Mr. LEWIS. Yes. The payment in kind, incidentally, is redeemable only from CCC stocks.

Mr. HAGEN. So they can pick up the subsidy out of CCC stocks. Mr. LEWIS. Yes.

Mr. HAGEN. Do you have any idea what profit per bushel or per ton an outfit like Continental makes?

Mr. LEWIS. I don't have any specific knowledge on this transaction or any other specific transaction.

Mr. HAGEN. You have a general idea, though, what the profits are in this business.

Mr. LEWIS. Yes; the margins, as I mentioned, are frequently in the range of a penny a bushel or less.

Mr. HAGEN. That would be typical-a penny a bushel or less? Mr. LEWIS. I would guess that it would be typical.

Mr. HAGEN. Suppose the CCC stocks weren't available. You have discretion as to whether or not you will sell CCC stocks?

Mr. LEWIS. The CCC does have wide authority, broad authority, and our sales policies are established by the CCC Board and approved by the Secretary and we carry them out in accordance with the established policy.

Mr. HAGEN. The point I was trying to reach was if Continental had to go on the open market for it, the price of the grain they are buying might go up considerably, but as long as they have this CCC grain available they are protected against any price raises of the American farmer.

Mr. LEWIS. There was not a sufficient quantity of Durum wheat available to Continental in the free market to have put together this large quantity of a specific grain in the very short time available except by going to CCC.

Mr. HAGEN. I can't really understand the reason why there is such a large supply of Durum. A couple or 3 years ago it was in short supply.

Mr. LEWIS. This is characteristic of Durum, Mr. Hagen. It is grown in a very small area of North Dakota, Montana, Minnesota, and South Dakota and except for southern California—

Mr. HAGEN. And that is the reason we get a special quota in California.

Mr. Lewis, And because it is concentrated primarily in this area it is subject to yield variations that are very extreme. It is also subject to the development of new kinds of rust, which will attack a strain of Durum wheat which had been immune to the older species of rust, and very seriously affect the crop until a new resistant strain of Durum wheat can be developed to overcome the rust. This has created very sharp fluctuations in yield.

Mr. Hers. Which of your categories of wheat are in the greatest oversupply!

Mr. Lewis. I believe that Durum would head the list, at least until this transaction. Hard Winter wheat would be close behind.

Mr. HAGEN. That is the kind they grow in Kansas!

Mr. Lewis, Yos

Mr. HAGEN. Do you pay any part of the freight bill within the United States on any of this grainf

Mr. LEWIS. We in a sense will do so because we will price the Durum, and have priced the Durum to Continental Grain Co., at a price which reflects the normal market value at the head of the lakes, and now, since the lakes are closed, we must rail it to Atlantic ports and this will represent some absorption of extra freight.

Mr. HAGEN. This is in addition to the 72 cents or 73 cents export subsidy?

Mr. LEWIS. Yes, sir.

Mr. HAGEN. So in effect you have suffered a loss by Continental insisting on the Durum, is that right?

up.

Mr. LEWIS. No.

Mr. HAGEN. You have an additional freight bill you are picking

Mr. LEWIS. We consider it to our advantage to sell Durum whenever we can and we had about 25 million bushels of Hard Spring and Durum wheat positioned on the Atlantic coast before the freezeup. This was shipped on lake vessels, much of it, and we are replenishing that supply to keep the merchandising inventory available during the winter

months.

Mr. HAGEN. Are there any savings to the United States derivable from shipment from the west coast rather than from the gulf or the Atlantic coast?

Mr. LEWIS. We do have a very ambitious program to export Hard Winter wheat to Japan off the west coast and this likewise involves some freight subsidy vis-a-vis the cost through the gulf, but we can sell it off the west coast while the customers won't come after it at the gulf, primarily for logistical reasons. They don't have available transportation out of the gulf, and there are other considerations.

Mr. HAGEN. I guess the Russians are insisting that some of this wheat be delivered into Siberia, so to speak, do they not?

Mr. LEWIS. I understand that they prefer to have the pressure on their ports distributed fairly evenly and for that reason asked for some wheat off the west coast.

Mr. HAGEN. Will those wheat sales going through Asia then leave from west coast ports?

Mr. LEWIS. We expect they will.

Mr. HAGEN. Those are all the questions I have.

The CHAIRMAN. Mr. Murphy?

Mr. MURPHY. Mr. Eskildsen, yesterday the Maritime Administrator submitted us some guideline rates, but he did not submit any rates from the Great Lakes ports, and Mr. Lewis just said that probably part of the freight bill of this grain from lake ports would be picked up by the United States. Is that correct?

Mr. ESKILDSEN. Of course, the period during which this particular transaction takes place is while the lakes are closed. I believe, as I recall, in Mr. Giles' testimony he indicated that rates would be published on the Great Lakes should they be useful. Mr. Ryan here may be able to add something to this.

Mr. RYAN. I am quite certain from past transactions in other fields of 480 that Maritime will establish rates wherever we need them, whether it be Duluth, or Milwaukee, or any port.

Mr. MURPHY. Do you anticipate these movements coming out of the Great Lakes?

Mr. RYAN. If Continental's contract calls for February and March loading it is unlikely the lakes would be open in time for that, but if future sales materialize it is entirely possible that there could be some lakes loading or at least St. Lawrence loading.

Mr. MURPHY. There is a restriction on vessels in the lake ports as far as draft is concerned based on the depth of the St. Lawrence Seaway? Mr. RYAN. That is right.

Mr. MURPHY. What would be the maximum size vessel that would probably come out of the lakes?

Mr. RYAN. The accepted figure is a vessel of 25-foot draft, but what they do is go into the lakes and take on as much as they can and then they can come down to the St. Lawrence River area and top off and finish their voyage from there, so actually you can have any depth you want. I think we had a 30-some foot vessel up there, but it didn't go into the lakes all the way. It went to the St. Lawrence River area and took cargo that was brought down the lakes on lake vessels or barges.

Mr. MURPHY. Actually that seaway, if they use these lake ports, then kind of restricts the American merchant marine some more, to smaller vessels?

Mr. RYAN. Restricts the small American vessel?

Mr. MURPHY. Restricts it to the smaller American vessels?

Mr. RYAN. Not necessarily so, because I think some of these American vessels that are 15,600 to 30,000 deadweight can pick up cargo in the St. Lawrence River area as can foreign-flag vessels. I don't really see at the present time any large American or foreign vessels going all the way up to Duluth, for example, for a lot of grain, but they would probably load Duluth grain in the St. Lawrence River area, which would be hauled down by barges.

Mr. MURPHY, What would the effect have been on the grain transaction if the guideline rates had been established at Public Law 480 rates?

Mr. ESKILDSEN. I would think that it would have been more difficult to convince the Russians that they ought to buy wheat. By the Public Law 480 levels you are referring to the fact that we only have one guideline? We have two guidelines on Publie Law 480 now; haven't we!

Mr. Ryan. Yes. As we understand it from our disenssion with the Maritime Administration, the basis for the rates to the Russian ports, particularly Black Sea and the cargoes going into Western Europe, is predicated on the same formula employed to arrive at the rates for Public Law 480 programs except they did reduce the rates on the Russian cargoes by 20 percent, but they mind our rates by 20 percent

a's

Mr. Mi srur. What if these rates had not been misaad!

Mr. RYAN. Then the American flag me was at the sir 42 level for the Black Sea, which would be the origin semad rare based on. I presume our voyage rates to Egypt, Israel, and Turkey. I would guess that the supplier, Comienza, we'd have a fagi time sling to the Russians at the next

Mr. Megrur. Do the Russians nosi t'e grain deadly mough that they would pay a higher price f

Mr. ESKILDSEN. This, of course, is the $64 question, sir. Nobody knows, really, and I suppose the only way you will really find out is when a transaction takes place, how badly they need it. Obviously we do reporting on world production and so on and it is obvious that there is a need for wheat in Russia, but the exact degree of need is something that I don't think anybody can predict, so that the only way you ever find out how badly they need wheat is when they close a transaction on given terms.

Mr. MURPHY. Do you anticipate this to be a continuing need on Russia's part?

Mr. ESKILDSEN. We have looked at this as being pretty much of a one-time problem for Russia. They obviously have a lot of wheatlands, have been exporters of wheat in the past, and for that reason we have not had any confidence that we are going to have a continuing market for wheat there in the future.

There have been some reports coming in recently, and I wouldn't dignify them by saying that they are conclusive, that they may be having a few weather problems again this year. I think it is too early to make any prediction that this is going to be a continuing problem in Russia.

Mr. MURPHY. It could be continuing, though, could it not?

Mr. ESKILDSEN. Of course, it could be, but it is something you couldn't be at all certain of.

Mr. MURPHY. All these figures could be pretty well studied out so that if we go into another area of negotiation these ocean rates and just how the economics of them work could be adjusted.

Mr. ESKILDSEN. We certainly would know more about it as we get into the season when the crop comes into maturity.

Our knowledge of the crop in Russia next year is at this stage confined to what the weather is, what their possibilities for developing the crop are. It is not an actual crop yet and for that reason it would be impossible to make any firm predictions as to what the situation would be next year. A complicating factor, of course, in this whole question is: What is the world wheat need? Last year, as I pointed. out in my statement, there was a general decline in wheat production, at least of good quality wheat in Western Europe also, and for that reason there is a buildup of demand around the world this year which will probably result in our best wheat export year ever, or at least in recent times.

Mr. MURPHY. Are these wheat purchases for a good deal of seed? Mr. ESKILDSEN. I judge most of them are for human consumption. I don't know, Bob, if you have any information as to whether they use any of this wheat for seed.

Mr. LEWIS. I would expect that they would not.

Mr. MURPHY. They would grind it all?

Mr. LEWIS. It is being purchased in bulk without being differentiated very tightly as to specific qualities or varieties, and it would be unsuitable for seed-or not desirable for seed, for that reason. Mr. MURPHY. Would they be purchasing flour?

Mr. ESKILDSEN. I think there has been no evidence so far that they are going to purchase flour, but of course they have every opportunity to do so if they wish.

Mr. MURPHY. That is all.

Mr. HAGEN. I would like to ask a couple more questions.
What is the total number of bushels involved in this?

Mr. ESKILDSEN. This would be about 37 million bushels, a million tons.

Mr. HAGEN. When does Continental pay for this grain? When they get paid, or when they take delivery, or what?

Mr. ESKILDSEN. You mean the wheat they buy from the Commodity Credit Corporation?

Mr. HAGEN. Yes.

Mr. ESKILDSEN. They get paid in a normal procedure.

Bob, you might explain how that works.

Mr. LEWIS. I can't explain precisely how it is, but at the time they take title to the grain we have, the Commodity Credit Corporation has Continental's payment in hand.

Mr. HAGEN. When do they take title?

Mr. LEWIS. They take title f.o.b. port, at lake ports. This is on the Durum.

Mr. HAGEN. Pardon?

Mr. LEWIS. This is on the Durum wheat.

Mr. HAGEN. That is the point in time when they pay you?

Mr. LEWIS. Yes.

Mr. HAGEN. Less the amount of the export subsidy?

Mr. LEWIS. We don't make a deduction for the export subsidy. They pay us the full market price for the Durum wheat that any other buyer would have to pay. Then we issue payment in kind certificates. Mr. HAGEN. At the same time?

Mr. Lewis. At the time they have registered the exportation. They have to perform the export of the wheat before they get the subsidy. Mr. HAGEN. Who bears the storage cost on the grain represented by those pik, certificates? You, or Continental?

Mr. Lewis. The exporter uses these på.k. certificates as money in buying wheat and the price of the wheat will reflect storage cost as of the time that he makes the purchase.

Mr. HAGEN. In other words, he is saddled with the storage cost?

Mr. Lewis. Yes, but he doesn't need to buy the wheat within any limited time. He might buy new crop wheat right after the takeover. The price would reflect whatever storage charges are appropriate at the time he buys.

Mr. HAGEN, Thank you.

The CHAIRMAN. Mr. Tollefson.

Mr. TourSON, Mr. Fskildsen, going back to this thought of mine, it sounds good to me at first blush. Maybe it isn't so very good, but the guideline rate was fixed by the Maritime at a point where some of the grain will be shipped on American flag ships. I think Mr. Giles ssid 130,000. What was it, 130,000 bushels of tons!

Mr. Esk:12SEN. I understand that as of now, from what he said yesterday, that that much teen shipping has been booked. This does not mean that this is all that will be carrai

Mr. TOLLEYSOx. That is correct, but what I was getting at was this: Coupled with the concern of order operators that guideline rate is too low, it means that right at a pour a bere most of the operators, as I gather, wouldn't get carga dere semp

eperators who are going to carry ou