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whereas ordinarily it increases during this month. This reduction of the margin in November, however, resulted in bringing the margin back to the same relationship to the 10-year average as existed from January to June. In other words, the retail margin during the 4 months, July to October, was relatively high in relation to the other months of the year when compared with the 10-year average, 1924-33. The wholesale margin, however, was relatively small during the period May to November in relation to the other months, when compared with the 10-year average.

DID PROCESSING TAX REDUCE RETAIL MARGINS?

The significant points in the foregoing discussion of changes in prices of hogs and hog products and in the margins of wholesalers and and retailers during 1933 are that the changes prior to the imposition of the tax were abnormal as compared with the 10-year averages and that in October and November there was a pronounced tendency for the retail margin to shift back to the relationship that prevailed early in the year. But there is no assurance that the changes that occurred in the retail margin after the imposition of the processing tax are definitely related to the tax. It is quite possible that the failure of retail margins to rise as much as usual in November and December was due largely to the fact that wholesale prices of pork products dropped less than they usually do at that time. The usual apparent increase in the retail margin toward the end of the year is probably due to the fact that several weeks may elapse between the time the retailer buys pork at wholesale and the time he sells it at retail. The unusually large supplies of both pork and beef in November and December 1933, may also have tended to prevent the usual seasonal increase in retail pork margins. Thus, although it is possible that the processing tax may have tended to reduce retail margins somewhat, that cannot be accurately determined from the November and December price data alone. The quotations in the next few months may throw more light on this question.

In analyzing the changes in the wholesale margin to determine the possible effect of the processing tax, consideration has been given to two distinct kinds of wholesale margins. One of these is the spread between the price of hogs and the wholesale market value of hog products in the fresh state. This value is commonly known as the 66 'green' " value. It is a common practice for meat packers to trade in fresh hog products and a broad market for such trading exists in Chicago. Using the daily price quotations of this market, the value of all the products obtained from 100 pounds of live hog has been computed, and in chart 36 this value is shown in comparison with daily hog prices from September 5, 1933, to early January 1934. This chart also shows the total weekly Federally inspected hog slaughter, and the daily spread between hog prices and green-product values. The other wholesale margin is the spread between the wholesale value of the products in the fresh state and the value of the same products in the form that they are sold to the retail trade. The sales to retailers are usually in less-than-carload lots and the products are in the finished state; that is, hams, bacon, and picnics are mostly cured and smoked. This wholesale margin in sales to retailers may be designated as the curer's margin.

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Chart 36.-Daily Wholesale Value of Hog Products (Fresh Basis) and Price of Live Hogs (180-200 lb.), Chicago, September 1933 to February 1934

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CHART 36.-During the last 4 months of 1933, hog prices and wholesale prices of hog products declined seasonally, but the relationship between hog prices and hog product values was greatly changed as a result of the imposition of the hog processing tax which became effective November 5.

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Chart 37.-Hog Prices and Wholesale and Retail Values of Principal Hog Products, and Gross Wholesale and Retail Margins, Chicago, 1933

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CHART 37.-Following the announcement of the hog processing tax on October 17, 1933, which became effective November 5, the spread between hog prices and the wholesale value of fresh products widened. The increase in this spread after the tax went into effect on the average was about equal to the amount of the tax and when the tax was raised on December 1, from 50 cents to $1 per 100 pounds live weight, the spread likewise increased about the same amount. The spread between the wholesale value of fresh products and that of cured products, however, changed very little. The retailer's margin decreased slightly but this may have been due in part to factors other than the tax.

SPREAD WIDENED BY AMOUNT OF THE TAX

Chart 37 shows average weekly hog prices at Chicago during 1933 in comparison with the two wholesale values of the principal products and the retail value of these products, together with the three margins (retail, curer's, and slaughterer's margin on fresh products). On the average, the wholesale car-lot value of the principal hog products, green basis, at Chicago is not greatly different from the Chicago market value of 100 pounds of live hogs. The two values move closely together and the difference between them is usually very small. Upon the announcement of the hog processing tax on October 17, the spread between these two values began to widen, and in a very short time it was about equal to the tax imposed. When the tax was increased on December 1 from 50 cents to $1, this spread again widened to about the equivalent of the tax.

The manner in which the imposition of the processing tax was accompanied by a change in the relationship between hog prices and the wholesale value of hog products is shown in more detail in chart 36 and table 27. It will be noted that hog prices and product values had already started their seasonal decline before announcement of the processing tax was made on October 17. After the announcement of the tax, hog prices continued to decline. Product values held steady at first, but after a few days they moved upward whereas hog prices held about steady. These changes in prices widened the slaughterer's margin to about double that obtained prior to October 17, and the margin continued wide until the tax went into effect. Product prices held at the high peak point for only 2 days, and during the first week in November they declined sharply. This decline probably was caused largely by two developments: First, slaughter supplies increased sharply; second, packers probably endeavored to move as large proportion of their floor stocks into consumption as possible in order to escape the tax on these stocks. From October 30 to November 3, the composite value of products dropped 76 cents, while hog prices declined 48 cents. But the spread was still exceptionally wide.

On November 6, the first business day that the tax was effective, the product value was advanced 59 cents and hog prices 16 cents. This caused the spread to increase from $1.13 to $1.56. During the next 3 days product values were advanced 19 cents more and hog prices rose 17 cents. At this stage, the Chicago hog market was temporarily upset by the failure of buyers and sellers to reach an agreement on prices, and few sales were made between November 8 and 17. The accumulation of hogs at the market was twice reduced by purchases for Government account, on November 11 and 14, at prices above those offered by slaughterers. The prices shown for this period, therefore, are higher than those actually paid by slaughterers.

MORE THAN AMOUNT OF TAX PASSED ON TO RETAILERS

When the tax first went into effect, wholesale product prices increased by the full extent of the tax. Since wholesale margins had already become wider than had prevailed during earlier weeks, the effect was to pass on to retailers something more than the full amount of the tax. This resulted in a sharp curtailment of meat sales at the same time that market supplies of hogs were increasing rapidly. Meat prices fell even more sharply than did hog prices, and by the

end of the month wholesalers' margins, after deducting the tax, were back to their previous levels.

The rise in product values met such resistance that between November 9 and 27 they dropped a total of $1.21 on the products from 100 pounds of live hog. Hog prices did not start downward until after November 14, which was the last date that purchases of live hogs were made for Government account. From November 14 to 27, the decline in hog prices amounted to 75 cents. This decline of $1.21 in product values while hog prices were falling 75 cents, resulted in a reduction in the spread of about 75 cents, bringing it back to its earlier level.

When the processing tax was increased from 50 cents to $1 on December 1, hog product values were not advanced, but hog prices declined 23 cents on the first day and 13 cents more in the 2 days Chart 38.-Retail Value of Consumption of Federally Inspected Pork, Including Lard, and Index of Income of Urban Consumers, United States, 1924 to Date

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$26 CHART 38.-Changes in the retail value of the domestic consumption of federally inspected pork, including lard, since 1924 apparently have been determined largely by changes in the level of incomes of urban consumers. Consumer expenditures for a large supply of pork and lard tend to be about the same as for a small supply if incomes of consumers remain constant. The decline in incomes of consumers from 1930 to 1932 resulted in a sharp reduction in the retail value of hog products consumed. In 1933 the income of urban consumers and consumer expenditures for hog products were only slightly lower than in 1932.

following, making a total decline of 36 cents after the tax was increased 50 cents. At the same time, the spread was increased by 30 cents. After adjustment is made for the tax in determining the packers' margin or spread, it will be found that the spread on the date the tax became effective was about the same as that prevailing on October 23, 2 weeks prior to the date the tax went into effect. The net spread on both these dates was about $1. It held near this level for 1 week after the tax became effective and then dropped sharply in the second week to around 60 cents. It held near the 60-cent level until the tax was increased to $1, when it dropped to 35 cents. It then increased until it was up to nearly $1, and then declined irregularly back to about the level that obtained prior to October 17.

Through December, the prices of hog products trended upwards, closing the month well above the initial prices. Hog prices, on the contrary, were forced sharply downward during the first 2 weeks, widening the margin temporarily.

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