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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
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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
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(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




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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*




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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

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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

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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 .

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