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HEARING

BEFORE THE

SUBCOMMITTEE ON COTTON

OF THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

NINETIETH CONGRESS

FIRST SESSION

JULY 13, 1967

Serial S

0

Printed for the use of the Committee on Agriculture

U.S. GOVERNMENT PRINTING OFFICE

'4-1:2t; WASHINGTON : 1967
COMMITTEE ON AGRICULTURE

W. R. POAGE, Texas. Chairman

E. C. GATHINGS, Arkansas,

Vice Chairman

JOHN L. McMILLAN, South Carolina

THOMAS G. ABERNETHY, Mississippi

WATKINS M. ABBITT, Virginia

PAUL C. JONES, Missouri

FRANK A. STUBBLEFIELD, Kentucky

GRAHAM PURCELL, Texas

MASTON O'NEAL, Georgia

THOMAS S. FOLEY, Washington

JOSEPH Y. RESNICK, New York

ELIGIO DE LA GARZA, Texas

JOSEPH P. VIGORITO, Pennsylvania

WALTER B. JONES, North Carolina

JOHN G. DOW, New York

BILL NICHOLS, Alabama

G. V. MONTGOMERY, Mississippi

FRANK J. BRASCO, New York

JOHN R. RARICK. Louisiana

PAGE BELCHER, Oklahoma,

Ranking Minority Member

CHARLES M. TEAGUE, California

CATHERINE MAY, Washington

ROBERT DOLE, Kansas

GEORGE V. FIANSEN, Idaho

WILLIAM C. WAMPLER, Virginia

GEORGE A. GOODLING, Pennsylvania

CLARENCE E. MILLER, Ohio

J. HERBERT BURKE, Florida

ROBERT B. MATHIAS, California

WILEY MAYNE, Iowa

JOHN M. ZWACH, Minnesota

THOMAS S. KLEPPE, North Dakota

ROBERT PRICE, Texas

JOHN T. MYERS, Indiana

RESIDENT COMMISSIONER

SANTIAGO POLANCO-ABREU, Puerto Rico

CHRISTINE S. GALLAGHER, Clerk

HYDE H. MURRAY, Assistant Counsel

FRANCIS M. LEMAY, Staff Consultant

SUBCOMMITTEE ON COTTON

E. C. GATHINGS, Arkansas, Chairman

THOMAS G. ABERNETHY, Mississippi CHARLES M. TEAGUE, California

PAUL C. JONES, Missouri ROBERT B. MATHIAS, California

ELIGIO DE LA GARZA, Texas ROBERT PRICE, Texas

It
CONTENTS

Statement of: Page

Hardin, Russell, Southern Cotton Storage, Inc 7

Moseley, C. Hilary, Assistant Deputy Administrator, Commodity

Operations, Agricultural Stabilization and Conservation Service,

U.S. Department of Agriculture 14 Nichols, S. R., Southern Compress Co 7

Powell, George M., Federal Compress and Warehouse Co 7

Todd, John II. executive vice president, National Cotton Compress

and Cotton Warehouse Association 1

Wilson, Albert H., Farmers and Merchants Compress and Warehouse

Co 7

III
•,k
COTTON STORAGE COSTS

THURSDAY, JULY 13, 1967

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COTTON

OF THE COMMITTEE ON AGRICULTURE,

Washington, D.C.

The subcommittee met, pursuant to notice, at 2:25 p.m., in room

1301, Longworth House Office Building, Hon. E. C. Gathings (chairman of the subcommittee) presiding.

Present: Representatives Gathings, Poage, McMillan, Jones of

Missouri, Montgomery, Nichols, Teague of California, and Mathias,

Also present: Christine S. Gallagher, clerk; Martha Hannah, subcommittee clerk.; Hyde H. Murray, assistant counsel; Francis LeMay,

staff consultant; and Fowler C. West, assistant staff consultant.

Mr. GATHINGS. In the latter part of April we held exploratory

meetings having to do with the matter of the cost of storage of cotton,

the warehousing of cotton.

Since that time the cost studies that the Department of Agriculture

had been engaged in drafting for some time were made available.

We would like to follow up today the current situation with regard

to the matter of costs having to do with cotton warehousing and the

storage of cotton. And we would like also to look into the issue of the

effect of the rates in instances where losses exist to the warehouseman.

What effect that situation would have upon the farmer.

Mr. John H. Todd is with us. He is executive vice president, the

National Cotton Compress and Cotton Warehousing Association,

Memphis, Tenn.

Mr. Todd, would you come up to the table.

Would you give us a statement.

STATEMENT OF JOHN H. TODD, EXECUTIVE VICE PRESIDENT,

NATIONAL COTTON COMPRESS AND COTTON WAREHOUSE

ASSOCIATION, MEMPHIS, TENN.

Mr. TODD. Yes, I would, Mr. Chairman. I have some materials

that were not available at the time of the previous hearing.

Mr. GATHINGS. If you would proceed in your own way, Mr. Todd,

we would be glad to hear from you. You were with us the last time,

and the testimony you gave us was most beneficial to the subcommittee.

Mr. TODD. Thank you, sir.

I think it might be well to begin by reiterating the problem of the

warehouseman in this field as it was expressed in the earlier hearing.

The problem, essentially, is that the rates paid by the Commodity

Credit Corporation on cotton which it owns and controls are too low
2 COTTON STORAGE COSTS

to return to the warehouseman in the coming year the cost of performing the storage service plus a reasonable profit.

Incidentally, the same is true of the proposed new outhandling

charge of $1 per bale which the Department proposes to pay on

cotton which it orders shipped from a warehouse.

Mr. GATHINGS. If you will pardon me for interrupting you at that

point, that figure was 50 cents a bale heretofore, and it was increased

to a dollar a bale?

Mr. TODD. That is correct, effective August 1 next. It hasn't gone

into effect yet.

Mr. GATHINGS. It would go into effect on August 1, 1967?

Mr. TODD. That is right.

Mr. GATHINGS. Pardon me.

Mr. TODD. I think it would be well to remember that since 1962-63

the Department has successively and drastically reduced the storage

rates which it pays on the cotton it controls, basing that action on the

tremendous volume of cotton which had accumulated in its hands over

these years. And it is true that that volume of cotton was great, and

continued to be great until the sharp reductions or declining volume

which began in the current season.

That volume alone has enabled the warehousemen to keep their

financial heads above water up until approximately the present time.

I know of some warehouse operators who are already dipping into

red ink. But most of them I think, have been able to meet their costs

up through this season which is now drawing to a close.

We are faced, though, with a tremendous decline in storage volume

which has a corresponding effect of forcing upward the cost of performing storage service, in addition to the effect of the increased minimum

wage and other cost increase factors. Unfortunately the Department,

however, has refused to apply its formula in reverse. It used increasing

volume to decrease the storage rates but it refuses to acknowledge a

declining storage volume as a justification for increasing the rates.

Mr. GATHINGS. Would you give us at that point just what decrease

in volume you have at this time, as against a year ago or 2 years ago,

and what your estimate would be for the new year?

Mr. TODD. The specific figures, Mr. Chairman, are in my testimony

in the April hearings, except that the volume is going to be even less

than I anticipated at that time.

Let me give you the exact figures.

The storage volume on the average—this is the average for the

season—reached its alltime high in the year 1965-66, when it was

17,075,246 bales. In the season now drawing to a close, in April we

computed an estimate of 14,216,693 bales. For the coming season in

April we computed an average storage volume of 10,534,274 bales.

This was predicated on the assumption that we would have a crop

of 10 million bales.

Actually we have made an estimate today as best we can which

indicates that the 1967 crop will be less than 8,400,000 bales.

Mr. GATHINGS. So the volume will be decreased?

Mr. TODD. Yes. That is an even greater reduction than we anticipated in April.

Mr. GATHINGS. Will you proceed?

Mr. TODD. In that connection I have given Mrs. Gallagher several

photostatic copies of a table which we prepared only today showing
COTTON STORAGE COSTS 3

at the top of the page the carryover of cotton in the United States in.

public storage. That does not include the stocks in consuming extablishments. We show for August 1, 1965—and these are the figures

reported by the Bureau of the Census-12,569,969 bales.

Also reported by the Bureau of the Census for August 1, 1966, the

beginning of the current season, 15,314,866 bales.

We compute an estimate for the coming season, that is, for August 1,

1967, of approximately 10 million bales, or perhaps slightly less.

In addition to those figures, we undertook to make a comparison of

estimated production in the coming year compared with the production

during the current season and the last preceding season. This table

shows the figures for all three of these years for each State.

Mr. GATHINGS. I wonder if you could give us the U.S. figures, and

then we would probably put the other figures in the record.

Mr. TODD. Yes, sir. I didn't intend to review all these in detail

anyway.

For the 1965-66 season, the production in 500 gross-weight bales—

actually this is called the Ginnings—in 500 gross-weight bales, as reported by the Bureau of the Census, was 14,972,573 bales.

For the season now drawing to a close the total figure, as reported

by the Bureau of the Census, is 9,574,965 bales. And as closely as my

associates can estimate the prospects for the coming year, based on

their knowledge of the damage recently done by the weather as well

as that done during the early planting season, we come up with a

total of 8,368,100 bales. That is down nearly 7 million bales, over

6,600,000 bales from 1965-66.

It is very pertinent to note in this connection that in updating its

cost study data the Department of Agriculture assumed a 1967 crop of

12 million bales, whereas, as nearly as we can estimate, it will be less

than 8,400,000. This will reduce average storage volume to about

8,600,000 bale-months. The Department estimated 12,379,000 balemonths.

Mr. Chairman, I have prepared a one-page table which I believe

has been distributed. It is a mimeographed document showing a

summary of the updated results of the Department's cost study, which

is based on 1967-68 prospective bale volumes, and 1967-68 costs.

And for comparison I have inserted the rates paid by Commodity

Credit Corporation for storage of loan cotton—for Commodity Credit

Corporation-owned cotton during the first year of ownership, and the

rate paid on Commodity Credit Corporation-owned cotton after

the first year of ownership. And at the right side of the statement I

have made a similar comparison of the new $1 per bale rate for breakout and shipping with the combined cost of breakout and shipping.

In each instance where the rate paid by CCC is less than the cost

of performing the service, I have placed by the rate a little X. You

will see these X's all over the sheet. For example, for compresses in

the Southeast, and West, and gulf ports, the rates on loan cotton, on

CCC—owned cotton for the first year, on CCC-owned cotton for

years after the first year, the rates are all less than the cost of performing the service. The rates on owned cotton both during and after the

first year are less than the cost of performing the service for compresses

in the Southeast, in the Southwest, in the West, at gulf ports, and for

all compresses in the United States taken together. For warehouses

not operating compress machinery the cost of performing the service
4 COTTON STORAGE COSTS

exceeds the rate paid on cotton owned by the CCC for more than 1

year in the Southwest. On the breakout and shipping, as I have said,

the new rate, which has been doubled from the present rate, will be

$1 per bale beginning August 1. The combined costs in the season

ahead as determined by the Department are shown to be for warehouses, $1.11 in the Southeast; $2.45 in the South Central States;

$1.01 in the Southwest; $1.09 in the West; $1.10 in the gulf ports;

$1.28 for warehouses in the United States at large; and 96.8 cents per

bale for compresses in United States at large; and $1.06 for all warehouses and compresses in the United States combined.

So the only instances in which the rate paid by CCC, or proposed

to be paid, will exceed the cost of performing the service will be for

compresses in the Southeast in the Midsouth in the Southwest, and

for compresses in the United States at large.

Mr. GATHINGS. Without objection this table will be made a part

of the record.

And also the tabulation that -you discussed just a moment ago

without objection will be made a part of the record.

(The tables referred to follow:)

PRODUCTION

In 500-1b. gross weight baies]

1965-66 1966-67 Estimated

1967-68

Alabama 

Arizona 

860, 796

781,892

463,255

511,737

417, 000

461,000

Arkansas 1, 449, 548 760,124 684,000

California 1, 696, 297 1, 231,195 1, 169.636

Georgia 558, 393 313, 190 282, 000

Louisiana 559, 566 448. 686 404, 000

Mississippi 2, 025, 623 1, 353, 935 1, 219, 000

Missouri 389,194 161,430 145. 000

New Mexico 214, 012 168, 198 159, 788

North Carolina 227, 507 96, 712 45,000

Oklahoma 364, 149 211, 320 195, 000

South Carolina 492, 670 280, 035 165, 000

Tennessee 632,974 361,666 326,000

Texas 4, 691, 284 3, 197, 756 2, 880, 000

Other States 28, 668 15, 676 15, 676

Total, United States 14,972, 573 9, 574, 965 8,368, 100

Note: U.S. carryover in public storage: Aug. 1, 1965, 12,569,969 bales; Aug. 1, 1966, 15,314,866 bales; Aug. 1, 1967,

10,000,000 bales (estimated).
00

t\D

14 SUMMARY OF UPDATED USDA COTTON WAREHOUSING COST STUDY RESULTS BASED ON 1967-68 BALE VOLUMES AND 1967-68 COSTS COMPARED WITH PROPOSED RAT ES ON

CCC-OWNED COTTON

[Weighted average replacement cost per bale by area and type of facility, 1967-681

Area and type of facility

Cost of storage

per bale

per month

(excluding

breakout)

Storage rates paid on CCC cotton

Loan

CCC-owned

1st year After 1st year

Cost of Proposed rate for

Cost of Cost of breakout breakout and

breakout shipping plus shipping of

per bale per bale shipping CCC cotton

Southeast:

Warehouses $0333 1 $0. 46 1 $0. 43 1 $0. 40 $0763 $0343 $1106 1 $1. 00 Compress .477 2.41 2.38 235 .452 .286 .738 1.00 All plants . 349

. 723 .337 1. 060 2 1.00 South-central:

Warehouses .333 1. 46 1. 43 1.40 1.297 1.152 2.449 2 1. 00 Compress .345 .41 .38 .35 .547 .396 .943 1.00 All plants 343 .645 .494 1. 139 2 1. 00 Southwest:

Warehouses .420 1 . 46 1. 43 12 40 .519 .487 1.006 2 1. 00 Compress .380 .41 2.38 2 . 35 .514 .392 .906 1.00 All plants 388 .515 .410 .925 1.00 West: Compress .454 2. 41 2.38 2 .35 .601 .488 1.089 2 1.00 Gulf ports: Compress .432 2.41 2 .38 2 .35 .483 .617 1. 100 2 1.00 United States:

Warehouses .345 1. 46 1 . 43 1 . 40 .805 .476 1.281 2 1. 00 Compress .391 .41 2.38 2 . 35 .531 .437 .968 1.00 All plants 373 .616 .448 1.064 2 1.00

1 If cotton is compressed, rate is 5 cents less. 2 Indicates that rate is the same as or less than cost.

NO1,100 HOVIIOIS SISOD 
6 COTTON STORAGE COSTS

Mr. JONES. Could I ask a question at this point?

MT. GATHINGS. Yes, Mr. Jones.

Mr. JONES. Mr. Todd, in this tabulation we are putting in the

record, how do you account for the fact that in the Southwest the cost

of breakout per bale and the cost of shipping per bale is less than half

of what it is in the South Central, and yet—that is, in the warehouse—

and yet in a compress it is approximately the same?

Mr. TODD. I don't believe I follow you, Mr. Jones. For warehouses

in the Southwest I see $1.01. It is actually $1.06.

Mr. JONES. Let's take the South Central. And up here where it

says "Warehouses," you run across where it says "Cost of breakout

per bale is $1.297, and $0.519 in the Southwest.' And for the shipping

it is $1.152 in the warehouses, and then $0.487 in the Southwest.

Now, I just wondered what would make a difference of twice as

much there in the warehouses, and yet the compresses would be

approximately the same.

Mr. TODD. You have just called my attention to an important

error. There is a typographical error there. That figure opposite

"Warehouses" under the next to last column "Cost of breakout plus

shipping," should be $2.449 instead of $1.449.

Mr. JONES. That makes it even worse, although I haven't got out

to the total cost I am talking about, the cost of breakout per bale

is $1.29 in the warehouse in the South Central, and only $0.519 in

the Southwest warehouses. And yet when we get down to the compresses in the two areas, they are about the same. I can't figure the

difference, why it costs so much more to break it out of a warehouse

in the South Central than it does in the Southwest, because the

breakout at the compress is about the same.

Mr. TODD. I really- don't know the answer to that either. I can

only assume that it is because of the variation in efficiency of the

warehouses in those respective areas. Now, in the Mississippi Valley

or the South Central or in the Southwest, the great preponderance of

storage capacity is operated by compress-equipped plants. The warehouses are a small minority, generally speaking, they are small plants.

And I would assume from both of these figures that they are relatively

inefficient.

Mr. JONES. You are thinking of the same operation in the same

community. The difference I am speaking about is the difference of

breaking out from the warehouse in the South Central and the compress in the South Central. You have got over twice as much there.

Down in the Southwest it is $0.519 and $0.514, which is about the

same.

Mr. TODD. I think a big part of the difference between the warehouse and the compress is that the compresses generally have mechanical bale-handling equipment, industrial lift truck equipment with

clamps and hooks 

Mr. JONES. They do that in the Southwest also, do they not?

Mr. TODD. In the compresses, yes.

Mr. JONES. They evidently do it in the warehouses, too, down in

the Southwest, because the prices are about the same.

Mr. TODD. That is the only thing I can think of, Mr. Jones. Those

of course are figures developed by the Department.

MT. GATHINGS. Mr. Mathias.
COTTON STORAGE COSTS 7

Mr. MATHIAS. This mistake here should be $2.449. Are there any

other mistakes?

Mr. TODD. That is the only one I have discovered. I did know

about that, but I forgot to mention it.

Mr. GATHINGS. Let's be sure that we get that right for the reporter.

That is under the Southwest column, the cost of breaking out 

Mr. TODD. No; the South Central.

Mr. MATHIAS. But the rest of the ones are OK, is that the only

one that is up to two?

Mr. TODD. Yes.

This has been proofread. And that is the only error that I discovered.

I believe that is all I have, Mr. Chairman, unless there are other

questions.

Mr. GATHINGS. I would like to ask Mr. S. R. Nichols, Southern

Compress Co. Des Arc, Ark. • Mr. Russell Hardin, Southern Cotton

Storage, Inc., Monroe, N.C.; 

Ark.;

George M. Powell, Federal Compress

& Warehouse Co., Memphis, Tenn.; Mr. Albert H. Wilson, Farmers

& Merchants Compress & Warehouse Co., Dallas, Tex., to come

forward.

Did you gentlemen furnish the information for this sheet here that

was given us a few minutes two by Mr. Todd for the last column over

here, the current cotton situation in the United States?

Mr. S. R. NICHOLS. Yes.

Mr. GATHINGS. I wonder, Mr. Nichols, if you would give US the

benefit of your views with regard to the situation in the State of

Arkansas, that is to say now, the cutback as against a year ago in

acreage, and what-effect did the weather have upon our crop this year

in Arkansas?

STATEMENT OF S. R. NICHOLS, SOUTHERN COMPRESS CO., DES

ARC, ARK.; RUSSELL HARDIN, SOUTHERN COTTON STORAGE,

INC., MONROE, N.C.; GEORGE M. POWELL, FEDERAL COMPRESS

& WAREHOUSE CO., MEMPHIS, TENN., AND ALBERT H. WILSON,

FARMERS & MERCHANTS COMPRESS & WAREHOUSE CO.,

DALLAS, TEX.

Mr. S. R. NicHoLs. I never like to talk about bad news, but we

might as well face it. Arkansas will make the smallest crop that has

been made in 80 to 100 years. And it is due to the increased retirement

from cotton production under the present farm program. I believe 33

percent of the acreage was retired under that program.

Then on account of the late planting season, excessive rains, and

cold weather, the Department permitted the cottongrowers to abandon

cotton acreage and draw their cotton payment and plant soy beans or

anything else they wished after approximately May 20. That has

resulted in tremendous diversion, the extent of which is not yet

known.

Mr. GATHINGS. That was most helpful to the farmer. I will say

that the Department came to the farmer's aid in permitting him to

plant soy beans. They tried time and time again to get a stand of

cotton, and they planted it up as many times as four, and they were

unable to get a good stand.
8 COTTON STORAGE COSTS

_N S. R. Nicrums. That is right. And sometimes after they got a

stand this died out. So eventually they plowed it up and planted soy

beans. Now, the extension of that conversion has not yet been determined even by the Department. I think we will know that on August 8

whe n we get the first cotton report. But I would estimate from talking

to ginners and producers in Arkansas that we will make less cotton

than last year. That was only about 750,000 bales in round figures. So

we will probably make under 700,000 bales this year.

Mr. GATHINGS. That is quite a come down, because in 1965 and 1966

the Department of Commerce estimated that the actual figure for

Arkansas for that year was 1,449,548 bales.

Now, what effect do you think this is going to have upon the cost of

a warehouseman in our area to do business'?

Mr. S. R. NICHOLS. Certainly since the warehouse has fixed cost in

plant and salaries, machinery, local property taxes, insurance and

many other fixed costs that cannot be reduced, the unit cost of storing

cotton is going up as volume decreases. It takes volume to maintain

low cost per unit. And our business has been adjusted to volume. And

Commodity Credit has adjusted its storage rate in past years to a

large volume carryover and large crops. And that large volume no

longer exists. So all of our fixed costs are going to be borne by a very

much smaller number of bales. Therefore the unit cost of storage is

going up fantastically this year.

Mr. GATHINGS. According to Mr. Todd, the Department, in coming

out with its updated commodity, had estimated that in 1967-68 it

would be assumed that there would be a 12 million bale drop. Now,

would that have made any difference, do you think, on that study?

Would it have made any difference in the true fact of some 8,368,000

bales that you have estimated would be produced?

Mr. S. R. NicHoLs. Well, as it affects the per bale cost of storing

cotton, the difference between the industry handling the 12 million

bale crop and a crop around the eight million bale level is just the

difference between night and day. In one you would do business under

one set of figures, and with a crop that is only about two-thirds of

that, you would have to have much higher compensation, or you

would be doing business at a severe loss.

Mr. GATHINGS. Thank you, Mr. Nichols.

I wonder now if Mr. Hardin would give us the benefit of the situation

that exists in North Carolina.

Mr. HARDIN. In North Carolina we have had adverse weather conditions. At the time of planting it was extremely cold. And then we put

the crop in the ground, and it got extremely dry. So we have had some

cases of planting three times, and finally winding up plowing what

came up and putting soy beans in. We have got a good soy bean crop.

But I think cotton will be half of what it was last year, the way it

looks right now. Even in our county it is very definitely half, because

everyone I have talked to has already plowed up over half of their

acreage.

Mr. GATHINGS. Does that situation exist over the southeast area,

or just in part?

Mr. HARDIN. Yes. But I think it is probably worse in upper North

Carolina and South Carolina—the further south you go in the Southeast I think you run into better conditions. The lower part of South
COTTON STORAGE COSTS 9

Carolina has a fair crop. The northern part of South Carolina is very

much like the North Carolina crop.

Mr. MCMILLAN. Mr. Chairman, I haven't had an opportunity to

talk with the South Carolinians here today. However, about twothirds of the agriculture produced in South Carolina is produced in

my congressional district. In South Carolina we are going to have

a 50 percent cut in the crop on account of weather conditions. The

majority of people have planted cotton three times and finally had to

plant soybeans.

Mr. GATHINGS. You have got the same situation that they have

in North Carolina and Arkansas. And I think the gentleman from

Missouri said 

Mr. JONES. He is better off; he says they are going to have 50

percent, and we only have 25. So he is twice as well off as we are.

Mr. GATHINGS. Thank you very much, Mr. Hardin.

1 wonder if Mr. Powell of the Federal Compress Sr, Warehouse Co.

of Memphis could add anything to your testimony.

Could you give us the situation in Mississippi? You are in that

area, Mississippi and western Tennessee, and also probably you could

cover southeastern Missouii.

Mr. POWELL. We operate in Arkansas, Louisiana, Mississippi,

Missouri, and Tennessee, and we operate plants in Arizona. As for the

Mississippi Valley States the conditions in Mississippi, Louisiana, and

Tennessee are basically about like the situation Mr. Nichols described

in Arkansas. As far as southeast Missouri is concerned, it is almost a,

disaster area. There is just no cotton left up there to amount to anything. Mr. Jones said about 25 percent, and I expect that is just about

what it will be. There are a lot of gins in Missouri which normally gin

4,000 to 5,000 bales of cotton, and this year the entire area that they

will draw cotton from for their gin is less than 400 acres, so, of course,

they won't be able to open the gins. Missouri is probably hurt worse

than any other area, possibly because it is the furtherest north of any

cotton-producing area. But in all the States bordering the Mississippi

River we had too much rain in the spring, and the planting was late.

Then, when the farmers were offered an opportunity- to plow up their

poor stands and plant soy beans, there was a great deal of acreage that

was plowed up and diverted to soy beans. The figures released by the

Department show an average reduction under last year's acreage of

approximately 6 percent, but that does not take into account al of

these tremendous diversions of acreage to soy beans. We have estimated a reduction of about 10 percent under the cotton crop of last

year, and I think that is very conservative. We would be very, very

pleased to get 90 percent of last year's crop.

Mr. GATHINGS. Mr. Powell I know the value of the compress man

to an area that grows cotton. The people who are in the warehouse

business handling cotton furnishes a great service to our people.

Now, do you concur with that?

Mr. POWELL. Yes, sir.

Mr. GATHINGS. I wonder what effect this cutback is going to have

on the cost to do business in the areas that you serve.

Mr. POWELL. It will cost more per bale because there are going to

be so many less bales. And, of course, that is going to mean a reduction

in the payrolls that the compresses have. Anywhere there are compresses and warehouses, there will be less people employed. And, of

A
10 COTTON STORAGE COSTS

course, that is even more true for a coton gin. A warehouseman, if he

is lucky, can store something other than cotton, but a cotton gin

can't do anything but gin cotton. This reduced acreage is going to

have an adverse impact on all the areas where cotton is grown, and,

certainly, our per-bale costs must increase, because the cotton available for handling will be reduced.

Mr. GATHINGS. Now, Mr. Powell, I wonder if you can comment on

the amount contained in this summary sheet here that you will be

paid for the services that you render for the handling of CCC cotton,

loan cotton, as well as the cotton held for one year or beyond.

Mr. POWELL. Yes, sir. We have done like we did in the past, when

CCC reduces the rates like they have done, that means that the

farmers and the ginners are going to have to pay a higher share of our

costs than they should be paying. The Government just doesn't pay

their fair share. They are freeloaders.

Mr. GATHINGS. The individual farmer is paying more now than

the CCC rate?

Mr. POWELL. Yes, sir. For example, he pays 55 cents storage on a

bale of loan cotton while it is in his possession, and the Government

pays 41 cents.

Mr. GATHINGS. Thank you so much, Mr. Powell.

I would like to ask Mr. Wilson if he would give the situation that

exists in the Texas area.

When you speak of Texas, Mr. Wilson, you are talking about something like 33 or 34 percent of the total cotton grown in the Nation.

Is that about right?

Mr. WILSON. Yes; that is quite true, Mr. Chairman. Last year, as

you know, the national crop was some 9,500,000 bales. Of that total

Texas produced 3,200,000 bales.

Now, the crop in Texas last year was cut almost a million and a half

bales from the 1965 crop. This was a reduction of some 31 percent in

total bale production. This year we are faced with a further cut in

production, due largely to two things. One is an additional reduction

in total acres which we estimate will run approximately 6 percent

from last year. And coupled with this, our weather conditions, which

have been most unfavorable in certain areas of Texas. And I am referring to the High Plains area of west Texas, where we have the heaviest

production. And growing conditions out there have been most unfavorable this year.

I am also speaking of Mr. Poau

6

e's area in central Texas, where

drought conditions have prey ailedfrom the Waco area south. So we

would conservatively estimate a further reduction in the Texas crop

of 10 percent. We feel that it would be at least 10 percent less than the

total production for 1966.

Mr. GATHINGS. Is that cutback in production this year, as against

a year ago or 2 years ago, going to run your costs up in the operation

of your compressors?

Mr. WILSON. Yes. Assuming that the costs remain at the same

level, if volume is reduced naturally your per bale factor will rise,

your per bale cost factor will rise. So as volume goes down costs go up.

Now, there are other things that we are confronted with this year

that will add to our costs. As you know, the statutory wage minimum

has been raised. And it will go to $1.60 an hour on February 1 of

1968.
COTTON STORAGE COSTS 11

Also we have lost most of the exemptions which the compress

industry has enjoyed since enactment of the Wage Hour Act. We

had exemptions up until February 1 of this year, which lessens the

cost of personnel and labor costs. For example, the compress industry

had what was known as the 7(c) exemption under the act, which

freed the compresses from the obligation of paying time and a half

overtime to employees who worked in a compress establishment during

any workweek in which the service of compression was performed.

And that exemption has been eliminated?

So that means that this year we are going to have to pay a lot of

overtime.

Now, in the harvesting of the cotton crop 

Mr. GATHINGS. Will you pardon me right there.

What is the difference now in what you have been paying them

before this new act had gone into effect that now requires the $1.60

an hour for common labor, what had you been paying them?

Mr. WILSON. Well, for overtime, over and above 40 hours during

the workweek, whereas in the past in a compress establishment we

paid straight time of $1.40 an hour, that will go to $1.60 an hour on

February 1 of next year.

Now, for these excess hours from now on we are going to have to

pay one and a half times $1.40 an hour up until February 1 of next

year. So our costs are going to be increased substantially because of the

loss of that exemption which we have enjoyed.

So personnel costs are going up.

These are not taken into account, I am sure, in the Government

cost figures, because the costs followed by the Government study were

based on the 1964-65 year, at which time we did enjoy these exemptions, and at which time we were able to lessen or hold down our

operating costs.

So this is another thing which is going to add to costs which is not

properly taken into account in the cost study made by the Department.

Mr. GATHINGS. The cost study made by the Department assumed

a 12-million-bale year in 1967.

Mr. WILSON. That is correct.

Mr. GATHINGS. Mr. Todd.

Mr. TODD. May I just interject, the Department did compute an

increase in labor rates, I believe it was 20 percent. How they arrived

at that I don't know. But they did include in their calculations of cost

figures an increase of 20 percent in the rate of labor cost.

Mr. GATHINGS. Are there any questions, now, of any of these

gentlemen at the table?

Chairman Poage.

Mr. POAGE. Mr. Gathings it seems to me that someone should

emphasize the fact—I think Mr. Todd mentioned it but I think there

ought to be more emphasis given to the fact that, if I understand it

correctly, the Government has estimated the cost of storing and

handling cotton, and that the Department is actually storing and

handling cotton at less than the estimated cost. In other words, the

U.S. Government asks the industry to perform these services at a loss

according to their own figures.

Now, it is quite obvious that if this industry or any other industry

operates a substantial portion of its services at a loss that it must

overcharge the other customers that it serves. Those other customers
12 COTTON STORAGE COSTS

are the farmers of the United States. Surely the industry must charge

them, either directly or through those to whom they have sold more

than it should because of the unduly low rates charged the Government. This cost all gets back to the farmer.

Now, it seems to me clear that the real crux of this thing, and the

thing in which I am interested—in all kindness, gentlemen, I am not

particularly interested in whether the compress industry makes a

greater profit than the railroad industry, or vice versa, but I am deeply

interested in seeing that the farmers of America are not overcharged.

And I don't understand how it is possible for the compress industry to

fail to overcharge the farmers until the Government pays a fair price

for what it stores. Can any of you tell me how you can stay in business

and accept from the Government something less than the cost, and

not overcharge the farmer?

Mr. TODD. I don't think it is possible.

Mr. POAGE. I don't think it is possible either. And it seems to me

that that is really the crux of this thing.

Mr. GATHINGS. I believe it is.

Mr. HARDIN. Mr. Poage, the warehouse is a little bit different from

most businesses, because you can only produce so much revenue with

one plant. And it is at capacity. Then if you are in the merchandising

business you can sell more merchandise to reduce your costs. But

when you have a warehouse and you fill it up, it will only produce so

much revenue. And if that is less than your cost of operation, you are

just sunk.

Mr. POAGE. If farmers put 10,000 bales in a warehouse and the

U.S. Government put 10,000 bales in the same warehouse and fails to

meet your costs by 10 cents a month, don't you have to charge the

other customers—the farmers-10 cents a month more?

Mr. HARDIN. There is no question about it.

Mr. POAGE. It inevitably follows, then, that what the U.S. Government is doing today, what the Commodity Credit Corporation is

doing today is shifting a part of the cost of storage to the farmers;

isn't that what they are doing?

Mr. POWELL. Yes, sir.

Mr. TODD. Mr. Poage, in that connection, in the April hearing we

showed—it is in the record at page 21, table 1—where the average

tariff rate for the current season, the one now coming to a close, for

the United States, is 55 cents per bale per month—that is what the

farmer and the shipper paid—whereas CCC paid rates ranging from

35 cents to a maximum of 46 cents.

Mr. POAGE. I read those figures. But the only point I am trying to

make is, I don't think any of you have emphasized the thing that is

really important to us, and that is that what is happening is raising

the rates to the farmer and it must always do it when the Government

gets a service at less than the actual cost.

Mr. TODD. And when the tariffs come out for the coming season

bearing the rates that the farmers and shippers will bear in the coming

year, I will be amazed if they aren't substantially higher than the

rates I just quoted.

Mr. POAGE. They are going to have to be in order to make up the

losses you are taking on this 40-cent cotton; isn't that correct?

Mr. TODD. That is correct—and the 35-cent cotton.
COTTON STORAGE COSTS 13

Mr. POAGE. Isn't your problem, then, not one of trying to raise

the rates to the farmers and the shippers, but rather a question of

what the U.S. Government ought to be paying?

Mr. TODD. That is the way we see it.

Mr. POAGE. And if I understand this testimony—and all that I have

heard at home too—the U.S. Government is deliberately paying less

than the actual cost of the storage.

Mr. TODD. That is what their figures show.

Mr. POAGE. That is my understanding. And that is what their

figures show.

Now, Mr. Chairman, would it be in order that we have the Department tell us how they figure that it is possible for these people to live

on these rates that they are paying and not overcharge the farmer?

Mr. GATHINGS. Yes, Mr. Chairman.

Is there anything further from you gentlemen here?

Mr. Nichols, do you want to ask a question?

Mr. BILL NicHoLs. Mr. Chairman, let me say that I am pretty well

acquainted with this problem, and I feel like I ought to be down with

these gentlemen, because I have been in business for 20 years on my

own. I had a little business that I operated before I got to Congress

which operated cotton warehouses in my State, stored about 9,000

bales of flat cotton. And all of this was broken out with the tow motors.

And today we have in one of these houses about 800 bales, and in the

other 1,200. It looks like all of this cotton will pretty well move before

the new crop comes in.

Mr. Chairman, good cotton, the staple cotton in my part of the

of the country is just gone. The mills have pulled out of there, and

the warehouses are pretty well empty.

Now, the Alabama crop is just about like you boys in Arkansas

have pictured your crop.

In the Tennessee Valley it is spotty, it is skimpy, it is ragged. And

soybeans have replaced much of it, Mr. Chairman.

In the Sand Mountain area it is similar.

We are going to make the smallest cotton crop in my State, in

Alabama, at any time since the War Between the States.

But I don't think that this is really the issue that you people come

to this committee with, to ask the Government to bail you out because you have got a short crop. I think Chairman Poage has hit the

nail squarely on the head. The Government is really asking these

gentlemen to do business at less than cost, Mr. Chairman. And this

is not right. And they have no other recourse except to pass these

charges on to other sources of revenue. And that is the cotton farmer.

And Mr. Poage put it very aptly and very straight. And I certainly

concur in what he says as one who has been in the business for some

time.

Mr. GATHINGS. Thank you, Mr. Nichols.

Is there anything further you gentlemen would like to add at this

time?

Well, thank you so much. We appreciate your appearance, each of

you.

Now, Mr. C. Hilary Moseley is with us. He is Assistant Deputy

Administrator, Commodity Operations, Agricultural Stabilization

and Conservation Service, Department of Agriculture. And he is
•

14 COTTON STORAGE COSTS

accompanied by Mr. Joseph Ghetti, assistant to Mr. W. A. Faught,

Economic Research Service, and John Barton, Inventory Management Division, Agricultural Stabilization and Conservation Service.

All three of those gentlemen were with us in the April hearing. And

Mr. Willard Hillis of the Agricultural Stabilization and Conservation

Service in New Orleans is also with us.

Would you gentlemen come up and take your seats at the table,

please.

We are glad indeed to have you with us.

Now, it is commendable for the Department of Agriculture to want

to trim down costs. And you have been cutting these fees, rates, since

back in the 1964-65 season, isn't that right, Mr. Moseley, they

have been reduced starting in 1964-65?

STATEMENT OF C. HILARY MOSELEY, ASSISTANT DEPUTY ADMINISTRATOR, COMMODITY OPERATIONS, AGRICULTURAL STABILIZATION AND CONSERVATION SERVICE, DEPARTMENT OF

AGRICULTURE, ACCOMPANIED BY JOSEPH GHETTI, ASSISTANT

TO DR. W. A. FAUGHT, ECONOMIC RESEARCH SERVICE; JOHN

BARTON, INVENTORY MANAGEMENT DIVISION, AGRICULTURAL

STABILIZATION AND CONSERVATION SERVICE; AND WILLARD

HILLIS, AGRICULTURAL STABILIZATION AND CONSERVATION

SERVICE, NEW ORLEANS, LA.

Mr. MOSELEY. Yes, sir.

Mr. GATHINGS. What will that reduction in 1964-65 be in comparison with 1963-64?

Mr. MOSELEY. Mr. Barton, would you give us those figures, please?

Mr. BARTON. Effective August 1, 1964, the rate on owned cotton

was cut 3 cents a bale a month.

Mr. GATHINGS. There are an awful lot of folks in America who like

to see the Government economize. But you have a situation here,

though, where your rate is at such a figure that is less than the cost of

doing business.

Mr. MOSELEY. Mr. Chairman, we do not consider that the rate is

less than the cost. We do not agree that we are asking warehousemen

to store for less than cost.

I would like to place this in perspective, if I may. The stocks of

cotton are down very sharply, and the stocks of CCC cotton are down

even lower than they were when we met with you before. CCC only

owns about 4% million bales of cotton. And our takeover, which I

have previously told you would be less than 2 million, it now appears

likely that it will be about 1,600,000.

So most of the cotton to be stored is to be stored and paid for by

others, that is true.

Now, about one-half of the cotton which CCC owns is not stored

at contract rates at an, but is stored at competitive bid rates, which

range from 15 cents a bale per month up to the contract rate of 35

cents.

The weighted average rate at which half of our inventories are

stored is only 26 cents a bale per month.

Now, looking at the contract rates themselves, you will recall

that our contract rates range from 35 to 46 cents a bale per month,
COTTON STORAGE COSTS 15

depending upon whether the cotton is compressed or not, and depending upon the length of time that it remains in storage.

Now, let us look at this cost study, which has been, I believe, much

maligned and considerably confused. Let me summarize it as simply

and clearly as I possibly can.

Based on these projected volumes for the coming year—and

I agree that we overestimated the volume somewhat—and the cost

levels for the 1967-68 year, which included rising wages, the out-ofpocket costs for all warehousemen in the Nation came out, coincidentally, at the same 26 cents per bale per month.

Now, we agree that these warehouses should be amortized. And

based upon the replacement costs at today's prices—now, that is to

go out there and build that warehouse today, and amortize it—would

bring this up from 26 cents to 37.2 cents average. But the country

does not need all the warehouses which have been storing cotton.

And some of the warehouses and some of the warehousemen with

high costs clearly should be doing something else. The days of enormous cotton surpluses are past, we hope, by the wisdom of the Congress

in giving us legislation to reduce these surpluses and put the industry

back on a healthy basis. But that means that the cotton warehousing

industry is overbuilt.

Now, we don't feel that CCC should be called upon at the taxpayers' expense to maintain the industry at its present size.

So we know that there is a very wide range of costs across the

country, and some differences which are very, very difficult to explain.

There is wide range in efficiency.

So hypothetically, and for the purposes of the study, the people at

ERS started out at the low range of cost, the lowest cost warehouses

in the country, added up how much space they have, and then going

right on up the scale to higher and higher costs, up to the highest level

of costs in the country. At each of those levels you would have a

certain quantity of space available. The higher your warehouse costs,

the more space—when you got to the highest one you would have the

total space in the Nation, you see.

All right. Now, if you stop at the spot somewhere in between, where

you have plenty of space to handle our overestimated crop, and see

what the costs of that marginal warehouse are, on an amortized basis,

replacement-cost basis, that figure comes out to 31.4 cents. And we

allowed 15 percent of space to spare. We went 15 percent above the

space that is needed in this country to store cotton. And the full

replacement costs of the marginal house are 31.4 cents.

Now, everybody whose costs are below that would have higher

profits. Those who are above that would have lower profits. And

when they got above 31 cents, they would have no profits at all.

So we are not saying we are paying a profitable rate to every

warehouseman in the country, nor do we intend to.

Mr. GATHINGS. Let's look at this-20 percent.

I understand that your cost study shows a 20-percent increase in

labor costs. On what figure would that 20-percent increase in labor

costs be based?

Mr. MOSELEY. Mr. Ghetti.

Mr. GHETTI. We raised the figure for 1964-65 by 20 percent to

reflect what it would be in 1967-68.

Mr. GATHINGS. At what figure an hour?
•

16 COTTON STORAGE COSTS

'Mr. GHETTI. The figure that we obtained from the warehousemen's record in 1964-65, we raised that by 20 percent to reflect

1967-68 costs.

Mr. GATHINGS. Will that reflect 1967-68 costs?

Mr. GHETTI. To the best of our knowledge, in talking with industry

people and the Department of Labor people, yes, sir.

Mr. GATHINGS. Does it take into account the time and a half for

overtime?

Mr. GHETTI. To the best of our ability to estimate it, based upon

what they told us, yes sir.

Mr. MONTGOMERY. 

yes,

Chairman, may I ask a question?

Mr. GATHINGS. Yes, Mr. Montgomery.

Mr. MONTGOMERY. It seems to me that what the gentleman is

saying is that the larger warehouses could break even, but the smaller

warehouseman, he is completely out as far as breaking even or coming

out at all on the storage of cotton is concerned; is that what you are

saying?

Mr. MOSELEY. I am saying that the least efficient warehouses —

Mr. MONTGOMERY. Least efficient?

Mr. MOSELEY. The least efficient cannot make money at our rates.

Mr. MONTGOMERY. How about the larger warehouses, the ones that

can handle more cotton?

Mr. MOSELEY. Sufficient warehouses to meet the need have costs

of 31.4 cents or less. And we are paying_ on our contract rates from

35 to 46 cents. I don't know that the largest are always the most

efficient. Some of them are, no doubt.

Mr. MCMILLAN. Mr. Chairman?

Mr. GATHINGS. Mr. MCMILLAN.

Mr. MCMILLAN. There, is a question I want to get clear in my mind.

Did the Government encourage or ask these people to bun these

warehouses at any time in past years?

Mr. MOSELEY. I don't know that we ever aqually asked them in

so many words. But the need was there. And actions speak louder

than words, probably. They saw the need, and they met it. And now

they have certainly come upon hard times.

Mr. MCMILLAN. The CCC at no time asked them to build more

warehouse3?

Mr. HiLLis. There has been no tax incentive or any encouragement

program as such to encourage the enlargement of warehouse space for

cotton.

Mr. MOSELEY. It is unlike grain in that respect. There were some

programs to encourage grain warehousing.

Mr. MCMILLAN. Back when we had 14 million bales for storage?

Mr. HILLis. Even in the Korean period there was some tax amortization for cotton gins

'

but none for warehousing.

Mr. MCMILLAN. I had heard different. I had heard that some were

encouraged to build warehouses.

Mr. MOSELEY. So, Mr. Chairman, after carefully analyzing these

studies, and studies made by Mr. Todd, and the testimony in these

hearings, our Board of Directors decided that for the coming year,

beginning August 1, the storage rates should remain unchanged, they

should not be reduced or increased. But we did find that the outhandling costs were not being met. And we raised that charge from 50

cents to a dollar.
COTTON STORAGE COSTS 17

Mr. GATHINGS. That was referred to earlier. You did increase that

rate?

Mr. MOSELEY. Yes, sir.

The decision was based upon the desire to maintain a healthy

industry of the size that is needed, consistent with our desires for

economy in the Government.

Mr. GATHINGS. Now, Mr. Moseley; you took into account and

assumed that there would be a much larger crop in ,1967 in making

these studies and these estimates; did you not?

Mr. MOSELEY. I believe that is correct—not a larger crop, but a

larger crop than it now appears will be grown; yes, sir.

Mr. GATHINGS. According to the testimony given by Mr. Todd,

you assumed 12 million bales for 1967; is that right?

Mr. GHETTI. That is correct, sir—the reason being to update this

and have it ready at this stage, we had to start back in November of

last year. This was the best available estimate at the time.

Mr. GATHINGS. At that time it could have been?

Mr. GHETTI. Yes, sir. We can't predict all this bad weather and

stuff very accurately. And this is what has gotten it off some.

Mr. GATHINGS. These studies were made back in the early spring.

Mr. GHETTI. We made the 1964-65 so-called study a couple of

years ago, and now we have updated this.

Mr. LTHINGS. I mean, the current studies.

Mr. GHETTI. Yes, sir. To get this updated we had to start back in

November of last year to make all the computations and get the things

in this form. I presume we missed it. I didn't realize we had missed it

by quite as much as Mr. Todd was intimating here.

Mr. GATHINGS. Yes. According to the testimony here today, instead

of a 12-million-bale crop we only have an 8,368,200-bale crop this year.

Mr. MOSELEY. Then the warehouses needed for the storage of cotton

would be even fewer.

Mr. GATHINGS. So this cost would have been higher had you known

that such an 8-million-bale cotton crop would ensue for 1967?

Mr. GHETTI. It depends, Mr. Chairman, on which cost you are

talking about. If you are talking about utilizing only the space that

we needed, it would have been somewhat less. If you are talking about

maintaining the entire industry, it would have been considerably

higher.

Mr. GATHINGS. I am talking about the services that are rendered

by the compressors and the warehouse people in the cotton areas.

Mr. GHETTI. Yes, sir. They only have available the amount that

they need, then the cost would be somewhat less; yes, sir. But if we

maintain every facility in every area, it would be considerably higher.

Mr. GATHINGS. Please proceed with your statement. I didn't want

to interrupt, Mr. Moseley.

Mr. MOSELEY. I had finished, Mr. Chairman, thank you very much.

Mr. GA THINGS. Mr. Jones.

Mr. JONES. I can't let this go by without making this statement.

I can sympathize with the fellow who has his money invested in the

warehouse and/or in a compress, just like I can with the man in a

cotton gin. But from the standpoint of the paying, say, of what the

cost is, I think that the Department would be under greater criticism,

and particularly by the people who didn't get cotton, if they try to

establish rates which were guaranteeing a profit to the warehouse
•

18 COTTON STORAGE COSTS

where you put the cotton than you would if you didn't ask for bids

on the storage of this cotton. And I can't be critical of asking for

bids, because I know this, that sometimes we are encouraged to get

into a business because it is a profitable business. And at one time I

think the cotton warehouse within the compress had about as lucrative

a business as there was in the community. But I think they are not

suffering any more, and I doubt if as much, as some of the ginners

that we have who, within the last 5 years in my territory, have

increased investments up to a quarter of a million dollars, and can't

even pay the interest on their loans in those gins.

And yet they are going to have to continue to operate on a competitive basis. And if we are going to accept the policy or adopt the policy

that the Government is always going to guarantee a profit to the

warehouseman who stores cotton, I think certainly we are going to

have to subsidize the ginner in that same community. And I don't

know how popular that is going to be with all the people throughout

the Nation. Because there are a lot of people who feel that cotton has

gotten more consideration and more attention than it deserves. I am

not one of those, you understand. I come from cotton country, and I

have subsisted on a cotton economy all my life. But I am not going

to be critical of the Department for continuing its policy, as I understand it, of submitting concentrated storage to bids. I think that in

most cases it has been a fairly generous treatment that they have

received. And I know the warehousemen and the compressors in the

area that I represent—and I represent all of them in the State of

Missouri—I think they have done pretty well over the years. And I

hope they continue to do well. But as you say, I think we have more

compresses, more storage space, more cotton than we are ever going

to have a need for. And some of those that have been paid out, I think

they are going to go out of business just like our cotton ginners. We

had 165 cotton gins last year that were ready to operate, but they

didn't all operate last year, and fewer are going to operate this year,

and fewer next year. And I think the time will come when we will have

probably 75 cotton gins in the State of Missouri which can take care of

all the crop that it looks like we are going to have an opportunity to

plant and grow.

So, I don't want to join in being critical of the Department of

Agriculture for the policy that it has followed in this.

Thank you, Mr. Chairman.

Mr. GATHINGS. Thank you very much, Mr. Jones.

Mr. MCMILLAN. I wonder if the gentleman can tell me if the people

who operate the cotton warehouses are receiving the same treatment

as the people who store grain and wheat.

Mr. MOSELEY. Not entirely. It is quite a different industry in

many, many respects. Grain is stored at fixed, uniform rates. Cotton is

stored at fixed uniform rates, until it becomes necessary to reconcentrate it, to move it out of the area of production. And it is at this

point that we go on a bid basis.

Mr. MCMILLAN. I believe the Secretary advised us that they had

no more surplus wheat at this time. What has happened to those

warehouses?

Mr. MOSELEY. They are similarly hard pressed. They have come

upon very, very hard times. The average occupancy of commercial
COTTON STORAGE COSTS 19

grain elevators with Government-owned and loan grain together has

gone considerably below 10 percent.

Mr. MCMILLAN. The Government is not subsidizing these people

who are in bad shape financially?

Mr. MOSELEY. We are not, sir.

Mr. GATHINGS. For this new season you are setting a figure at the

same rate that you had a year ago, and you are not raising it a bit?

Mr. MOSELEY. That is correct.

Mr. GATHINGS. Although your study shows that it cost more money

to do business now than it did a year ago or 2 years ago?

Mr. MOSELEY. That is correct, sir; yes. It raises a question as to

whether we were too high last year.

Mr. GATHINGS. Were you?

Mr. MOSELEY. I don't know. But the costs indicate that there is

still an adequate margin for the houses that are needed.

Mr. POAGE. Mr. Chairman, I wonder if I could ask him if they

have actually lowered the grain storage rates.

Mr. MOSELEY. The grain storage rates have been lowered several

times. They were not lowered this last year.

Mr. BARTON. They have been lowered twice, sir, in the last 4 years.

Mr. POAGE. They are remaining this year just what they were last

year?

Mr. MOSELEY. Yes, sir.

We made an adjustment in the grain-handling charges based on a

cost survey somewhat similar to cotton in that respect.

Mr. GATHINGS. These rates, as contained in this summary that was

presented by Mr. -Todd, are in keeping with your current studies, is

that right?

Mr. MOSELEY. I have not seen them, sir.

Mr. GATHINGS. Would you look at that, please, and see whether

or not you would agree that those figures are in keeping with the cost

studies that were currently made? This summary was prepared by Mr.

Todd, as I understand it.

Mr. MOSELEY. The rates paid by CCC are correct for contract

rates, excluding bids.

Mr. GHETTI. I will have to assume that he has these storage costs

per bale month correct. I show mine in total dollars. He has his in

cents per bale. And I assume that he did his division right.

Mr. GATHINGS. That doesn't seem to be a discrepancy, does it?

Mr. GHETTI. It doesn't seem to be, sir. I have my figures on total

cost for a year in dollars, he has his in cents per bale. I assume it is

divided correctly.

Mr. GATHINGS. There are quite a number of X's on the sheet here,

and X in each instance indicates that the rate is the same or less than

the cost of performing the services.

Mr. GHETTI. That would be true, Mr. Chairman, except that the

figures he is quoting are based on building these plants new today.

Mr. GATHINGS. Based on 

Mr. GHETTI. On rebuilding existing facilities new today.

Mr. GATHINGS. Based on rebuilding?

Mr. GHETTI. Yes. This would mean that every plant would be

brand new.

Mr. MOSELEY. The total cost average for all plants, thirty-seven

three is approximately the same as I gave you, with a rounding of

fractions. I have no opinion on the breakout and shipping.
20 COTTON STORAGE COSTS

Do you, Mr. Ghetti?

Mr. GHETTI. No.

Mr. MOSELEY. I assume that they are correct if Mr. Todd got them

from our figures.

Mr. GATHINGS. This overall breakout in shipping according to Mr.

Todd's estimate here is $1.06, and the proposed rate for breakout and

shipping of CCC cotton is a dollar?

Mr. 34osELEY. Yes. That is in the Southeast, it is $1.06. For the

Nation it is $1.064. And we are paying a dollar.

Mr. GATHINGS. In the United States for all plants 

Mr. MOSELEY. So we are very, very close to it. And remember, this

is only paid when CCC moves cotton out. When we sell cotton the

buyer pays the tariff.

Mr. GATHINGS. Although that is quite an improvement over 50

cents, you are still going to be operating at a loss on the average of

$1.06 against a dollar.

Mr. MOSELEY. We doubled the payment.

Mr. GATHINGS. Any further questions?

(No response.)

Mr. GATHINGS. Mr. Todd, do you have a further statement you

would like to make?

Mr. TODD. Yes, Mr. Chairman. I would like to respond briefly to

Mr. Jones' comment. And I have a very pointed remark to make 

Mr. GATHINGS. Will you please come up to the table again, Mr.

Todd.

Mr. TODD. Mr. Jones, when we were here in April we made this

statement, which I would like to reiterate:

We never sought and do not now seek any form of government subsidy. Unlike

handlers of other farm commodities, we have never asked or received, construction loans at low interest rates or guarantees of any level of storage volume. On

our own initiative and without government help we have provided the necessary

capital and have assumed the risks inherent in the cotton warehousing business.

We have made available to cotton farmers and to the government the facilities

and services which were and are essential to the orderly marketing of cotton and

to the successful operation of the cotton price support programs.

And I might supplement by adding that we are not seeking rates

which will maintain the entire present storage capacity of ourindustry. We recognize that a substantial portion of that capacity is not

going to be needed in the foreseeable future, and we do not seek to

collect revenues which will maintain all of it. We do seek to receive

revenues which will maintain storage capacity in the area of production, where the farmers can use it, sufficient to meet their needs and

requirements and those of the merchants and of the CCC. That is

all. And that is in part in answer to Mr. Moseley, also.

Now, Mr. Moseley's statement, unless you have made an exhaustive

analysis of this cost study, is quite misleading. He quoted a rate of

31.4 cents for the marginal plant. What he meant was this: They

took the very lowest cost plants in all the United States and added

their capacities together, going up into plants with increasing costs,

until they had sufficient aggregate storage capacity to store 15 percent

more than what they estimate the storage demand will be. Now, at

that point that highest cost warehouseman in that group had a cost

of 31.4 cents. Now, I believe this is the 1964 figure rather than the

updated figure, but I could be mistaken.
•

COTTON 'STORAGE COSTS 21

Mr. GHETTI. It came out the same.

Mr. TODD. But it begs the whole question. It doesn't answer your

question, Mr. Chairman, and it doesn't answer Mr. Poage's question.

This simply assumes that the cotton will gravitate to the lowest cost

warehouses no matter where they are. And they are scattered from the

Pacific Ocean to the Atlantic Ocean, and from southeast Missouri to

the Gulf of Mexico. They are not located where they can serve the

farmer, they are scattered just like the high-cost warehouses are

scattered. I am sorry Mr. McMillan left. What the Department

assumed is that they would ship all of their cotton to the very lowest

cost warehouses, and wouldn't patronize the others. I daresay Mr.

McMillan's State—indeed all four Southeastern States—wouldn't have

over four warehouses in _that group. And you wouldn't be maintaining

warehouses for any of the southeastern shippers of cotton, you wouldn't

be maintaining those storage facilities for the farmer where he has to

have them. He can't ship cotton from Hushpuckena Miss., to Arbyrd,

Mo., or from Lexington, Miss., to Memphis to store it. It is not economic. He has got to have warehouse capacity close to the gin to which

he can ship it without exorbitant costs or inordinate effort and delay.

And Mr. Moseley's entire thesis in developing this 31.4-cent rate would

not serve, I would guess, more than 30 percent of the farmers in the

United States. He would be maintaining a certain group of warehouses

which are the lowest cost warehouses but the high-cost warehouses

would not be able to survive at all. And what would the farmers and

the merchants do in the communities served by these higher cost warehouses? For that matter, what would the low-cost warehouses in the

same territory do if they were kept filled to 85 percent of capacity?

They wouldn't have room to store anybody else's cotton but CCC's

cotton.

Now, there has never been a time in the history of U.S. cotton

agriculture that warehouses have been filled on an average year-round

basis to 85- percent of their capacity. It has never occurred in even in

the years of most extreme congestion. And it is utterly unthinkable

for the future, unless the CCC takes all the cotton which it owns and

moves it out of the warehouses where it is now located and puts it in

the very lowest cost warehouses, no matter how far away they may

be or how much it may cost in freight and transportation charges to

get the cotton to those lowest cost warehouses. I submit, it is nothing

but a fine spun theory.

Mr. JONES. They have never followed a policy of doing that,

though.

Mr. TODD. No; and I don't think they propose to. But that is

the only way they can justify this 31-cent rate or even arrive at it—it

is not a rate, but a cost. What I am saying that is Mr. Moseley's

answer to you doesn't answer Mr. Gathings questions, and it doesn't

answer Mr. Poage's questions at all. They asked him how they can

justify holding the rates paid by CCC at less than they have actually

found the average cost of performing this service to be for all warehouses, including warehouses that can serve the farmer in the area of

production, where the farmer can get to them.

Now, I would like to comment on Mr. Ghetti's statement. He said

that those cost figures are based on the cost of rebuilding plants at

today's cost. The Department's cost study includes as an effective

cost of performing each warehouse service an item captioned "Interest
22 COTTON STORAGE COSTS

on Investment." And in Mr. Moseley's and Mr. Ghetti's presence I

asked Dr. William A. Faught, who conducted this study, what that

item is. Is that a return on investment, or is that a cost figure, is that

a cost factor? He said it is a cost factor, and explained that they had

done with this substantially what they had done with the depreciation in the first half of their cost study, what they called "standardized" depreciation. They discarded the figures that they had gathered

for depreciation, what the warehousemen actually had on the books,

and put in a "standardized" or "stylized" formula. And Dr. Faught

explained that they did precisely the same thing with interest paid by

the warehouseman on his indebtedness, not return on investment, the

interest on indebtedness. He said, many warehouses paid interest on

indebtedness, either on the mortgage on the plant or the mortgage on

the equipment, or on the unpaid balance on the equipment bought on

time, and so on. They had interest payments. The USDA accountants

assembled the data. But for reasons they didn't explain they did not

use the actual interest costs which they had tabulated. Instead, they

constructed their "stylized" or "standardized" formula for "interest

on investment."

And they explained that it represents 6 percent of the original cost

of land, not present value, but original cost of land, plus the replacement cost of building and equipment, and that this standardized

interest cost was substituted for the interest on indebtedness, actually

paid by the warehouses included in the study.

Nov, they explained that the figures reported in the study were 6

percent of the acquisition cost of the land plus replacement cost of

buildings and equipment. That statement we cannot confirm by our

analysis of the reported data in their updated study. They report

that the replacement cost of compress plants studied—we didn't

have a chance to analyze the whole thing, this was done at noon

today—exclusive of land, compress machinery and other mechanical

equipment which are very expensive items, but including water

systems, roadways, fences, and that sort of thing, but excluding

compress machinery, land lift trucks, and other equipment is $2.30

per square foot. Now, if we take that figure as a fair value, including

all these other things that are not included, here is where we come out.

The compress plants studied had an aggregate storage capacity of

6,716,688 bales. On the average six and a half feet of floor space are

required for the storage of one bale of cotton; $2.30 per square foot,

the figure USDA arrived at, times six and a half square feet equal 

$14.95 per bale of storage capacity.

Now, if we multiply this figure by the 6,616,688 bales of storage

capacity of the compress plants studied, we arrive at a replacement cost

of $100,414,485.60. Six percent of that figure is $6,024,869.24. Now,

remember, this is exclusive of the value of land and of compress

machinery and other mechanical equipment. And when the individual

"interest on investment" items in the cost study of each of these

respective warehouse services is multiplied by its respective actual

bale factor as recorded by the Department, we find that the aggregate

is $1,152,289 and some cents, or only 1.15 percent of the replacement

cost of the buildings and facilities, still excluding the value of land,

compress machinery and other mechanical equipment.

Now, I would think offhand—I have nothing to base this on, but I

would think that would be fairly close to what the warehouseman

•
COTTON STORAGE COSTS 23

actually paid out in interest charges on the money which they owed.

It certainly will not reconstruct their facilities, let alone replacing their

equipment and land. Therefore I say that Mr. Moseley's statement is

completely invalid, and is no answer to the chairman's questions, and

is no answer to Mr. Poage's questions.

Mr. JONES. Let me ask you one question. We mentioned the square

footage for each bale of cotton. Was that figured on just one bale high

or two bales or three bales?

Mr. TODD. It is an overall average, Mr. Jones, which contemplates

some cotton being flat and some cotton being compressed; it is what

the industry at large on the average experiences as the requirement

for one bale.

Mr. JONES. What was that square foot per bale that you gave?

Mr. TODD. Six and one-half.

Mr. JONES. Six and a half square feet?

Mr. TODD. Yes, sir. If all the cotton is uncompressed, it will

probably take close to 10 square feet. If all of it is compressed and

you store it very efficiently, you might get down to 5 square feet.

But for an average figure, I believe six and a half square feet is as

fair as any figure you could use.

Mr. JONES. Most warehousemen put their cotton at least two

bales high.

Mr. TODD. They do unless they have very little cotton to store.

Mr. JONES. If you have got plenty of space there is no use putting

it high; you can understand that.

Mr. TODD. That is right.

Mr. GATHINGS. Mr. Ghetti, what are your comments with regard

to what Mr. Todd has just said?

Mr. GHETTI. Mr. Todd is correct that we used the cost of $2.15 for

warehouses and $2.30 for compresses. And these did include the cost of

buildings, water systems, spur tracks outside, blacktopping or paving,

and other improvements. But what Mr. Todd did not read you is on

down here where we said replacement on the presses was estimated at

$115,000.

Mr. TODD. But that is not included in the $2.30.

Mr. GHETTI. The $2.30 as its says here is for building space, including covered platform, and is based on cost records of newly built

facilities across the belt. We put every cost in here that any warehouseman would incur in doing business.

Mr. TODD. Mr. Chairman, I would like to be sure we understand

that. Do I understand you to say that the $2.30 per square foot includes the cost of compress machinery and the cost of the land?

Mr. GHETTI. I did not say that.

Mr. TODD. And the cost of equipment.

Mr. GHETTI. The average cost per square foot of building space,

including covered platform, was developed from cost records of newly

built facilities across the belt. The square foot cost was estimated at

$2.15 for warehouses and $2.30 for compresses. These costs include

the cost of buildings, water systems, spur tracks, outside blacktopping,

or paving and other improvements. In developing the buldin.g and

improvement costs for each plant, the estimated costs were applied

to the number of square feet of floor space as existed in the 1964-65

period. In addition, all other assets at individual plants except presses

and land were appraised at 105 percent of their acquisition cost. Re-
24 COTTON STORAGE COSTS

placement on the presses was estimated at $115,000. An allowance

equal to the original cost of land was allowed in estimating returns on

investment. The reason being, we had no valid basis to raise land cost.

Mr. GATHINGS. Do you have any comment?

Mr. MOSELEY. Yes, Mr. Chairman, I would like to respond to

Mr. Todd.

His first point was that the warehouses might not be in the right

places, and that the high-cost warehouses were in one area and the

low-cost in the other.

I think the best information that we have on this is on table 25,

which was a part of our cost study which has been provided the committee. It shows a breakdown by areas on the quantities of cotton

storage needed in each area. And it shows this buildup by cost, which

I described earlier, by areas. Now, if you look at that by areas,

you see that the lowest area—and I have computed this roughly here

from a dollar cost per bale 

Mr. GATHINGS. Will you hold up just a minute, please, Mr.

Moseley, until we can get a copy of that study?

Will you give us that table?

Mr. MOSELEY. Table 25.

Mr. TODD. I don't have any numbers on that table.

Mr. GHETTI. They may not be on here.

Mr. GATHINGS. They are not numbered. I don't see the number. I

wonder if you could point it out here so that we can follow you as

you go along.

Mr. GHETTI. I would be happy to.

Mr. GATHINGS. Do you have it too, Mr. Todd?

Mr. TODD. I think so, Mr. Chairman.

Mr. MOSELEY. What I would like to show is that these houses are

fairly well distributed, and that there is not a wide variation in costs

between areas. If you look at the Southeast, the total need for the

Southeast is 4,567,000 bales. So if you will put a mark by that 4,655

there in the column, you are closest to it. That is at the $4 level of

cost per year. Now, looking over to the South Central, the needs were

5.3, so if you will mark in the second column of 5,302,607.

In the next colunn is 4.7. So if you will mark 4.6 you will be real

close to it, 4,605,000.

And in the West it is 915,000. So if you will mark 874 you will be

very close to it.

So that these are bunched there between rates, looking back to the

first column now, between rates of $3.40 and $4, which would figure

between about 28 and 33 cents a month. And my national average

was 31.4.

I would like to respond to one other thing raised by Mr. Todd.

Several times during the hearings he has attacked our use of an 85-

percent occupancy figure. He says that is completely unrealistic. The

Department has never said or inferred that warehouses would be 85

percent occupied.

Mr. GATHINGS. Excuse me just a minute. Mr. Jones will preside.

Mr. MOSELEY. I repeat, we never said or inferred that all warehouses would be 85 percent occupied. The figure of 85 percent occupancy was clearly explained as an arbitrary occupancy level used to

calculate the costs for those warehouses which are needed to serve the

industry.
COTTON STORAGE COSTS 25

Let me put it this way, if we did not have excess storage, then the

remaining warehouses would be 85 percent occupied on the average.

We had to use some level, you see, of occupancy, because occupancy

does affect costs. We had to use some level of occupancy in running

up this slope of increasing costs, you see—to find the needed space.

That is what we have used 85 percent for. And it was clearly explained

in the study.

I have no further comment.

Mr. TODD. Mr. Chairman, I would appreciate if you would ask

Mr. Moseley if it would not be essential for those warehouses to be

85 percent full the year around in order to experience the average

cost which he has cited.

Mr. JONES (presiding). What is your response to that, Mr. Moseley?

Mr. MOSELEY. Yes, sir.

Mr. JONES. It would be necessary for it to be 85 percent full to

justify those costs?

Mr. MOSELEY. That is correct. This is a hypothesis only, to show

what space the country needs and what it would cost if we had the

right amount of space.

Mr. TODD. In that case, the figure of 31.4 cents, Mr. Chairman, is

just a fine spun theoretical figure, and has no practical significance at

all.

Mr. JONES. Of course, I think the difficulty that I have in establishing it is trying to determine what the average investment in these

plants would be over the country and my observation has been that

with the destruction of a plant by fire or tornado or other means in

the area with which I am most familiar, I don't think that any of

them would be replaced. Is that a true statement, say, in the State

of Missouri, do you think?

Mr. TODD. Mr. Chairman, there would have to be a heavy demand

for cotton storage to replace an existing facility that is destroyed

at today's construction costs.

Mr. JONES. I was going to ask you that.

Mr. TODD. And particularly under the prevailing rates paid on

CCC cotton.

Mr. JONES. But in the case of Missouri, don't you think that we

have sufficient storage space there that we can't envison at a time

when our storage facilities would be taxed in the foreseeable future

if one or more of them would be destoyed?

Mr. TODD. I think you have more than ample capacity for foreseeable demand, but I don't believe you have an excess capacity to the

extent that it exists in some other areas.

Mr. JONES. In other words, some of the areas have more in excess

than we do?

Mr. TODD. I think so. Maybe not this year, because you are going

to experience a very poor year this year.

Mr. JONES. I mean, is there any section of the country where you

think there is not an excess space which will be available in the

foreseeable future?

Mr. TODD. Yes, sir; I think there is no excess space at all in California and Arizona or in New Mexico. And there are other areas—

for example, the High Plains of west Texas where there is certainly

no excess of capacity, never has been.
26 COTTON STORAGE COSTS

Mr. JONES. Of course, a lot of places out there—you say and

Arizona and California. They can store outside; can't they?

Mr. TODD. They can unless the cotton gets in CCC hands, and

then they can't. CCC requires it to be inside under a roof. But even

privately owned cotton can't be stored outside past, say, the first of

March, because then the wind and rain begin to come, and you have

got to protect the cotton. They no longer store outside in Arizona

and California.

Mr. JONES. I recall in Missouri we used to store outside, because

we had a capacity and that is when it was profitable to expand, and

they built more compresses. And they overbuilt, I think, is what

happened down there.

Mr. TODD. There may be some overbuilding in Missouri. I don't

recall the figures at the moment. But I believe it was probably less

than in most other areas in the Mississippi Valley and Southeast.

And as I say, in the High -Plains of Texas and farther West, I don't

think there is any excess of capacity at all. They are always short of

storage space relative to their annual crops.

Mr. JONES. Well, after the harvest of last fall was there anyplace

where there was a shortage of storage space?

Mr. TODD. I think there were some local shortages, yes, not as

much as we anticipated, but I heard of a number, in special localities.

I don't recall them at the moment.

Mr. JONES. Mr. Ghetti, is there anyplace you know of where they

are crowded?

Mr. GHETTI. Not to my knowledge. But I don't get out in the cotton

industry that much.

Mr. JONES. Who gets out into it?

Mr. POWELL. In our operations we had a few points last year in

Ripley, Miss., where that warehouse got full, and we had the truck

down to another place where we had more room. And as late as 1964

we had that condition in over 20 of the warehouses that we operate

in the Mississippi Valley.

Mr. JONES. Were they full?

Mr. POWELL. Yes, where we didn't have the capacity and had to

move cotton out.

Mr. JONES. And they were full last year at Ripley?

Mr. POWELL. Yes, Ripley, Miss. Of course, that is a small, noncompress warehouse. But in 1964 we were full in approximately 20

places and were bringing cotton to other areas where we didn't have

room.

Mr. JONES. Well, unfortunately, I am not familiar with other sections. I am up where I live. And I know there are 

Mr. POWELL. We have been in shape in 1963 in Missouri, we had

no surplus space at all.

Mr. JONES. You had what, three compresses there?

Mr. POWELL. Five, at Carruthersville, Hayti, Lilbourn, Portageville, and Sikeston.

Mr. GATHINGS. I wonder if any of the others in your group that

came with you, Mr. Todd, have anything to add beside Mr. Powell.

Any questions?

Mr. MATHIAS. Mr. Chairman, I would like to hear from the gentlemen who actually went out traveling.
COTTON STORAGE COSTS 27

Mr. HILLIs. With the exception of some localized situations like

Mr. Powell mentioned, the primary shortage area was the High

Plains of west Texas last year. And we did move some substantial

quantities of cotton off the High Plains, I think 400,000 or 500,000

bales at least, in order to make room for storage for the 1966 crop.

But that is the only area that is of major deficiency in the last year.

Mr. MATHIAS. Did you have any record of California storage in

excess there?

Mr. HILLis. The California cotton, at the price at which it sold,

not too much came to CCC. And of the cotton which originated in

California which was placed for loans, almost all has been redeemed.

I am talking now about the San Joaquin Valley. There is some Imperial

Valley cotton where we have some quantities under loan, and probably

will acquire as of July 31.

Mr. GATHINGS. Is there any other information? Does anyone else

have anything to say before this record is closed up for the day? Any

further comment from anyone? Any further questions?

If not, we will wind up this hearing. And we will discuss the matter

among_ the members of the subcommittee, and with the chairman of

the full committee before anything further is done as to what procedure we will follow.

(Whereupon, at 4:10 p.m. the subcommittee recessed, subject to

the call of the Chair.)

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