4. The convenience and accessibility of local markets have contributed markedly to their increased use by stockmen.

5. Those of us interested in the development of cooperative livestock marketing may suggest that packers have encouraged the development of local livestock markets as a means of checking or offsetting the growing strength of cooperative sales agencies on the terminal livestock markets.

6. Packers find that hogs can, in most instances, be bought more cheaply at local markets.

7. Drastic declines in livestock prices, coupled with a near-disappearance of farm income and with slow adjustments of marketing costs through the terminals. Stockmen persuaded that they would receive a higher net return at a local market, have sold increasing numbers of hogs locally. Promise of a 10-cent saving on $3 hogs is a potent argument.

8. Continually increasing volume of hogs moving to packers direct have correspondingly reduced the volume of hogs offered for sale on the terminal markets, at the same time curtailing the volume available to order buyers. As a result, numerous order buyers have turned to country operations. Some of the more far-seeing were moving to country points by 1928 or before.

9. Curtailed receipts of livestock on sale at the terminal livestock markets, together with the increasing proportion of receipts sold by cooperative terminal sales agencies, has resulted in sharply reduced income to privately owned terminal livestock sales and buying agencies. As a result, numerous operators have sought country locations as affording a better income.

10. Some hold that since the packers Consent Decree of 1921 ordered the big packers to dispose of their holdings in terminal stockyards companies, such packers are less interested in maintaining the terminal livestock markets; diverting an increasing portion of their business to the country instead.

The development of local markets and the reasons, therefore, having been considered, one logically turns to factors involved in their control and operation.

Professor Ashby has stated in a thesis, which he has prepared in connection with his work for the degree of doctor of philosophy

that while ownership of local stockyards is important, stockmen are more concerned as to who directs the operation, lays out the policies to be followed, and says when policies are to be changed.

Of the local markets in Iowa, 26 were listed as operated by Armour & Co., Swift & Co., or Wilson & Co.; 7 were operated by Iowa or Minnesota packers (not controlled by 3 packers just named); 8 were operated by other packers, by agencies affiliated with packers, or by private agencies; 5 were reported as operated by the Iowa Livestock Marketing Corporation (cooperative). In Indiana, both Armour & Co. and Kingon & Co. operate local buying stations. Some of the private agencies operate at several points (really chain yards) running as high as 10 or more local markets under the management of one concern. Various agencies are reported as operating three to five each. Ohio local livestock markets are mostly operated by private agencies, although the Cleveland Union Stockyards Co. continues to operate a few points. At least two agencies operating at several Indiana points, also, operate at several Ohio points. A relatively larger number of Ohio points are listed as operating cooperatively than in any other State.

From the foregoing statements, it is clear that we have in this country today, two distinct systems for the marketing of livestock.

It is not my desire or intention to condemn either method of selling livestock, but merely to point out the advantages which one system has over the other that prevent the producer from receiving fair and just prices for his livestock, with the hope that exact equality of conditions will be established.

We have in this country today 93 public markets posted as such under the Packers and Stockyards Act of 1921. These centralized cash markets for livestock represent the outgrowth of early attempts on the part of producers of livestock to concentrate buying and selling in order to bring supply in contact with demand so that fair prices could be determined. The establishment of price to the producer is still the principal function of the public market.

Despite statements made to the contrary, the public markets of this country have been universally accepted as the machinery for the establishment of prices for our livestock industry. The public markets have been developed by and for the livestock producer. Through the producer's agents on the public market, he controls all sales factors, such as sorting, grading, docking, and fills. Through this same agent he has an equal voice with the buyer on the question of price. At these points, the livestock is weighed on Federal or State-inspected scales, and at these points the law of supply and demand is still allowed to function to some extent. All of the principal public markets are linked together by leased wires maintained by the Government so that they form an efficient selling system for the livestock producer, with Chicago as the "heart." However, Prof. Ashby states that

It is conceivable that conditions on the Chicago market may change, or during the last half of 1933 did change, to a degree that it would become impracticable for use as a price-basing point. In fact, by early December 1933 the hog marketing situation had become so demoralized that many in the trade, both packers and market operators, recognized the possibility that local markets held thereto on hog prices, no terminal market being able to lift prices because of the weight of local market sales. It was not unusual (December 1933) to find hogs selling cheaper at Ohio local markets than on the Chicago market on the same day, freight-rate differentials apparently meaning nothing (exhibit no. 2).

During the base period named in the Agricultural Adjustment Act, producers were favored with a high degree of competition in the sale of hogs and that was because the bulk of all buying took place at the central markets. In that period, the public markets were able to determine fair and just prices for all hogs, and I am sure they would be able to do so today if it were not for the fact that they are encountering the constant undermining influences brought about through direct buying. (In this connection see the letter of Mr. J. S. Montgomery, attached hereto, marked "Exhibit No. 3.") Producers have seen fit to have the buying and selling operations of the central markets placed under governmental supervision through the passage of the Packers and Stockyards Act of 1921, and I am satisfied that the great majority of them now feel that it is necessary and just to apply this supervision to direct buyers and interior-buying stations.

EXHIBIT 3

Mr. N. K. CARNES,

ST. PAUL, MINN., February 26, 1934,

Manager Central Cooperative Association,

South St. Paul, Minn.

DEAR MR. CARNES: Referring to our conversation relative to the effect of direct purchases at country points upon the development of the order-buying business on the public competitive markets, I will attempt to give you in concise form some of the experiences and reactions which I gained from the management of the Farmers, Livestock Marketing Association from August 1930 to January 1933. First, as you know, the Farmers' Livestock Marketing Association was a cooperative organization having as members nine cooperative sales agencies operating on Corn Belt markets. Its principal business was that of filling orders for livestock on these markets for packers located at points some distance from these markets, which packers in most instances could not afford to keep their own buyers on all of the public markets, hence used the services of various order-buying agencies to supply their needs. In that connection, we operated an order-buying agency at South St. Paul during the entire period, during which time we filled orders for packers located at Detroit, Mich., Cleveland, Ohio, Youngstown, Ohio, Columbus, Ohio, Buffalo, N.Y., Albany, N.Y., Kingstown, N.Y., New York City, Jersey City and Hoboken, N.J., Philadelphia, Pa., Pittsburgh, Pa., Shamokin, Pa., Phoenixville, Pa., Shenandoah, Pa., Pottsville, Pa., Allentown, Pa., Wilmington, Del., Washington, D.C., and occasionally to other points throughout the eastern States. During part of this period we operated an agency at Omaha, Nebr., from which we also filled orders to a number of the foregoing points. During several months of the period we also operated an agency at Sioux City, Iowa, from which we filled orders to a number of the foregoing points.

During about a half of this period we also operated an agency at Ogden, Utah, from which we filled orders for packers located at Reno, Nev., Bakersfield, Calif., Los Angeles, Calif., San Francisco, Calif., San Jose, Calif., Oakland, Calif., and a number of other points along the western coast.

During this period I visited practically all of the small independent packers east of Chicago 5 times, and during the same period practically all of the independent packers on the west coast twice and some of them 3 times. I found that practically all of these packers favored buying their livestock on the open competitive market as a policy because of the fact that they felt that it placed all packers on a fair competitive basis if all livestock were purchased on a competitive market where uniform prices were established, taking into account the quality of the livestock offered for sale. We were, however, confronted with two or three conditions which made it practically impossible to hold the orders of these independent packers on the public competitive market. They might be briefly enumerated as follows:

(a) Many of these packers made the statement to me that the larger mid-west packers were able, through their direct-buying operations, to secure livestock cheaper than they could be purchased on the public competitive market and that they, the small independent eastern packers, had been forced to adopt directbuying methods in order to get their livestock supplies, particularly hogs, cheap enough so that they were able to compete with the mid-west packers in selling their products. They attributed this condition largely to the fact that no competition existed at country points at which a large percentage of the livestock was being purchased. Hence, the buyer located at those points was able to make frequent purchases at prices considerably below prices existing for the same quality of livestock at the public competitive markets in the same State.

(b) A ruling handed down by the Interstate Commerce Commission early in 1931, which was a revision of the general agricultural freight structure for the western trunk-line territory, eliminated all sale-in-transit privileges at all public stockyards but did not eliminate these privileges at country buying points which are variously referred to in the tariff as buying stations, reload stations, concentration yards, etc. This made it possible for livestock originating at various points in the Corn Belt to be shipped to country points, where it could be reweighed, reloaded, in many cases change ownership, double-decked, and otherwise fixed up satisfactory to eastern killers and then shipped on to eastern points. In view of the fact that many of these country buying stations were owned by the larger Midwest packers who also have slaughter plants at various points throughout the East, including Pittsburgh, Philadelphia, New York City, and Boston, where livestock may be shipped for slaughter and sold in direct competition with

all of the small independent packing houses, which in the past have purchased their supplies on the public competitive market, it became necessary for the small eastern packers to adopt the same buying methods that were being followed by the larger packing institutions in order to be able to meet their competition. As a result many of the small eastern packers established their own buying yards in the East, and others established connections with independent operators of country concentration yards in order to get cheaper supplies. As a result of this activity about the only eastern packers which were left as buyers on the public markets in the Midwest were those which were catering to a very specialized business and had to have very closely sorted livestock of a special weight and quality. These particular institutions were unable to supply their needs from country points because of the fact that the volume at these points was not sufficiently large for them to get livestock assorted to their particular needs.

The situation with reference to West coast business was even worse; most of the livestock going to the West coast originated in western Kansas and Nebraska and originally went through the public markets at Ogden, Denver, and Fort Worth. When the sale-in-transit privilege was taken away from these markets it became necessary for the West coast buyers to go directly to country concentration yards in Nebraska and Kansas for their hogs. This completely destroyed our order-buying business at the Ogden market as the difference in freight often amounted to 50 cents a hundred, even though the hogs originated at the same point and finally arrived at exactly the same destination. If this saving in freight had been reflected to the farmer in a greater price the situation could have been justified; the facts are, however, that it resulted in a little cheaper hogs to the West coast packers but principally in a much greater profit to the country speculator, as the price that the speculator paid the farmer was at all times based upon the market at the nearest competitive market place less the freight to that point.

The result of this whole procedure is that much of the competition which formerly existed at all of our public markets has been destroyed, that the small independent packers who formerly furnished a great deal of competition for the larger packing institutions has been placed at a very serious handicap, and that in my opinion, our whole livestock-marketing system has been seriously demoralized.

As a result of the situation above outlined the Farmers' Livestock Marketing Association found it necessary to either establish country buying points which it felt would be of no direct benefit to the farmer or else discontinue entirely its order-buying operations. The latter course was adopted in the early part of January 1933. As the former manager of that organization I hope that the foregoing statements based upon our experience may assist you in bringing about legislation which will place the so-called "direct-buying" activities under the same general regulations for the protection of the livestock producer which now exist at the public markets.

Very respectfully yours,

J. S. MONTGOMERY,

Formerly General Manager Farmers' Livestock Marketing Association. I have attempted to briefly point out to you the rapid development of direct buying, direct selling, or direct marketing. I think that direct marketing is a misnomer, because in most instances the practice referred to is a pernicious system of dumping the livestock of the producers in the laps of the packers. I am satisfied that direct buying is a method designed to favor the buyer in securing his livestock supplies.

When a processor resorts to this method, he does not patronize the method of marketing, which producers of the livestock industry have built up for the sale of their products. He avoids the bargaining power, which is created at the competitive markets for the producer. He avoids the competition of other buyers. By this method, supply territories frequently become divided among competitors. By this method, the trained buyer avoids the skilled salesman, who is the agent of the producer on the public market. Direct buyers generally do the weighing and establish the grade and dockage to

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