Sen. Frank Church (D-Idaho) has introduced legislation to ban all trading of potato futures on commodity exchanges in the wake of new reports about possible manipulation of trading at the New York Mercantile Exchange.

Citing what he called a long history of abuses in trading which already have affected potato farmers, Church said: "Time and time again, potato producers from across the nation have indicated that they have no desire to have trading in futures. They are tired of being the innocent victims of economic power plays by . . . speculators."

The Idaho Democrat, whose state produces some 30 per cent of the nation's fall potato crop, said Congress had banned futures trading in onions for the same reasons that potato futures should be banned.

They are both comparatively small and highly perishable crops, and growers generally do not hedge on their investments by buying or selling potato futures contracts, which promise delivery at a future date, Church said.

"Manipulation has been easy, even with stringent controls," he added. In seeking to end such commodity exchange trading, Church supported positions of both the Potato Growers of Idaho and the National Potato Council. "I think their wishes should be acceded to," he said.

However, Commodity Futures Trading Commission chairman William Bagley said last night that if futures trading is banned, the public might suffer. "If you ban futures in any commodity where there is a viable market, all you do is add to the concentration of power within the cash market" among big buyers and traders, Bagley said.

The proposed legislation may have "the exact opposite effect on small potato growers opposite effect on small potato growers than Church has in mind . . . on the other hand, I'm not a paid lobbyist to keep markets in business. It's not our business to tout," Bagley continued.

The staffs of the regulatory agency, Church and other senators are scheduled to discuss the issue today.

In New York, the Mercantile Exchange said it has received full payment from three member firms for penalities and damages awarded other members in connection with the May 1976 default on Maine potato futures contract, the biggest such default in history.

On Tuesday, the exchange raised margin requirements for Maine potatoes to 100 per cent of the contract - from $500 to $5,000 on a standard contract for 50,000 pounds - for individuals associated with last year's default.

The commodity regulatory agency is seeking to determine if a size discrepancy in two reports last week of potato sales to Europe was a deliberate attempt to mainpulate the market price or merely an honest error, and whether individuals involved in last year's default acted on the price reaction to the news reports.

New York Mero president Richard Levine declined to comment on the margin increase ordered after a special membership meeting, saying it was a "communication between the clearing house members and ourselves and does not concern the public."

He told a Washington Post reporter that the press is "doing its utmost to undermine confidence" in the New York exchange, and said that reporters, "if they had any sense of responsibility, would leave this market alone."

Trade sources speculated yesterday that if any market manipulation had taken place recently, it could be tied to current negotiations in the West between growers and buyers, planning for next year. A Church staff aide confirmed reports that with a small amount of snow so far the winter, the Idaho area faces a potential critical water shortage this year. That could lead to a significant reduction in potato production, sources said.

Informed sources also said grocery chains were actively negotiating for frozen potatoes, expecting possible future shortages.

The payment of $1.48 million announced yesterday by the New York Merc was made in accordance with an agreement reached last month by the exchange, Thomson McKinnon Security, Inc., Clayton Brokerage, of St. Louis and Heinhold Commodities.