Mr. HUTCHINSON. Do you know that the Government gets a quarter of 1 per cent for every bushel that is sold there on option? Mr. HYDE. Sir? Mr. HUTCHINSON. You know that the Government gets a quarter of 1 per cent on all options sold? Mr. HYDE. I do not. Mr. HUTCHINSON. Well, it does. How could they do that without a record of sales? Mr. HYDE. What was your question? Mr. HUTCHINSON. How could they do any trading on the Board of Trade without that record? Mr. HYDE. I can not answer the question. Mr. Gates said they had no record to go by, and that they could not have one, and he said that the Federal Trade Commission had been trying to get the record, and that they had been working on it for a couple of years and he presumed they had something, but that the Chicago Board of Trade had no record and there was no way for them to find out about the sales. Mr. HUTCHINSON. You say your farmers are opposed to future sales. Would you close up the boards of trade? Mr. HYDE. I said the wheat growers and the farmers of Oklahoma and Kansas by resolution at two annual meetings had gone on record as being against future speculative trading. Mr. HUTCHINSON. What do you mean by "speculative trading"? Mr. HYDE. Speculative trading is trading in which the seller does not own the commodity he is selling. Mr. HUTCHINSON. He has to get it if he sells if he is any kind of reputable man, doesn't he? Mr. HYDE. Well, that is handled this way- Mr. HEULINGS (interposing). He can pay the difference, and that is what they do. Mr. HYDE. He has to get it or lose 10 per cent, the purchase price being so much and 10 per cent of it is put up. But he does not have to get the commodity itself, as I understand. Mr. HUTCHINSON. He may buy May corn and if he does he has to deliver it. Mr. HYDE. No: he does not have to do that. He has to deliver the corn to you or else lose 10 per cent of the purchase price, the amount of the option that he has put up. But he does not have to deliver the corn. Mr. HUTCHINSON. But he does have to deliver the commodity? Mr. HYDE. No, sir. Mr. HEULINGS. Aren't you making a mistake between puts and calls and futures? Mr. HYDE. I think not. Mr. HUTCHINSON. The man may get out of it, but not if I demand my corn. Mr. HYDE. I am not a dealer on the Board of Trade. I am connected with farmers' grain associations, but we are not allowed to sell our grain on the Board of Trade. Mr. HUTCHINSON. You are not allowed to do it? Mr. HYDE. No, sir. Not on the Chicago Board of Trade. If the cooperative elevators should buy a seat on that Board of Trade they would not allow us on the Board of Trade. Mr. HUTCHINSON. Not if you bought a seat? Mr. MCLAUGHLIN of Michigan. Do you mean that the Board of Trade would not allow a representative of a strictly cooperative commission company on the floor of the Chicago Exchange? Mr. HYDE. No, sir. Mr. HUTCHINSON. You are not a cooperative society. You sell stock, the same as any other corporation. Mr. HYDE. Oh, no; not the same as any other corporation. As between a cooperative corporation and an ordinary corporation there is this distinctive difference, that the cooperative association pays its profits by way of a patronage dividend, based on the amount of business furnished by the individual. Different States have different cooperative laws, but usually the dividend on the stock is limited to the legal rate of interest in each particular State. They consider that the capital stock is simply a loan that the individual member has made to the corporation, so that it will have the machinery, elevators and so on, to do business with. And the cooperative association simply pays the individual the legal rate of interest thereon, but all profit goes to the men who furnish the business. Mr. HUTCHINSON. Do they all take an equal amount of stock? Mr. HYDE. Usually it is that way, that they all have an equal amount of stock. But in most States regardless of the amount of stock that you own each individual votes one vote, whether he has $100 or $500 worth of stock. In other words, the member votes and not the stock. Mr. TINCHER. Assuming that you have a perfect right to carry on your business the way you are doing it in Oklahoma, about which I think there is no doubt that you have-—— Mr. HYDE (interposing). We certainly mean to do it in a legal way. Mr. TINCHER (continuing). Can you explain to this committee the difference between trading in options and selling wheat for future delivery? Mr. HYDE. Yes. Mr. TINCHER. Do you understand the difference? Mr. HYDE. I think I do. At least I will explain it the way I understand it: Selling options is selling a commodity which I do not own. In other words, I do not own the commodity I am attempting to sell. I do not have it in my possession. In selling for future delivery, hedging, and if it is on grain, you may not want to deliver the commodity now, or may not be able to deliver it now Mr. HULINGS (interposing). You may not have it yet? Mr. HYDE. That is not true in the case of hedging. What I have said is selling and hedging. An option is where I do not have the commodity and I am simply making a gamble whether it will go up or down. Mr. TINCHER. Speaking of the Kansas and Oklahoma farmer, as to whether he is in favor of closing up the grain exchanges and chambers of commerce, you have never heard any of them advocate anythingof that kind, have you? Mr. HYDE. No, sir." Mr. MCKINLEY. I want to see if I have this clear in my mind, in regard to the way you handle matters down there in Oklahoma: You said if a man sells now to the elevator, at a price, then when it comes to a close-up, after that grain has all been sold, that man gets the difference in the way of profit. Mr. HYDE. Yes, sir. I will illustrate it in this way Mr. MCKINLEY (interposing). Let me ask you another question: To make this real simple, suppose there are 10 men in this organization of yours, and that 9 of them come in and sell just 1,000 bushels of wheat each, and then the tenth one comes in and sells 100,000 bushels. Now, as I understand you, the man who sells 100,000 bushels, if there was 9 cents a bushel profit, would get the whole profit on the 100,000 bushels that comes in later on the sale. But who pays the loss if there is a loss? Mr. HYDE. The loss that has been suffered Mr. MCKINLEY. Yes. Mr. HYDE. It comes in the depreciation. You must borrow on your investment, or on your elevator, from the cash you have with which you have to do business. You have to have that in order to du business. Mr. MCKINLEY. Do those other nine men help on that? Mr. MCKINLEY. But they do not get any of the profit? Mr. HYDE. Yes; they do. Mr. MCKINLEY. You said it all went to those men. That is the reason I thought your testimony given before this committee was not properly presented. Mr. HYDE. We pay the legal rate of interest on the loans made by the stockholders, which is in the shape of capital stock. Mr. MCKINLEY. But this has nothing to do with the rate of in terest. Mr. HYDE. All the other profits are divided in proportion to the business furnished. If there is a profit of 9 cents a bushel, the man who sold 1,000 bushels would get 9 cents times 1,000 bushels. If a man furnished 100,000 bushels, he would get 9 cents times 100,000 bushels. Mr. McKINLEY. But who would pay the loss, if there were a loss suffered? Mr. HYDE. If there is a loss it falls equally among all the stockholders. Mr. McKINLEY. Then it is heads I win and tails you lose. Mr. MCKINLEY. Let me ask you another question, because we are all here seeking information: For instance, in my district at Decatur, Ill., there is a starch factory which uses a great deal of corn. We will say that in June, 1921, they will want to use 200,000 bushels of corn; and we will say that they want to get 200,000 bushels from your county or maybe from your elevator. And you have got men there who want to sell those 200,000 bushels of corn, the 1st of January; and, naturally, they want their money. Who is going to carry that difference represented by the sales price of the corn now and the price at which it is sold in June to the starch factory in Decatur that wants it then? Mr. HYDE. That would depend upon the contract they would make. But it seems to me there that the man who carries the stock Mr. MCKINLEY (interposing). Who is going to take care of the corn all that time? Your elevators are not big enough to hold your whole crops there, are they? Mr. HYDE. No, sir. Mr. MCKINLEY. Who is going to do it? Mr. HYDE. It depends absolutely on how they make the contract. They may make a contract by which your starch factory is going to pay now the price paid to the individuals. Mr. MCKINLEY. Oh, no. The starch factory can not do that. They want the corn on the 1st of June, you understand. Mr. HYDE. Yes. Mr. MCKINLEY. Who is going to own this corn from the 1st of January, when your farmers want to sell and deliver same, and get their money, and the 1st of June when the starch factory wants to pay and take possession of the corn? Mr. HYDE. When the bill of lading is issued on a car of corn that corn would certainly belong to the starch factory, but until that time Mr. MCKINLEY (interposing). But they are not ready to buy now. They want corn delivered on the 1st of June. Mr. HYDE. Until that time it belongs to the man who grew it. Mr. MCKINLEY. But he wants his money on the first of January. Mr. HYDE. You are putting to me a question-well, it lays between the buyer and the seller as to what the terms of the contract shall be. Mr. MCKINLEY. But somebody has got to own that corn during those five months that must elapse between the time when the grower wants to sell it and get his money and the time when the starch factory wants to buy it and pay for it. You do not want any speculators, as I understand. Therefore who is going to own that corn for this period of five months? Mr. HYDE. I did not say I do not want any speculators. But as to who owns the corn, if the starch factory pays for it it is theirs. Mr. MCKINLEY. No; but they do not want it now. They have, we will say, a supply of corn to last them during the period of five months between January 1 to June 1. But they want to buy corn June 1. Who owns the corn between January 1 and June 1? Mr. HYDE. It belongs to the grower. Mr. McKINLEY. But .he wants his money on the first of January. Mr. HULINGS. He sells it to a warehouse, of course. Mr. MCKINLEY. No; he sells it to a speculator. There must be some machinery between your man who must have his money on the 1st of January and the man who wants the corn, as I have supposed the case, on June 1. We will suppose that the starch factory has not got the money to pay for the corn until the 1st of June. Mr. HYDE. All right. Mr. MCKINLEY. What machinery would you suggest to take care of that matter? Mr. HYDE. Well, it will be necessary either for the grower of the corn to be financed so he can carry his crops, or Mr. MCKINLEY (interposing). But he can not carry it, as I understand. Mr. HYDE (continuing). Wait a minute. It would be necessary for a grower to be financed so that he can keep his crop, so that he may market it during a period of 12 months rather than one or two months after the harvest; or else someone must buy that corn and carry it for him. Mr. MCKINLEY. Would your idea be that the Government better buy it and finance it from the 1st of January? Mr. HYDE. That is foreign to this bill, isn't it? Mr. McKINLEY. We are here seeking information. We want to stop this gambling. Mr. HYDE. Well, I suggest this method: that at some time the Government might, in view of the conditions that now confront farmers all over he country- Mr. MCKINLEY (interposing). Well, we are all voting for that. Mr. HYDE (Continuing). That the Government might at sometime possibly make a careful estimate of the cost of producing wheat, corn, and cotton, and that whenever in the market the price is less than 80 per cent of the cost of producing 85 per cent of the crop the Government might buy it, and whenever it goes 15 per cent above the price sell it. I believe that such a law would be a benefit to the producer as well as to the consumer. It would tend to stabilize the price during the whole year. It would be a benefit at the same time to the miller, because there would be a stabilized price during the whole year. It would be a benefit to the banker who loans money, because the crops would never go below 80 per cent. And on the question whether it would ever cost the Government any considerable amount of money, I do not believe it would. Mr. HUTCHINSON. Suppose the Government were to make a profit, under your suggested plan, would it get that profit? Mr. HYDE. Yes, sir. Furthermore, consumers do not pay the price that might be considered as based on the wholesale price of agricultural products the year round, but usually pay a price that reflects the highest price during the year. If you gentlemen care for a little report that I made after an investigation recently, I will give it to you. On the 6th and 7th of December we called the mills in Oklahoma City and asked them the price they would pay for best No. 2 wheat. They replied $1.37 a bushel. We went to the retailers of flour in Oklahoma, flour from those mills, and they were selling at 6 cents a pound. A 50-bushel load of wheat at that rate would sell for $68.50. When that wheat was made into flour, and counting the by-products, shorts, and branconsidering shorts as mill run at 2 cents a pound, and some was $2.10 and $2.20 a hundred pounds-and that load of wheat, without any freight, made into flour, is sold in Oklahoma City for $144. Taking the Government's estimate, the estimate of the Department of Agriculture, of the amount of flour in a 16-ounce loaf of bread, and buying bread out of the bakeshops, and that load of wheat when made into bread, together with the 900 pounds of by-products, that is shorts and bran, sold for $393 without any freight on it. |