Failure of Butter Control In United States’ Experiment

Poverty Bay Herald, Volume LXI, Issue 18313, 3 February 1934, Page 12

Failure of Butter Control In United States’ Experiment

MOV' that the Fed ora I Government lias withdrawn from its latest and possibly its greatest, failure to stabilize a commodity market, states a. Chicago .correspondent, the story can be told of the losses of millions of'dollars through the attempt to peg the price of butter.

The debacle of, butter prices, now down' to their lowest level, in thirty* five, yeiust ..spells, ruinous Josses to (thousands of dairy farmers and pro-: i duce dealers throughout the entire | Republic, affecting an industry that j accounts for a greater income than | that of the steel industry, the auto j industry or the combined cotton arid I grain industry. | As the dairymen this week are I watching stocks of butter piled higher | than in many years past, while prices have dropped in two weeks to the lowest. December cash price (15:} cents for fresh firsts at Chicago) in thirty-five years, they are reflecting that it is all the result of insistence by organised dairy lobbies in Washington that tho trovei'iiment repeat the price-pegging which demoralised the wheat and cotton markets of the nation An 1929, and 1930 under the old. Farm Board. Butterfat Price Slumps. Encouraged by rosy promises of high butter prices from the Government early in the fall, farmers obtained 22 to 25 cents a pound for their butterfat. This week they are getting but 8 to 10 cents in Nebraska, lowa, Kansas and other heavy producing areas. And the buyers of their product are entailing losses of five to seven million dollars on the Chicago market alone, by being obliged to sell at 15 and 16 cents butter they bought earlier for 18 to 25 cents and placed in storage wliilo the Government dangled an artificial price beforo tho industry in New York, Chicago, and on the Pacific Coast. As a result of insistent demands by leading dairy organisations in Washington the farm adjustment administration created in September a dairy marketing corporation. Funds were supplied by Uncle Sam to buy some 75,000,000 pounds of butter on the open market. The butter was to be repurchased as needed by the Federal Surplus Relief Corporation to feed the needy families of the nation during the winter, and any losses incurrea would be made up from a fund to be raised by imposing a processing tax on butterfat by the A.A.A. early in 1934.

Prior to this, the A.A.A. made a half million dollars available to several co-operatives, the Land o' Lakes Creameries of Minnesota, the Dairy and Poultry Co-operatives of the East and tho Pacific Coast. They entered the open markets, boosting butter prices in October from 20 to 23 cents for extras, 21 cents for standard grade but}cr. Production Soso When Price Pegged. On October 27 the federally-financed Dairy Marketing Corporation took up the pegging programme. Farmers of the nation began milking every available cow. Cheese and evaporated milk factories, finding here an assurod price and their own commodity markets glutted, plosed down and the milk was separated and churned at a rapidly mounting rate. At the same time by boosting retail fresh milk prices in city markets t)ie A.A.A. caused a curtailing in milk consumption and the milk companies began churning the over-production into butter, According to those in charge of the Government operations, it had been intonded to quietly purchase some two or three million pounds of butter monthly. ifut tho industry, through both manufacturers of butter and lobbyists for farmers, urged the Government. to hold up the price, and buying became heavier in November, in pearly every butter market for the nation.

The average purchases ran between 750,000 and 1,000,000 pounds per day. On one clay the total ran to nearly 1,500,000 pounds. Still the receipts pf butter continued to mount. tl, C. Dargcr, formerly manager of the Bluo Valley Creamery of Chicago, and experienced in industry affairs, followed instructions from Washington to buy.

Heavy Glut of Butter. Records on the Chicago Mercantile Exchange for the period show what resulted. Five times as much butter was offered as could be bought. So the marketing corporation took cars at random, without knowing whose offerings wore being taken. Tho initials of the purchaser, alone in the field against a nation of sellers of butter, appear opposite about every fifth car listed on tho blackboard of the exchange. Those who did not soli were obliged to take their chances tho next day- against new and larger lists of shippers. In the country, farmers by the thousands wero bringing their cream to market for 22 to 23 cents a pound, and returning all too frequently with oleomargarino at three, or four pounds for a quarter. Consumption in the city, which last year absorbed largo stocks marketed in November and December on a sliding downward price scale, also was curtailed. Millions Lost in Price Break.

Tho Government's buying couldn’t stand the pressure. On November 13 ciimc the first, break from 23 cents. By November 20 it had broken again. And on December 4 the exchange quotations record the first signs that tho artificial market was not tp be maintained by Uncle Sam indefinitely. A break of i to $ cents a pound occurred, followed by others in rapid succession. Legitimate hedges in the market were upset and futures prices fell below cash prices. By December 14 the Government was buying at 16 cents, a break which occurred in both Now York and Chicago of 3 cents a pound overnight. A loss of 10 cents a pound in a car of butter is nearly 2000 dollars. Hundreds of cars in terminal markets took nearly this much loss and other thousands back in the country were affected in proportion. /

The final gesture of tho buying corporation on December 15, ,whon more than 2,000,000 pounds of butter was purchased in one day, was to bid 16# cents. Then the cash market broke to its 35-year low, nnd only this week has the market shown strength at levels which tho local merchants regard as more nearly a reflection ,of actunl economic factors.