Atlanta tri-weekly journal. [volume] (Atlanta, Ga.) 1920-19??, 1921-11-10
RULING Of BOARD
HELPS FARM CREDIT

Concerning the ruling recently
made by the federal reserve board
to the effect that growers drafts
accepted by cooperative marketing
associations should be classed, if the
proceeds are to be used for an
agricultural purpose, as agricultural
paper eligible for rediscount at fed
eral reserve banks, Secretary Of Az
riculture Henry. c. Wallace said:
1T Is a ruling of Importance and
should result in making bank credit
more available for farm USE"
In the case which resulted in the
ruling being made, members of a
tobacco growers cooperative mar
keting association drew drafts upon
the association which was acting as
their agent only in the sale of their
tobacco. The drafts were accepted
by the association and the federal
reserve board was then called upon
to decide whether the drafts should
be classed as agricultural paper
eligible for rediScount at federal re-
serve banks with maturity up to
6 months or should be classed as
commercial paper eligible for redis-
count only when it's maturity date
is not in excess of 80 days.
The board ruled that where the
draft complied in other respects with
the requirements Of the law, and
the boards regulations, that the
drafts should be classed as agricul-
turaF paper and as such would be
eligible for rediscount by a bank
that was a member of the federal
reserve system with federal re-
serve bank for a period not in ex-
cess of 6 months. If the co-opera-
tive. association had been the pur-
chaser of the tobacco instead of the
agent of the members in the sale
of the tobacco, the ruling would
have been otherwise, and the drafts
would have been classed as COM
mercial paper, and as such would
only have been eligible for redis-
count with a maturity not in eX-
cess of 80 days.
Before any association accepts any
drafts, Secretary Wallace pointed
out, it should consult the local bank
ers and obtain their opinion as to
the percentage of the market value
of the products delivered for which
these drafts should be accepted. "It
is only natural" he said, that if
the drafts are drawn for conserv-
atiVe percentage of the value of the
products which the farmer has de-
livered to the association, that the
bankers, and even subsequent hold
ers, will regard the drafts as a
much safer investment than if the
drafts represent a high percentage.
This is especially true during the
present time when market values
are so uncertain. Either notes,
drafts, or bills of exchange, it
should be remembered, drawn or is
sued by farmers for agricultural
purposes and secured by federal
warehouse receipts for readily mar
ketable staples are eligible for re-
discount under the 6 months rule"
Department specialists in farm fl
nance believe that the method en-
ployed by the tobacco growers as
ISOLATION would be found of value
by other cooperative associations,
especially when used in connection
with receipts for agricultural prod
ucts issued by warehouses licensed
under the federal warehouse act.
There is q growing tendency on the
part of bankers throughout the
country to require federal ware
house receipts when making loans
based on agricultural products. The
president of the New York Bankers
association, in discussing the matter
of granting credit on produce to
farmers and the Importance Of a
warehouse receipt, recently said:
my own theory is that we ought
to be free in extending loans to de.
serving farmers Ind make them
feel that we are ready to cooperate
when the credit is right. Our credit
man for instance is having an in
teresting time educating farmers to
see the difference between loaning
on potatoes in the farmers cellar
which are ungraded, uninsured, sub
ject to frost and other hazards, and
on apples graded by a third party
and stored in a warehouse with
warehouse receipt issued to the
bank. In other words, we are show
ing to the farmers that if they
would handle their produce in the
way the best business houses do,
their loans would be as welcome as
those of the business houses"