Obviously, if we are producing more cotton than we can sell, and we sell it directly out of Commodity Credit Corporation's stocks, and then we turn around and take it in at the other end of the funnel, and the CCC does the direct selling themselves, we may very well be making very little progress and possibly spending more money. Also, the question of world prices and the response to the given economic situation is a very delicate one, and, as the chairman said, as of now, because of the agitation for lower prices and the possibility of legislation, mills, domestically and international sources, have cut their inventories down to bare bones. In recent days cotton is beginning to move out a bit, rather than in, simply because they have gotten down so low they have to have some cotton. And when this matter is resolved one way or another, cotton is going to move. Now, how much needs to be seen. Whether or not it moves through the private trade or whether the Corporation ought to sell it is a matter of judgment and timing, and we want to get the best price that we can get in world markets, and that is a factor that is a question of judgment too. CCC COTTON STOCKS Mr. HORAN. It is my understanding our cotton stocks are building up. Am I in error on that? Mr. GODFREY. Our cotton stocks are climbing for CCC. They are not at the highest point, as I showed on the chart the other day. It is estimated that there will be about 10.3 million bales at the end of this marketing year or the 1962 marketing year. Of course the pipelines in the commercial channels are about empty now. If the trade were carrying their normal stocks it is estimated that our stocks would be in the neighborhood of 72 million bales. Mr. HORAN. By trade you mean domestic mills? Mr. GODFREY. Domestic mills, yes, sir, and to some extent the foreign mills. U.S. SHARE OF WORLD COTTON MARKET Mr. HORAN. Well, section 203 deals with the historical portion of the world market for U.S. cotton. Mr. GODFREY. But as I recall, it does not define how you determine the historical share. In other words, do you use the previous year or do you use a 5-year average or 10-year average. Mr. HORAN. Are you aware, Mr. Chairman, how that is done? Mr. WHITTEN. I am aware, and it was pointed out in the opening question of the Secretary. He agreed that the Controller General had held a determination of fair share was essential and it had to be changed periodically to make certain you got your fair share of the world market. Now the reasoning behind it, and this was written by the legislative committee and the author was from my State-the language was written as it was so that we might participate on a percentage basis. Say that the world consumption increased, then you would have latitude to increase our share, which meant that if we had a third or a fourth or fifth we could stay there at that level even though it meant more bales. But I agree with you it says historical share, and we have had some years where we have held off world markets, we have some years where we have not, but a commonsense approach to the determination is what I would think everybody would expect. Mr. GODFREY. For the record I might say that this determination has been made every year since I have been in Washington and made on a commonsense approach, as you say. Mr. HORAN. And Secretary Freeman said he would make that determination. Mr. GODFREY. He has made it each year. Mr. HORAN. Well, now does the CCC internal audit examine into other U.S. cotton exports in keeping with the determined fair share or ascertain explanations for any failures to maintain such a fair share? Mr. GODFREY. No; the CCC audit does not reveal this because the extent to which we export is controlled by many, many factors over which we have no control. Even though we may set aside a particular number of bales as our fair share and as our goal for exporting that year, there are so many extenuating circumstances which would prevent us from reaching that figure. Mr. HORAN. What steps are you taking right now to achieve that objective? Mr. GODFREY. We have an export subsidy program now which in the best judgment of Department officials and the CCC Board makes our cotton competitive in the world market. There is some room for discussion of this, as the chairman recognizes, and the other members of the committee. EXPORT SUBSIDY ON COTTON However, we did set an export subsidy of 82 cents a bale to make our cotton competitive in world markets. We are also programing considerable cotton under title I of Public Law 480. Mr. WHITTEN. I hate to ask my colleague to let me interrupt again. Mr. HORAN. Oh, no; I want you to. This determination Mr. WHITTEN. I want this to be clarified. that you will pay on this kind of cotton at a rate of 812 cents for each bale that they export is a matter that was decided upon by the Department on a PIK (payment-in-kind) program. That was accepted by this committee, within the limits of our authority, with some misgivings. In other words, all we ever did was agree to go along and see how it worked. It begins to look to me like at the moment it is not working. It has been thought it would be increased. But I repeat again. under the law you have a right to sell that which is yours for the price which it brings and you do not have to fool with the mechanics at all. And if the exporters are unwilling to export cotton under your present program you are not only at liberty to change the approach, but the law requires you to do so to regain and retain our normal share of world markets. GAO REPORT ON THE 1959-60 COTTON PROGRAM Mr. HORAN. The General Accounting Office went into the cotton business under the 1959 and 1960 program, which included the options A and B, limited and unlimited sales agency and we found that it was not working. I assume that the only excuse-and that is not listed-for the creation of this program, the unlimited sales agencies, was an endeavor to relieve the Commodity Credit Corporation's capital stock. Mr. Beach, you probably know the answer to this. Mr. BEACH. The reason for the use of them? Mr. HORAN. Yes. Mr. BEACH. No, sir; as near as I recall, the basic problem involved was preservation of the established cotton trade, the buyers and sellers of cotton. Mr. GODFREY. The requirement we have in the Charter Act requires us to use the normal channels of trade in our price-support operation. Mr. HORAN. I think you should and in the absence of the folks that are being discussed now, I think it is only fair to explain the reason for the existence of this optional program which didn't work out. Mr. GODFREY. The complaint that was made by the General Accounting Office in their audit was not the use of the private channels of trade, but the provisions of the program which permitted individual members of the trade to represent the Government and then in turn deal with themselves as Government agencies. Mr. HORAN. That didn't work. We found out that the price per bale was much lower than that reported by the New Orleans commodity office. We have reason to believe that somebody made some money there and did it legally. Mr. GODFREY. Under the provisions of the act it was done legally— under the provisions of the regulation. Mr. HORAN. Which merely serves to point up the tremendous responsibility of managing such an operation as CCC. Mr. GODFREY. I would point out to you that we stopped this immediately after we got in here on April 15, 1961. Mr. HORAN. Does the record show that there were internal audit reports evaluating the effectiveness of unlimited sales agencies generally submitted to the management of CCC? Mr. GODFREY. Yes, the audit reports originally discovered this and reported it. Mr. HORAN. Now the GAO report also disclosed that excessive delays in collecting the proceeds from sales of CCC stocks of cotton made by the sales agencies resulted in additional program costs to CCC. Are we to understand that this amounts to the use of interest free Government money? Mr. GODFREY. No, sir, I would not term it that way. This is a matter of judgment between the General Accounting Office and administrative officials. When you are operating with several thousand individual representatives and agents out here in the field, it is impossible to go out and collect from each one of them the same day that the money is due. Therefore, there is bound to be some delay. Mr. HORAN. I think the General Accounting Office reports will indicate that under the operation of the Commodity offices in the case of cotton, New Orleans, that collections were made promptly while under the unsupervised or the liberal, unlimited sales agencies' operations, they were not made promptly. Am I correct? Mr. GODFREY. May I have your question read back? I was reading. (The reporter read the pending question.) Mr. GODFREY. I am speaking from memory, but, as I recall, both the limited and unlimited sales agencies were under the supervision of the same New Orleans Commodity Office. The delay in forwarding of payments in some instances, and this was not general, was just in a few instances, and was occasioned by the fact that there were so many agents and heavy volume of workload. Mr. WHITTEN. If the gentleman will yield. Mr. HORAN. Surely. Mr. WHITTEN. I don't know whether this clarifies matters very much, but at this point, it might be well to point out that, under the class A and B programs which were in existence, I believe, for 1959 and 1960, under the A program, the Government bought the cotton. Under the B option, it was put into loan. So you had there two distinct types of operations, which made for some differences. The point I wanted to ask, Did that show up in the difference in New Orleans and at the local areas or did you have a mixture of the two in each place? The point that Mr. Horan is making. Did it apply to the two different types of cotton programs, the purchase and the loan equally at each place, or did that in turn have anything to do with the difference that he is pointing out? Mr. GODFREY. The audit that he is referring to and the General Accounting Office statements about it refer entirely to the purchase part, the A part, and the two parts of the Agency operated under the purchase part. Under one, the man could operate as an agent for CCC, offer cotton for sale and buy the cotton himself, bid back on it. Under the other type of sales agreement, he could offer the cotton for sale for CCC's account, handle it through a bank and was not eligible to bid on it himself. This was the question raised by the General Accounting Office. In each case, the limited and the unlimited, as they were referred to in the audit account, there was some tardiness in submitting the funds that they received in payment for the cotton when it was offered for sale to the New Orleans office. Mr. HORAN. By all means, correct your testimony. Nobody is on trial here excepting CCC as an institution and I think that is proper. WAREHOUSE SHORTAGE AND DETERIORATION CASES Have you entered into litigation regarding any irregularities that have come to your attention regarding not only cotton, but other irregularities such as have occurred in the Midwest in wheat and grains, tobacco? Could you supply for the record now a list of those court actions? Mr. GODFREY. Yes, sir; we can supply a detailed listing of the court actions as a result of CCC operations that will be quite voluminous, but in the case of this General Accounting audit, some cases have been referred to the Department of Justice insofar as this so-called conflict of interest is concerned, but not insofar as the delay in making these payments are concerned. We did collect all the money but it was just a matter of a few days. (The information requested follows:) Warehouse shortage and deterioration cases involving legal action which were not settled as of Dec. 31, 1960 Dixie Storage & Drayage Co., Inc., New Orleans, La. E. & S. Bonded Warehouse & Union Feed Co., San Everett Grain Co., Vegas, Tex.. Farmers Market Warehouse, Cordele, Ga.. Gisi Grain Co., Otis, Colo.. Gulf Shipside Storage Corp., New Orleans, La... Islais Terminals, San Francisco, Calif. Kermit Dyche Warehouse, Inc., Fort Stockton, Tex. Lofton's Mill, Providence, Ky., and Lofton's Feed Wheat and corn... Corn and soybean. Grain sorghum Grain sorghum... Rice. Wheat. Bean. Cotton.. Corn and soybean. do. Shortage.. Do. ..do.. Shortage and Closed. deterioration. ..do. Deterioration.. Do. Shortage and Do. Shortage. Do. Do. ...do. Do. Closed. |