The 1962 picture was one in which production in the United States was roughly 3 million bales more than we could use here at home or, apparently could export with a combination of a 32.47 cents per pound Middling Inch loan value, average location, and an 812-cent export subsidy. Under the provisions of S. 1190 once the cotton is produced for export it would have to sell or stay in the loan between 20.50 and 24.50 cents per pound. Cotton ineligible for the loan, after it has left growers' hands, would have to be offered by shipping firms for whatever they could get for it. Let's keep in mind that only 34 percent of the 1961 crop and 46 percent of the 1962 crop actually went into the CCC loan, even with 32.47 and 33.01 cents per pound loan levels. Loan entries seldom exceed half of the crop volume. Obviously, large amounts of cotton would have to sell in world markets for whatever could be gotten for it. These supply-price-loan relationships would, in my view, result in driving world prices still further below production costs and delay even more the time at which U.S. growers can profitably compete under the sought-after single-price system. Would U.S. growers produce much cotton for export at world prices above their domestic baleage allotment? The answer is "Yes," they would for a while. Growers are tooled up to produce between 16 and 20 million bales of cotton in this country. If the domestic baleage allotment is to be geared to home consumption, even as high as 10 million bales, it would amount, roughly, to 60 percent of the capacity to produce. The costs structure now on mechanized farms are rigid. Overhead is narrowly fixed. With domestic allotments at only 60 percent of production capacity, many cotton farmers would be pushed into production for export to try to reduce their losses so long as their equipment and production organizations could be held together. The turndown in volume for export would come when more and more growers could not get the capital to reequip and when they could find alternative production opportunities with a real profit potential. As noted above, one of the pitfalls for commercial growers under S. 1190 would be an unsound position to obtain financing for production above their domestic allotment, except in instances in which the grower had a sizable net worth established. Gentlemen, may I submit for the record exhibit B, which is attached to the statement, a comparison of the incomes and costs for a mediumsized Mississippi Delta cotton and soybean farm, with current cotton price supports, and with the multiple price supports outlined in S. 1190, and also comparisons with the provisions of S. 1511. These comparisons reflect 1962 production costs, experienced in our production financing section, I really mean living expenses, although the statement reads, with a salary to the operator-manager assumed to be $400 per month and with land values at $300 per acre. You will see readily from the exhibit that the returns above costs would be pushed into the red with S. 1190. The operator-manager would have $1,541 loss instead of $2,130 profit, with the current pricesupport structure and with machine picking at custom rates in each In fact, this grower would experience a loss of $3,259 under S. 1190, under these assumptions, if he was handpicking his crop. If he was using the latest model of machines, on the customary basis his loss would be $1,451. In this example, approximately 18 percent of the gross cotton incomes, $3,862, would come to this grower as direct Government payments under S. 1190. I must repeat, our growers are scared of such Government dependency. It is fair to ask if he would do any better with the price-support provisions of S. 1511 which we recommend. I have assumed that the first 15 bales would be supported at 33 cents per pound and the balance of the production on this medium-sized delta farm at 30 cents per pound. With machine picking at custom rates his profit would be $573.50, compared with a loss of $1,451 estimated under S. 1190. In the above comparisons grower income estimates reflect only Government payments and loan values. There is a fundamental difference in the two approaches, S. 1190 and S. 1511, which significantly affects the income potential for cotton producers. Under S. 1190 the multiple payments allocate by Government action the maximum amount of income which the grower can realize from production within his domestic baleage allotment—in these comparisons that amounts to about 60 percent of his total. For the other 40 percent his income would have to come from the loan level to be established by the Secretary of Agriculture at approximately world prices-between 20.50 and 24.50 cents or from direct sales at world prices. Senator JORDAN. May I interrupt? Mr. SAYRE. Yes. Senator JORDAN. Very, very few, if any, farmers produce cotton at that price, so he would have a loss on every bale in that area, would he not? Mr. SAYRE. In my view; yes, sir. Senator JORDAN. Under present conditions with what it costs today. Mr. SAYRE. Yes. Senator JORDAN. I am talking about today's conditions, this year's production. Mr. SAYRE. Yes. On the other hand, there would be a sizable volume produced under this provision for a while, because the people are tooled up, they have the equipment-they are in gear to grow cotton, and what they would be doing would be trying to minimize their losses. They would be trying to push the volume of their production up to spread their narrowly fixed overhead. Senator JORDAN. But if his picking machine was out and his cultivators and equipment were gone, he could not replace them. Mr. SAYRE. Exactly; that would be the situation. Senator JOHNSTON. Unless the farm is in poor condition, he would be forced out, then. Mr. SAYRE. Actually we would not finance, Mr. Chairman, growers who did not have a sizable net worth established that could be used for collateral over and above his cotton production under the provisions. of S. 1190. Senator JOHNSTON. What would become of those people who are Mr. SAYRE. Well, Senator, that has been a very complex pattern as we have seen happen in the farm areas of this country over, well, more than a generation now since the early thirties. And this, in my judgment, would further compound that. Senator JOHNSTON. Yes; that is right. It has slowly been going on for many years and it would just be compounded. Mr. SAYRE. Yes, sir. As indicated above, the prospects are not favorable to obtain an equity above the world-price loan level during many marketing years with everyone selling free cotton for whatever they could get in world markets. Under S. 1511, the loan supports the spot market values with the impounding of limited quantities making it possible for growers to realize equities often ranging from $2 to $10 a bale above loan values and carrying charges with orderly marketing of the cotton throughout the marketing year. A still further source of equities above loan for informed growers stems from market price variations above loan levels for grades and staples for which there is a good demand relative to their supplies. This grower-income potential would be eliminated for the domestic allotment portion of a grower's crop under S. 1190. In the example of our medium-sized cotton-soybean farm an equity of $5 per bale on 151 bales would add $755 to his net income of $573, when the latter reflects loan values only. This would be a very important addition to such a grower's net income. It is our view that the grower is entitled to an opportunity to obtain an added profit through informed, orderly, and efficient marketing of his crop. Such opportunities would be provided under S. 1511. Farmers adjust their production plans and operations in keeping with the profit possibilities by shifting acreages from one crop to another. Exhibit C, which is the last exhibit that I will present, and also is attached to the statement, shows income and costs comparisons for the medium-sized cotton-soybean farm in the delta shifting acreage which might have been used for cotton above the domestic allotment under S. 1190 to soybeans. With a change of 50 acres above the domestic allotment to soybeans our medium-sized delta producer would lose about the same amount of loss with soybeans at $2.25 per bushel. He would have less risk, however, with soybeans since preharvest, outof-pocket costs per acre average $80 to $110 for cotton, compared with $14 to $21 per acre for soybeans in our area. Neither production combination-one, using the multiple-income payments of S. 1190 for domestic allotment production, coupled with 40 percent of the cotton production at world prices of 22.50 cents per pound; nor, two, the domestic cotton allotment and the multiple-income payments coupled with increased soybeans at $2.25 per bushelwould maintain farm incomes and the values of farm assets in the delta areas of the mid-South. I might say that this would be true of most areas of the Cotton Belt. S. 1190 will not support or maintain farm incomes nor the value of Time does not permit a presentation of the effects upon incomes for other sizes of farms. But it is abundantly clear to those of us who depend upon cotton in the delta areas that the approach of cotton's problems under S. 1190 would disrupt the economy of much of the mid-South in a very serious way. Gentleman, farm programs have usually provided an economic climate in which growers could obtain reasonable levels of income through assisted interplay of market influences. In turn, this has provided profit incentives spurring technical progress and quality gains that have provided low-cost fiber and food to the American public and a security margin for the Nation. Passage of S. 1511 would provide for a partnership between Government, farmers, and the industry to deal with the problems now confronting U.S. cotton. May I again urge your favorable consideration of this proposed approach. |