Louis-Dreyfus Corp., Department of Economic Research, Stamford, Jacobson, W. Milton, Willmar, Minn., letter to Senate and House Agri- Young, J. A., director, Ocean Sciences, Severna Park, Md., statement... Shore, Eugene L., Johnson, Kans., statement with attached exhibits 1-7-- "Rescue Marketing Research-USDA," paper prepared by the Committee T'age 508 517 529 529 530 536 536 Gain, Jeffrey, director, legislative and field services, American Soybean 546 Poirot, E. M., Poirot Farms, Inc., Golden City, Mo., letter to Senator 547 THE STATE OF AMERICAN AGRICULTURE MONDAY, MARCH 6, 1978 U.S. SENATE, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, Washington, D.C. The committee met, pursuant to notice, at 9 a.m., in room 322, Russell Senate Office Building, Hon. George McGovern presiding. Present: Senators McGovern, Allen, Melcher, Hodges, Dole, and Young. STATEMENT OF HON. GEORGE MCGOVERN, A U.S. SENATOR FROM SOUTH DAKOTA Senator McGOVERN. I want to welcome witnesses to this seventh day of oversight hearings on the present-day crisis in American agricul ture. Today has been set aside specifically to hear testimony from the livestock industry. I want to take note, especially, that there are several witnesses this morning from my State and for them I have a special word of welcome because that industry contributes by far the most in dollars in receipts of our agricultural sales in South Dakota, but all the witnesses are important. Let me say that the committee will give special attention to the testimony you give because we are very much aware that your industry has been unduly depressed for the last several years. Although the last few weeks have shown a marked strengthening in both the steer and calf markets, it is safe to say that you have many billions of dollars to go to recoup the low prices of the mid-seventies. American cattlemen present a unique profile. You are very independent, self-sufficient, and in large measure prefer to "go it alone." You also have a strong philosophical base for those attitudes and I want you to know that the Congress considers this a commendable way for Americans to live. On the other hand, the Government has the responsibility of being helpful when an important industry is in trouble. We are here today to hear your comments and your advice and suggestions to the committee. I think it is safe to say that there is not a member of this committee who is unaware of the bad years you have had ranging from low prices to high imports. The import question has shown some progress with Finance Committee hearings last week on bills bearing my name as well as proposals of other Senators. We are here today to hear other aspects of the problems which affect the industry. With that brief statement, I welcome our first witness, Mr. Lauren Carlson, first vice president of the National Cattlemen's Association, accompanied by Bill McMillan, vice president, Government Affairs, who has been before this committee on many occasions. Mr. Carlson and Mr. McMillan, we are pleased and proud to welcome you to the committee hearings this morning. STATEMENT OF LAUREN CARLSON, FIRST VICE PRESIDENT, NATIONAL CATTLEMEN'S ASSOCIATION, DENVER, COLO., ACCOMPANIED BY BILL MCMILLAN, VICE PRESIDENT, GOVERNMENT AFFAIRS Mr. CARLSON. Thank you, Mr. Chairman. In the interest of time, I am going to excerpt out of our statement. However, I would like to have the entire statement recorded.* Senator McGOVERN. We will see that the entire statement is recorded. I wanted to say, Mr. Carlson, that before the date for this hearing was set, I committed myself to another engagement this forenoon, but before I leave, I understand Senator Melcher will be here and Senator Allen and other members of the committee. If I leave at some point, you will understand the reason why. My name is Lauren Carlson, and I live in Chokio, Minn., where I operate a family cattle feeding business. Our operations also include crop production-including corn, soybeans, wheat, sunflowers and alfalfa. I currently serve as first vice president of the National Cattlemen's Association, which is headquartered in Denver, Colo. Through its 64 affiliated State cattlemen's associations and breed affiliates, NCA represents more than 280,000 cattlemen all across the Nation. These cattlemen own most of the beef cattle in the country. The inventory value of our cattle is almost $30 billion. As most of you know, agriculture is the largest industry in this country, and the beef cattle industry is the largest segment of agriculture-accounting for about 20 percent of cash receipts from all farm marketings. I appreciate the opportunity to appear before this committee and to comment on the agricultural situation in the United States. My comments will focus on the beef cattle business, but there are some parallels which can be drawn for all of agriculture. First, let me take you back to 1967 and 1968. It is necessary to do this because the beef cattle business has a long production and price cycle-running about 10 or 11 years in total. To discuss our business at any one point in time requires that we establish that point within the framework of the entire cattle cycle. It is essential that you understand *See p. 221 for the prepared statement of Mr. Carlson. this cycle if you are to avoid the kinds of ill-advised aetion which, in the past, have only compounded our problems. At one stage of the long-term cycle, cattle numbers are built up, as hundreds of thousands of individual producers react to favorable price-cost relationships and collectively increase the size of the total basic herd. Eventually, cattle numbers become too large, prices drop, producers suffer financial losses, and there is a liquidation of basic herds-which compounds the beef supply problem temporarily. After numbers are reduced enough, prices begin to rise again, and basic herds are rebuilt. Unfortunately for us, the best cure for low prices is low prices. That is, low prices bring about needed supply adjustments. Similarly, the best cure for high prices is high prices. That is, high prices and profits bring supply increases, which then moderate prices to consumers. We don't like large fluctuations in supplies and prices any more than the public does, but we think that the public's best long-term interest has been and will be served by the free market system-with adjustments in supply and allocations of resources made in response to market demands rather than Government dictates. Now, going back to 1967-68 again-at that time we were just completing the liquidation phase of the sixth cattle cycle in recorded industry history. Unlike the recent situation, that particular liquidation period was not so traumatic. Production remained fairly stable, and demand caught up with supplies. Prices did decline during this period, but not in a devastating way. Also, we were not having the kind of cost inflation that we have experienced in recent years. During the years 1969 through 1972, we saw demand for beef grow, as both population and real incomes increased. Also, some people in Government were saying that there eventually would be a protein shortage unless production was increased. Furthermore, tax laws at that time were stimulating cattle production, as many doctors, lawyers and others invested in the cattle business in some way. At any rate, we had a cyclical buildup in our herds which became excessive, and prices eventually dropped in the latter part of 1973. Prices didn't just decline; they hit rockbottom. Tremendous financial losses to feeders and eventually producers resulted, and we entered the most recent liquidation phase of the cycle-a 4-year period when most cattlemen lost money most of the time. I also emphasize that the beef boycotts of 1973 and the ill-advised beef price freeze by the Nixon administration were extremely counterproductive. A truck strike in early 1974 further interfered with beef movement. These events had the effect of shattering normal beef price and production patterns, and eventually hurt consumers as well as cattlemen. My point in reviewing this particular phase of cattle industry history is to reemphasize certain things which Congress and the public as well as those of us in agriculture must recognize: First, production of agricultural commodities is inherently cyclical--as hundreds of thousands of individual producers make production decisions, in response to cost and price relationships. Just as we overresponded to favorable returns in the late 1960's and early 1970's, wheat producers overresponded to parity-level prices in 1975. |