45 2 10 INFLUENCE OF SUPPLY AND DEMAND ON HOG PRICES, YEARS ENDING 14 Price of Hogs at Millions of Hog Prices (1) Factory Pay Rolls Number of Hogs This chart shows that practically all of the changes which have occurred in hog prices from year to year have been the result of changes in supply and demand. The changing number of dollars in the consumer's pay envelop caused the big drop in 1921 and again in 1930, 1931, and 1932. That the supply is also a factor can be seen from the fact that hog prices were lower than pay rolls indicated in 1923, when hog supplies were heavy. Hog prices were higher than pay rolls indicated during 1920, 1921, and 1922 and during 1925, 1926, and 1927 and again in 1930 and 1931 when hog supplies were light (1) Average of all grades at Chicago based on data compiled by the Chicago Drovers Journal. (2) Based on data compiled by the Federal Reserve Board (1923-25=100). (3) Under Federal inspection; total United States based on data compiled by United States Bureau of Animal Industry. RELATIONSHIP BETWEEN FACTORY PAY ROLLS AND AVERAGE PRICE OF ALL FOODS, YEARS ENDING SEPTEMBER 30 Index [Average 1923-25=100] '22 '24 $26 28 30 1920 The above chart shows that the prices of all other food products like the price of pork are determined very largely by the purchasing power of consumers (5) Total United States based on wholesale prices compiled by United States Bureau of Labor Statistics. (2) Total United States based on data compiled by the Federal Reserve Board. 100 1 Based on data compiled by U.S. Bureau of Labor Statistics. Index 1923-25=100. * Compiled by Federal Reserve Board for total United States. Index 1923-25=100. Mr. ESPÉ. I do not wish to go into detail in the presentation of these graphs, but they simply chart the influence of supply and demand on hog prices and show that hog prices go up and down with factory payrolls in the same manner that all food prices go up and down with factory pay rolls. They also show the vanishing export demand. Now, I am not going into detail, Mr. Chairman, but this first chart charts hog prices and factory pay rolls, and you can see at a glance that they travel up and down together. The line below charts the slaughter of hogs, and you will note that in this period here in 1924, when the hog prices were below factory pay rolls, there was a tremendous increase in hog slaughter, which threw them below temporarily. 1923 and 1924 were the years of greatest hog slaughter on record. Then as you come into 1925 and 1926, we find hog prices higher than pay rolls, relatively, and the reason for it is given in the lower line, which shows that hog slaughter was at its low point in 1926. Here are the statistical data that back up the graph, and they are taken from the United States Department of Agriculture. This next graph shows pay rolls and all food prices Senator NORRIS (interposing). Before you leave the first one, in a word it seems to me that that graph shows this fact, that when hog prices were low, slaughtering of hogs increased. Mr. ESPE. Yes, it was high. I would put it the other way however. Senator NORRIS. How? Mr. ESPE. That when slaughter of hogs was high, prices were low, because the slaughter affected the price. Senator NORRIS. That graph shows they run right along there together. Mr. ESPE. That is right. Senator NORRIS. When the spread went down, the slaughter went Senator NORRIS. Yes, when the slaughter went down, the price was high. Mr. ESPE. Showing that supply and demand make price. Price is dependent upon volume or supply that has to be disposed of. Senator NORRIS. In a broad economic sense, I suppose if everything was allowed to take its natural course, that would be absolutely true. But the question is presented to us whether this law of supply and demand has been artificially interfered with, and whether direct buying is one or is the only reason. Mr. ESPE. Well, I don't think that in the long run of time artificial means can affect the working of the law of supply and demand. You might for a short period of time perhaps Senator NORRIS (interposing). In a very broad sense, we have these public markets. Mr. ESPE. Yes. Senator NORRIS. If you don't have any competition on those markets, the market necessarily goes down, I should think, from the law of supply and demand. Mr. ESPE. That would be true, if that were the case; yes. Senator NORRIS. Now the question is, when we have provided by law for these markets, should we permit those markets to be destroyed? Direct buying, if carried 100 percent, would destroy them entirely, and we would have no markets. Mr. ESPE. If it destroyed them entirely, you wouldn't have any public market but I wouldn't say you wouldn't have any market. Senator NORRIS. You would have a market, but it would be a jumble. Mr. ESPE. Your public market would be destroyed. Senator NORRIS. Your public market would entirely disappear. Senator NORRIS. If that is a desirable thing, we ought to have it; but we have gone on the theory all the time that those public markets were a practical necessity. Mr. ESPE. I am not saying that they are not, and I can't Senator NORRIS (interposing). I don't want to get rid of them unless we can displace them with something better. Mr. ESPE. I certainly don't wish to take any steps or to be understood as saying that we want to get rid of them either. I might say, Senator, in that connection, that the cooperative livestock shippers that I have worked for so long in my State are for all markets, public and direct, and I want to say to you that we would fight just as hard to fight off any restriction or excess charges of things of that sort that were proposed against a public market as we are enthusiastic in fighting them off a direct market. Senator NORRIS. As I look at it, that is the gist of this fight. The other people are claiming that that is what you are doing. Mr. ESPE. It is the gist of this fight. Senator NORRIS. Yes. Mr. ESPE. But, perhaps, not in the way you interpret it. The gist of that fight is simply this, and I cover some of these statements a little later so it will make repetition as I read. We consider this type of legislation and all like it as an attempt to hamper and restrict the direct selling of hogs. Senator NORRIS. Yes. Mr. ESPE. Lessen the number of hogs that our shippers will have access to. Senator NORRIS. You are correct in your first statement there, I think you are. It is that kind of an attempt, because they want to preserve those public markets. Mr. ESPE. And wish to kill off direct marketing. Senator NORRIS. That, I think, would follow, or at least a modification of it would follow. There would be some killing off. In other words, the people who want to preserve these markets think that your direct buying is injuring those markets by removing competition from them. You sell on those same markets yourself, you use those same markets in your direct buying and selling. Mr. ESPE. To some extent only. Senator NORRIS. And if those markets now are injured by lack of competition or for any other cause, the direct buyer gets the benefit of that reduction and the producer loses it. Mr. ESPE. But I am not willing to agree that competition has particularly reduced on those public markets because of loss of volume for the simple reason, Senator, that if you take 10,000 hogs away from Chicago some day, you also reduce the demand at Chicago by 10,000 hogs, and it should balance out. Senator NORRIS. That also has an effect. But I don't see that it will balance because ultimately if you carry your program out, you eliminate your Chicago market and kill it. Mr. ESPE. That is all based upon the theory apparently that Chicago is the price-fixing market for all markets in the United States, which I very much disagree with, never did believe that, and I believe it less now than I ever have before in my life. Senator NORRIS. In your statement that you have already made to the committee, you called attention to the fact that the Chicago packers went out into Iowa and met these shipments on the road and bought them, if they could. Mr. ESPE. They didn't meet them on the road. They went out to the farm and bought them, and over the 'phone of course. Senator NORRIS. Because they were lacking a supply in Chicago. Mr. ESPE. That is right. It was cutting off the supply and the demand being there it shouldn't depress the price. They buy what is there, and they have to pay for what they buy direct in our State, which I will develop a little later. Senator CAPPER. Mr. Espe, may I ask you about those graphs you submitted, what period do they cover? Mr. ESPE. They cover the period 1920 to 1933. I will just call attention to another graph that is also in answer to your question, this whole graph is in answer to the question of what has depressed prices of hogs. This next graph, I assume that you are going to examine it later. You probably can't see it from there. Senator NORRIS. I can see it. Mr. ESPE. I have other copies, and I will give them to the Senators. Senator POPE. How do you number or designate that graph? Mr. ESPE. It would be on page 7, the title of it is "Export of pork and lard and number of hogs produced in Europe." The top half of the chart, this is your base line for your top chart, and the dotted line shows the volume of export in billions of pounds from the years 1920 to 1923 inclusive. The line above it, the solid line, shows the pork and lard export for the same years, and you will notice that the export of pork has practically reached the vanishing point, and you will notice that pork and lard has dropped considerably in those years, which simply means a reduced demand for our pork products. EXPORTS OF PORK AND LARD AND NUMBER OF HOGS IN EUROPE The increase in hog production in Europe and the consequent reduction in exports of pork and lard from this country have also contributed to lower hog prices in the United States. (6) Computed from data published by the United States Department of Agriculture. Exports of pork and lard and number of hogs in Europe 1 Computed from data published by the U. S. Department of Agriculture. Then if we remember that purchasing power in the United States was away down to about 44, and I guess not over 50 percent now of what it was during the peak, you will see that the consumer's pocketbook doesn't have the money with which to buy the pork they always did buy and also consume the surplus which Europe now refuses to take from us. |