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D E P A R T M E N T OF A GR I C U L T U RE O F F IC E O F TH E SEC R ETA R Y WASHINGTON January 22, 1966 l\ o u [ c X h u i'C L P v r~ h r e c + K r c j y C l A n -P 'jCkj^pL &-P MEMORANDUM FOR: Orville L. FreeivgmT/T^J Secretary of Agriculture SUBJECT: (1) (2) ^ The President The White House FROM: c r» ^ (l) Defense Department Food Purchases Food Price Prospects Defense At your request we have made a careful review of Defense food needs in relation to food price prospects. Specific recommendations to ease the impact of military purchases on food prices have been sent to Secretary McNamara as follows: (1) Initiate barter arrangements trading U.S. feed grains for pork and possibly beef from European sources to supply commissaries and other non-appropriated uses beginning about March 1 and continuing for six months. This will ease the pressure a bit on meat prices here and will not involve dollar outflow. (2) Pork products, particularly bacon, are served almost daily in domestic military installations. Since pork prices will be high for some months, the number of servings should be reduced by about 50 percent for the next six months. Poultry, eggs, turkeys, seafood and selected beef items where prices are not so strong can be substituted. (3) Purchases of canned peaches, pears, cherries and should be cut 25 percent in the immediate months ahead. low and prices are high. Canned apricots, apple slices, purple plums, pineapple, grapefruit sections, canned and juices can be substituted since supplies are greater. fruit cocktail Supplies are apple sauce, frozen citrus (k) Purchases of canned tomato products and corn should be deferred until late spring when the supply will be greater. Stocks of canned snap beans and peas are larger than a year ago; purchases should be directed toward these items. My letter to Bob M * f COW U J LIBRARY 2 (2) Food Price Prospects The December Wholesale Price Index showed farm product prices and processed foods up over November. Since mid-December farm product prices have increased another 1-1/2 percent and processed food 3A percent. The attached table shows December to January price changes. The January Wholesale Price Index will show a further rise when published in February. Retail food prices which lag behind wholesale prices may increase 2 percent or so the next 2 to 3 months before weakening later in the year. In January butter, cattle and wheat have been stabilized and eggs are lower. We have not been able to hold vegetable oil and corn prices to our target levels, but we believe we can do it soon. Real relief in hog and cattle prices is not expected until spring. To moderate prices we are: — offering substantial corn and wheat at interior and terminal markets. — postponing meat purchases for needy families but not to the point of hurting their diets. — postponing vegetable oil shipments under PL ^80. — considering actions to increase wheat supplies from the 1966 crop as set down in an earlier memorandum. Apart from actual, short supplies of hogs, cattle and poultry, speculation in grains, soybeans and vegetable oils appears to be the key to our price increases. There is plentyof corn without CCC sales, yet we have rising corn prices despite our sales. With a record soybean crop there is plenty of vegetable oil and a heavy crush of soybeans. Yet prices are creeping up. We cannot control margins directly on the commodity exchanges, but we are exploring higher margin requirements to reduce speculation. We do not see any immediate anti-trust problems in connection with food prices. Marketing margins are not widening, aid we understand the Food Marketing Commission will conclude that the industry is generally com petitive. We have discussed this with the Attorney General's Office. Attachments COPy LEU LIBRARY Wholesale Prices of Selected Commodities Commodity Unit Dec. 15 Dec. 23 Jan. lk 6^.50 60.50 60.00 Butter > Cts. lb. Soybeans Dol. bu. Hogs Cts. lb. 28.25 29. I k 30.35 Cattle, Choice Cts. lb. 26.38 26.50 26.75 Eggs Cts. doz. h h .2 $ 38.25 37.CO Wheat, K.C., Ordinary Dol. bu. 1 .6 1 1.6 2 1 .6U Corn, 7^2 yellow Dol. bu. 1.25^ 1.258 1.33 3 A Soybean oil, crude (Decatur) Cts. lb. 11.2 2 11.0 0 12 .1 Cottonseed oil, crude (Valley points) Cts. lb. 11.8 8 12.75 Broilers, New York Cts. lb* 11.8 8 Dec. 13 26.5 27.5 1/ 25.5 26.0 29.5 1f .Monday contract price. price ranges. 2.668 2. 67k Market News indicates Monday prices more representative 2.76 than within week D E P A R T M E N T O F A G R IC U L T U R E O F F IC E O F THE S E C R E T A R Y W A S H IN G T O N JAN 2 2 1966 . Honorable Robert S. McNamara Secretary of Defense Washington, D. C. Dear Bob: Ai> you know the President wants us to help minimize, the price impact of Defense food purchases. With hog and. cattle marketings down retail food prices will continue to provide serious price stabilization problems over the next several months. We have adjusted modity -sales programs to purchases amount to only composition of purchases a number of our food purchases and. com stabilise prices. Even though Defense 2 percent of all food, the timing and can be important to price stability. Our economists have reviewed your military food require ments and procurement procedures, and the supply -demand situation for food with Mr.' Ignatius and his staff. On the basis of this review, I recommend that the military services take the steps set out below to help keep domestic food prices in line without im pairing the effectiveness of your food services and military oper ations. These recommendations have been reviewed with Mr. Ignatius and his staff. The steps I recommend are as follows: 1. Supply pork and beef to European commissaries and to non appropriated funds activities (officers club, etc.) for about the next six months from European sources to the extent that such pro curement can be made through barter for agricultural commodities to avoid any dollar outflow. There appears to be a good chance to make such arrangements beginning about March 1. This would relieve some domestic price pressure at a . time when it may be most intense. We will review this regularly and advise you as to the desirability of continuing it* r ....... ................ v COPY IB ) UBRARY 2 2. Reduce the number of servings of pork products from primal cuts, particularly bacon, in domestic military installations by about 50 percent over the next six months^' This would mean, for example, reducing the frequency of serving bacon from about 5 times to 2 to 3 times per week. In making such reductions we would recommend that lower priced items,such as poultry, eggs, turkey, seafood and se lected beef items be substituted* 'The output of poultry products can be increased more rapidly than that of pork or be§f, and we expect a substantial expansion in poultry meat production over the next several months. 3. Reduce purchases of canned peaches, pears, cherries and fruit cocktail over the next six months by at least 25 percent. Stocks of these products are down substantially and prices have risen sharply. Instead, greater usage can be made of canned apri cots, apple slices, apple sauce, purple plums, pineapple, grapefruit sections, and various canned and frozen citrus juices, especially orange juice, all of which are in larger supply. k. Delay purchases of canned tomato products and corn until late spring, and shift to canned snap beans and peas which are now more plentiful. We are continuing a detailed analysis of your full 1966 food procurement schedule for commodities and may suggest additional changes to help aroid serious price impacts in the months ahead. Mr. Koffsky, our chief economist, will work closely with Mr. Ignatius’office to insure that our people are sensitive to the particular requirements of the military services, and that the special knowledge of commodity and food price projections which is part of our job is available to your Department. We appreciate very much the help and cooperation which Mr. Ig natius, Mr. Riley and Admiral Bottoms have shown us. Sincerely yours, r : ' COPY UU v . UBRAKY MEMORANDUM ''' THE W HITE HOUSE W A I ^ 8H I N O T O K 10:30 a . m . , Friday January 14, 1966 FOR THE PRESIDENT FROM Joe Califano' A ttached is O rville L F reem an 's fir s t report on Departm ent of ». D efen se food purchasing p o lic ie s. I w ill get w ith O rville on the other task s you lev ied on the A griculture Departm ent to take appropriate actions to keep the p rices on food down. A ttach. http://fraser.stlouisfed.org/ Federal Reserve7 Bank of St. Louis t COPY LBJ UBRARY D E P A R T M E N T OF A GR I CU L TU R E O F F IC E O F TH E SEC R E TA R Y WASHINGTON Jaw 1 2 1966 M O A D M TO: EM R N U The P resid en t The White House THROUGH: Joseph C a lifa n o FROM : SUBJECT: O r v ille L. Freeman J t . S ecreta ry o f Agricul^u; D efense Department Food Purchases In response to your telephone c a l l la s t week to th e Under S e c r e ta r y , our c h ie f econom ist has review ed food procurement procedures w ith Paul I g n a tiu s ' people a t th e D efense Depart ment. They are now preparing a summary o f the p r in c ip a l purchases o f s ta p le foods to be made in the n ex t y e a r . In th e meantime we w i l l be co n su lted i f any la r g e purchases are planned. Our econom ists w i l l review th ese p r o sp e c tiv e purchases to determ ine i f the tim ing or q u a n tity w i l l have s ig n if i c a n t p r ic e e f f e c t s . Where s ig n if ic a n t p r ic e e f f e c t s seem l i k e l y , we w i l l advise the D efense Department and recommend a lte r n a tiv e s such as: (1) S u b s titu tio n o f Products — Other meats fo r pork, fo r example. (2) Change in Timing Purchases — Buying a la r g e r proportion o f needs fo r s to r a b le products such as canned bacon, in seasons o f high production when p r ic e s are low er. (3) Other — The p o s s i b i l i t i e s o f making o th er adjustm ents such as changing the p la c e o f purchase or product s p e c if ic a t io n s w i l l a ls o be co n sid ered . W w i l l ad vise you o f ste p s taken to le s s e n th e in flu e n c e o f e purchases by the D efense Department on p r ic e s paid by consumers fo r food . W exp ect to fa c e some s it u a t io n s where purchases e must be made even though th ere w i l l be p r ic e in c r e a s e s . D efense has been very h e lp f u l and co o p era tiv e on t h i s . f -------------- ■ - m I* - COPY LflJ LIBRARY