do this without having the grain and without the threat of having to deliver it, they will have a foolproof method of deflating the markets so they can purchase supplies cheaper. The only way to keep commodity exchanges fair to both buyers and sellers of futures contracts is to have sellers first fully understand they must be able to deliver the product. The unchecked short selling of grain on the CBOT makes the supply limitless. The Board can only be an effective determinant of prices if the Board supply is proportional to the actual supply. Ferruzzi is not the bad guy here. The short sellers and the CBOT, by virtue of their actions, are the real culprits and should face the situation squarely.

I want to bring up the fact that the family farm is the most productive system ever devised and we want to preserve it. The U.S.S.R. has destroyed their system and they are paying for it over and over. The enclosed story from the Farm Journal very adequately describes their situation. I think that is something to ponder.

And another thing I wanted to bring up. I did not get this in time to get it into my written testimony. I just found out what it was and called for it. Tom Bius got it to me in a week which is very fast. It is the cost of production in 1987 from USDA and it is ordered to be printed by Congress with the facts in here to completely refute all these stories about how high farm income is. We heard a story about we had record high farm income, from the dean of Purdue, in 1987 and yet I go through here and the farmer lost money on corn, he lost money on oats, he lost money on wheat on the average acre produced. These are the figures. He made $10 an acre on soybeans. Well, I do not know how you get record income, on $10 an acre on soybeans. What he is using is a net cash income figure. This is a very specious figure. We do not know what is put into it for the cash income but we do know that the cash expenses are all that is taken out. Cash income can be the grain, it can be sometimes they use the figure for the use of the house on the farm, the use of the garden, the use of the wood lot, animals slaughtered. I do not use any of these and I pay for my own house. But the cash expenses, we do know when they only take out the cash expenses, that is only 60 percent of the actual expenses according to these USDA figures, it ranges between 60 and 65 percent. The other 30 to 35 percent or 35 to 40 percent is the cost of replacement of tools that you were asking about, Congressman Jontz, and the cost of the land and they are not including this in. When you include this in, there is no profit. You go into a loss. And they called this a net cash income at first, then it becomes net income, and then it becomes income. And the papers are calling that income now of $57.7 billion of record income. Where does it come from? It is printed in red because everything in here is a minus figure.

Thank you.

[The prepared statement of Mr. Erb appears at the conclusion of the hearing.]

Mr. GLICKMAN. Thank you very much. Mr. Plank.

STATEMENT OF ALBERT DWIGHT PLANK, DIRECTOR, STATE EXECUTIVE COMMITTEEMAN, INDIANA STATE GRANGE

Mr. PLANK. Mr. Glickman, Ms. Long, and Mr. Jontz, the sentiments of the Indiana State Grange.

The farm bill should not wait till after the Uruguay Round as farmers should know what directions farm programs are going, so they can plant crops accordingly. We recommend to keep the 1985 farm bill with these changes.

Small farmers say it is not right to not have more than one small set-aside plot less than 5 acres. This penalizes the small farmer because if he has small fields and may have wheat and corn planted, he would not be able to set aside in each field even if these are across the fence from each other. But a large farmer takes his fences out and can have his plot anywhere. Some think the Government should ease out of ag as exports increase the farming industry receives 1 percent of the Federal budget. The farmer spends much more than they receive compared to the other government subsidized businesses.

Marginal ground with erosion-CPR land-should be kept in this program but be allowed to raise timber for pulp wood as there is a shortage of this material on this kind of land.

The Food Security Act of 1985 met its major objectives and should be kept with its current changes.

Swampbuster--wetland. We believe small plots of less than 11⁄2 acres should be allowed to be drained without being penalized. There should be more flexibility in cropping such as planting another crop in demand like tomatoes, pickles, canola, oats, soybeans, and so on without losing your base. At present you are forced to raise a full base with set-aside or lose a percentage of it.

And good old LISA needs more research on perforation rate before the rates of chemical uses can be regulated. I do not believe it is possible to eliminate them completely. We will need more testing of wells and our water source. I think there should be-this is off the record-less scare tactics being used like where was it I was reading where you could eat 28 million bushels or thousands of bushels before you got enough chemical to maybe cause you to have cancer, something like that. I think this is way out of line. I mean they blow it out of proportion, just like the cranberry scare several years ago.

The grange supports the Marketing Loan Program as a replacement for the present Commodity Program. A modified version is contained in the 1985 act for cotton, rice, and honey-also for wheat and feed grains at the discretion of the Agriculture Secretary. We believe this program should be applicable to wheat, feed grains, and soybeans. In fact, it could be more effective as a "pure marketing loan."

The marketing loan is a new concept for the Commodity Loan Program by which farmers who place their crops under loan with the Commodity Credit Corporation would repay their loan at the original loan level, or at a level that has been determined by a set formula of domestic or world market prices, which is lower. The other difference between a "pure" marketing loan and a regular loan program is that a "pure" marketing loan is a recourse loan

that must be paid back whereas a regular loan is a nonrecourse loan that the farmer can repay by abandoning the crop to the CCC as full payment.

Listed below are many of the benefits of the Marketing Loan Program that appeal to the farmers, export interests and the Government:

The formula would allow U.S. commodities to be competitive on the world market.

The repayment formula will maintain an adequate income support for producers.

A marketing loan will allow the market to clear by eliminating the market-interfering aspects of the current program.

It will reduce the need for supply management programs but when such a program is necessary, it removes the incentive for our competitors to expand their production because we will remain price-competitive, thus encouraging our competitors to share in our effort to adjust production when surplus commodities exist.

The marketing loan will avoid the Government's programs of storing surplus commodities which become costly to store which may ultimately reduce prices.

And I also feel like our panel here that the grain terminals should not be paid any more than the individual farmer is paid for grain storage. It is simply not fair to pay different prices for the same services.

Sincerely, Dwight Plank, Indiana State Grange executive committeeman.

[The prepared statement of Mr. Plank appears at the conclusion of the hearing.]

Mr. GLICKMAN. Thank you very much.

I want to thank all the panelists for their excellent statements. I will just make a couple of comments. One, Mr. Fear, I agree with you totally all of the things you said but one thing is this problem with planting alfalfa under legumes and violating sodbusters. This is a problem we need to take care of in the 1990 farm bill. Responsible cover crops ought to be able to be planted without violating sodbusters, you are correct. The ASCS offices have worked with farmers in my state to deal with this problem. I do not know if——

Mr. FEAR. Yes, they have worked well with it.

Mr. GLICKMAN. We need to clarify it because it did not make a lot of sense and it has caused a lot of grief.

One point on food safety, a couple of you mentioned it. It is interesting to note that fish is not required to be inspected. We are going to change that in the 1990 farm bill. I want you to know that. We are working on that. Congressman Stenholm of Texas, who chairs the Livestock Subcommittee and I have been working on it. Most Americans do not know-their meat is inspected but they think that their fish is inspected-well, while most fish is safe, it ought to be subject to health and safety inspections like meat is. We are probably going to do that in next year's farm bill as well.

Mr. Erb, I appreciate your testimony too, and I think it offers a good perspective at these hearings. You know a lot of folks do not necessarily agree that the 1985 farm bill was Nirvana, heaven on

Earth. I think what you end up finding is most farmers like parts of it, do not like other parts, but do not want us to kind of unilaterally say that whatever happens in the Uruguay Round will automatically determine what our next farm policy domestically is going to look like. We are not going to let that happen. I can tell you that. We are going to act independently based on what is in the best interest of American farmers and hopefully work out some world agreements as well but still not be bound by something that unilaterally disarms American farmers, so I appreciate your comments as well.

Mr. Jontz.

Mr. JONTZ. Thank you, Mr. Chairman. I knew we could count on this panel to get to the heart of some of the issues.

We heard State Representative Leuck earlier talk about setting target prices and loan rates in a way that would allow the producer to meet the cost of production and reasonable living expenses and make some profit. And it is pretty hard to disagree with that recipe. If we were producing just for domestic consumption which Mr. Fear points out is 75 percent of our production nationwide that would be a pretty simple matter. But as Mr. Boys points out at the same time if we want to have a fair price for producers, we have to compete in the international markets and we can pursue that by trying to reduce the prices here so that we can compete internationally or we can try to get world prices up so that our prices are not that much different.

Let me ask you to respond to that observation. Should we be taking some steps to try to get world prices up and if so, what can we do? Do any of the four of you have any thoughts on that?

Mr. ERB. Congressman Jontz, it has been my experience in the past that any time we establish a price, everybody else sells a nickel under our price. We have destroyed the market, drove the market down to practically 50 percent in the last 5 years-4 years, and we have established a low basis. Wherever we establish our price, again they will sell slightly under so there is nothing we can do about that. The major producer always has this problem and we can either take that and accept that fact and raise our level up and let them sell a nickel under us at a higher price. We have destroyed South America, their economy has completely faltered. We ship cheap grain around the world and then we complain about the people shipping cheap steel and cheap electronics in the United States. We have just done the same thing only we do it with grain, ship cheap grain under the cost of production.

Mr. JONTZ. Anybody else want to respond, Mr. Boys, Mr. Fear? Mr. FEAR. Yes. We have worked with the agricultural leaders in Farmers Union from Japan and some of the other countries and their farm people, leaders over there agree the same as we do that probably the farmer needs a better price. They are willing to help their farmers get it. It seems to me as though we are trying to beat our prices down, our Government is, to compete and they are trying to raise theirs. I think it is a matter of working together but the leaders of the farm organizations of the other countries feel the same as the leaders of our farm organizations do here.

Mr. JONTZ. I want to give Mr. Boys a chance to respond but you did, Charlie, in your testimony touch on a problem that concerns

me a great deal when you look at our world agricultural situation and that is Third World debt. When we have a situation where debtor nations must reduce their standard of living to pay the banks, then there is less money available for purchasing food and, in essence, the gap between supply and demand gets greater because demand is reduced at a time when our problem is a surplus of agricultural commodities. That does not make any sense. In the case of Brazil and Argentina not only has their standard of living been reduced but you have capacity to produce soybeans, corn for export markets, particularly soybeans which has devastated our markets and in Brazil where you have half the people malnourished, you have 75 percent of their soybean production going for export market. And then that is a concern to me. It seems to me that if we want to give supply and demand a better balance that we have to address the demand side by trying to improve the standard of living in developing countries and our policies with regard to Third World debt have done just the opposite. The standard of living in Mexico is down. The standard of living in South America is down. The progress which was made in the 1970's in increasing nutrition and increasing food consumption, we lost all that in the 1980's.

And you also mentioned-and that also gets us to the issue of the objective of the GATT talks. It just seems to me that rather than pursuing the objective of eliminating subsidies, pursuing it from that standpoint, maybe we ought to approach the GATT talks from the standpoint of reaching agreements with our competitors to get supply and demand in better balance so that prices would raise. Instead of engaging unilaterally in supply management in this country, maybe we ought ask some of our competitors to engage in supply management so that we could get prices up to where they should be so that we could be competitive in the international markets without reducing prices in this country.

Larry, do you want to respond to that?

Mr. Boys. Well, yes, as I said in my testimony, we are in a world economy, a world agricultural economy in this instance and I think the Chicago Board of Trade points that out. Our prices are largely based on the Board of Trade and there is international buyers and sellers on the Chicago Board of Trade. I think the 1985 farm bill did have the effect of lowering world prices largely because we had such a huge surplus. We had to move that surplus. We have done that. I think as the supply and demand becomes more in balance, we will see the world prices begin to increase. I think we already have seen the world prices begin to increase and hopefully will stabilize if we can continue our present approach in the 1990 farm bill.

Mr. JONTZ. So does that mean keeping the market prices where they are or reducing target prices?

Mr. Boys. Well, I liked Dean Thompson's analysis of keeping it moving with the key word here today has been flexibility-and keeping the target loan prices moving with the market averages. Mr. ERB. Congressman Jontz, I am a little older than Mr. Boys and I remember when we first went on that moving average thing back in the 1950's and we started out with parity at 80 or 90 percent of parity and we said we are going to go on a moving average,