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APPROPRIATION FOR RETIREMENT OF 1933 COTTON POOL
PARTICIPATION TRUST CERTIFICATES
HEARINGS CONDUCTED BY THE SUBCOMMITTEE, MESSRS, EDWARD
T. TAYLOR (CHAIRMAN), CLIFTON A. WOODRUM, JOHN J. BOYLAN, CLARENCE CANNON, LOUIS LUDLOW, THOMAS S. MCMILLAN, J. BUELL SNYDER, JOHN TABER, ROBERT L. BACON, AND RICHARD B. WIGGLESWORTH, OF THE COMMITTEE ON APPROPRIATIONS, HOUSE OF REPRESENTATIVES, IN CHARGE OF DEFICIENCY APPROPRIATIONS, ON THE DAYS FOLLOWING, NAMELY:
MONDAY, MARCH 14, 1938.
STATEMENTS OF J. W. TAPP, ASSISTANT ADMINISTRATOR, A. A, A.;
J. 0. LAMKIN, MANAGER, 1933 COTTON PRODUCERS' POOL; AND G. P. PEYTON, OFFICE OF SOLICITOR; DEPARTMENT OF AGRICULTURE
SUPPLEMENTAL ESTIMATE OF APPROPRIATION
The CHAIRMAN. We have before us a communication of March 9, 1938, from the President (H. Doc. No. 535) transmitting a supplemental estimate of appropriation in the amount of $1,800,000 for the retirement of cotton pool participation trust certificates, as authorized by title IV of the Agricultural Adjustment Act of 1938; accompanied by a letter from Mr. Bell, the Acting Director of the Bureau of the Budget. Representative Luther Johnson of Texas also has a joint resolution before the Committee for the same purpose, H. J. Res. 616.
This communication and the letter referred to will be made a part of the record at this point. (The document referred to is as follows:)
THE WHITE HOUSE,
Washington, March 9, 1938. The SPEAKER OF THE HOUSE OF REPRESENTATIVES.
SIR: I have the honor to transmit herewith for the consideration of Congress a supplemental estimate of appropriation amounting to $1,800,000, for the fiscal year 1938, to remain available until June 30, 1939, for the Department of Agriculture, for retirement of cotton pool participation trust certificates, as authorized by title IV of the Agricultural Adjustment Act of 1938, approved February 16, 1938.
The details of this supplemental estimate of appropriation, the necessity therefor, and the reason for its transmission at this time are set forth in the letter of the Acting Director of the Bureau of the Budget, transmitted herewith, with whose comments and observations I concur. Respectfully,
FRANKLIN D. ROOSEVELT.
BUREAU OF THE BUDGET,
Washington, March 8, 1938. The PRESIDENT,
The White House. SIR: I have the honor to submit for your consideration the following supplemental estimate of appropriation for the fiscal year 1938, to remain available until June 30, 1939, for the Department of Agriculture, for, retirement of cotton pool participation trust certificates, amounting to $1,800,000 :
"DEPARTMENT OF AGRICULTURE
“Retirement of cotton pool participation trust certificates: To en
able the Secretary of Agriculture to carry into effect the provisions of title IV of the Agricultural Adjustment Act of 1938, approved February 16, 1938, $1,800,000, fiscal year 1938, to remain available until June 30, 1939: Provided, That the Secretary of Agriculture may, in his discretion, from time to time transfer to the General Accounting Office such sums as may be necessary to pay administrative expenses of the General Accounting Office in auditing payments under this title: Provided further, That no payments shall be made to assignees or any holders of cotton pool participation trust certificates, Form C-5-I, except those shown by the records of the Department of Agriculture on May 1, 1937, to have been the assignees or holders thereof on that date: Provided further, That in case any person who is entitled to payment on a participation trust certificate, Form C-5–1, dies, becomes incompetent, or disappears before receiving such payment or before application for such payment is executed, the Secretary of Agriculture shall provide by regulations, without regard to any other provisions of law, for such payment to such person as he may determine to be fairly and reasonably entitled thereto
$1, 800, 000” Title IV of the Agricultural Adjustment Act of 1938, approved February 16, 1938, authorizes the appropriation of $1,800,000, or so much thereof as may be required, to enable the Secretary of Agriculture, through the manager of the 1933 cotton producers' pool, to purchase, take up, and cancel pool participation trust certificates, Form C-5–1, where such certificates shall be tendered, on or before July 31, 1938, by the person or persons shown by the records of the Department of Agriculture to have been the lawful holder and owner thereof on May 1, 1937. The Secretary of Agriculture estimates that the purchase of the certificates in question, including costs of administration, will necessitate the appropriation of the full amount authorized to be appropriated.
The above supplemental estimate of appropriation is made necessary by legislation enacted since the transmission of the Budget for the fiscal year 1938. I recommend that it be transmitted to Congress. Very respectfully,
D. W. BELL, Acting Director of the Bureau of the Budget. The CHAIRMAN. Mr. Cannon, who is also chairman of the subcommittee on Department of Agriculture appropriations, will take charge of the examination on this matter.
Mr. Cannon. Mr. Tapp, we will be glad to have you explain this item.
Mr. TAPP. The 1933 cotton program was inaugurated and there was a provision in the original Agricultural Adjustment Act authorizing what are called cotton-option contracts; that is, the Secretary of Agriculture was authorized to take over the cotton which was held at that time by the Farm Credit Administration and offer options on that cotton to cotton producers as part payment for participation in a cotton-acreage adjustment program. The cotton producer had the choice to accept either full payment in cash for adjusting his cotton acreage or a part payment in cash and an option on so much cotton, depending on the amount of the acreage that he reduced.
The CHAIRMAN. That was under the original Agricultural Adjustment Act?
Mr. TAPP. As passed in 1933.
Mr. TAPP. These cotton options were authorized specifically by the act and were offered to the cotton producers. They could take a full payment in cash for their acreage adjustment or a part payment in cash plus the option on some cotton.
That option was at 6 cents per pound, seven-eighths Middling cotton. The producers holding options were then offered the opportunity to enter what was called a cotton pool, which was formed in order to avoid the dumping all of thạt cotton that the producers might acquire by the options, on the market immediately.
So there was organized a cotton pool, an agency authorized also by the original Agricultural Adjustment Act.
Now, the producers who entered this cotton pool are the ones who are concerned about this particular proposed appropriation; not all of the producers who took those options entered the pool.
Mr. TABER. How much cotton was involved in this pool; how much has been disposed of and how many farmers are involved, if you can tell us?
Mr. TAPP. All of the cotton has been disposed of; was disposed of-I guess the last of it-in November 1935
Mr. TAPP. In November 1936. Now, as to the cotton disposed of–how many bales were there originally?
Mr. LAMKIN. The total number of bales in the cotton pool was 1,951,790 bales. The total number of participants was 443,615.
Mr. WIGGLESWORTH. What was the inducement that led them to participate?
Mr. TAPP. In the pool ?
Mr. TAPP. I do not know that there was any particular inducement other than it offered them
Mr. TABER. It was an option?
Mr. TABER. They could have taken cash or they could have taken certificates entitling them to cotton?
Mr. TAPP. They could have exercised their options by taking a cash settlement or by placing the option cotton in the pool.
Mr. TABER. And then these certificates were pooled together into one pool, which was managed, and the cotton was sold !
Mr. TAPP. From time to time.
Mr. TABER. Have you any data as to what that cotton brought in cash?
Mr. Tapp. Yes; we have a statement on that.
Mr. LAMKIN. The average of those sales on cotton was 12.39. Six cents of that belonged to the
Mr. TABER. You say the average sale price was 12.39 ?
Mr. TABER. They were given the option, then, of either cash or an option cotton contract ?
Mr. TAPP. They were given the right to exercise their option contract by direct sale of the cotton or by placing the option cotton in
Mr. Bacon. An option at 6 cents ?
Mr. TABER. It cost them 6 cents and they got an average of 12.39; is that right?
Mr. TAPP. That is approximate.
Mr. TABER. Now, do you know?
Mr. TABER. I want you to tell us so we can use these figures, because we want to know what we are talking about. Are you sure that is right?
Mr. LAMKIN. That is the figure according to the accounting section, 1.01.
Mr. TABER. 1.01 ?
Mr. Bacon. In other words, they made a profit of 5.38 instead of the 6 cents which they might have taken in cash?
Mr. TAPP. No. Let me illustrate that in this way. Let us take a farmer who was offered a cash payment on say 10 acres of cotton. He would have gotten a cash payment of $110. Now, here he got a cash payment of $80 plus this profit that you speak of, which would be in the neighborhood of $150 on three bales of cotton?
Mr. BACON. They gave him 6 cents plus the option !
Mr. TAPP. The farmer either took cash entirely or cash plus this cotton option.
Mr. TABER. You mean he was offered cash, the same amount of cash if he took the option?
Mr. TAPP. A smaller amount of cash, $80 as against $110.
Mr. TAPP. That is on a reduction from-suppose you read that item, Mr. Peyton.
Mr. PEYTON. Perhaps this will make it a little clearer. When a cotton farmer plowed up his cotton, he was paid in one of two ways. He could be paid all cash for plowing up his cotton. If he plowed up 10 acres, for example, he would have been paid $11 per acre, or $110. Then we were through with him. He had plowed up and he had been paid, he had fulfilled his contract and the Secretary had fulfilled his.
Now, he did not have to do that. He could take a lesser cash payment and a cotton-option contract.
Mr. WIGGLESWORTH. For the balance ?
Mr. PEYTON. In the 10-acre example, again, on the basis of 150 pounds of lint cotton to the acre, he would have received $80 in cash and an option contract representing three bales of cotton.
Mr. TABER. And that gave him the right to buy that cotton at 6 cents a pound; or did he make an outright purchase of the cotton?
Mr. PEYTON. No; it gave him the right.
Mr. PEYTON. No. He takes $80 in cash. Then he was given an option contract representing three bales of cotton.
Mr. Bacon. How much did he realize on those three bales, less the cost of handling, selling it at 11.38.
Mr. TABER. That is 500 pounds to a bale.
Mr. TABER. Three bales of cotton would be 1,500 pounds, which at 6 cents a pound would be $90?
Mr. PEYTON. That is correct.
Mr. TABER. That is, if he bought it. The cotton was liquidated to net 11.38. Now, when he bought that cotton he was charged $90 for the three bales and he got for it 11.38 times 1,500 pounds.
Mr. PEYTON. It depends on what he did with it, as to whether he got 11.38. He could exercise this option contract in one of two ways. He could tell the Secretary of Agriculture to sell the cotton represented by that contract as of a given date at the market price. When that cotton was sold, he got the difference between 6 cents and the price that the cotton brought. If he took that course, in order to keep all of this cotton from being sold at one time, being dumped on the market—in other words, in order to keep all the producers from exercising their option by direct sale—the cotton pool was inaugurated. Now, he had the option of direct sale or of entering his cotton, his three bales, in the cotton pool. If he entered it into the cotton pool, he immediately got a 4-cents-a-pound distribution.
The CHAIRMAN. How did he get that? Let us have that clear.
Mr. PEYTON. He received 4 cents per pound for the cotton represented by his option and in addition he got a certificate, form C-5-D, representing whatever interest he had left in the pool. That form C-5-D certificate was later redeemed by the distribution of 2 cents a pound, whereupon he was issued a form C-5–I certificate that is mentioned in this bill.
Mr. Bacon. And this proposed appropriation is to liquidate what is left, is that right?
Mr. PEYTON. To pay the C-5-1 certificates at the rate of $1 per bale.
Mr. TABER. Let me get these facts straight. I think you are skipping a good deal of the story. You told us that this cotton was all liquidated by November 1936, and that the average price received was 11.38 net.