INCLUDE COFFEE UNDER COMMODITY EXCHANGE ACT WEDNESDAY, FEBRUARY 17, 1954 HOUSE OF REPRESENTATIVES, The committee met, pursuant to notice, at 10 a. m., in room 1310, House Office Building, Representative August H. Andresen, presiding. Present: Representatives Andresen_(presiding), Hill, Hoeven, Belcher, McIntire, Golden, Williams, King, Cooley, Poage, Grant, Abernethy, Albert, Abbitt, Polk, Wheeler, Thompson, and Jones. Mr. ANDRESEN. The committee will come to order. The committee will consider H. R. 7735, which was introduced by Mr. Angell, to amend section 2 of the Commodity Exchange Act, as amended, relating to the meaning of the word "commodity" and as I understand it would include coffee and other commodities under the bill. Our first witness will be Mr. Joseph M. Mehl, the Administrator or the President of the Commodity Exchange Authority. Mr. Mehl, we will be very glad to hear from you, and I see you have your able associates with you this morning and we will be glad to have them join you at the table. STATEMENT OF JOSEPH M. MEHL, ADMINISTRATOR, COMMODITY EXCHANGE AUTHORITY, UNITED STATES DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY RODGER R. KAUFFMAN, DEPUTY ADMINISTRATOR, AND DOUGLAS B. BAGNELL, ASSISTANT ADMINISTRATOR FOR COMPLIANCE Mr. MEHL. Thank you, Mr. Chairman and gentlemen of the committee. My full name is Joseph M. Mehl, Administrator, Commodity Exchange Authority. I have with me here Mr. Rodger R. Kauffman, Deputy Administrator, and Mr. Douglas B. Bagnell, Assistant Administrator for Compliance. Mr. ANDRESEN. Have you examined H. R. 7735, Mr. Mehl? Mr. MEHL. Yes, I have, Mr. Chairman. The only effect of that bill is to add coffee to the list of commodities that are enumerated in the bill. Mr. ANDRESEN. All of the other commodities enumerated in the bill are under some kind of regulation at the present time? Mr. MEHL. Yes, sir. Mr. ANDRESEN. Without objection the bill will be included as a part of the record. (The bill is as follows:) [H. R. 7735, 83d Cong., 2d sess.] A BILL To amend section 2 of the Commodity Exchange Act, as amended, relating to the meaning of the word "commodity" Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the third sentence of section 2 of the Commodity Exchange Act, as amended, is amended to read as follows: "The word 'commodity' shall mean wheat, cotton, rice, corn, oats, barley, rye, flaxseed, 1 grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool tops, fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and other fats and oils), cottonseed meal, cottonseed, peanuts, coffee, soybeans, and soybean meal." SEC. 2. This Act shall take effect sixty days after the date of its enactment. Mr. ANDRESEN. You may proceed, Mr. Mehl, and talk about coffee. Mr. MEHL. Thank you. As I said, H. R. 7735 would simply add coffee to the list of commodities that are already covered by the Commodity Exchange Act. It would subject trading in coffee futures in the United States to the same kind of regulation that basically has been applied to grains for more than 30 years since the Grain Futures Act of 1922. That act, you will recall, was amended in 1936 to include cotton and butter and eggs and a number of other commodities and at that time its title was changed to Commodity Exchange Act. The Department of Agriculture has reported favorably upon the Senate version of the bill, being S. 1386. That bill passed the Senate on February 9. Mr. ANDRESEN. Is there any difference between the bill that passed the Senate and the bill Mr. MEHL. There is only 1 slight difference and that is in line 9 of H. R. 7735. In line 9 after the word "and" should be inserted "all.” That is the way the Commodity Exchange Act reads at present. Insert the word "all." Mr. GRANT. Mr. Chairman, does that make it "and all other"? Mr. MEHL. "All other fats and oils." I have with me here a copy of the letter which the Acting Secretary True D. Morse, addressed to the chairman of the Senate Committee on Agriculture in reporting favorably on the bill. Would you like to have that in the record? Mr. ANDRESEN. Without objection it will be included in the record. (The letter is as follows:) Hon. GEORGE D. AIKEN, DEPARTMENT OF AGRICULTURE, Chairman, Committee on Agriculture and Forestry, United States Senate. DEAR SENATOR AIKEN: This is in reply to your letter of March 21 with which you referred S. 1386 to this Department for consideration and report. This bill would amend the Commodity Exchange Act, as amended, by extending its provisions to coffee. The effect of the proposed amendment would be to subject trading in coffee futures to the same regulation as futures trading in commodities now covered by the Commodity Exchange Act. Trading in coffee futures is conducted by the New York Coffee and Sugar Exchange. And while there may be substantial doubt as to the justification for trading in coffee futures on an American exchange, enactment of S. 1386 would enable the Department to maintain surveillance of such trading and at the same time afford opportunity to evaluate the services provided by the coffee futures market. The Bureau of the Budget advises that, from the standpoint of the program of the President, there is no objection to the submission of this report. Sincerely yours, (Discussion off the record.) TRUE D. MORSE, Acting Secretary. Mr. MEHL. In this letter, Mr. Chairman, the Acting Secretary of Agriculture said: While there may be substantial doubt as to the justification for trading in coffee futures on an American exchange, the enactment of S. 1386 would enable the Department to maintain surveillance of such trading and at the same time afford opportunity to evaluate the services provided by the coffee futures market. Mr. Chairman, in my testimony you may sense some lack of enthusiasm for this particular amendment to the Commodity Exchange Act. I notice that the House yesterday passed a bill adding onions to the Commodity Exchange Act, and with onions and coffee under the act I would say that our bureaucratic cup will be overflowing, and not with joy. Mr. ANDRESEN. Let me ask you this: The bill you referred to is the bill introduced by Mr. King, a member of this committee? Mr. MEHL. That is correct. Mr. ANDRESEN. Would it be possible to amend that bill by inserting the word "coffee" after "onions" and do the same business? Mr. MEHL. The onion bill has already passed the House. Mr. ANDRESEN. I saw it on the calendar. It just passed it, that is correct. Mr. MEHL. It was passed yesterday, I believe. Mr. KING. Mr. Chairman, could I ask a question at that point? Mr. ANDRESEN. Yes, sir. Mr. KING. I did not quite understand what the witness meant in reference to the bureaucratic cup overflowing. Mr. MEHL. It is a rather facetious remark. Perhaps it is out of place with this committee but as a bureaucrat I would much prefer to see the housewives and the restaurants take care of the coffee situation and onions. Mr. KING. You are familiar with the onion trading on the Chicago Exchange in the last few years? Mr. MEHL. In a way; yes, sir. Mr. KING. You do not believe, do you, that the housewives have a chance to greatly influence the onion market? Mr. MEHL. No, I do not; except as consumers. Mr. KING. Perhaps futures trading has had a great deal more to do with the onion market than thè consumption has? Mr. MEHL. Yes. Mr. KING. Then you would favor putting onions under control? Mr. MEHL. I certainly do; yes, sir. Mr. KING. It would suit you except for the action taken by the House yesterday to add onions as well as coffee? Mr. MEHL. Yes. I am not objecting to the actions taken. I am just remarking that those two commodities, coffee and onions, are commodities which I suspect will give us trouble in the future even though they are under the act. Mr. KING. I do not doubt that onions will. Mr. MEHL. All I can promise is that we will do our best. Mr. ANDRESEN. Mr. Mehl, you think that there is more reason to regulate speculation in onions than there is in coffee? Mr. MEHL. I do not know. I am a little more familiar with what happened in the onion market, because onions are traded in on the Chicago Mercantile Exchange, and trading in butter and eggs for future delivery on that exchange comes under our supervision. Mr. ANDRESEN. I recollect that a few years ago I looked into the onion situation in Chicago, and I believe I found 3 or 4 speculators who were kiting around and manipulating the market and ran the price up to $7 or $8 a bag. I talked to you about it at that time. Mr. MEHL. Yes, sir. Mr. ALBERT. Is there any other commodity under the act that is produced substantially abroad and not domestically? Mr. MEHL. I suppose Australian wool would be an example. Wool tops are traded in under the act. Mr. ALBERT. Would that complicate the administration in any way? Mr. MEHL. It might add some problems that we do not meet in commodities already under the act. I do not see any insurmountable difficulties. After all, we have many different problems arising by reason of the different commodities already covered by the act, but actually the law is broad enough so that by regulation under the act we can adapt the regulations to meet those problems pretty well. Mr. ANDRESEN. Cocoa would come under the same provisions so that you could regulate speculation in coffee futures-cocoa future? Mr. MEHL. Cocoa would have to be added to the language of the bill if that were done. Mr. ANDRESEN. You do regulate futures trading in sugar? Mr. MEHL. No, we do not. Mr. ANDRESEN. There is no regulation on sugar? Mr. MEHL. No. It does not cover sugar. Mr. THOMPSON. Mr. Chairman, I would like to ask a question. I think the answer may have already been given but I am a little confused as to just what it was. Would this be the only commodity, substantial commodity, produced entirely abroad which would come under the Commodity Exchange Act? Mr. MEHL. Yes, I think that is true. Mr. ALBERT. I was going to ask about tea. Mr. MEHL. There is no futures market for tea. Mr. KING. I would like to ask: Since this is proposing the regulation of futures trading in a commodity produced entirely abroad, do you feel that regulation will have anything to do with coffee prices? Mr. MEHL. Certainly not so far as prices result from supply and demand conditions. Insofar as they are influenced by manipulation or corners, if there is such a thing, then it would have an effect on price. It would not control coffee prices. Mr. KING. The dominating thing about coffee differing from that about onions is that it is the outside world's supply that is dominant rather than strictly domestic trading? Mr. MEHL. Yes, but, while I know nothing about coffee-we have had no occasion to make any investigations and have no authority to do so I do not think we should make the mistake of assuming that the futures market and the prices registered in the futures market always reflect the world supply, because the deliverable supply at that particular market has a great deal to do with it, and it is what is responsible for squeezes and even corners. mean, for example, take the Chicago Board of Trade, take the wheat market. Wheat can only be delivered on a futures contract in Chicago out of a licensed warehouse in the switching district of Chicago. Now there might be a lot of wheat in Minneapolis and Montana and so on, but if there is a shortage, if there develops a shortage of wheat for delivery in Chicago during an expiring future, those who are short-and they may be hedgers who do not want to lose their actual wheat, they will want to merchandise it; they use the market as an insurance medium, you might say. If they have to scramble for wheat, obviously the price is going to be temporarily advanced by what we call a squeeze, so the fact that there is a lot of wheat in the country would not be the controling factor. It is the supply at the delivery point when the contracts mature, which rules the futures market for the time being, and that would be true I should say generally of all futures markets. Mr. KING. The fluctuations on that basis would be very slight, would you say? Mr. MEHL. Not always. Mr. KING. On wheat certainly it is only a matter of a few days until supplies could be made available at any point in the United States? Mr. MEHL. Yes. If they make up their minds that there might be such a condition, and get the wheat rolling to Chicago, that is true. Mr. KING. Is your support of this coffee bill enthusiastic or just passive? Mr. MEHL. Well, it is just passive, when I think of the problems that we might have, and that applies also to onions, but as I said, I see no reason why the consumer of coffee and of onions as well as the producer should not have the benefit of regulated markets. Mr. ANDRESEN. Mr. Mehl, as I understood you to say, the Department of Agriculture has recommended the inclusion of coffee? Mr. MEHL. It has; yes, sir. Mr. ANDRESEN. And while you are not enthusiastic yourself as the head of the Commodity Exchange Authority, nevertheless it stands on the record as approved by the Department? Mr. MEHL. Yes, sir. Mr. ANDRESEN. While you are on your feet, I am talking about the market: Mr. King has discussed with you the futures market as you mentioned it, in wheat. Now you have found that there has often been a squeeze on the delivery date, or speculators get into the market and run up the price because there was not enough of the actual commodity in the market, like-futures on wheat, and the speculators could get in and take advantage of the situation at that time and there is where your agency comes in, to find out whether there is any manipulation or excessive or undue speculation; is that correct? Mr. MEHL. Yes, and we have a cooperative arrangement with the business conduct committee of the exchange. From our reports whenever we see that there are large short interest, hedgers or others, and that there is likelihood of there being such a squeeze we call it to the attention of the business-conduct committee. They make a survey of their own people. Mr. ANDRESEN. Let them go into this coffee situation. The gentleman knows that a few years ago I had something to do with investigating commodity speculation, and I found on a good many commodities there were a large number of speculators who were not nationals of the United States, and who were using the commodity exchanges in the United States for the purpose of profit. Maybe some of them were hedgers, and they were all on there in a legitimate manner, but I also found that a good many of these foreign nationals were using our futures market and were not paying any taxes in the United States on their speculative profits. In the situation of coffee have you investigated far enough to see or to learn if the traders in the coffee exchange are largely foreign |