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STATEMENT

FOR

THE PRESS

For releasd

in Morning P a 1 ~ r s ,

Wednesday December 20, 1922.

. Elig ib i l i ty of Paper of Cooperative Market-

ing

As::.ocia.tion:; for purchase or

red.iscount

by

FaJ.aral

Re

s e r v ~

:>am:s.

X 3591

The Federal R a ~ e r v e ~ o d r d a n n o u n c ~ ~

today

an amandrnent

to i t s Regulation which makes eligible for purchase y Federal

Reserva :Banks on

the

open market b a r u : e r ~

acceptancas

with matwi-

t ies

up to six. montha which are dravm by

growers

or

by cooperative

marketine,

as.:.ocL.tions to finance tha

orderly

markdtinc; of non-

perishable,

readily marl:ata ble, stuple .l<:bricu.ltural

proliucts

when

s e c u r e ~

by

warehouse raceipt covJring

~ u c h products.

Thiil a m ~ n d m e n t to t h ~ ~ o a r d

ReguL.tion shouid be of

material assistdnce to

c o o p e r ~ t i v e

m ~ r k e t n g

a ~ ~ o c i ~ t i o n s

in

financing tha ordarly marketing of

such

a g r i c u l t u r ~ l

p r o d u c t ~ ,

and t

b i n

l ine with

t h ~

~ c a r d s policy of

bein5

as

l iberdl a ;;;

possible under

the tarms

of

axis tine, lcl w and.

in

rul

in<1

on the

a l i

6

ib i l i ty of the paper of c o o p ~ r a t i v o

martating

a s ~ o c i ~ t i o n s

for

purchase

or. rediscount by

Fed.aral lleserva nanks.

That

the Feder,;l

RCJserve

~ o a r i i h gre::ltly interested

in

tha cooperative

mark.ating movament and.

has sougnt

e;;vJry

oppor-

tunity to a s o i ~ t

the

orgru1izers and managers

of

~ u c h a s s o c i a t i o n ~

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2

X-3591

to

work

out the best

means

of

arranginb t h ~ i r

financing so that i t

should not only be sounu

but should also

enable thsm

to obtain

the lowest interast rates

for

nacas;:;:.u-y cracl.i

t

is ind.ica.tad.

by

the numbe r of very l iberal rulipg:> on tl1i.:> ::.utiJsct which the

1oard. has

issuad.

d u r i n ~ t t0

paat

; i g h t ~ a n

months.

T:ne&a

rulin,,-. havin6 raferenca to what cdlled the

aligibil i ty of notes ;::nJ. a.rafts

for

rdcniicount,

ilare

made from

time

to tima

as q u a ~ t i o n s

were submitted from

various

sections

of

tha

country.

They

involved. farm

produce

differing

as

widely

as

frui t

from

California.,

wha:1t from the middla

we.ot

and tobacco

and

cotton

from

t ~ e South out tha S I r ; ~

principlas

of sound. f i -

nancirig were involv3d.

in al l

and

in

each

ca..;e

tha

cooperative

association was a n o n - ~ t o c k , non-profit corporation,

the

members

of

·111hich consist<ild. e x c l u s i v ~ l y of growers

of

the

partiCular crop

which the associj, tion ··:a;;, organized to

market.

T h ~ growdrs agreed

to sail

and d a l i v ~ r

their

e n t i r ~ crops

to the

a s s o c i ~ t i o n ,

t i t le

passing a t

tha

t i m ~ of deliv;ry,

and the a . : . ~ o c i a t i o n

:.lS&uming

absolute

con-.:rol

over

the

cornm<Xiitias

and.

their re-sala. G:marally

speakin6,

the

commod1ties were

pooled

a c c o r d i n ~ to gradao

and.

a f t ~ r

a l l

of a

par t icular pool

had been

Old. tl·.a

proceed.;; wera distri'bu.t;c.l

pro ra.ta.

I t

:.hould ba

un\ierstoo- th<lt

tha

lJoarci.

1

s

ruling

on

this ~ u b j e c t would not n a c a s ~ r i l y

apply

to r J . ~ s o c i . J . t i o n s op.;rating

on a

materially

different plan.

Several

kinds

of b o r r a ~ i n g s ara involvad.

f

the

grower desires

to do the borro.-line;

himself

he can

draw a draft

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X 3591

on tha coop8rative association the time he aalivers his

crop,

tha

association .'l.ccept

i t

Ha

than

discounts

the

•

draf t

a t

his local

bank,

wh1ch under the

~ o ~ r u

rul ing may

rediscount i t a

Faderal

R ~ s e r v a ~ ~ n k

as ~ g r i c u l t u r ' l l

papar

with

a

maturity up to si:t months.

f tha ; i l ~ n o c i a t i o n

i t se l f

wi.Shds to barroN direct ly from a balli:. in oN.3r ·to

ma.lre

payments

to

tha g r o > ~ ~ e r ~ ; .rho are i t s

m e m b ~ r ,

it.:>notes ara el ig ible

for

for rediscount but th.'l :Poara.

h.21.s

helo. th..;.t unaer exist ing law

such not as ara comri.arcial not as tha rnc.turi ty of which must not

exceed

ninaty .lays

1

bec.lti.SQ t ~ l a proceads of such notes

:..re

used

for

the commercial purpose

of

b u y i n ~ th..; COT.IiDOditias from the

grower.s.

A

b i l l now

penJ.ine in C o n g r ~ s : > ~ v o u l d make such notas

el igible as

agricu.l

t1..tral paper with m..:.turi

t ics

up to nine

~ n t h s

Thera w a ~

considerable

d i ~ c u s s i o n over th;

f i r ~ t

men-

tioned ca lle, where thG e,roN·ar draws his ovvn cira.ft on the ussocia-

t ion 1 as to wh;;thar tha

draft should

be

considered

a.gricul tural

.md h .1.V0 a.

six

months

maturity.

T c law

says t h ~

proceacis

must

b3

u s a ~ for

an

d ~ r i c u l t u r a l

purpose, and tha point u s

made that the c ; r O N ~ r

in al l

prob::.1.bili

ty

would

use

the money so

o b t a i n ~ d

in payin6

a e b t ~ p r e v i o u ~ l y

incurred.

that unless this could.

ba

held. to

be

:m o.grict:.ltu.ral purpose,

l i t t l e agricultural ,

or

;.L

months,

credit coulJ. be obtainad

in

this

way.

In r a p l y i n ~ to tl•is

~ u e

6

  i : l s t i . o n ,

tha Faderal

Reserva

Zoard ruL'ld tb:J.t when a. farmer t:lr 6ro'Ner

Clelivers

h h crop to

i

·I

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X 3591

a cooperative

mark3tin6 ~ ~ s o c i a t i o n actually

angaged

in orderly

marketing nd whan he is oblig0d to

borrow monay

for ordinary

genaral purposes,

such

as

the

payment

of

obligations

previously

incurred in

growing or harve:;.ting tha

s o.me

crop,

a draft

drawn

by him on th3

markatin6

a;-osociation for

a part

of

the market

valua

of

the

crop may proparly be

con::.idared

as dra,·m

for an

agricultural purpose.

l ib;ral

one,

and

wil l

grea.tly

fac i l i

t:1.te

th.;;

op2rations of

cooperative a ~ s o c i ~ t i o n s -

in

fact h a ~ already done

so.

l t

is

basad

upon

the principle. long

reCObUized by the ~ o a r d that

the

c a r r y i n ~

of agricultural products for such periods aa are

reasonably nacassary

in

order

to

accomplish

orderly

marketing

is a legitimat2 and

necessary s t e p ~ incident

to norwal

dis t r i

but

ion.

The Board

pointed

out,

h o w ~ v a r

t h ~ t

there

is

a

dis-

tinction b e t · v ~ e n

carrying products for

such

periods as are rea-

sonably n a c e s s ~ r y and mer.:l

s p a c u l 3 . t i v ~

-,.i

thhQldin

6

from

the

markat

in tha·

hope of obtaining hig,har prices. Und.:lr

tha

Federal Reserve

Act

paper d r ~ to

f i n a n c ~

speculation

is in-

eli6ibl.; for rediscount.

The Federal

Ra-oarva

Joard also

·

pointed

o u ~

that

in aetcrmining

·Nhetrur

or

not

J.n

associa.tion

is 0ngaga<i

in

or-.1arly m:i.rY.etin

6

1

ra.t •

::r

than

5p3cula.tive

hol\iing •

..

t is

not improper

to

tal:e

into

consiaard.tion t h ~

fact

that aach

crop

must ordinarily

su... ·port th:3

m3.rke

t

until

the

naxt

crop

is

harvastad.

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X-3591

A fur-ch:H

ana

m a t ~ r i a l aid to

cooperative marketing

as::;ociations is the ruling that bank..:Jrs' accQpt:m-::cs dr;;.wn

to

finance tha domestic

storago of c o r r r o o d i t i ~ s

pendine

orier ly roarkat-

in6

by

such

associations are

el igible

for rediscount.

In creating

such acceptanc.:3s tha asl>ociation

arranges for

a craai with some

national or State banL: wt1ich accept:> i ts drafts

to

the amount

arranged for whan covarad by ':iarehou&a receipts and

af ter

a.c-

ceptance

such

drafts ~ r a 0ligible for rediscount

or

io r

purchase

in open market by Faderal

Rasarvo

l l a r u ~ s

they are el igible for rad.is count only

Nhen

they have not more

than

thrae months to run.

Heretofore they

ha.ve been el igible

:for

purchase by Federal R:3sarve Banks only vvhen their

maturit ies

at the tirM of purchase did not axcead three monthsi but the

new

amendment

to the B o a r d ~ r e g u l ~ t i o n p e r m i t ~

them

to

be

pur-

chased with rnaturi

t ies

up

to

s i · ~

months

IiarJ::ars

t

acceptances

ara recognized a.s th ;: most J i J S i ~ a b l e :form

of credit as they

sel l on the cradi t of

the

accepting bank a3

well

as on thei r

backin6 of staple colla tera l

cmd

they usually

tak.s

th;; low2st rata

of

intera.;;t i f proj>3rly

drawn

and

s..' Jeguardad.

One of t lB mo;,t rac mt and al::>o one of the moat l ib2ral

rulings

of

th.:;

:>o

:vrd

on

thiS

s u b J ~ C t

w : u

to

th::

affect that

W>.l;re

a meiDbar of a c o o p ~ r a t 1 v e

a s ~ o c i ~ t i o n

d a l i v ~ r s his crop to the

association a.no. at ; ;ubstantia l ly th. s o r r ~

tima

draNS a, d.r..;,ft on

tha as::;ocLl.tion whicr.

is

a..cce

 

Jted

by

i t an\i discounted by the

dr-::.wer at his

own bank

such

a dr 1ft

is

a

11

bil l

o:f exchange

I

.

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)

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...

dra.vn in c,ood

fa i th

against

.l.Ctua.:Lly

axisting

valu.;:s"

3l'ld,

ther..::fore,

is not su'ojdct to tL.e

l O ~ o 1

imitation

pr.;;;.;cnbad

in

·the

Fadaral

RasJrva

.Act

on

t ~ : ; l ; ; l

ilf.lt:.r.;e,ate

-..roo1.mt of

papt r

of

any

ona borrowar which a Federal R e ~ ~ r v Q ~ a n 1 : : w q

r:;di.;;count

for

any one mdmbar bank. T:Uis :>hould be

very.

bendic ia l to the

farroars and t h ~ i r ~ ~ o c i ~ t i o n ~

b e c a u s ~

i t parmits

t h ~

radiscount

of such papi:<l r in

unl

i r.l i t :d

amounts •

Tn,;:, abova cw<; not ~ of tho ruling" nu.ie by th.:: Faderal

R ~ s e : r v a

: . o a r ~

on

thi.;.

:;;ubj.;ct,

<1nd,

of

cour::..:l,

there are othar

classes·

of e l i g i b · L ~ pn.p.c:r tl:tat

can

oa

usaa.

in

borrOII' ine,

by

coop;ratiVJ ma.rk3ting

assocl-lti9n..;,

but th;:;y

.::.:.r-3 prob3.Qly tha

most· iniport:mt rulin;;,a. t ;;;hould'

be

under t o o . : : . . .Usc

that

.the

above sta.temcmts .:J.ra not 1 n ~ a n d a c i as pracis.c technic<ll

st'ltam;;nts.

AU · >f th<il ~ o . . . . r a . • s v.::.rious :rulings

on this ~ u b

Joct· except

th2: o n ~

las t

r:;antionad.

· : a r ~

brought toc,athar

and

S Uil1l llarizad

in the

F::3d<Jral Ra::,ervt: : : ~ 1 1 1 t i n t 'nr 5 ~ _ t . > t a i . : 6 : ; J r ,

1922 p ~ g e

104-4

of :th.:l l c l . r ~ ~ ;;:Q.ition

... .:.:1d l J c ~ 6 a

269

o:f th3

f:lt<st

edition) to W.:li ch ref dr : m ~ 0 should. be w a . d ~

by

m:mega

r::;

of J ::>

so-

. c i ~ t i o n . . > .

banJ:;2r :;.

and othar::)

i n t a r a s t ~ d

1n

:lA:l.Ct

: : > t J . t . : r · , . m t ~ i.lnli