Senator MUNDT. My question goes to the point, when you use it for domestic consumption term, you would mean by that, domestic human consumption?

Senator ANDERSON. NO.

Senator THYE. You have consumption for milling and you have seed requirements.

Mr. NEWSOM. Our plan, the plan embraced in these bills, is for human food, Senator.

Senator THYE. The disappearance of wheat normally consists of what is domestically consumed and what is required for a seed. That is your normal disappearance annually.

One question which occurs to me here. Supposing that you 25 percent of your production in a year over and above your domestic needs. and if this 25 percent is offered on the market at whatever the market will offer, wouldn't it be reasonable to believe that the purchaser would go on the open market and buy and satisfy his needs as long as there was any of this 25 percent available at a reduced price?

Mr. NEWSOM. As a matter of fact, that will determine the market price. He will go on the market not for that 25 percent, but for the total 100 percent.

Senator THYE. I realize that. I was trying to get the example Senator Hickenlooper led into it, and Senator Mundt.

While they were discussing it a new thought occurred to me. We will say that our domestic needs are for just exactly 1 million bushels. Of that you have 75 percent which will go into consumption or disappearance in the normal channels in the United States. You have 25 percent, however, that is is in surplus, and that 25 percent does not have Federal support or Federal protection, and all of it is offered. The farmer offers all of it, then it is reasonable to believe that the user would go in and satisfy his needs from that 25 percent that is offered at a reduced price before he goes back and starts taking from that which is held at a higher level or that which carries Federal supports in order that it be maintained at parity, because it is the percentage of your production that domestically is needed.

Mr. NEWSOM. Frankly, you have got me a little bit worried for fear you don't have in your mind clearly what we are trying to do. We are trying to take Government completely out of this market except for this stop-loss support that we recognize we have got to supply temporarily.

Senator THYE. Well then, in other words, the entire billion bushels of wheat produced in the United States would be made available on every market channel open to the wheat.

Mr. NEWSOM. Absolutely.

Senator THYE. Take an individual farmer, Mr. Jones over here. Supposing 80 percent of his crop would be in percentagewise to what our domestic needs were, and that 20 percent of that crop was in excess of what the domestic needs were. Therefore on the 20 percent he got no Federal assistance whatsoever, but on the 80 percent he got the assistance in order to hold him at parity. That is his share of the domestic consumption. It is not in surplus.

Mr. NEWSOM. I may not quite comprehend the point that you are making, but let me try it this way.

Let's start with the temporary stop-loss or whatever support level you are going to call it, that the Secretary establishes to protect the feed market, and to protect the world market against a dumping program which unquestionably we all understand we would be walking right square into if we do have an adverse wheat marketing quota referendum vote here, and reduce the support level to a figure below the world market.

In other words, it is no different problem than we have under the present law potentially. So the Secretary then determines what the support level is going to have to be as exactly as we have been having the support level apply through Commodity Credit Corporation, except that it is going to be down here at 60 percent or 62 percent of parity or some such figure, as determined by the relative feed value of wheat or other feed grains, and the international wheat marketing situation.

Now that is the price that we are going to start with, and I will sell all of my thousand bushels of wheat or whatever I produce at presumably that support level, as long as we have got this billion bushels hanging over the market it is going to stay right there.

Senator ANDERSON. Sixty-two percent.

Mr. NEWSOM. I will sell all my wheat at market. That is what the market will demand, except if I raise a high quality of wheat I will get a better bid out of Ballard & Ballard than my neighbor who raises a low quality of wheat. Then I will cash my certificates and I will have some additional income.

Senator HICKENLOOPER. Here is the thing that bothers me on this thing. I think it is a pretty well accepted law of economics in prices, it seems to have worked and we had a free market always, if you have got one bushel more, the price decreases. If you have one less than you need, there is a scramble for the amount available. Now, how are you going to keep the surplus wheat on the market from setting the entire wheat price?

Your farmer will collect on his certificate. He'll collect $2.30 a bushel or whatever the amount calls for.

Mr. NEWSOM. No; let's get that one right. He will collect the differential between the estimated free market price or the temporary stop-loss support price.

Senator HICKENLOOPER. He will collect a price on the allocation of which he has under the domestic consumption estimate. He will collect a price that is considered to be a fair price based on parity in your formula. But he is going to have other wheat here to sell on the open market. Now, what is to keep a purchaser from saying "Well, I am not going in and pay that certificated price for wheat; I will buy it on the open market."

Mr. NEWSOM. Where is he going to get any wheat?

Senator HICKENLOOPER. He is going to get it from the surplus if the farmer has any to sell.

Mr. NEWSOM. He is going to buy it from whoever has wheat to sell, and that is the market price.

Senator HICKENLOOPER. That is exactly what I am saying. Now, let me take an illustration here. Let's take a billion bushels. Senator ANDERSON. Start with the crop.

Senator HICKENLOOPER. Well, I am just saying, let's take a billion bushel crop. Let's say the estimated domestic needs are 500,000 bushels

Senator ANDERSON. Use 675. That is food and all.

Senator HICKENLOOPER. This is easier to figure.

All right, on this 100 million bushels, allocated under the formula in the various counties, the farmer has been given a certificate which works out $2.20 a bushel in some places. That is another arbitrary figure.

All right

Mr. NEWSOM. Let me correct you there, Senator, because I think here is a part of the basis of your confusion, if I may be so bold as to state it that way.

Senator ANDERSON. He is getting along pretty well.

Senator HICKENLOOPER. I am confused.

Mr. NEWSOM. The certificate will not reflect the full parity price. It only reflects the Secretary's differential

Senator HICKENLOOPER. I understand. But I am using an arbitrary figure. I am only trying to get a figure to use.

Senator ANDERSON. Could we pause for just one second while I give a comment on that.

I think, is it not true, Herschel, that the certificate is worth the difference between what the Secretary fixes and what he gets in the world market, in the free market, so that if he got 60 percent of parity and parity was $2, he would get $1.20 and the certificate would be worth 80 cents to bring it up to $2.

Mr. NEWSOM. That is substantially accurate; yes.

Senator HICKENLOOPER. I am looking at the end result. What is the farmer going to do?

Let's suppose he raises 5,000 bushels of wheat, and his allocation under the certificate plan is 2,500, just to make it half. All right; what is he going to do? This 2,500 bushels of wheat is not protected anyway. He is protected on half by a certificate he has in his pocket, but he takes the whole 5,000 bushels and puts it on the market.

Mr. NEWSOM. Right.

Senator HICKENLOOPER. Then he comes to the Government for a subsidy.

Mr. NEWSOM. That is right.

Senator HICKENLOOPER. So that the market price on wheat is going to be fixed in the market place.

Mr. NEWSOM. No; only the value of the certificate is fixed. He has got his certificate just ahead of the marketing time.

Senator HICKENLOOPER. I understand that. But you don't get something for nothing, so that the price of wheat is going to be determined in the open market so that he can sell that 5,000 bushels of wheat.

Then let's say if he gets $1.40 on the average for it-because everybody is going to sell their whole wheat on the market, whether it is the world market or domestic-they are going to bid that. Somebody is going to have to pay that 80 cents.

Mr. NEWSOM. I want to make one more trial, and then-
Senator HICKENLOOPER. Isn't that correct?

Mr. NEWSOM. Well, I think you are still not seeing the thing the way I want you to see it. Take that farmer with his 5,000 bushels of wheat. Senator HICKENLOOPER. Yes.

Mr. NEWSOM. He produces that wheat, and he is going to market it. Senator HICKENLOOPER. The 2,500, the certificate?

Mr. NEWSOM. Let's forget the certificate for a minute. He has got the certificate in advance, and he has either already cashed it or spent his money or he has still got it. Let's separate it from the marketing of wheat, because I think that will help to clarify the situation.

He produces 5,000 bushels of wheat. He goes and markets it at the elevator, but the elevator is paying a price that is dictated by the support level established by the Government just as it is now, except that being established-instead of being established at 90 percent of parity or 8212 or some other figure, it is established at such level as the Secretary thinks is necessary to protect the feed market and the international market.

Senator HICKENLOOPER. Now, is the elevator man going to be told that you have got to pay a certain price for wheat?

Mr. NEWSOM. No more than he is under the present program.
Senator MUNDT. Now, you are losing me.

Mr. NEWSOM. All right

Senator ANDERSON. Can I try it once?

Mr. NEWSOM. Go to it.

Senator ANDERSON. This is just the old system that W. R. Ronald came to the Department with in 1945. He is Republican. It is a wellknown system that we studied for weeks.

We start off with the crop of a billion bushels which he had. There was a demand for 675 million for food and other needs. Five million bushels for food has almost been a static demand for 40 years. Then more was needed for seed. So 325 million bushels of grain are left and will have to come on the market somewhere.

Now, the man who produces 5,000 bushels, has 3,000 to sell on which he holds a certificate, and 2,000 for which he doesn't have a certificate, but he markets his whole 5,000 bushels.

For the whole 5,000 bushels he gets the regular price, but the priceSenator MUNDT. Herschel said he got a fixed price the elevator man had to pay.

Mr. NEWSOM. No, no.

Senator ANDERSON. He gets the market price.

Mr. NEWSOM. I said no more than under the present system. Senator ANDERSON. Dr. Black at Harvard has worked out a long table to show the effect of surplus on the market. It shows if surplus is only 5 percent, the market may drop only 10 percent. But if the market is 10 percent surplus, the market will drop more. If the surplus is as much as 25 percent, the market goes down to 50 percent. Here you have a market of 33 percent. So normally $2 wheat would sell for a dollar.

A man would get $5,000 for 5,000 bushels. Then we would get on the 3,000 bushels for which he was a certificate the difference between $2 and $1, because $2 is parity. I am just assuming that.

Senator MUNDT. By redetermining his certificate.
Senator ANDERSON. That is right.

So he would get another $3,000 from certificates. He would get $8,000 from 5,000 bushels of wheat, and the going price for wheat would be a dollar a bushel.

Now the theory is that that would move a lot of wheat into consumption abroad, and at the same time would move a lot of wheat into consumption in this country.

Mr. NEWSOM. And at the same time move a lot of acres out of wheat. Senator ANDERSON. I think so. But it would give you $1.60 a

bushel.

Senator MUNDT. Who pays the $3,000 that he gets for his certificate?

Senator ANDERSON. The Government.

Senator THYE. The taxpayer, ultimately.
Mr. NEWSOM. Perhaps you're right.

Senator ANDERSON. The Government pays it.

Mr. NEWSOM. But the processor actually pays it and collects it from the consumer because you don't process and sell this wheat for human food without purchasing from the Government certificates to offset the amount of wheat purchased. So the Government becomes the backing agent between the processor and the consumer here.

Senator ANDERSON. That is right, you put a processing tax in. Senator MUNDT. That comes back to what I said originally. This is domestic human consumption, just human food.

Mr. NEWSOM. That is exactly right.

Senator ANDERSON. But it deals with the whole crop, whether food, feed, or seed.

Mr. NEWSOM. Senator, let's be sure you don't envision the possibility of the certificate for feed or seed, because that is not in the legislation. The certificate is only issued on the human food.

Senator ANDERSON. Well, the amount used, if you want to do it that way, will reduce it. When I say we get the certificate on about 3,000 bushels, you get down to about 2,500, it will reduce to some degree if you are going to put it on straight food. But the Government only stands the first payment, and only then as a backer. It is just advancing money because the processing tax then works against the miller. He has to come in and pay it. We have a parallel to that to some degree in the sugar industry where there is a tax on sugar that the consumer in this country pays.

Not many consumers are conscious of the fact that they are paying agricultural support program, but they are.

Senator MUNDT. Has your statistician shown what impact it will have on a loaf of bread? Does it make any?

Senator ANDERSON. It wouldn't make any, because he has to pay the price plus the certificate. He pays for the certificate when he buys his loaf of bread. That is how they get their money back.

Mr. NEWSOM. Now, that depends on where you are going to start. If you are starting from a 90 percent of present parity, at present price, there is not going to be any additional cost, even for the loaf of bread. The additional cost under the present program is that that same consumer is likewise a taxpayer, and he is paying the subsidy on exports and he still doesn't know what to do with the amount we have withdrawn from the wheat market that I formerly used to feed, and now I sell it to my Government because I can't afford to feed it, at the price the Government will pay for it.