Mr. COLGAN. Yes, sir; that is just right.

Mr. HULINGS. May I ask you about your operations in buying grain from the farmer. I mean these farmers who have different amounts of grain to sell?

Mr. COLGAN. Yes, sir.

Mr. HULINGS. Say one man comes in with 500 bushels and another man with 100 bushels and another man with 5,000 bushels. You conclude that you are going to buy 10,000 bushels, say.

Mr. COLGAN. From the farmer?

Mr. HULINGS. Yes. When you sell that grain how do you sell it; what is the unit of the contract?

Mr. COLGAN. Well, my idea, to explain it, is that it would be this way: You come in to me and want to sell 10,000 bushels of grain. You want to know how much I am going to pay you for it?

Mr. HULINGS. Yes.

Mr. COLGAN. Well, I know that I am going to have to handle this amount of grain through a commission merchant in Peoria. When I sell that grain I go and hedge it just to make a profit, and then I am perfectly safe on that deal.

Mr. HULINGS. I understand that, but say I come to you and want to sell 500 bushels, and another man comes and wants to sell you 750 bushels, and so on. You do not pretend to hedge every one of those particular contracts, do you?

Mr. COLGAN. Oh, no.

Mr. HULINGS. You sell a hedge before you commence to buy at all, don't you?

Mr. COLGAN. No. Suppose you don't buy it?

Mr. HULINGS. How are you going to tell how many bushels you are going to buy?

Mr. COLGAN. You can hedge 500 bushels if you want to, but we never hedge 500 bushels.

Mr. HULINGS. I asked you about the size of the unit of a contract? Mr. COLGAN. That depends. Suppose hou have 20,000 bushels? Mr. HULINGS. You can go on the exchange and sell 10 bushels? Mr. COLGAN. No; you can not. I think you can sell 500 bushels, but I do not know of my own knowledge. We have never dealt in less than 2,000 bushels. That is the smallest unit at a time I think we have dealt in, to my knowledge.

Mr. HULINGS. I understand you can make it any size you like, but there may be some limit, to contracts I mean?

Mr. COLGAN. Yes, sir; that is my understanding of it.

Mr. HULINGS. Then you go to work and buy grain, don't you, after you have found out what price you can afford to pay? Then you say to the farmer: I will pay you so much?

Mr. COLGAN. Yes, sir.

Mr. HULINGS. At that time, when you are buying it in, how can you be insured? Suppose that spot grain goes up and the farmers will not sell at that price?

Mr. COLGAN. Well, if they do not want to sell you do not have to buy.

Mr. HULINGS. You have already bought it on the exchange?

Mr. COLGAN. If such an occurrence as that happens you have to go and sell it.

Mr. HULINGS. Then it is no insurance to you?

Mr. COLGAN. That would be a mistake on my part, would it? I would not do that intentionally. But if I made a mistake I would have to go and correct the mistake.

Mr. HULINGS. But since you can not buy 10,000 bushels of grain from any one man, and have to go and buy throughout the whole community, from the farmers, perhaps before you get the 10,000 bushels the market has changed on your hedge?

Mr. COLGAN. Well, that would be a very strange circumstance, I would think.

Mr. HULINGS. Suppose the price would be 75 cents a bushel when you started in, and you pay a man on the first allotment 75 cents, but before the other fellow came in the market had gone up to a dollar a bushel, how would your hedge be any insurance?

Mr. COLGAN. Well, really it is not clear to me what you want to know. My idea was this, if you bought 10,000 bushels of grain you would sell 10,000 bushels at the same time.

Mr. HULINGS. Well, I am just suggesting that if you have to buy from a whole lot of fellows you could not buy from all of them simultaneously, and there must be time elapse from the time you begin to buy from one of them until you buy the whole 10,000 bushels?

Mr. COLGAN. That is true.

Mr. HULINGS. During that time don't you have to run the risk of the market?

Mr. COLGAN. Yes.

Mr. HULINGS. And there is no insurance as to that?

Mr. COLGAN. Nothing that I know of.

Mr. RIDDICK. I would like to ask you how the farmers of your section of the country feel about future buying?

Mr. COLGAN. Well, a great many of them use it, so I think they must like it.

Mr. RIDDICK. I am from Montana, and the Montana farmers, almost to a man, as I get their expression, are opposed to grain gambling. I am told that that is the sentiment in Kansas and in other States. I am receiving a number of marked copies of papers indicating that farmers and papers speaking for farmers are opposed to gambling and dealing in futures. Do you think that sentiment prevails among the Illinois farmers?

Mr. COLGAN. Not in the district I come from; not around Peoria and adjacent thereto.

Mr. PURNELL. I want to ask you whether or not you agree with the gentleman who preceded you that those who deal on boards of trade in a purely speculative capacity are essential, as he termed it?

Mr. COLGAN. Well, that is a question that I feel I do not know enough about to answer.

Mr. PURNELL. I have had the idea and I am convinced in my own mind that we can, perhaps, frame some sort of legislation that will maintain the good features of the exchanges and perhaps eliminate the objectionable speculative features?

Mr. COLGAN. Well, that would be all right I would think.

Mr. PURNELL. But the last witness who preceded you said that men who are even pure speculators are necessary in order to stabilize the market. I am wondering what you think about that?

Mr. COLGAN. From what arguments I have heard here it would give me some idea and I would agree with him, because it looks to me like wherever there is that much competition, wherever there is an active market all the time, there would naturally be a better grain market, or any other kind of market.

Mr. HULINGS. Do you think if the whole bunch of us here were sitting around a blackboard, and there were shown thereon quotations from the Chicago Board of Trade, and we were betting with each other what the next quotation would be, whether a quarter of a cent up or a quarter of a cent down, that it would have any effect in stabilizing the market on grain?

Mr. COLGAN. Well, I do not know whether it would or not. As I said before, they have been doing that, and we have had pretty fair markets. If there can be any way devised to change this maybe a little, it would be all right if you can make it better. It was my understanding that there was a bill or two to abolish it and do a lot of things like that, and I want to say that I am certainly in favor of leaving it alone unless you can make it better.

I thank you gentlemen.

The CHAIRMAN. We thank you. We will hear the next witness, Mr. Devore.

STATEMENT OF MR. H. R. DEVORE, REPRESENTING THE TOLEDO PRODUCE EXCHANGE, TOLEDO, OHIO.

Mr. DEVORE. Gentlemen of the committee, I would start out by saying that our exchange in no way does any trading of its own or any grain business. We simply afford a means by furnishing trading rooms, and so forth, where our members can carry on their legitimate grain business, and our board, as a whole, are in favor of the present system of future trading. At present the Toledo Produce Exchange trades only, and in wheat futures, as far as grain futures are concerned.

For the past 23 years I have been in the grain business with my present firm at Toledo, Ohio, and we are known as a "cash grain handling concern," and do what is termed a strictly "hedging business.

Owing to the fact that we are known as hedgers, we have the confidence of our bankers, our Toledo competitors and in fact every one else with whom we do business.

I wish to say to you that without future trading we fellows at Toledo, many of whom follow our system of operations, would be absolutely lost as to how to proceed in the grain business.

The fact that I have personally made a study of the hedging business as well as the general grain business all these years, and the fact that I am learning something new about the grain business every day of my life, leads me to believe that the present agitation against future trading is brought about more through ignorance of the system than by any other cause.

It does not seem possible to me that one could expect more or less of a green hand off of the farm, or even a man who has worked around an elevator for a good many years, to be suddenly taken in as manager of a cooperative company and expect him in a year or

two to fully understand and know all there is to learn about the grain business. Of course, some such men will learn rapidly and make good almost immediately, but the majority of them will not and it can not be expected. The fact that cooperative concerns during the war period, in a great many cases, made such handsome profits, was simply because cars were scarce most of the time, and not knowing anything about the hedging business they stood long of their grain in their elevators and made therefore a great deal of money.

With my concern and others who do strictly a "hedging" business, it was different during the war period, because we did not stand long of our grain, and while we actually did do a little better one or two war years, our profits showed only a nominal increase over ordinary years, and this was due more to the fact of our doing a larger volume of business than owing to the almost continual advancgrain markets.

I wish to call your attention to the fact that while very few country grain shippers of any description out of the great number doing business, use the future markets for hedging purposes themselves, they do get a great benefit from the hedging system when they are able to daily receive bids and sell their grain to terminal markets where the buyers use the hedging system. For instance, did not the farmers receive a direct benefit from future trading when we purchased from a country shipper at Deshler, Ohio, August 9, last, four cars of No. 3 white oats, to contain about 9,000 bushels in all, at 74 cents their track, and we protected ourselves by selling 5,000 bushels of September oats in Chicago at 733 cents and 4,000 at 733 cents? These oats were purchased from the Deshler people for shipment any time between August 9 and the month of September, and when these oats were actually shipped to us the market was about 14 cents a bushel lower than when we purchased them.

I want to read two letters:

Hon. A. J. GRONNA,

TOLEDO, OHIO, January 10, 1921.

United States Senate.

Chairman Committee on Agriculture and Forestry,

Hon. GILBERT N. HAUGEN,

Chairman Committee on Agriculture,

House of Representatives, Washington, D. C.

GENTLEMEN: Having been raised on a farm, and having always owned a farm, I have always been especially interested in farmers.

If limiting the sale of futures on the grain exchanges will help the farmers, I am for it. However, my fear is that such action would harm the farmer. If dealing in futures is prohibited, there would be nothing to stabilize the grain market and the market would be subject to very severe fluctuations. Grain would flow to market at seasonable periods in large quantities and to such an extent that nothing but a sharp decline in price would stop it. At other seasons, when the farmers are busy with their work on the farm, the flow of grain would stop. This would create uncertainty and fluctuations in price, which would make it impossible for millers and cash grain houses to obtain money in sufficient quantity to do business. Under the present method of financing cash grain houses, not only the grain men, but the banks are protected by the borrowers hedging their purchases. In my judgment this practice is a great safeguard, not only to the banks and grain men, but stabilizes the grain market and is beneficial to farmers.

Feeling sure that your committee will fully investigate before taking action, we remain,

Very truly, yours,

H. C. TRUNSDALL, Vice President.

DEAR SIRS: I am taking the liberty of writing to you regarding the danger of undertaking to limit the selling of futures on our grain exchanges. For at least 50 years this bank has handled the accounts of the majority of the grain houses in this city, and feel that our experience with them qualifies us to make a few remarks on the above subject.

Practically all of our millers and cash grain houses are operating with only a reasonable capital of their own in proportion to the volume of their business. They conduct their business with a narrow margin of profit and cooperate in a way with the millers in supplying them with raw material, and absorbing whatever surplus is offered on the market. This surplus being warehoused and later exported and sold to local millers, the result being that the farmer is provided with a ready market for his product.

We have always loaned our grain men liberally on warehouse receipts as security, and have always insisted on the borrower hedging his purchases either through the sale of flour or the selling of futures on one of the grain exchanges. This being the only way that the bank can feel secure against severe fluctuations in values. If we had to cut down these loans to a basis of actual capital invested by the borrowers it would materially cut down the purchasing capacity of every one of them and curtail the market that the farmer would have for his product.

We sincerely trust that your committee will consider carefully the argument presented before taking action.

Yours, very truly,

The CHAIRMAN. Any questions?

W. C. C., Vice President.

Mr. VOIGT. You are a practical grain man?

Mr. DEVORE. I have never been in any other business from the time of leaving school.

Mr. VOIGT. What is the cost of hedging a thousand bushels of grain; I mean the cost of the operation?

Mr. DEVORE. Do you mean the commission?

Mr. VOIGT. Yes.

Mr. DEVORE. A quarter of a cent a bushel.

Mr. VOIGT. If a man sells a hedge and buys in that same hedge to close it out it costs him half a cent a bushel for the whole transaction, does it?

Mr. DEVORE. No, sir; a quarter of a cent a bushel for both transactions. Well, I will take that back as far as our concern is affected, because we have a membership on the Chicago Board of Trade, and we do the most of our trading through our board, and our commission is one-eighth. We are entitled to one-half the regular rate. An outsider pays one-quarter of a cent.

Mr. VOIGT. He makes a deposit in addition to that margin? Mr. DEVORE. I suppose if he were not known they would demand a sufficient margin to protect the deal.

Mr. VOIGT. Does he have to pay any carrying charges of any kind? Mr. DEVORE. Not on the future, if the future is not delivered. Then if the future is delivered, the carrying charges, such as elevator charges, and so forth, follow the grain.

Mr. VOIGT. So a man who wants to speculate in grain and buys 50,000 bushels is asked, or is he asked by the man he makes the trade through, whether he desires delivery of the grain?