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.... ... X-3590 . J ~fEMORANDUM .of the PRI~~CIPAL WLINGS OF TH:: showin6 ~bat F11'D~ R.15EAVE BOArD kinds of paper of COOPERATIVE MARKETING ASSOCIATIONS are e1i6ib1a for rediscount or purChase by Submitted a.t the Fourth General Session, D~cambar 15, 1922, of the National Council of Farmers Cooperative Marketing Aosociations at Was'hington, D. c., in· con':' nection with the rama.rks of Mr. A. C. Mi1+er on the topic -aow ~s Fedaral Reserve System Can Help Cooperation." X-3590 - 1 - In connection with the rapid d 7dlopment of the coopQrativa mar- keting movement during the past e~ghtaen months, the Federal Reserve Board has bean called upon from time· to time tp ruld as to the eligibility for rediscount or purChase by Federal Reservd Danks of certain classes:of paper growina out of tha o~rations of ~uCh as~oci~tion~. . · Eaoh su~ to the . . ruli.ng was based upon a J?articula.r state of facts. submitted ~ar~ for. a rulin6 , .md. a ruling. to the effact tbo.t kind of paper is eligible inelie;ible. ~O>S not m~an that any o~r d. kind of papar is' There are many kinds of papdr #lhich have nevar cov~r ~e~n rulin&~ to the- .»oar.:l for· a ruling, .md, thdrefore, the Boa.r<:L•s subjact'tio not particular every kind of paper of cooperative submitted on tbb ~ka~ing asso- Ci.l.ti.ons . which may . be purchased or re<liscounte<i by Federal Reserve »a.nks •· interest~, ·For. the information of tho.sa brief non-teChnical s~y however, thare is given below a. indicating in a. gene~al w~ the classes of paper which the Federal ReQdrve jjoard has already ruleo. maJ be . . rediscounted or purChased by Federal Re$erve ]anks. CLASSES Ql ASSOCIATIONS UNDER CONSIDEF.ATION. In each· case passed on by the ·j)oara. tha coopard.tive marketing association inVOlved Wa$ organiz~d ~ithout .capital and itb member~ Sisted exclusively of.gro*ers of the particular crop whicn the COn- as~ocia- > tion was organized to market. The iSI"ONars agretl<i to sell ana. deliver their entire c~ops to the association, title pa~sing at the time of daliver.y, and' the association and their re-sale. a.s~uming Generally absolutd control spdakin~, o~er the cammoditias the comr.:odi ties were pooleo. accord- ,, . X-3590 - 2 - . ,., .. ~c· ing to grad~S and after all of a p~rticular·pool had b?en sold the proCOddS were distribute~· pool. pro rata among tb.~r~foro, T'nese rUli.ng&, opor~ta a3sociations Which th~ growers who had i>ro~er on any plan substant1al~y ~iffarent marketing Of 8.bl"iCUl tural products; . ~6e ~t from that kSSOCil.TIOi~. ~uch a.s~ociationb function of to would not necasbarily apply to the paper of :roliCTIOll Q! SUCH The contribute~ is to aooist in tha oro.erly anti.· if. :n\CA. all MtiOCiation s.houJ.d en- in the spaculc:S.tive holding of a c;-op for hit;h.3r J.)rice$, 'mu.ch of its paper :thich normally .7oula. be eli6ible for purchase or red.iocount by Feder&J. ~serve Da.n:.rs would be_come ineligible; beco:msa Federal Reserve I.anks . cannot purchase or redibcount p.:~.per NOT~ ~JDING Gi:tO-:r::sS' c..ra.·11n to finance speculation. TO fl!I;J:1~ C/,l\...1\YllfG OF CROPS OP.DEF.LY l.f.tU(:ETINg.. Ina.smu.ch a.s ae;ricul tur~ prod.ucts mar~et a~ soon a..s harv~ .. te.l, ~eces~:oa.ry not b3 dumped upon the but ohoul\1 ba marketeci gradually, the carrying of agricultural proO.uct$ by tha rea.i:onably ~houli ero~~rs th~reof in or..ter to a.a;nst ·~ue orderly marketirtel> thartJof is a prOj;•Sr step in th.3 proces-s Of distribution, and dra.wn, or tha far~r•s ~rocea.:L& for :.;uch perioo.s as are a fanner's O"lll note which is of .vlnch are used, to finance tha carrying of the produCt$ for·such reasonable par.io~ i~ a. note which has been issued. or drawn·for an a.!Sl'icultural purposa .A.nd which nay, therefore, be rediscount·ed by Federal Reoerva »anks with a maturity up to . . @.0'·-:SF.S t DRA.'Ii'TS Whera, at tiu kating as~o?iation, •. ti~ growdr~ ;.c~.£PT3D si.~t months. JY J.SGOCIATIONS • Clelivar their crO!)l to the association accept.:) dr.l.ft~ ..t coop.;,ra.tive ma:r- draNn upon it by the growerto., X-3590 - 3- such drafts when discounted by the growers at their local banks with ~eir own iridorsl3mants, ar~ eli&il)le for rediscount by Fed.eral Reserve i)anka as agrtoultural paper With ma.turitidS up to six months provided the proceeds are used by the growers for agricultural purposes. IJhJ following is· an eJC<).mpla of wh:l.t ma.y be considered a.l purpose: :ui a&rioultur- When a grower delivers his crop to a cooperative mar.tteting associ- ation Which is actually engaged in or~erly marketing, and the grower id oblised to bo~row money for ordiru:..ry gunarcll. purposes' such as tlia payment of obliga.- . ; tions previously·incurred in growin~ or harvebtin6 tho same·crop, a draft drawn by the grower on the a.s::.ociation for crop may properly be considered to be . because such a borrowing enables the a, ~rawn part of the market value of the for an agricultural purpose, ~o•var to meet ~is obligations Without selling hi a crop inrnedia.tely and thus "carry" the crop, which is one ~f the steps in tha process of distribution. NOTES Ql .Q.SSOCIATIONS E!t JUNDS m_ FIN:.NCE PAC:ONG ' AND MA.BKETING. ~ot~s ' of an association tha proceeds of whi~h are used to ~ the cur- . rent expenses of such associat~on, such as the p~nt of w~s ~d the pur- chase of supplies in connection with its bus ina sa of pa.clti.ng and marketing agrioul tural products grown by others, are aligibl-3 for reciiscowt as .. conmercial paper with maturities not in excess of 90 dqs • NOTES OF ASSOCI~TIO!fS roi\ WNDS TO PAY ron ca.tfODITIES PURCHASED.- - Likewise, the notes of associations representing direct borrowings by such associations, the proceeds of which have bean or a.re to be used .. tO make ~nts to the ~ower& for commoditi~S delivered to the as~oci~tion X-3590 -4- are eligible for rediscount by Federal Rdserve Bonks if thay have maturities not in excese of 90 days, because the procaeds ara used for the conmercial pbrpose of b~ing the commoditi~s from the growers. BANKEI!St !Q..CEPTANCES DRAWN R SUCH ASSOCIATIONS. Bankers• acceptances dra.vn by ouch a.t)Sociations to finance the r\ · douestic storage of com:.odi ti3s pand.ing ora.erly ma.rkating are eligible both for rediscount b~Federal Rds~rve j)a.nks 1n the open market.. aanks and for purChase by Federal Reserve In creating such acceptances the association arranges tor a credit with s.ome national or .State b:mk which accepts its drafts to the amount arranged. for, thd drafts being secured by warehouse recaipts cove1·1ng non-perishabla, $ta.ple agricultural products stored 1n independent warehouses, and after :1cceptance such drafts are eligible tor rediscount or for purchase in o~n market by Federal ~eserve ~s. Under axis ting law, they are eligible for redbcount only when they·hava not more than three months to run. Heretofore, they have been eligible for purchase by Federal Reserve Banks only when their maturities at tha tima of purchaSe did not exceed three m>nths; '?Ut a recent amepdment to the Boa.rd•s ra~ations pel'D)its them to be purchased with maturities up to six months. . acceptances. are recognized as the JOOs't desirable form of ,. »anloars• cr~di t, d.8 they sell on tha credit of the accepting baDk a.s "fell a.s on their backin.g of sta,ple comnodities, :md they usually t•e the lowest r.l.tes of interest, if I properly drun a.nd safeguarded. qROVIER'S DRAn' Q!i ASSOCIJ..TIO!T ~XCEPTED FliOM LIMITATIOlm. One of the most recant, and. also one of th<d most liber.a'J:.,rulings .. .... - 5of the Board on this SUbJect·.wa$ t.o the effect that where a. member of a oo-· oporative ao$OCiation.delivers hi$ crop to the association and ~t substan- tially the S.lme tinia draws a ·dr3.f't on the as.;ociatlon Nhich is accepted by . it and <liscountad. by tha drawer ..lt.hil$ own bank, such . a dr.d't is a e~Change dr~Nn 11 bill of in good faith against actually existing values 11 and, therefore, is exceptdO. t'rom the lC)o limit.:1.tion prascribed in thJ Faq.ara.l Reserve Act on the aggrecjata amount of po.per ot: any one borrower whi'ch .a Federal Bdserve Bank may ~ediscount for any ona. member bank. Tnis sho'Uld be very beneficial to . ·the fa.rmdrs and their coop::trc:~.tive mar~:ating association, because it permits the rediscount of such p.1p~r in unllmitad a~n9un ts. Q'l'HEB CLASSES OF ELIGI:..,LE PAPER. The above are not all· of tl1e aoard on t~is subject, and, of rulin;.~s m.:..<ie by the Federal Bdse\'Ve cour~a, ~ldrJ . are other cla$ses of eligible paper'that can be used in borrowi~6 by coopdrati~e marketing associations,. but these are probably thd ruoat important.rulin~o Which have bean issued so far. It should be understood. also th<:..t thu above l$tatewnts are not intended .as precise technical statemantc.. subject ..axcept tha o~ All of t~.a 1>oarct:• s v..l.l'iouo ruline;S on this last mentiondd we~e brought to 6eth.:~r and sunr.arized in the Faderal Ra~:Jerva »ulletin for Saptambar, 1'322 (pa.gd 1041.f. of th~ final ~ edition and page 269 of tha first Jdition) to ~hiCh reference shoUld be made by mana6ar& of associ~tions, bank3rs and in th<3 lagal points involved. an~ otberb inter.astad. tn exact statements
@FedFRASER