one large city bank collapses, especially the big money banks, Chicago, New York, the whole banking industry, and the whole economy is in trouble. Now, I am going to go quickly because of the time constraint to the page marked 1966 a projection. In 1964 our banking organization made a study of the rise in loans and ratios of deposits from 1946, when the Nation's banks could only loan 17 cents out of $1 to individuals and corporations, to 1980 when we apparently will have loaned all of the money. That was our original projection in 1964. We can see it happening today. The second column there shows a ratio of loans to deposits which is what has actually happened. The third column shows that around November 28, 1977 and on several occasions since 1973 when we had our last recession, our banks are loaned up 103.6 percent of total deposits. I would like to call your attention to one more-the final page, all commercial banks, U.S.A., which shows that the-if you look under the fourth line there the ratio of loans and deposits, investments and deposits, Government bonds and deposits, and so on, on June 29, 1977, showed a greater degree of illiquidity than the same figures on June 30, 1929, 5 months before the economy collapsed, the beginning of the depression of the 1930's. And this is taken out of the record of the United States. This is the picture of the agricultural economy and the financial system in the United States. My rural bank is involved in this as are my consumers. But my bank alone is insignificant. The problem is nationwide, involving the entire credit system, the total financial system. It must be solved on a national basis in order to protect my rural bank and my farmer customers. Thank you, sir. The CHAIRMAN. I congratulate you on an excellent statement. Some of these statistics I have not seen before. I suspected that this is the case, but I had not seen it in black and white. It will be of valuable assistance to us. Senator Dole? Senator DOLE. Well, except to say I do not fully understand this, but I do know, as a matter of fact, that Mr. Rossiter is an expert in this field and we appreciate it very much. I will get somebody to help me understand it. I guess what you are saying is the picture is not too good. Mr. ROSSITER. What I am saying is we are out of liquidity in the financial system of the United States. And if you gentlemen do not provide the economy with $178 to $200 billion that is available by restoring farm prices up to 100 percent parity and the multiplier effect this has on our economy, that this economy is going to go down. If it goes down, we are going to have a $680 billion loss on an annual basis and another depression if the depression is no worse than the last depression percentagewise. So we have a choice here of bringing Senator DOLE. Can you do all that by legislation? Mr. ROSSITER. You can do that by legislation, yes. You can do it by restoring the same program, Senator Dole, that we had in 1942 to 1952, and that program was initiated, if you remember, to support 29-974-78-14 the dollar and to prevent inflation. And this program would have the same effect. It would bring liquidity back into the economy. It would provide the tax people to balance the Federal budget and to do all the things that it did in 1942 to 1952 without an inflationary impact. The pattern is there. I do not think you have to search too far to know what you have to do to correct the problem. The CHAIRMAN. Senator Zorinsky. Senator ZORINSKY. In your capacity in the banking business what would you say is the percentage of default or late payments on bank loans right now in your area? Mr. ROSSITER. Well, Senator, our financial system in the midwest has been living on the equity on our farm customers' inflated real estate values. Last year we laid off $1 million loans and our banks were $15 million banks, $16 million-$1 million of loans to Federal Land Banks and other long-term lenders in order to maintain liquidity in our banks. Our deposits increased $12 million but we loaned $211⁄2 million additional money to farmers. So we did not make any headway at all. In fact, our loan to deposit ratio is greater now than it was a year earlier. And we still have serious problems. But we really have not come to grips with these problems yet because we have not fully recognized their seriousness. The net farm income this year in terms of real purchasing is the lowest it has been since 1934. In 1934 the average loan in our bank was $154 and the biggest loan was $1,500. The same man that borrowed $1,500 in 1934 is borrowing $300,000 today, and our average loan is $10,000. There is no way that we can shrink that back to the way we were in 1934, but this is the kind of net farm incomes we are playing with. The income that we have says we have to shrink it back because the farmers cannot pay it unless something different happens, something good happens to take advantage of the crop we have; the surplus we have is really the thing that may pull us out of this if it is multiplied by a proper price and 100 percent of parity would be the proper price. It can be achieved, I think, with 90 percent of parity floor and a 110 percent parity ceiling with the proper safeguards from imports and so on. Senator ZORINSKY. Thank you very much. The CHAIRMAN. Thank you, Mr. Rossister, for an excellent statement. The next witness is Mr. Harry S. Bell, president, South Carolina Farm Bureau Federation, Columbia, S.C. Mr. Bell, it is nice to have you with us. You may insert your full statement in the record.* STATEMENT OF HARRY S. BELL, PRESIDENT, SOUTH CAROLINA FARM BUREAU FEDERATION, COLUMBIA, S.C. Mr. BELL. Thank you, Senator, gentlemen. I am president of the South Carolina Farm Bureau Federation, but I am also an operator of a Saluda County farm on which we produce cotton, soybeans, beef cattle, and timber. *See p. 467 for the submitted statement of Mr. Bell. I did testify at the field hearing in Columbia on February 4 and I certainly do not wish to repeat myself to too great an extent because that is already a matter of record, but there are a few things that I do feel the need to be reemphasized which I brought out at that time. Clemson University, our agricultural college, has developed some budgets based on present conditions and what we farmers in South Carolina are facing in 1978. And as far as soybeans are concerned, we had a 20-bushel average yield in 1977, and in 1978, maintaining this same bushel yield approximately or based on a 21-bushel yield per acre and a $5.25 soybean price, which recently has been very close to that. Clemson University anticipates that this year we would have a return from management and risk of a loss of $21.27 per acre. Even if we increase that yield to 30 bushels per acre, we would have a return to management and risk of a mere 27 cents per acre. Going on to corn, in 1976 our average State yield was 70 bushels per acre, probably the highest we ever experienced and in 1977 our yield went to 36 bushels per acre with a national average of 90.8 bushels per acre. Taking Clemson University data and applying it to $2.10 per bushel, we can anticipate a loss of $30.33 on an 80-bushel yield in 1978. Figuring on the national average, we probably would lose approximately $10 this coming year. Going on to cotton, in 1976 the State average was 438 pounds in South Carolina and in 1977 the average yield was 341 pounds. For 1978, Clemson figures indicate a net loss to management and risk of $14.90 per acre on a 600- pound yield, something that we have never averaged in South Carolina. I could go on to barley, oats, wheat, and other crops, but I will not bore you with the repetitiveness of this material. These kinds of returns obviously cannot continue to persist. If they do, agriculture in South Carolina cannot survive and I seriously doubt that it can survive in any area of our Nation under such circumstances. I believe that the agricultural economy is more depressed now than it has been at any time since the Great Depression; and you will remember that the tragedy of the depression began on the farms of America, and spread throughout our Nation and the world. We cannot afford to let this happen again. Our members are greatly concerned and the Farm Bureau leadership in South Carolina has diligently sought sound solutions to these problems. We have assimilated inputs from every available source, held numerous county Farm Bureau meetings and commodity advisory committee meetings to discuss the situation and select a course of action that is equitable and fair to all citizens of this Nation. On February 23 of this year, our State board of directors met in special session and after a lengthy discussion and debate, adopted by better than a three-fourth majority vote the following objectives as an adjunct to our present Farm Bureau policy: First. We support at least parity at the marketplace for all agricultural products whose producers approve a program. This could be accomplished by higher target prices and mandatory set-aside programs that will control production and keep production in line with what the various commodity groups need to produce. Second. Although we are opposed to any Government controlled national or international food reserve, if one exists or if one is estab lished, all agricultural products produced for such reserve shall be contracted at a minimum of parity, provided this price is determined at the marketplace. And I might add that my board of directors considers parity, cost of production plus a reasonable profit and equitable prices to be synonymous terms. Third. We support the creation of an entity or structure composed of agricultural producers to assist in devising and approving policies that affect agriculture, both domestic and export. Fourth. All announcements pertaining to any agricultural producing cycle shall be made far enough in advance so that the producer will have adequate time to make needed adjustments in his operation. In other specific action, our State board of directors also endorsed the Flexible Parity Act of 1978. And we call upon the Department of Agriculture for a 25-percent mandatory set-aside for cotton acreage during this coming year, and a target price of 70 cents per pound. Mr. Chairman and gentlemen, these actions were taken only after it was determined that an extreme emergency does exist in the area of production agriculture; and the development of this addition to our present South Carolina Farm Bureau policy in no way circumvents the well established grassroots process through which we develop policy. Our membership is aware and concerned as never before. And this policy is consistent with the majority opinion of the Farm Bureau members in South Carolina. My final thought is this: There is a legitimate role of Government, a role which assists all citizens of this great Nation. I submit to you that agriculture is now in an economic situation which warrants assistance from the Federal Government. We do not want, nor do we believe that it is prudent in the long run, that agriculture depends on Government payments for its existence. The CHAIRMAN. Mr. Bell, I congratulate you on an excellent statement. Clemson College which you quoted your statistics from is one of the great agricultural colleges of our Nation. I have been there many, many times, and I am aware of what it means not only to South Carolina but to the Nation. Senator Dole? Senator DOLE. I have no questions. I appreciate your testifying today and, of course, your appearance when we were in Columbia, S.C. I think since that time you have had a chance to take a look what we refer to as the Flexible Parity Act of 1978. Again, I think it is the question of the mechanics of what we do. I think there is an agreement that we have to do something and which would be the least cumbersome and the most effective and produce the quickest results so that the farmer can have some flow of cash, capital. And I would have when we start on Monday that we could figure out some way to do that which would satisfy most people in agriculture. It is difficult to satisfy everybody. Thank you very much. The CHAIRMAN. Senator Zorinsky? Senator ZORINSKY. Thank you for a well-thought-out presentation. Thank you. The CHAIRMAN. Thank you very much, Mr. Bell. The next witness is Mr. Rod Flannery, representing the Independent Oilman's Association, Wessington Springs, S. Dak. Mr. FLANNERY. Good morning, Mr. Chairman. The CHAIRMAN. Good morning. Your entire statement will be inserted in the record, Mr. Flannery. Do both of you expect to testify? Mr. FLANNERY. No, sir, we do not. I will be presenting the testimony and both of us will be available for any questioning. The CHAIRMAN. The full statement will be inserted in the record. You can summarize it in not more than 5 minutes please.* STATEMENT OF ROD FLANNERY, REPRESENTING INDEPENDENT OILMEN'S ASSOCIATION, WESSINGTON SPRINGS, S. DAK. Mr. FLANNERY. Members of the committee, my name is Rod Flannery. I am owner and operator of the Flannery Oil Co. in Wessington Springs, a town of 1,500 people in central South Dakota. I am here this morning to represent the State Oilmen's Association, which consists of over 90 percent of the 420 licensed motor fuel dealers in our State. Together we are the major source of fuel supply for our farmers' needs on the 36,000 family farms in the State of South Dakota. We certainly appreciate this morning, gentlemen, the opportunity to appear here to discuss briefly the economic interaction that occurs between our business and the agricultural community. As members of this agricultural community, we are keenly aware, and I am certain that members of this committee are keenly aware, of the present economic crisis confronting our Nation's family farmers. Also, Mr. Chairman, at this time we would like to commend your committee for your perceptiveness in recognizing that this is a real crisis and it is here now. It is not a threatened crisis in the future. We also commend you for your attempt to speed through legislation that will alleviate the situation. Gentlemen, let me assure you that not just the American farmer is experiencing a severe crunch, the businessmen of South Dakota's main streets are experiencing a similar crunch. Results of all of these economic factors, of course, pose a very grim picture for the businessmen who are faced with the same problem with inflationary costs and reduction in net incomes. Together they combine to create a high demand for operating capital, and it precipitates the ever-increasing need for extending credit. A recent survey of our membership which has been conducted by our executive director, Mr. Dick Tripler, sitting to my right, shows that a typical dealer business in past years has carried negligible accounts receivable balance at the end of the year fiscal low-a negligible balance at the end of the fiscal year. This past year, due to the necessity of liberalizing our credit policies, this same average typical dealer in the State of South Dakota is showing a receivable balance in excess of $100,000. Now that is the average typical operation that we are attempting to describe to you this morning, gentlemen. Beginning a new fiscal year with such a deficit staring us in the face and approaching a new growing season-will require cash flow additional on our part from $11,000 to $12,000 just to finance this additional cost. *See p. 468 for the prepared statement of Mr. Flannery. |