Market for Frozen Concentrated Orange Juice After One Year," draws the following conclusion:

It was generally concluded by all the parties contacted that the futures market has enjoyed a successful first year. After a somewhat slow start, trade interests and trading volume have been highly satisfactory. It is expected that trade interest will continue to increase as hedging opportunities become more apparent to Florida processors and the volume purchasers of concentrate outside of Florida. Both hedgers and speculators have been active traders, which is another criterion of success.

The frozen orange juice futures market is one of the more active markets in agricultural commodities. The enactment of the bill would enable the Department to follow the day-to-day operations of traders in this market, and to prosecute persons who may engage in price manipulation and other unlawful trading practices.

In summary, the enactment of this bill would enable the Department to give the same type of protection to citrus producers and the general public as is now given to producers and the public in the grain markets, the cotton market, and the various other markets now covered by the act or to be brought under its provisions on June 18 by Public Law 90-258.

I would like to suggest that if the bill is approved it be made effective 90 days after its enactment rather than upon enactment. This would allow time for necessary changes in regulations and procedures, and a smoother transition from a nonregulated to a regulated market.

(Mr. Lynn's statement follows:)

Hon. W. R. POAGE,

AMERICAN FARM BUREAU FEDERATION,
Washington, D.C., June 5, 1968.

Chairman, House Committee on Agriculture,
U.S. House of Representatives,

Washington, D.C.

DEAR CONGRESSMAN POAGE: We support in principle the provisions of S. 3143, to amend the Commodity Exchange Act as amended to make frozen concentrated orange juice subject to the provisions of this Act.

We also recommend that the Commodity Exchange Act be further amended to provide that when futures trading is inaugurated for a commodity, that such commodity automatically be included under the provisions of the Commodity Exchange Act. We believe that this would avoid undue delay and lessen the legislative and administrative work entailed in acting on each individual commodity after it has already started operations on the Exchange.

We respectfully recommend that this letter be made a part of the hearing record in connection with this legislation.

Sincerely yours,

JOHN C. LYNN, Legislative Director.

Mr. CALDWELL. Mr. Chairman, we would be pleased to answer any questions that the committee may have.

The CHAIRMAN. Thank you, Mr. Caldwell.

I wonder if you would give us a further explanation of the necessity of this bill. It is my understanding-and I probably do not understand these futures markets-anybody sells futures who wants to, on anything he wants to, is that right?

Mr. CALDWELL. That is true, Mr. Chairman.

The CHAIRMAN. You have no control over those operations unless there is specific law granting authority as to a specific commodity? Mr. CALDWELL. That is true.

The CHAIRMAN. You heard in general terms when I mentioned Mr. Lynn's letter suggesting that we should amend the law so that any time there are commodities placed on the futures market you would have authority over them. What do you think of that suggestion?

Mr. CALDWELL. That has been considered several times, Mr. Chairman, and it is my personal feeling that the placing of commodities under the Commodity Exchange Act should remain in the hands of the Congress.

The CHAIRMAN. Why?

Mr. CALDWELL. I feel that there may be times when certain markets would appear to the Secretary of Agriculture as needing regulation but there may be other factors which the Congress may be aware of that perhaps would not require regulation.

The CHAIRMAN. What commodities do you think are exchanged on the future exchanges that should not be supervised by the Department?

Mr. CALDWELL. I mentioned the difference of opinion on whether certain commodities might be brought under. For example, when Congress was considering Public Law 90-258, the Secretary proposed that coffee and sugar be placed under the act. It was the decision of Congress that these were commodities that need not be regulated under the act.

The CHAIRMAN. Those are commodities that come from abroad in large part.

Mr. CALDWELL. To a large extent.

The CHAIRMAN. I remember that discussion.

Is there any reason why you should not have control over domestically produced commodities?

Mr. CALDWELL. There is no reason why the Secretary should not have control over domestic agriculture and forestry commodities. I would not like to see this extended to metals or things outside the agricultural area.

The CHAIRMAN. Does the Commodity Exchange Act apply to metals? I though it applied only to agricultural commodities? Mr. CALDWELL. It does at the present time; yes, sir.

The CHAIRMAN. I do understand the objection to sugar and coffee, or any other commodity, where possibly a substantial part, even as much as 15 or 20 percent of the commodity is imported; but if 95 percent of the commodity is produced at home, do you see any reason. why we should not have control over the futures exchange?

Mr. CALDWELL. No; I don't.

The CHAIRMAN. Why wouldn't Mr. Lynn's suggestion be a rather sound one?

Mr. CALDWELL. It would be acceptable to us. Speaking for myself, I have not checked this with the others in the Department. However, as I said earlier, I am satisfied with the arrangement now under which Congress specifies the commodities to be brought under the act.

The CHAIRMAN. You do not foresee any other commodity that probably will come forth in the next few months or a year?

Mr. CALDWELL. I rather doubt it. As you know, Public Law 90-258 will bring livestock and livestock products under the act effective on June 18. These are big markets and the orange juice market is a big

market. I don't foresee any other markets of the size that would have any real impact on the agricultural economy that should be brought under the act in the next few months.

The CHAIRMAN. I wanted to ask you about another phase of this. You pointed out that since there has been trading in orange juice there have been some rather substantial fluctuations in the price. Isn't the major alleged benefit of futures markets to cut off the hills and fill up the valleys and more or less level out the price structure; isn't that the major benefit that is held out by the futures market?

Mr. CALDWELL. The futures market reflects supply and demand. In a commodiy such as orange juice where you have a wide variation between supply and demand over a period of months and years, you are apt to have wide fluctuations regardless of whether there is a futures market or whether that futures market is regulated.

The regulation of the market would hopefully prevent price manipulation, corners and squeezers, and things of that type, that would disrupt prices, but it would not affect general price changes due to changes in supply and demand.

The CHAIRMAN. Are you saying that the fluctuations in price to which you made reference were natural and normal fluctuations and not a result of manipulation?

Mr. CALDWELL. We do not have any way of knowing. We do not have authority to investigate this market. I have no knowledge of any manipulation going on at this point.

The CHAIRMAN. That leads to this question: Why do we need to bring orange juice under control if everything is all right and moving along naturally? Why do we need regulation on that orange juice?

Mr. CALDWELL. We don't know that everything is all right. I said that we have no authority to gain information on the market. I do knowThe CHAIRMAN. You mean there is a prohibition against your knowing things that are available to everybody else?

Mr. CALDWELL. We know that. However, we cannot go into the brokerage houses and get information about the individual traders in the market, and so forth. We would need to have this type of information to make a determination as to whether there was any manipulation, or cornerers, or squeezers in the market.

The CHAIRMAN. You must have some opinion or you couldn't have an opinion as to the need for this authority. Why do you think that you need this authority?

Mr. CALDWELL. Generally, Mr. Chairman, it has been my experience over the years when new commodities are brought under the act, we ordinarily find that there are situations which are in violation of the act and which should be corrected. I have no reason to believe that the situation would be different here. However, as I say, I cannot point to any violations of the act now because we just don't have the information.

The CHAIRMAN. I do not have any information either, but from what I understood you thought there was no need of having any general authority to bring commodities under control automatically as they are placed on the board. Then you tell us that just as a general rule the only reason you think a commodity ought to be brought under control is just the general philosophy as a new commodity is placed

on the board there is a likelihood to be manipulation and therefore as a general proposition there is likely to be manipulation, you think we ought to take up orange juice. But you do not think we ought to extend the law to anything but orange juice. Yet you have not any special reason for suspecting anything wrong in the case of orange juice, have you?

Mr. CALDWELL. No, sir. I think the criteria on bringing commodities under the act is whether the futures market has become an important market or not. There are a number of futures markets now where the trading is so small that it does not have any real impact upon the producers of the particular commodities. This is not the case with orange juice. It has become a major market and it is being used by the producers and processors of orange juice. It, therefore, in my opinion, should be given the protection that the Commodity Exchange Act affords other commodities such as the

The CHAIRMAN. The basis for bringing the new commodity under control would be, if I understand it, the volume of business that is done in that commodity; is that right?

Mr. CALDWELL. The volume of business that is done and the effect that this has on producers and merchandisers of the product.

The CHAIRMAN. What effect has this had upon the producers merchandising the product?

Mr. CALDWELL. Here again I have to draw on someone else's material since we have not made any study of the market ourselves. The Florida Citrus Commission has found that producers and processers of orange juice are making extensive use of the market for hedging purposes. If this is true, then I think those producers should be protected from the standpoint of their trades in the market, and the funds that they put up with brokerage firms. I also think the Florida citrus industry itself should be protected from price manipulation.

The CHAIRMAN. Is there anything wrong with the producers and marketers using the market to hedge?

Mr. CALDWELL. No, sir; I am all in favor of that. I think the hedgers should be protected as well as speculators. Let us not rule out the speculators. They ought to be protected, too. The primary purpose of the market is to provide hedging facilities. This one is providing hedging facilities and it is my feeling that the hedgers should have the protection of the Commodity Exchange Act.

Mr. JONES of Missouri. Mr. Chairman ?

The CHAIRMAN. Yes.

Mr. JONES of Missouri. When I hear about orange concentrate I get a little suspicious. My memory goes back a few years ago to a Commodity Credit operation. I always resented the fact that it seems like the people in the citrus industry don't want to have any controls, but when they get in trouble they always want to get some money.

As I recall, Commodity Credit bought up all the surplus frozen orange juice, and then we had a freeze down in Florida. The Department instead of taking advantage of getting the profit that the Government was entitled to, sold this stuff back to the people for what they had put into it and let a bunch of speculators down there get the advantage when the prices tripled.

Do you have any comment to make on what happened at this time? Would this bill have any effect on that in any way whatsoever?

Mr. CALDWELL. I am not familiar with that situation since it is handled by another agency of the Department. This particular bill would not have an effect on the situation that you have outlined there. This bill would cover regulation of the futures market.

Mr. JONES of Missouri. You mentioned particularly, you said you wanted speculators to be protected along with the producers. I am very sympathetic to the producer being protected on our markets and I am getting a little tired of the people who are speculating, making more money out of the agricultural commodities than the farmer who takes all the risks and puts all the money into it and then the speculator gets the advantage of it.

If there is any way that I can be helpful in trying to help the producer and to exclude this speculator-I don't have any sympathy for him at all since he is a gambler, and if he wants to go out and shoot crap that is all right. But I don't want him to take advantage of the producer there. That is the thing that any bill like this that comes up, I want to see if there is anything under the chips that I can't see.

Mr. CALDWELL. When I made reference to protection of speculators as well as hedgers, I had reference to such things as protecting them from cheating and defrauding in connection with the execution of their orders, protecting the funds that they may deposit with brokerage firms, and so forth.

Speculators are necessary in any futures market because hedgers do not offset each other. Hedgers are basically short. You need speculators to take the opposite sides of these transactions. As far as speculation is concerned, the bill would give the Commodity Exchange Commission the authority to set speculative limits on the amount of trading that can be done or the amount of positions that can be held by an individual speculator. This would have the effect of curbing the big speculators in the market.

Mr. JONES of Missouri. The thing about it, you said you are in a different department. Back in those days when we had this problem, what happened when the Government permitted these people to take their orange juice out that they had put in there to get protected, then the price immediately went up three times, as I recall it, what the price had been. The producer did not get any benefit from that at all. The speculators were the ones who got the advantage of that. I think that the Secretary of Agriculture put himself in a questionable position. I think he was naive. I do not think he was dishonest. He let them put it over on him. The Government should have made the money because they were the ones protecting the producer at that time.

That is all, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Jones.

Mr. TEAGUE. Thank you, Mr. Chairman.

All of your testimony referred to Florida concentrates. As you know, there are a few oranges grown in California, Arizona, and Texas. I know there is a future there but is there a futures market for California oranges?

Mr. CALDWELL. There is no futures market for California orange juice at the present time.

Mr. TEAGUE. Should one be developed in the future, this legislation would cover it?