INVESTIGATION OF GRAIN STORAGE OPERATIONS OF

THE COMMODITY CREDIT CORPORATION

THURSDAY, MAY 26, 1960

U.S. SENATE,

SPECIAL INVESTIGATING SUBCOMMITTEE

OF THE COMMITTEE ON AGRICULTURE AND FORESTRY,

Washington, D.C. The special subcommittee met, pursuant to call, at 10:45 a.m., in room 457, Old Senate Office Building, Senator Stuart Symington (chairman of the subcommittee) presiding.

Present: Senators Symington and Cooper.

Also present: Richard M. Schmidt, Jr., special counsel, and George M. Kopecky, professional staff.

Senator SYMINGTON (presiding). The meeting will come to order. By directive of the Senate Committee on Agriculture and Forestry, this special subcommittee has been studying the operations of the Commodity Credit Corporation and its administration of the Government grain storage program.

We have had testimony from officials of the Department of Agriculture, the General Accounting Office, and various representatives of the grain trade.

On March 28 last, invitations were issued to the National Federation of Grain Cooperatives, the Grain and Feed Dealers National Association, the National Grain Trade Council, and other interested groups to appear before the subcommittee and give their views on the Government grain storage program.

On April 28th last, testimony was received from representatives of the National Federation of Grain Co-operatives and the Country Elevator Committee of the Kansas City Board of Trade.

On May 17th, the Grain and Feed Dealers National Association presented their views.

Today, we have representatives of the National Grain Trade Council and the Terminal Elevator Grain Merchants Association.

The operation of the Government grain storage program is of great concern to all who are interested in the efficient conduct of Government affairs.

With the ever-mounting size of surplus stocks and the resultant increase in cost to maintain these stocks, it is imperative that this program be given thorough study to insure that it is being operated in the most efficient and economical manner possible.

The Chair would like to apologize for being a bit late here, but these are rather rushing days in the Senate, and it was not possible for me to be here on time.

Mr. Counsel, who is your first witness?

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Mr. SCHMIDT. Mr. William Brooks.

Senator SYMINGTON. Mr. Brooks, will you raise your right hand in accordance with the custom of the subcommittee?

Do you swear that the information you will give this committee will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. BROOKS. I do.

TESTIMONY OF WILLIAM F. BROOKS, ATTORNEY, AND WASHINGTON REPRESENTATIVE FOR THE NATIONAL GRAIN TRADE COUNCIL, WASHINGTON, D.C.

Senator SYMINGTON. Do you have a prepared statement?

Mr. BROOKS. Mr. Chairman, I have a prepared statement, and in accordance with your rules here, it was submitted to the committee yesterday. I would like this to be part of the record. I shall attempt to shorten it, and at some points may depart from it to call your attention to certain things.

Senator SYMINGTON. Any way you desire to proceed.

Mr. BROOKS. I am William F. Brooks. I have been counsel for this organization since 1947. At your invitation, Mr. Chairman, I am here to present the council's views on the Government grain storage program.

The council's members are 29 organized grain exchanges and six national trade associations whose members' businesses are connected with the grain industry. Mr. Laybourn, a representative of the Grain and Feed Dealers National Association, presented that group's views to this subcommittee on May 17.

Mr. Frank Theis is here with me today to present the views of another of our members, the Terminal Elevator Grain Merchants. Association, on the Government's grain storage program, and Mr. Roy Hendrickson, representing the National Federation of Grain Cooperatives, presented that group's views to this subcommittee on April 28.

The National Grain Trade Council was established in 1936 to succeed an informal organization, the Grain Committee on National Affairs. The council is an unincorporated association operating under a constitution and bylaws, providing, in part, as follows:

SECTION 1. The purposes and objectives of this organization shall be

(a) To promote better understanding among the grain trade, Government agencies, and the public generally.

(b) To advocate and defend, consistent with public interest, the principles and merits of open and competitive markets for the distribution of agricultural commodities.

(c) To cooperate with other national trade associations and organizations. SEC. 2. In furtherance of the above objectives, this organization may

(a) Inform its members concerning developments in Government policies, both administrative and legislative, which may affect, or be of interest to, such members.

(b) Make available a source through which interested Government agencies and congressional committees may obtain any dependable information they may desire relative to grain marketing and the grain trade.

(c) Provide representation before governmental departments, bureaus, and commissions and congressional committees for members in such manner as may be authorized by the board of directors.

All our members are interested in minimizing, and when possible eliminating, impairments to the Nation's low cost, competitive, highly efficient grain marketing system. No member, to my knowledge, of any market or association which is a council member, is exclusively and solely interested in the storage of grain-for the Government or anyone else. All our members are concerned by the scope, direction, and results of the Government's grain programs. And all our members are becoming increasingly concerned by the direction in which the Government's grain storage programs have gone and may go.

In 1948 our views on these programs were presented to the Senate Committee on Agriculture and Forestry at hearings on the bill, S. 1322; in 1949, at hearings on the bill, S. 900; in 1950, at hearings on the bill, S. 2826; and in 1952, at hearings held pursuant to S. Res. 256. S. 1322 was a bill to grant Commodity Credit Corporation a Federal charter. S. 900 and S. 2826 were bills to amend Commodity Credit Corporation's charter. Under S. Res. 256, the Senate Committee on Agriculture and Forestry conducted an investigation of the storage and processing activities of the Commodity Credit Corporation.

During hearings on the bill, S. 2826, a question arose as to the share of the consumer's dollar the farmer receives. When testifying on that bill, I called the committee's attention to the USDA Agriculture Information Bulletin, No. 4, published November 1949 and entitled "Price Spreads Between Farmers and Consumers."

This is the bulletin, Mr. Chairman. I call it to your attention and refer there to a chart at page 17. This chart, covering grain products, shows that only 1.7 cents of the consumer's dollar spent for grain products went to those persons who assemble and distribute grain as it move from farms into consumption. These persons, all of whom assume business risks, are country elevator operators, terminal elevator operators, cash grain commission merchants, grain brokers, futures commission merchants, and speculators. All these participate in the Nation's highly complex and efficient grain marketing system under which producers of grain and consumers of grain products receive substantial benefits at such a low cost.

These are the persons and firms who are members of the council's market members and of the council's association members. They and their markets and their associations and the council will continue to advocate and defend the principles and merits of open and competitive markets for the distribution of agricultural commodities. Open and competitive markets tend to assure orderly marketing. We agree with the philosophy and congressional policy of the Agricultural Marketing Act of 1946:

Congress declares a sound, efficient, and privately operated system for distributing and marketing agricultural products is essential to a prosperous agriculture and is indispensable to the maintenance of full employment and to the welfare, prosperity and health of the Nation * **

The Government's grain programs rely heavily on the efficient operation of this competitive grain marketing system. Wheat prices as registered at Kansas City, Minneapolis, and other terminal markets, play an important role in determining wheat loan levels. The market price of other grains as registered at these and other terminal markets are essential to the economic operation of Government sales programs and are meaningful as Government officials accept or reject bids cover

ing sales, domestic and export. If these competitive market values were not readily available, farmers, processors, buyers and sellers of grain and the Government would have no way of determining a proper price level at which trading in grain should be conducted. Without these open and competitive grain markets orderly grain marketing would disappear and inevitably the Government would preempt the price-setting function.

Senator SYMINGTON. May I interrupt just a minute?
Mr. BROOKS. Yes, sir.

Senator SYMINGTON. You were giving us an interesting and constructive dissertation on the competitive grain markets, and I certainly want to see competitive grain markets. But we are talking about the problem of the cost of the storage of the grain. Would you tie those two together for us?

Mr. BROOKS. Sir, we were asked to comment on the Government grain storage programs, and I do tie them together a little later, if you will bear with me.

Senator SYMINGTON. I see. You may go forward.

Mr. BROOKS. For a period extending from about 1918 through 1926, the Federal Trade Commission conducted a detailed investigation of all phases of the grain industry. Reports of this investigation are set forth in nine volumes, as follows:

Volume I: County Grain Marketing (Sept. 15, 1920).

Volume II: Terminal Grain Markets and Exchanges (Sept. 15, 1920).

Volume III: Terminal Grain Marketing (Dec. 21, 1921).

Volume IV: Middlemen's Profits and Margins (Sept. 26, 1923). Volume V: Future Trading Operations in Grain (Sept. 15, 1920). Volume VI: Prices of Grain and Grain Futures (Sept. 20, 1924). Volume VII: Effects of Future Trading (June 25, 1926).

Two additional reports on the grain export trade were, after study, published as follows:

Volume I: Interrelations and Profits (May 16, 1922).

Volume II: Speculation, Competition, and Prices (June 18, 1923). This Federal Trade Commission investigation of all phases of the grain industry was conducted to determine whether the grain industry, as the meatpacking industry, was operating in violation of the antitrust laws.

This Federal Trade Commission investigation of all phases of the grain industry are described by Murray Benedict, professor of agricultural economics, Giannini Foundation of Agricultural Economics, University of California, in "Farm Policies of the United States, 17901950" published under the sponsorship of the Twentieth Century Fund in 1953. At page 150 it reads as follows:

A similar extensive investigation of the grain trade resulted in a series of volumes, the first of which appeared in September 1920, though the study as a whole was not completed and published until the middle of 1926. The grain trade investigation did not reveal a tightly knit combination such as had been shown in the meatpacking industry. The Commission, in fact, tended to emphasize the keenness of the competition in this phase of agricultural marketing. Attention centered chiefly on the economic significance of the dealings in grain futures, a phase little understood by farmers and one of which they had long been suspicious. Generally speaking, the investigation of the grain trade did not lead to clear-cut conclusions and recommendations as had been the case in

the investigation of the meatpackers. The Commission did make some suggestions for change but none of very striking significance.

Today, in 1960, competition within the grain industry is still keen. And the grain industry wishes to retain this keenness of competition. To retain this is becoming increasingly difficult as Government programs and the Government are ever-present threats to further impair the grain-marketing system.

For a number of reasons, including a desire to avoid direct Government competition, the grain warehousing industry, cooperative and noncooperative, has expanded the Nation's private grain warehousing capacity. That grain farmers and the Government may use this expanded grain warehouse capacity to its maximum, grain warehousemen have entered into grain storage agreements with Commodity Credit Corporation. The terms and conditions of these contracts are uniform throughout the country. The rates for services, receiving, warehousing, and loading out have in the past varied by area and commodities.

The grain industry endorses the principle of having available for Commodity Credit Corporation a warehousing agreement which is uniform throughout the country as to terms and conditions. Within each State, warehousing practices are uniform. Warehouses licensed under the United States Warehouse Act are subject to uniform rules and regulations established under that act. Under a uniform agreement, Government property receives uniform and adequate protection as has been from time to time recommended by congressional committees.

The entire grain industry, including the grain warehousing industry, believes that if legislation to require (1) that Government facilities be used to store surplus commodities before private facilities could be used; or (2) that Commodity Credit Corporation store surplus commodities at rates and places determined after calling for and receiving bids for this service; or (3) that Commodity Credit Corporation renegotiate individual warehouse charges where Government grain may be stored; or (4) that any technique other than a uniform agreement be used is to be considered, the grain industry and other industries which participate in the marketing of agricultural commodities should be heard by appropriate committees of Congress. We believe that any of the proposals enumerated above constitute a grave threat to the orderly, competitive marketing of agricultural commodities.

The charter of Commodity Credit Corporation-and the general farm law provides that determinations under that law shall not be inconsistent with the Charter Act-does contain some safeguards against impairment of the orderly, competitive marketing of agricultural commodities. These become no safeguards at all when one studies the implications of a House-approved floor amendment to the 1961 agricultural appropriations bill.

This amendment, which the Senate Committee on Appropriations struck from the bill last week, attempts to require that Governmentowned facilities be used to store surplus commodities and to prevent Commodity Credit Corporation from using the usual and customary channels, facilities, and arrangements of trade and commerce in the warehousing of commodities.