and complete transcript therefrom and of the whole thereof.
In testimony whereof, I have caused the seal of the State to be hereunto affixed. Given under my hand at Augusta, this 25th day of February, in the year of our Lord 1963 and in the 187th year of the independence of the United States of America.
PAUL A. MAcDoNALD,
Secretary of State.
Mr. MUSKIE. Mr. President, these are people whose welfare is dependent upon a sound and orderly marketing system. It is inconceivable that they would be influenced by any motive which they were not convinced would be beneficial to the whole potato industry from producer to consumer.
The uncertain and unpredictable price movements brought about by futures speculation are reflected not only in lower prices to producers, but also often in higher prices to consumers. This seeming paradox results from the necessity of potato dealers to have a higher margin of profit, in order to protect themselves against these unwarranted price movements.
In closing, I should like to emphasize the significant reasons why I believe the bill should be passed.
First. For all practical purposes, Maine grown potatoes are the only potatoes traded on the futures market. Maine potato growers overwhelmingly oppose futures trading. In 1962, 90 percent of
Maine growers opposed futures trading in a poll conducted by the Maine Potato Council.
Second. The principal issue at stake is the orderly marketing of the Maine potato crop. This bill is not directed against the mechanics of futures trading on any other commodity. The existence of the futures market has encouraged Maine farmers to delay marketing of their crops until late in the season, into May, sometimes into June and even July. Because of the perishability of potatoes, this has resulted in spoilage and loss of investment to the farmer. This has also brought the Maine farmer into serious competition with the producers of new potatoes from Southern States.
Third. This bill does not establish a precedent. Legislation abolishing onion futures trading was enacted by Congress in 1958.
Fourth. The price quotations on potato futures do not accurately reflect supply and demand. In one 24-hour period, the market dropped 31 points and then jumped back 21 points.
Mr. President, the bill pending before the Senate should be amended in one respect, and I send an amendment to the desk and ask to have it stated by the clerk.
The PRESIDING OFFICER. The amendment offered by the Senator from Maine will be stated.
The LEGISLATIVE CLERK. It is proposed on page 1, after the period in line 5, to insert the following new sentence:
Notwithstanding the foregoing sentence, futures trading in Irish potatoes shall be permitted in the case of any future with respect to which trading has been initiated on or before the date of enactment of this Act, but in no event shall such trading be permitted in the case of any future which would mature more than twelve calendar months after the calendar month in which this Act is enacted.
On page 1, line 9, strike out "section" and insert in lieu thereof "Act".
Mr. MUSKIE. Mr. President, the purpose of this amendment is to avoid the unfortunate conditions which might follow in the event trading were cut off immediately upon enactment of the bill.
This amendment would permit the continuation of trading in potato futures for all months in which trading has already been initiated up to a period of 1 year.
If the bill were to be effective on enactment, those who held short positions on that date would have to deliver actual potatoes, and those who held long positions would have to accept delivery. This would not only unfairly create a situation not contemplated at the time the positions were acquired, but might have unfortunate repercussions on the cash potato market.
Mr. President, I ask unanimous consent to have printed in the RECORD at this point a table showing the number of open contracts in potato futures as of July 17, 1964.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[TABLE OMITTED]
Mr. AIKEN. Mr. President, since trading in potato futures has appeared to benefit only a comparatively few people and has actually been damaging to a large number, namely, the potato growers, I favor enactment of S. 332.
As the Senator from Maine has stated, this bill is favored by virtually all the major farm organizations of the United States. An hour or so ago, I received a telegram from the American Farm Bureau Federation, which reads as follows:
Farm Bureau supports S. 332 to prohibit potato futures trading. We do not think it serves the interest of potato growers or the cause of futures trading generally to continue an unworkable program of futures trading in a perishable commodity, especially when it involves only one of the producing areas. Because potatoes are perishable commodities they do not lend themselves to sound futures trading. The small volume traded provides the opportunity for sharp price fluctuations and facilitates price manipulations. We do believe that futures trading in potatoes does not help the potato marketing system nor potato growers, but is in fact a detriment. We support the passage of S. 332.
JOHN C. LYNN,
Legislative Director, American Farm Bureau Federation.
To be perfectly fair, I must also state that the bill is opposed by certain elements of the grain-trading business. I assume they feel that if trading in potato futures is eliminated, some efforts may be made to eliminate trading in some other commodities and they are, therefore, apprehensive.
I feel that they are taking a mistaken position. Legitimate trading in nonperishable commodities will be on a much sounder basis and in a much safer position if the questionable trading is eliminated. We all recall the chaos and the trading atrocities that were committed under the onion futures trading. I cannot help feeling that commodity trading in general will be much safer if the bill is passed.
Mr. CARLSON. Mr. President, will the Senator yield?
Mr. AIKEN. I yield.
Mr. CARLSON. The Senator read a telegram from the American Farm Bureau Federation in regard to its views about the pending bill dealing with trading in the potato market, which the Bureau favors. I believe the Senator also mentioned that there were other legitimate uses for futures trading. In order to emphasize that, I should like to read from page 231 of the hearings, which contains a statement filed by the American Farm Bureau Federation:
Farm Bureau believes in the market price system. We believe that futures trading plays a valuable role in agricultural marketing of many commodities. Our support of S. 332, to eliminate potato futures trading, does not in any way change this belief. We do, however, feel that futures trading in potatoes does not help the potato marketing system, but is in fact a detriment. We, therefore, support S. 332 and urge its prompt enactment.
I wanted to read that portion because it expresses my view on this particular legislation.
Mr. AIKEN. That statement by the Farm Bureau before the committee corresponds to my own view that there is a legitimate field for futures trading in nonperishable commodities, but I realize that a small number trading in futures have succeeded in demoralizing the potato market in some areas. There may be some who would like to have futures trading in strawberries, where they could speculate from day to day. Certainly we do not want to do that. We want to preserve the legitimate market. I do not say potato trading is not legitimate, because Congress has said it is but we want to preserve the practical trading market without jeopardizing it by including commodities which I do not think should have been included in the first place.
Mr. CARLSON. Mr. President, I wish to join in the remarks made by the Senator from Vermont, because I believe there is a place for futures trading in agricultural commodities. Therefore, I shall support the bill.
Mr. MUSKIE. I thank the senator from Vermont and the Senator from Kansas for their comments.
I think it might be well to read from a letter sent to me by Mr. Harry L. Graham, legislative assistant to the National Master, National Grange. I read very briefly from that letter:
We believe very strongly that futures trading has an important place in our American economy as long as it is confined to storable products. A few years ago we had a very unfortunate experience with onions and it was found necessary to eliminate them from futures trading. In the last few years, we have had the same experience in potatoes grown in the Northeast section of our country
There is a limit which crops such as potatoes and onions can be held in a marketing year and it is at the end of the marketing period that the perishable commodities which are traded in futures always get into difficulty. The futures trading has had a tendency to move the marketing period for fall potatoes from Maine back from about an April 1 cleanup day up into the last of May. This puts these potatoes in competition with the early spring potatoes that are grown in our southern States and we are faced with two crops of potatoes coming onto the market at the same time. This certainly is not conducive to the orderly marketing processes which are necessary if farmers are to receive an adequate return for their products.
Mr. President, I ask unanimous consent to have the letter included in full in the RECORD at this point in my remarks.
There being no objection, the letter was ordered to be printed in the RECORD
as follows:
NATIONAL GRANGE,
Washington, D.C,
July 10, 1964.
The Honorable EDMUND S. MUSKIE,
U.S. Senate,
Washington, D.C.
DEAR SENATOR MUSKIE: Permit me to take this method to reassert the vigorous support of the National Grange for S. 332 which is ready for consideration in the US. Senate This bill would eliminate futures trading in potatoes.
We believe very strongly that futures trading has an important place in our American economy as long as it is confined to storable products. A few years ago we had a very unfortunate experience with onions and it was found necessary to eliminate them from futures trading. In the last few years, we have had the Same experience in potatoes grown in the Northeast section of our country
There is a limit which crops such as potatoes and onions can be held in a marketing year and it is at the end of the marketing period that the perishable commodities which are traded in futures always get into difficulty. The futures trading has had a tendency to move the marketing period for fall potatoes :from Maine back from about an April 1 cleanup day up into the last of May. This puts these potatoes in competition with the early spring potatoes that are grown in our Southern States and we are faced with two crops of potatoes coming onto the market at the same time. This certainly is not conducive to the orderly marketing processes which are necessary if farmers are to receive an adequate return for their products.
In addition, during periods of oversupply such as we have been experiencing in potatoes for a number of years, the "shorts" are able to drive down the prices to unreasonably low levels. It has been conservatively estimated that this had cost Maine producers $15 million per year in income and has depressed prices along the eastern seaboard by an amount that is not easily determined.
However, this does not always accrue to the best interests of the consumer as was demonstrated by what happened in the futures trading in potatoes a little over a month ago. The fact of the matter was that there was no reason for the exceedingly low prices that the traders had forced upon potatoes as was demonstrated when one purchaser began covering all of the "shorts" and was able or forced to buy over 1,900 carloads of potatoes. He justified his price by the fact that there was really a shortage of potatoes for all the market demands, including sales to consumers through grocery stores and sales to the processing companies. This undoubtedly has led to higher prices for potatoes, especially on the eastern seaboard but this seems to us to be a completely unrealistic reason for opposing the elimination of futures. Had it not been for the futures trading, this situation would not have arisen because the potatoes would have moved more normally into the market channels without having been held up through the ownership of future receipts.
Furthermore, if futures trading is such a good thing for potatoes, why not extend it to the whole Nation instead of just to one small market?
This is an economic injustice that should be righted and it can be righted only by the passage of S. 332 in the Senate and the companion bill introduced by Congressman McINTIRE in the House.
Respectfully yours,
HARRY L. GRAHAM,
Legislative Assistant to the National Master.
Mrs. NEUBERGER. Mr. President, will the Senator yield?
Mr. MUSKIE. I am happy to yield to the Senator from Oregon.
Mrs. NEUBERGER. The distinguished Senator from Maine has so well presented the argument on the bill that I merely wish to add that I am a member of the Subcommittee on Agricultural Research and General Legislation of the Committee on Agriculture and Forestry, which conducted hearings last fall and reported the bill to the calendar on March 13 of this year.
Growers generally, and Maine potato growers in particular, testified that the potato futures market serves no useful purpose and has an adverse effect on cash potato prices. Rather than providing against hedging, it provides an opportunity for price manipulations. Most impressively they pointed out that it has a depressing effect on prices and encourages price fluctuations.
The feeling of the Committee on Agriculture and Forestry was that the bill should be passed, and I wholeheartedly support it.
Mr. MUSKIE. Mr. President, indicating the concern in my State with respect to this problem, not only among growers and people connected with the potato industry, I read from an editorial published in the Portland Sunday Telegram of Sunday, May 10, 1963:
It's time for Maine to come out fighting.
The Maine potato industry has been in the doldrums for several years, and, although the price is the best right now that it has been in all that time, the depressed condition of the industry isn't likely to change basically until futures trading in Maine potatoes has been halted. At the same time, the future of the Maine broiler industry is threatened by the refusal of out-of-State railroads to reduce rates for feed grains to this State as they have to other areas.
Harold Bryant, executive vice president of the Maine Potato Council, put his finger on the mercantile exchange trading in potato futures as the sore spot of the industry. He cited a comparison with Idaho potato prices showing that the Maine prices have declined steadily since futures trading began in earnest.
I ask unanimous consent that the editorial may be printed in the RECORD at this point.
There being no objection, the editorial was ordered to be printed in the RECORD, as follows:
[From the Portland (Maine) Sunday Telegram, May 10, 1964]
MAINE POTATOES
It's time for Maine to come out fighting.
The Maine potato industry has been in the doldrums for several years, and, although the price is the best right now that it has been in all that time, the depressed condition of the industry isn't likely to change basically until futures trading in Maine potatoes has been halted. At the same time, the future of the Maine broiler industry is threatened by the refusal of out-of-State
railroads to reduce rates for feed grains to this State as they have to Other areas.
Harold Bryant, executive vice president of the Maine Potato Council, put his finger on the mercantile exchange trading in potato futures as the sore spot of the industry. He cited a comparison with Idaho potato prices showing that the Maine prices have declined steadily since futures trading began in earnest. And he went so far as to Say that there is "collusion in the futures market." That is no new accusation. Most Aroostook farmers and dealers in potatoes are convinced that the market is manipulated, to the detriment of the Aroostook industry.
Maine should be shouting with all its might for Congress to pass a bill that would ban trading in potato futures. It should alto be shouting with all its might for an investigation, by the Interstate Commerce Commission or a congressional committee, of preferential railroad rates that give competition in Middle Atlantic and Southern States a decided advantage over Maine broiler growers.
For a while, it appeared that Maine growers had been able to get half a loaf. Where rates to the other States had been cut $5 a ton, the rate to Maine had been reduced $2.50 a ton -- not enough to keep one large Maine poultry producer from moving to Tennessee, but enough to give hope that the differential could be wiped out. Then suddenly last week, the $2.50 reduction was canceled. The committee appointed by Governor Reed to study the problem thus has a doubly hard job to do.
Maine has won one of its battles, the effort to get a sugarbeet acreage allotment and a new sugar refinery. Perhaps if the same coordination of efforts and persistence is brought to bear on the futures trading and the grain rates, additional battles can be won. The State doesn't seem to have much choice but to hit the obstacles as hard as it can. The outcome could be a matter of life or death for large segments of the State's economy.
Mr. DOUGLAS. Mr. President, will the Senator yield?
Mr. MUSKIE. I am happy to yield to the distinguished Senator from Illinois.
Mr. DOUGLAS. As a preface to some questions which I would like to ask the Senator from Maine, I do not believe it can be said that I am prejudiced against the State of Maine. I grew up in that State, and my family has lived there for almost 250 years.
Nor can I be accused of being prejudiced in favor of the Chicago Board of Trade, since there is a very small amount of potato trading on the Chicago Board of Trade, and also because the members of that organization have never been conspicuous among my supporters. In fact, quite the contrary.
I believe there are some questions, however, which at least should be considered before we vote on the bill. I wonder if my friend from Maine remembers the statement which was filed by Prof. Roger W. Gray, professor of the Food Research Institute at Stanford University, which appears at page 76 of the hearings. I refer to the fourth paragraph, which reads:
The March future has averaged 43 cents higher than the November future on October 15 for these 11 years, which has been the assured average return for storing potatoes until late February. But once again, not only has the hedger benefitted in this way, but he has benefitted, relative to the unhedged grower, in the tendency to profit from his futures position. Whereas the November future was 13 cents higher on April 15 than it was on October 15, during these 11 years, the March future was 34 cents higher on October 15 than it was on February 28. Thus the more typical Maine grower, who stores potatoes, has had much more benefit from hedging than the grower who sells at harvest time.
In other words, by selling for future delivery, rather than selling for delivery at the harvest time, the farmer would get more. I wonder what comment the Senator from Maine would care to make on that point.
Mr. MUSKIE. Mr. President, it is difficult for me to comment directly on the statistics to which the Senator has made reference, relating to the testimony of Mr. Gray. There are statistics on both sides of the question as to whether hedging is beneficial for the grower. In response to the statistics offered by Mr. Gray, I can only cite the belief of the growers themselves. First of all, it is important to understand to what degree hedging is a part of trading on the mercantile exchange. For example, a table was placed in the RECORD earlier this afternoon, which appears at page 27 of the House hearings. I believe the Senator does not have the House hearings before him.
Mr. DOUGLAS. We do not have the House hearings.
Mr. MUSKIE. The same table is in the record of the Senate hearings. We shall try to find it. on October 27, 1961, the table shows that in Maine there were 96 traders who were classified as speculators and 121 traders who were classified as hedgers.
The total number of traders on that day was 217 . The total number of traders in the North Atlantic section of the country was 552, of which 233 were hedgers, On that day the total number of traders in the country was 1,170. Of the total number of traders on the New York Mercantile Exchange in Maine potatoes, less than 300 out of 1,170 were in the market for hedging purposes.
The second point I should like to make is that although Maine potatoes represent something like 15 percent of the total potatoes sold throughout the country, Maine potatoes are the only potatoes traded on the mercantile exchange.
There is negligible trading in Idaho potatoes, Long Island potatoes, and potatoes grown in other sections of the country. The principal trading is in the 15 percent of the market which is Maine potatoes. If hedging is such a useful device for the grower, and if it would return to him the financial benefits that some suggest, I submit to the Senator from Illinois that the arguments have been singularly lacking in persuasiveness to the potato growers in the potato-growing areas of the country outside Maine.
I would again emphasize that while Maine produces 15 percent of the Nation's potatoes, only a small percentage of the growers participate in the hedging function.
Mr. DOUGLAS. Would the Senator from Maine deny the usefulness of trading in futures on most commodities?
Mr. MUSKIE. As to storable commodities, I concede the value of commodity exchanges.
Mr. DOUGLAS. For corn, wheat, rye, and barley?
Mr. MUSKIE. I have not studied those commodities; but I will say to the Senator from Illinois that my impression is that trading, on the whole, serves a useful function in the storage of nonperishable commodities.
Mr. DOUGLAS. Does not trading in futures enable growers to protect themselves against price fluctuations, by buying and selling at the same time, so that they are not injured by the course of future fluctuations?
Mr. MUSKIE. Hedging has worked well with many commodities, but not as to potatoes and onions, because they are perishable and nonstorable. With the exception of storage to cover certain marketing periods, such as the April and May markets for Maine potatoes, the storage of potatoes creates difficulty. All those engaged in the industry, in the growing and selling of the commodity itself, agree with that conclusion. The only ones who disagree are the traders on the exchanges.
Mr. DOUGLAS. May I follow that thought a bit? To what degree has the air conditioning of potato storage houses in the summertime and the heating of them in the wintertime overcome the difficulties of weather and made potatoes relatively less perishable and more stable in quality?
Mr. MUSKIE. In my State, efforts are being made in this direction. They are commendable and constructive efforts. But I suggest that we would be doing even more in this direction, and also in the direction of better merchandising, better distribution, and better handling by the industry all around, if we could turn the minds of those in the industry away from trading on mercantile exchanges.
Farmers and dealers feel they must deal with the exchange because it has such a strong impact on the price for the cash crop. They devote so much time to the problems that the exchange creates for them that they tend to neglect some of the proper aspects of the program in which they are interested. They tend to neglect the activities which would enable them to make progress.
Mr. DOUGLAS. I am not an expert on the marketing of potatoes; but is it not easy for people to find a scapegoat for their troubles by suspecting city folks?
Mr. MUSKIE. I suppose it is natural even for Senators to find scapegoats. But let me emphasize again that we are dealing only with Maine potatoes. Those who grow and sell Maine potatoes and try to make a living from them, those who have the problem of carrying the mortgages on their farms, are the ones directly involved. If their position is weak in the instance suggested by the Senator from Illinois, at least they are dealing with their own problem and are asking to be relieved from dealing with other forces which to them are detrimental and destructive.
Mr. DOUGLAS. If they are deluded, should we legislate on the basis of their delusion, merely because it is too difficult to remove?
Mr. MUSKIE. I do not think they are deluded; but if they are, the Senator from Illinois should not be concerned, because they are not the potatoes of Illinois farmers. They are Maine potatoes, and the Maine growers, if the polls mean anything, are 90 percent for the bill.
Mr. DOUGLAS. This bill is merely a part of a general program. As I recall, it was in 1958 that Congress abolished futures trading in onions. This was a problem that affected Illinois, because there was a great deal of trading in onion futures on the Chicago Board of Trade. There was no evidence that futures trading in onions was inherently injurious. Nevertheless, the onion growers thought it was, so trading in onion futures was abolished.
Now the Senator from Maine and those who agree with him would abolish futures trading in potatoes. When will this process stop? Will it shortly be said that there are other farm commodities as to which futures trading is injurious; and will the growers and sellers determine what the policy of the United States is to be?
Mr. MUSKIE. Each case would have to be decided on its own merits. I am not saying that trading in potato futures should be eliminated because onion futures trading was eliminated. I am not suggesting any such causal relationship. I am not suggesting the elimination of futures trading in the case of other commodities.
Mr. DOUGLAS. The next might be eggs; and following that might be butter.
Mr. MUSKIE. Each is a problem to be dealt with on its own merits. Today we are considering the potato problem on its merits.
Mr. DOUGLAS. Yes; but in acting we also lay the basis for future action. Does the Senator from Maine say that there have been abuses on the part of traders in Maine potatoes which have improperly depressed the price of Maine potatoes to the growers? If there have been such, they should be condemned. Does the Senator have any evidence to that effect?
Mr. MUSKIE. I would like to respond to the Senator from Illinois concerning the abuse of trading procedures referred to as manipulation. Manipulation in the field of potato futures trading is illustrated by four cases in which the operations were so flagrant as to warrant legal action. These are: C.E.A. Docket 68, Winn and Lovett, et al. C.E.A. Docket 69, Jacob Stern, et al. C.E.A. Docket 73, Vincent Kosuga, et al. C.E.A. Docket 78, Murlas Brothers, et al.
Each of these cases followed the same pattern of making heavy short sales of futures and threatening the delivery of undesirable stocks of the actual commodity to force down the "board" price
For each case in which legal proof could be developed, there were undoubtedly many others better concealed and on a smaller scale.
Mr. DOUGLAS. Were those acts in violation of the commodity Exchanges Act?
Mr. MUSKIE. Yes; they were.
Mr. DOUGLAS. Were they found guilty?
Mr. MUSKIE. Yes.
Mr. DOUGLAS. Why does not the Senator from Maine content himself with the authority granted by law to the Commodity Exchange Authority, and seek to have the regulatory body cure the abuses?
Offhand, I should say that my good friend from Maine is in the position of a doctor who, when he found the patient had a cold in his head, instead of trying to treat the cold, would cut the man's head off. Is it necessary to abolish trading in futures in order to remove abuses? There are abuses on the New York Stock Exchange; but Congress established the Securities and Exchange Commission to prevent certain abuses. We did not put the New York Stock Exchange out of business. Nor do we intend to do so.
Mr. MUSKIE. To use another figure of speech, if I were to follow the course of action suggested by the Senator from Illinois, I would be in the position of locking the barn door after the horse had been stolen. It does no good for a potato farmer in Maine to prove someone guilty of a violation of law and have a fine imposed or a prison sentence imposed, if there is such a penalty, when the damage to his market has been done. I emphasize again that what we are talking a out is trading in Maine potatoes, not Illinois potatoes.
Mr. DOUGLAS. I understand.
Mr. MUSKIE. Not Florida, not New York, not Long Island, not California, not Idaho, but Maine potatoes.
Mr. DOUGLAS. I understand.
Mr., MUSKIE. This market is so small that it is subject, in an exaggerated way, to some of the consequences which I have tried to spell out this afternoon.
If trade in Maine potatoes is so beneficial as to suggest that the Maine farmers should bear the burden of the abuses which follow the penalties laid down by law, why do not other potato growers in other parts of the country also resort to trading on the exchange? Why are not their potatoes traded on the exchange?
Mr. DOUGLAS. Let me say to my good friend the Senator from Maine, in reply to the first part of his statement, that while it is true that a fine upon traders who violate the Commodity Exchange Act does not immediately benefit the Maine grower of potatoes, it does act as a deterrent against future illegal and improper acts.
I believe that there may be involved in this action the whole question of trading in futures on farm commodities.
I know that it is easy for people who suffer from price fluctuations to blame the traders rather than to blame the relative elasticity of demand. Most farm commodities are subject to what the economists call the inelasticity of demand, where an increase in a given percent in quantity results in a far greater relative decrease in unit price, so that the farmers as a whole receive less for producing more
This is one of the innate difficulties in the farm situation with which we have tried to wrestle fox over 30 years.
I should prefer to see the problem attacked from this angle, rather than to try to prohibit trading in futures, a practice which certainly performs, in general, an economic function to protect the farmers against fluctuations in prices. I believe in a greater stabilization of farm prices. I do not believe that trading in futures unstabilizes prices, although there may have been cases of short selling. It is due more to the inelastic demand and the fact that slight fluctuations in production can produce a great fluctuation in unit price. But the farmers then blame the commodity exchanges.
I believe in the regulation of the commodity exchanges. I thought that we had a fairly satisfactory law and a fairly satisfactory regulatory body. If we have not, I would certainly be in favor of making more stringent laws which would provide for a better authority. But to prohibit trading in futures seems to me to be like breaking a thermometer in order to try to prevent the temperature from rising.
I shall not press this issue any further. I believe that the Senator from Maine has the votes on this point. My State is really not economically involved. I am not directly involved in this problem so far as any material or political influences are concerned. I am however somewhat distressed by the obvious turn which Congress is taking. In 1958, we prohibited trading in futures on onions, and now we are prohibiting the trading in futures on potatoes.
What will be next? Apples? Eggs? Butter? Cases can be made in connection with all of them. I am afraid that we may have allowed ourselves to be influenced by current prejudices not founded on facts.
Mr. MUSKIE. I thank the Senator from Illinois.
Mr. President, what is the pending question?
The PRESIDING OFFICER. The question is on agreeing to the amendment offered by the Senator from Maine [Mr. MUSKIE].
The amendment was agreed to.