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If that is true, don't you think that something ought to be done to change the price supports. If we should decide to place some premium on quality, the issue might be rigid or flexible, but don't you think it would encourage the production of cotton that the mills will accept and take over?

Mr. SMITH. Certainly so, sir.

That is the main reason that the first part of my testimony, I devoted it to the sale, moving surpluses, which keep our west Texas cotton from moving readily into market.

The CHAIRMAN. Can you tell us why it is that the buyers prefer this lower-grade cotton ?

Mr. SMITH. I wish I were able to answer that question.
The CHAIRMAN. Did they have a better sale for that!

Mr. SMITH. It is the only cotton that has a sale, so far as price will justify it.

The CHAIRMAN. As far as price is concerned; in other words, the cotton that they purchase was cheaper than what went into the loan; am I to understand that?

Mr. SMITH. No, the loan value on the cotton is cheaper than the price that they can get, and so they bid up above the loan value for our low grades, particularly our low grades and our short staples.

The CHAIRMAN. As I understand you, you agreed that nationwide we ought to promote or encourage the production that is readily salable?

Mr. SMITH. It must be so.

The CHAIRMAN. Well now, in order to discourage the production of low-grade cotton, what do you think would be the lowest support price that should be made for that?

Mr. SMITH. Well, I am not sure that I could answer that question in percentage- or cent-wise. I know that with us everywhere we go we say, we are criticized for producing cotton for the loan rather than market, and yet when we go to market-I have my sales of my cotton last week, and I had some inch and one thirty-second cotton.

The CHAIRMAN. Well, that is not peculiar to Texas, you know; we have got a lot of other people doing the same thing in wheat, particularly in wheat.

Mr. Smith. It could be that California has something in their onevariety cotton that makes their cotton more readily salable because the spinners know the characteristics of the cotton.

The CHAIRMAN. We might learn from California then.
Mr. SMITH. It is possible; yes.

Mr. Smith. However, a Texan does not like to admit that anything anywhere else is better.

The CHAIRMAN. Texas quality. [Laughter.]

The CHAIRMAN. Have you any preference between the present progrom and the old program we had of 90 percent rigid price supports?

Mr. Smith. Well, for my personal operation I would much prefer 90 percent support price, but I think that geared with that must be the moving of our surplus. I fell that is the big problem.

The CHAIRMAN. I am in agreement with you that irrespective of whether you have flexible price-support programs or whether you reinstate the old program, that neither or both of them can of themselves do the job.

Mr. SMITH. That is right.

The CHAIRMAN. We are going to have to have something to add to that.

Now, have you any suggestions along that line or maybe some other witnesses will presently have suggestions?

Mr. SMITH. I know that some of the witnesses I have talked with before the hearing started have some suggestions, and I would not infringe on their time.

The CHAIRMAN. We might leave other witnesses testify.
Senator Eastland, have you any questions?
Senator EASTLAND. Yes.

Mr. Smith, you have made a very fine statement, and I would like to ask you a few questions, please, sir.

Cotion, the cotton problem, is in two parts, is it not: First, cotton must compete domestically with synthetic fibers; that is one phase of it, is it not? Mr. SMITH. That is right.

Senator EASTLAND. Second, it has got to compete with the world markets? Mr. SMITH. That is right.

Senator EASTLAND. Now, at one time foreign countries had no place to look but to the United States for cotton; is that true? Mr. Smith. That is right.

Senator EASTLAND. In the past 10 years we have seen a tremendous increase in foreign production that has about closed the gap where foreign production about equals foreign consumption; is that true? Mr. SMITH. I think you are right, sir.

Senator EASTLAND. On one of those two phases, the domestic phase, where it must be competitive with rayon, and the export phase, you say that we must sell at competitive world prices. I am going to agree with you, sir. But I think that your assumption is faulty.

You state that if we sell at competitive world prices we will be able to liquidate the surplus and we will be able to recapture an export market of 5 million bales by competitive sales. Was that your testimony?

Mr. Smith. Not exactly. I said that I felt we should attempt to capture that 5 million bales.

Senator EASTLAND. Well, certainly we have got to have a minimum of 5 million bales in exports.

Mr. SMITH. That is right.

Senator EASTLAND. Now the question I am asking you is, by merely competitive sales can we recapture 5 million bales of exports and can we liquidate this 13-million-bale surplus?

Mr. SMITH. Well, that I am not qualified to answer. I know that the billion pounds of cottonseed oil were moved.

Senator EASTLAND. But there is a much greater demand for fats and oils in the world than there is for cotton.

Mr. SMITH. That is right. There is a difference.

Senator EASTLAND. Now, the world price of cotton has slumped about 7 cents a pound below the American price?

Mr. SMITH. That is right.

Senator EASTLAND. I am speaking of cotton an inch and a thirtysecond and an inch and a sixteenth. If we reduce our price 7 cents a

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pound, it would be competitive with Mexican cotton. Then do you think that German, British, and Japanese mills would buy American cotton in preference to Mexican cotton ?

Mr. SMITH. If our surplus is made up largely of the short cottonSenator EASTLAND. Well now, that hypothesis was true before 1955—before the 1955 cotton crop. With the tremendous production that we have got this year, there is a tremendous surplus of the cottons, the inch and one-thirtysecond and the inch and one-sixteenth, and three-thirtyseconds that were in short supply.

Mr. Smith. I think it is going to take a tremendous sales program, besides price.

Senator EASTLAND. Don't you think we have got to do this: We have got to resort to some unorthodox economics, that we have got to have terms that Mexico and Brazil and Central America cannot meet!

Mr. SMITH. We are going to have to offer the buyer something to encourage him to buy our cotton. It may be price, it may be terms.

Senator EASTLAND. Have you considered Public Law 480? Do you know Public Law 480 ?

Mr. SMITH. Not by number, sir.

Senator EASTLAND. Where we sold commodities for the currency of the country?

Mr. SMITH. Rather than American money?
Senator EASTLAND. Yes.
Mr. Smith. Well, certainly that—

Senator EASTLAND. In other words, there are instances where, you take rice, now, the State Department objected, but the Japanese sent a delegation to this country a year ago to buy farm products. They did not want any rice, stating that the State Department had requested them not to buy American

rice. It wound up that we sold them 200 tons of rice for dollars, and a hundred thousand tons for yen, and then loaned them part of that yen for economic development in Japan.

Don't you think that we have got to resort to deals like that to get back this 5 million bale exports?

Mr. Smith. Certainly, sir.
Senator EASTLAND. Yes, sir.

Now, I think we are in agreement, entire agreement, on what must be done to liquidate the surplus. Domestically you state two things: You state that we should have a 90 percent support price and, of course, we all want the highest support price we could have, and I am a farmer, make my living from it, and at the same time you say that commodities should move; is that correct?

Mr. SMITH. Yes, sir.

Senator EASTLAND. Well, suppose they pile up at 90 percent, and suppose rayon moves in on the market at 90 percent. Do you think that we should retain 90 percent in that condition?

Mr. SMITH. I think that such organizations as the National Cotton Council and other types of research should do everything possible to promote new techniques of manufacturing, new techniques in production of quality product, and sales promotion that will sell that, so we can keep that very thing from happening; but it may happen.

Senator EASTLAND. If that very thing would happen, to keep it from happening

Do you realize that the rayon companies yesterday reduced their prices 2 cents a pound! Mr. SMITH. I was not aware of that, but I am not surprised.

Senator EASTLAND. And that rayon, a rayon mill, where it competes with cotton, costs that mill today 3242 to 33 cents per pound against a comparable cotton cost of 42 cents a pound? That is the cotton that is clean and ready to be spun, where they become competitive ?

Mr. SMITH. I knew there was a price advantage to rayon.

Senator EASTLAND. There was a price advantage with spinning value, taking into consideration 342 cents a pound before yesterday.

Now it is 542 cents a pound. The facts are that domestic consumption of cotton has declined on a per capita basis while domestic consumption of rayon is rapidly increasing.

I was in a plant a few days ago which is just being completed at Mobile that is going to be displaced—that is going to displace 200,000 bales of American cotton. Don't you think we should compete with rayon?

Mr. SMITH. We are going to have to produce cotton,
Senator EASTLAND. That is right.

Mr. SMITH. I do not know what the future holds, but I know that there are some marginal farmers who are going out of business if they are caught in a price squeeze much lower than

Senator EASTLAND. Don't you think we have got to meet this rayon competition. After all, that is where the great problem is.

Mr. SMITH. We are going to have to meet it one way or the other.
The CHAIRMAN. Tell us how.
Senator EASTLAND. That was the next question.

Mr. SMITH. I do not know. I have heard subsidies discussed. We farmers, at least I do, like to shy away from that. However, so many other people have subsidies, I do not guess it would be a disgrace for us to have, until our economy can balance out.

Senator EASTLAND. If the per capita consumption of cotton remained where it was at these levels, our domestic market would increase a million bales every 5 years as the population of the country increased. But that is not happening.

It is declining and staying stationary while rayon increases. Now, aren't we going to have to meet that rayon competition?

Mr. SMITH. We are going to have to do all we can to meet it.
Senator EASTLAND. Yes.
Mr. SMITH. I do not know the answer to that.
The CHAIRMAN. That is what we are looking for.
Mr. SMITH. I know that, sir.

Senator EASTLAND. With this expert sales program, which you advocate, why would not this 13 million bales surplus be a blessing if it were liquidated by selling to our mills, this surplus cotton, at the same price that we sell for export. You stated that you desire to stop the foreign expansion of acreage. I agree with you.

Now, should not we stop the new construction of rayon plants in this country by the same system?

Mr. SMITH. You might have a point there. I had not thought of it in that particular light.

The CHAIRMAN. How would you do that and preserve your way of life?

Senator EASTLAND. The Senate has already passed such a bill. It is pending in the House.

The CHAIRMAN. I doubt its constitutionality, but that is not it. We are coming here to hear the farmers. Let us not go into that. Thank you ever so much.

The next witness is J. Walter Hammond, of Waco, Tex.

Give us your full name and occupation. STATEMENT OF J. WALTER HAMMOND, PRESIDENT, TEXAS FARM

BUREAU, WACO, TEX. Mr. HAMMOND. Mr. Chairman and Senator Eastland, my name is J. Walter Hammond. I am a farmer and I am president of the Texas Farm Bureau. The CHAIRMAN. How many acres do you

farm? Mr. HAMMOND. I have a section of land, a little more than a section of land.

The CHAIRMAN. You live on a farm?

Mr. HAMMOND. Yes; I live on the farm when I am not at Waco; I spend a lot of time at Waco. I appreciate this opportunity to make a statement before this committee, and I think much good can come of your tour around over the country in getting the ideas of the different farmers throughout the country.

There is a tremendous lot of interest in the agricultural situation. It is evidenced by the press. Of every meeting you have had there have been accounts of what happened in our papers down here, when you started in Minnesota. And our people hang on to what you and other members of the committee have been saying. I think it is wholesome and good that you are going at it now.

What I am going to talk to you about–I do not think I am going to get into any details—I am going to talk about general ideas. There are a lot of proposals

to stop this trend of the farmers, that our net income is down 30 percent, as you know, and it is going to get the whole country into trouble if we do not do something about it.

There has been some discussion about high supports and low supports. I do not think that either a 90-percent support or a flexible support price program will bring relief. One reason is that there is not an awful lot of difference, because farmers make money on acres, and they have the same formula for allotting acres for the flexible support price program as they do for the 90-percent support price program. It comes out with the same number of acres every time. And acres are what create surpluses.

We think we are going to have to get rid of some of the surpluses.

Another difficulty about our present program is that it only involves about one-fourth of the total land in the United States, about 25 percent, or around there, that is involved in the basic commodities.

A farmer cannot get along very well if you support the price of onefourth of his products.

Another thing about it is that when we support the price of cotton and tobacco and all of the others, we take some acres out of those commodities and we plant them in the nonbasics. Actually our total production, our overall production is no different when we start than when we finish-taking acres out of one crop, and putting them into

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