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advances made by the corporation to cooperative marketing associations have been repaid in full.

LOANS UNDER THE WAR POWERS.

Of the loans made under the war powers of the corporation and under its export authority prior to the suspension of activities in May, 1920, there was outstanding on November 30, 1922, only $27,650,187, a total of $83,496,000 having been repaid since the corporation resumed operations in January, 1921.

At the close of business on November 30, 1922, the corporation had outstanding, on loans of all classes, a total of $185,370,000.

THE SITUATION CONFRONTING THE CORPORATION A YEAR AGO. When the agricultural credits act was passed there was a state of demoralization everywhere among all classes of agricultural producers. Farmers and stockmen generally were in a desperate plight; breeding herds were being sacrificed on a wholesale scale; immature stock was being sent to the block ; and cotton, corn, and other agricultural commodities commanded prices that were discouragingly low, in many cases materially below cost of production. Forced liquidation and hasty selling impaired the farmer's buying power, and this, in turn, brought about a reduced demand for the products of industry. Bank deposits were being withdrawn and reserves depleted, loans could not be collected, and the stability of our whole agricultural and banking structure was seriously threatened.

Into this situation the corporation brought a steadily mounting volume of loans, coupled with the assurance of its ability and readiness to advance, on a sound basis, such additional amounts as might be needed to meet the emergency. The facilities offered by the established financing machinery were utilized wherever possible, but where this machinery was unable, for one reason or another, to function in the way the crisis demanded, the corporation encouraged the creation of new agencies, with local capital and management, through which its resources could be made available promptly and on a large scale.

EFFECT OF CORPORATION'S ACTIVITIES. In January of this year the effect of the corporation's activities began to be felt throughout the country. Conditions took a turn for the better and a progressive improvement set in. The corporation's loans strengthened the banking situation in the country districts and relieved the necessity of forced liquidation. They put the banks in position to carry their farmer customers for a longer period and to make new advances, and were a vital factor in bringing about a marked improvement in the whole economic situation. They not only helped the borrowing institutions and their farmer customers; they had a much more far-reaching effect upon the banks to which the corporation made no loans at all. In places where some banks were weak and some were strong, the inability of the weak banks to serve their communities was accompanied by an unwillingness on the part of the strong banks to function in a normally confident and courageous way. The longer term rediscounts offered by the War Finance Corporation to the overextended banks, the restoration of market values following relief from forced liquidation, and the removal of the danger spots, encouraged the more normal functioning of the strong banks and the more liberal use of their resources.

The psychological aspects of the corporation's work were of even greater consequence than its loans. A disturbed state of mind produced by financial pressure; a combination of hopelessness and resentment over inability to pay debts from the proceeds of sales at prevailing prices; a sense of injustice; disappointment in the past and an apparently hopeless outlook for the future, were the salient psychological facts in the situation when the corporation began to function under the agricultural credits act. The problem was twofold. It was necessary to furnish financial assistance quickly to large numbers of farmers and stockmen, but it was even more vital to replace despair with renewed hope and to change the inaction of a discouraged people into the energy of restored confidence.

Considering the vast sums that are required annually to finance our agricultural and live-stock industries, the loans of the War Finance Corporation may seem relatively small. But the money was directed to the weak spots in the situation and helped to stabilize markets and to restore that element which is so vital to all kinds of business confidence. The very fact that the corporation was in existence and the knowledge that it had the funds and the powers necessary to meet the situation was effective. Even before its funds were made available in large amounts, a psychological reaction took place and confidence began to return.

Because the corporation was able to harmonize its activities with the needs of the various sections of the country and to direct its effords toward the restoration of more normal conditions throughout the Nation, the beneficial effects of its operations rapidly became cumulative. Corn and hogs, sheep. and cattle, wool and cotton, and most of our staple agricultural products are sold in national markets, and the strengthening of each weak spot in the situation was helpful everywhere. The relief of the cotton growers and the restoration of their buying power aided not only the South but the North and West, whence the cotton planter draws his supplies of various kinds. A return of confidence to the Corn Belt farmer meant a better market for feeder stock from the ranges of the West. When the farmers of the Northwest were put in position to continue their operations a better market for cotton goods was opened up, with resulting benefit to the cotton grower.

IMPROVEMENT IN AGRICULTURAL CONDITIONS. At the suggestion of the President, the managing director in March and April, 1922, made a survey of the conditions then prevailing in the agricultural and live-stock districts of the West. At the conclusion of the survey a full report, which was printed as a Senate document (No. 199), was submitted to the President. The report indicated that there had been a noteworthy improvement in the agricultural situation. The demoralization which existed in the fall of 1921 had been largely overcome. The corn and hog raisers of the Middle West were marketing their products and getting a fair return for them. The sheep raisers were selling their wool and fat lambs at satisfactory prices. Those engaged in the breeding and fattening of cattle were in a better position because of increased ability to finance their business and the improved market for their stock. Credit conditions in the West had greatly improved. The banks generally were beginning to function in a more normal way, funds were accumulating in the western financial centers, and there was a considerable increase in the demand for farm mortgages on the part of privite investors, savings banks, and similar institutions.

Throughout the spring and summer months, conditions in the agricultura? and live-stock districts, on the whole, continued to show a marked improvement over those of last year, although in some sections the generally favorable trend was halted by unsatisfactory markets for some commodities and unusual climatic conditions. In the case of wheat the large Canadian crop, coupled with the heavy export shipments from that country, had a depressing effect upon our own markets. At the beginning of December wheat prices were somewhat above those prevailing a year ago, but were, nevertheless, below the level reached early in the year before the influence of the new crop in this country and of the Canadian production was felt. The abnormally large shipments of grass cattle, due to drought conditions in parts of Texas and New Mexico, not only affected the market for all western cattle but also depressed the market for fat stock. Shipments from distributing markets into Corn Belt feed lots during the fall of this year were larger by far than those last year. On the one hand, the War Finance Corporation encouraged the buying of feeder stock in the Corn Belt and, on the other, it aided in the movement of cattle from the drought-stricken territory of places where adequate supplies of grass and water were available. The movement was somewhat retarded by lack of sufficient stock cars, but this situation has recently improved.

In the South the improvement in the cotton situation, following the large loans authorized by the corporation on that commodity during the summer and fall of 1921, was more than maintained, and was reflected in better banking and business conditions generally throughout the cotton-growing territory.

DECLINE IN APPLICATIONS. As confidence was restored, as the inarkets for farm products became more stabilized, and as financial conditions generally became easier there was a steady decline in the calls upon the War Finance Corporation for assistance from banks in the agricultural districts and from live-stock loan companies. The peak of applications—the largest number--was reached in the latter part of December, 1921, when in one week 499 applications were received from banking institutions and live-stock loan companies for amounts aggregating more than $13,000,000. Until late in February they averaged more than 300 a week for amounts ranging from $7,000,000 to $11,000,000. From that time on there was a constant decline, both in the number of applications and in the amounts involved.

The reduced volume of applications clearly reflects the improvement that has taken place in banking and agricultural conditions generally. The acute phases of the crisis of 1920–21 are now happily past. The farmer and stockman are not yet completely out of the woods, but, in spite of local difficulties here and there and unsatisfactory markets for some commodities, their position on the whole has been greatly strengthened. They are still suffering from a burden of debt, the aftermath of the crisis, and some thousands of banking institutions in the country districts are still in an overextended condition. But probably at no time in our history has there been so rapid and extensive an improvement in our economic condition as during the past 18 months.

LOANS TO BANKS IN THE AGRICULTURAL DISTRICTS. Altogether, the corporation has authorized more than 6,600 loans to banking institutions for agricultural purposes. Of these, more than 5,500, or approximately 83 per cent, represent advances to State banks, and 1,100, or 17 per cent, to national banks. In terms of dollars, the loans to State banks, amount. ing to $135,430,000, constitute 80 per cent of the whole, and the loans to national banks, totaling $32,828,000, 20 per cent. Thus the corporation has provided during the emergency a rediscount facility especially needed by banks in the country districts not members of the Federal reserve system, enabling them to meet the agricultural needs of their communities in a way that otherwise would not have been possible. As already pointed out the corporation's loans to banks were not only helpful to the borrowing institutions and their farmer customers; they strengthened the whole banking situation in the conimunities in which they were made and encouraged the more normal functioning of the stronger banks which received no advances from the corporation.

LOANS ON LIVE STOCK. No situation of greater importance has commanded the attention of the corporation than that which confronted the live-stock industry. When the corporation began to function under the agricultural credits act in the fall of 1921, its first problem was to find agencies through which it could make loans on live stock safely without too much delay and too many practical difficulties. The banks, generally speaking, had all the live-stock paper they were able to handle; and the large live-stock loan companies not only were fully supplied with paper, but they were having difficulty in taking care of it. In fact, both the old loan companies and the banks were in urgent need of relief. Deposits were shrinking, and, in spite of the fact that demand on the grower was a great hardship, the loan companies were forced to take up their paper because the banks or investors with whom they had placed it were calling for payment.

It was evident that new loan companies with fresh capital were urgently needed and that these companies would be most effective if they were locally owned and managed. Beginning with Salt Lake City, Cheyenne, and Denver, and following later on with Fort Worth, Albuquerque, and other western livestock centers from Montana and Oregon to New Mexico and Texas-the corporation succeeded in getting local bankers, business men, farmers, and stockmen to organize new loan companies, each with substantial capital, through which it could make live-stock loans promptly and on a large scale. At the time of the last annual report a number of these companies had been formed and were functioning helpfully. Since then the number has increased, and now their combined capital greatly exceeds the capital invested in all the live-stock loan companies that existed prior to October 1, 1921. And whereas the capital of the former companies was concentrated in a few places, principally in Chicago, Kansas City, and other live-stock market centers, the new companies are largely owned and managed locally in the live-stock growing States. These institutions not only have played an important part in meeting the emergency needs of the live-stock industry, but they will undoubtedly fill an important place in the permanent structure of live-stock financing.

Of the loans authorized on live stock, totaling $90,001,000, approximately $77,761,000 represents advances through loan companies and $12,240,000 through banking institutions. The greater part of the $77,761,000 was placed through the new companies.

It is impossible to estimate the full effect of the aid given by the corporation to the live-stock industry, because calamities that are averted can never be measured. It is generally recognized, however, that by providing, as it did, financing for more than 6,900,000 head of live stock, the corporation checked the demoralization in the industry, gave the stockmen a breathing spell, stabilized the market, and turned the tide away from disaster toward recovery and reconstruction.

In the summer and fall of 1922 a drought more serious than any that had occurred in many years developed in the southern portion of New Mexico. The situation became so acute that there was grave danger, on account of the lack of feed and water, of the loss of a considerable number of cattle pledged to the War Finance Corporation as security for some of its loans. The conclusion was reached, after the most careful consideration and following a personal investigation on the ground by the managing director, that the cattle could be saved only by moving them out of the drought-stricken area to adjoining States and to sections of Mexico where adequate feed and water were available. The board of directors, therefore, gave its consent to the removal of the cattle by the loan company through which the loans were made, taking every precaution that was possible, in the circumstances surrounding the transaction, to protect the interests of the corporation.

LOANS TO COOPERATIVE MARKETING ASSOCIATIONS. A special feature of the work of the War Finance Corporation during the past year was the financing of cooperative marketing associations. The growth of the cooperative movement is one of the most encouraging developments in the marketing of agricultural products in recent years, for it promises to bring about definite and far-reaching improvements in our whole system of distributing farm commodities. The associations have already made considerable progress in developing facilities for uniform grading and classification, thus insuring more efficient handling and furnishing a better basis for credit. They have also established methods which will facilitate the gradual, orderly marketing of many of our staple commodities.

In the midst of the worst depression that the cotton industry has suffered in many years, it was through the cooperative marketing associations that the War Finance Corporation developed plans for extending assistance to the industry on a comprehensive scale. In the summer of 1921, when cotton was difficult to market at around 8 cents a pound at country points and when business throughout the Cotton Belt was in a demoralized condition, the corporation made its first large loan to an association in Mississippi on 100,000 bales of cotton. The cotton was classified by the association according to grade and staple and placed in bonded warehouses licensed under the United States warehouse act. The loan enabled the association not only to make advances to its members for their urgent financial needs but also to market the crop through a greater portion of the consuming year instead of forcing it on a demoralized market.

Within a week or 10 days other loans were authorized on a similar basis to cotton cooperatives in Oklahoma on 200,000 bales and in Texas on 300,000 bales. There immediately followed a radical change in the cotton situation. Confidence was restored, other avenues of credit were opened up, buyers began to resume purchases on a liberal scale, and more normal conditions, both with regard to prices and volume of business, ensued. The change was promptly reflected in improved general business throughout the South.

The success of these cotton cooperatives encouraged the spread of the move. ment, and many new associations have been organized during the past year for the handing of cotton, wheat, tobacco, rice, and other staple products.

During the season of 1921-22 the corporation authorized loans totaling $61,000,000 to 19 cooperative marketing associations in 15 States to assist in the orderly marketing of the products of their members. Of this amount only $19,199,000 was actually called for by the associations, although the entire amount was available to them. It developed as the season progressed that the local banks were able and willing to take care of their needs to a greater extent than had been anticipated. The corporation's commitments not only helped to create confidence but obviously the local banks were more willing to furnish funds to the cooperatives when they knew that the funds could, in turn, be obtained from another source and repaid to the banks in case of need.

During the current season the corporation has approved loans totaling $114,000,000 to 24 cooperative marketing asssociations in 18 States to assist in the orderly marketing of 1922 crops. Of this amount, $7,327,000 had been called for by the associations to November 30, 1922. It is too early in the season to estimate how much ultimately will be advanced, but, in view of the fact that many of the associations have made satisfactory arrangements to obtain funds not only from local banks but also from banks and banking groups in the large financial centers, including New York, Chicago, St. Louis, and San Francisco, the indications are that they will use only a small part of the amounts authorized.

The experience of the War Finance Corporation with the cooperatives to which it has made loans has been, on the whole, entirely satisfactory. In general, they have conducted their operations in a businesslike way and have willingly met the corporation's requirements and regulations. In its agreements with the associations and otherwise, the corporation has taken and is taking every precaution to provide against the possibility of having its funds used for purposes other than orderly marketing. Every agreement between the corporation and a cooperative marketing association commits the association to a program of orderly marketing and provides that, if in the opinion of the corporation the association is not at any time marketing the products of its members with sufficient rapidity, the corporation may itself dispose of such portion of the pledged commodities as may be necessary in order to comply with the terms of the agreement. The cooperative associations to which the corporation made advances last season carried out their program in good faith as a prograin of orderly marketing and not of holding for speculative purposes.

All the reports received by the corporation indicate that its loans to cooperative marketing associations were vital factors in creating confidence and in making it possible for the cooperatives to finance the greater part of their requirements through banking channels. Not only that, but the loans had a marked effect on the general economic situation in the districts in which they were made. That effect was well expressed in a report from one of the cooperatives, which reads in part as follows:

“When this money came into our section and began to be distributed it had the effect of almost instantaneously arresting the downward tendency and the depression which had enveloped business and industry. A new note of optimism, the beginning of restored confidence, was born; and its light has steadily grown brighter from that day on down to the present; and to-day the growers are on their sure and certain way back to prosperity.

HOW THE CORPORATIOY REACHED TIIE FARMERS. The value of the work of the War Finance Corporation is not to be measured in terms of its advances. Economic collapses are partly tangible and intrinsic and partly due to fear. The prompt improvement that the corporation was able to bring about by a general restoration of confidence was of far greater importance than the actual amount of money lent. Large as is the number of advances made by the corporation, it falls far short of indicating the number of farmers who benefited froin them ; for even those farmers who have had no financial assistance, directly or indirectly, have, nevertheless, been aided by the general improvement in the credit situation in their own communities, in neighboring districts, and in the country as a whole, as well as by the stablization of markets for many of the products of agriculture.

A single advance to a banking institution or to a live-stock loan company may involve the notes of a hundred or more farmers or stockmen. The large number of individual notes for small amounts held by the corporation indicates clearly and unmistakably how the benefits of its loans have been spread broadcast throughout the farming and live-stock districts. When advances against these notes were made by the corporation it meant that thousands of farmers and stockmen would be saved from the losses entailed by forced liquidation, and that they would be put in position to go ahead with their operations.

Even the larger notes of the cooperative marketing associations, although they appear on the corporation's records as single loans, represent in each case advances to thousands of individual farmer members. At least three-quarters of a million farmers have been assisteil directly through the corporation's advances to such associations.

There is appended to this report, as Exhibit H, extracts froin letters received by the War Finance Corporation indicating the way in which it has reached the farmers and stockmen of the country through its operations.

REPAYMENTS. The repayments received by the corporation have demonstrated in a striking way the ability of the American farmer, when properly financed, to weather

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