elevators, mostly in Iowa, some in South Dakota, some in Nebraska On last Saturday, January 8, he wrote me

Replying to your inquiry as to what action has been taken by the legislative committee in regard to legislation now in Congress relating to future trading, etc, and its attitude with reference thereto, would state that the committee are, broadly speaking, absolutely in favor of the present system of the commercial distribution of grain, the economic functions of the grain exchange, the open market, future trading, hedging, and speculation within reasonable limits. The committee, however, is of the opinion that excessive and pernicious trading is being done in the pits of the Chicago Board of Trade by a very few large individuals and corporate interests, and that such excessive trading is not essential and does not perform an economic service.

The committee is of the opinion that there should be a limit established that will prevent an individual speculative trader from going into the pits and selling millions of bushels of grain when the volume of grain in flow and in terminal storage is exceedingly low, as at the present time, as under such a condition the trading in the pits by the individual trader is exceedingly detrimental to the interests of the country trade who may attempt to make use of the market for hedging purposes.

We feel that speculation so far as necessary should be done by traders widely scattered over the country, instead of confined to the speculative element in the pits, for the reason that the trading done by a large number of speculators widely scattered does certainly reflect local as well as general conditions as to crops, etc., whereas the trading by the large individual speculative trader in the pits reflects his own pernicious ambition to manipulate the market for profit.

I can not state definitely, but it would seem to be the sense of the committee at the last meeting that it defer taking any action until after March; and it was the hope of the committee that the directors of the Chicago Board of Trade would immediately establish a regulation within itself limiting the amount of future trading by any individual, firm, or corporation at a reasonable point and still give sufficient latitude for hedging purposes,

Mr. MCLAUGHLIN of Michigan. What is that committee that he speaks of?

Mr. MCFARLIN. That was a committee of the Western Grain Dealers' Association. It consisted of Mr. Wells and the president of the association and a couple of others. I think there were four of them went to Chicago to consult with them.

I was interested in your distinction between speculation and manipulation. I think that covers the ground. I think the bad effects of these operations come from the manipulation, not the speculation. I think that has been demonstrated by the gentlemen representing these exchanges-that speculation, a volume of it, is good, because it equalizes and enables us to sell when we wish at any time. But the large operators, sometimes called plungers, who go in and carry through large operations-my understanding is that those operations and the fluctuations of the markets up and down have quite a tendency to keep people from hedging who would othervise hedge stuff that they are carrying. I have known instances when men have lost on their hedges and on their cash grain, too.

I know that some of my good friends on the Chicago Board of Trade would probably take exception to what I say, but all the same, it is my conviction that private wires put into country towns are not a good thing. I think I am safe in saying that 95 out of 100 bankers in country towns will tell you that they do not want a private wire to come into the town. If I am borrowing money at a bank and they find out I am dealing in options on the board of trade, it would very seriously affect my credit.

Mr. MCLAUGHLIN of Michigan. And in Minnesota a banker will not lend a man money unless he does.

Mr. MCFARLIN. That is hedging; I am speaking of speculation. Mr. MCLAUGHLIN of Michigan. It is just the same thing-with a limit. It is speculation with a limit, isn't it?

Mr. MCFARLIN. Oh, no.. If I have 50,000 bushels of oats that I have in storage, and I am a little afraid of the market, especially if there is a premium on the future, and I choose to sell it for future delivery, that is hedging.

Mr. MCLAUGHLIN of Michigan. But in that hedging transaction you do not sell those oats at all; you simply bet on what the market will be at a future time.

Mr. MCFARLIN. But it is insurance.

Mr. MCLAUGHLIN of Michigan. Isn't that true?

Mr. MCFARLIN. Oh, to a large extent; yes.

Mr. MCLAUGHLIN of Michigan. Well, let us get down to brass tacks.

Mr. MCFARLIN. Very little of the grain is ever shipped, but it is a protection, because the supposition is that as the option varies up and down the cash follows it.

Mr. MCLAUGHLIN of Michigan. I am not using that expression in opposition to the idea that these gentlemen have advanced here, but just to clarify the situation. It may be an entirely proper and necessary proposition, but it is not dealing in grain at all; it is a gamble and a bet on what the price is going to be at a future time.

Mr. MCFARLIN. Down there in Iowa all during the fall the cash oats and corn were at a premium over the option, so that it was really against a man to sell a future against his purchases. And then, as I say, we have no trouble in selling our stuff, except we had trouble during the terrible car shortage, and that probably won't happen again. During those times we were very handicapped, ordinarily, under normal conditions, we can always sell our stuff. We can sell oats for 60 days' shipment, and have been able to, and get generally fully as good a price as the option.

but

All I am saying, gentlemen, is this: I recognize that the grain exchanges are great institutions, and also recognize that a volume of business is necessary to perform the legitimate operations on them. I am just giving some of my own ideas.

The CHAIRMAN. As I understand, you are not against future trading, but you are in favor of regulation?

Mr. MCFARLIN. That is my idea, Mr. Chairman. There has been considerable discussion here this afternoon that I have been interested in about the amount delivered on future sales. I have made inquiry of different people and come to the conclusion that the trading in the pits in Chicago, especially-95 per cent of it is other than hedging sales.

Now, there is a difference between hedging and selling a future and delivering the grain on that contract. I have heard grain men say, "Oh, I think that is rather extreme "-95 per cent that do not hedge-but I think I am very safe in saying that 90 per cent of it is other than hedging.

The CHAIRMAN. Would you be in favor of a limitation such as was in effect during the war limiting the exchanges to 200,000 bushels?

Mr. MCFARLIN. Mr. Chairman, I discussed that in Chicago with two or three different men, and they seemed to think that that did

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not during its operations prevent the fluctuations up and down. Mr. Wells has suggested that if 200,000 was too small an amount that we make it 300,000 or 400,000.

The CHAIRMAN. But you think some limit should be fixed?

Mr. MCFARLIN. In view of stopping this manipulation, or what might be called plunging.

Mr. VOIGT. The man who wrote these letters that you introduced is of the opinion that the amount of trading that an individual can do on one day should be limited?

Mr. MCFARLIN. That is my understanding, yes; that is, to prevent these big operations in buying and selling and manipulating the market.

Mr. VOIGT. Have you any hope, personally, that the Chicago Board of Trade would ever adopt such a rule?

Mr. MCFARLIN. If I was a member of the board, I would advise it for self-preservation.

Mr. VOIGT. You do not think they are going to do it, do you?

Mr. MCFARLIN. I have talked to some of the best men on the board. I have heard the testimony and you have heard the testimony this afternoon that they acknowledge some things probably ought to be modified and changed.

Mr. VOIGT. But they do not say what those things are?

Mr. MCFARLIN. No. I have talked with men on change about these indemnities-they used to be called "puts and calls." I find they are not traded in in Minneapolis or Toledo, and I do not know as they are traded in any other market except Chicago. I have not seen in the market's gossip more than once where the buyer or seller of those privileges would come in and have an influence on the market. Those men in Chicago can explain that better than I can. It is rather a technical process that I have never cared to learn; I never dealt in one in my life.

Mr. VOIGT. But the Chicago Exchange works without the rule limiting the amount that an individual could trade in on any one day that would necessitate that every time a man gives an order to buy or sell his name is to be given to the man making the other end of the deal?

Mr. MCFARLIN. I suppose it would.

Mr. VOIGT. That would necessitate every man's name who deals in grain being exposed?

The CHAIRMAN. I imagine it would be somewhat difficult to keep track of that, but that could be done.

Mr. VOIGT. Well, suppose now you had a rule that no man could trade in more than 500,000 bushels. Suppose he was a gentleman who wants to trade in 2,000,000 bushels. All he would have to do would be to name three dummies. That would get around the rule, would it not?

The CHAIRMAN. Many laws unfortunately are violated, more or less, I guess. The prohibition law is, surely. [Laughter.]

But I have in mind about the great boards of trade and exchanges that they ought not to hang out and oppose any reforms or changes if there are any. The great banking business has had to come under pretty strict laws and regulations. I well remember when we went through about three years of contention with the Government on the establishment of the Federal trades that grain and grain inspec

tion, and it came through in good shape and it was a mighty good thing. I do not think there is any grain men in the country who do not recognize that it is a very good thing-that is, the establishment of the Federal trades and the supervision that is given by the Government, as the Government does not actually do the inspecting, but supervises it and sees that it is done regularly-and I believe that there could be some changes in the methods in Chicago and on the various exchanges that would have the benefits.

The CHAIRMAN. You would limit an amount to the quantity actually delivered, would you not? You would fix the actual delivery?

Mr. MCFARLIN. Oh, no.

The CHAIRMAN. But you would limit the amount in excess; that is, for speculative purposes?

Mr. MCFARLIN. I would say this, Mr. Chairman

The CHAIRMAN (interposing). A fellow buying a million bushels and expecting it to be delivered. You would not limit him to 200,000 bushels, but to his requirements?

Mr. MCFARLIN. That is right.

The CHAIRMAN. But you would limit the amount above the amount actually required to carry on his business?

Mr. MCFARLIN. I would understand the idea to be a less speculative element outside of hedging. Now, a fellow buying a future for wheat, as I understand almost all of that is done by the millers with the expectation of taking the wheat for delivery; and that trade against a flour sale is a hedging sale.

The CHAIRMAN. You would not limit the actual legitimate hedging at all?

Mr. MCFARLIN. No; surely not.

The CHAIRMAN. But the amount in excess of that you would put a limit on?

Mr. MCFARLIN. That would be my idea.

STATEMENT OF MR. L. W. FORBELL, NEW YORK PRODUCE EXCHANGE, NEW YORK CITY.

Mr. FORBELL. My name is L. W. Forbell, New York Produce Exchange.

My statement will be very brief, if it is possible.

Before making any statement I wish to subscribe in the main to the statement read here by Mr. W. S. Moore, of Duluth, which I consider one of the clearest and most concise statements of the situation that has been given in this room, and I say that without casting any reflection on any other statement that has been made by representatives of the exchanges, as I think all of them have been excellent in themselves. But that statement by Mr. Moore represents more fully the views that I hold and which I think are generally held in all markets; in fact, it would not surprise me that those same views are held in all other markets.

The New York Produce Exchange is not a speculative market. We have no wheat pit or corn or oats pit. We have a cottonseed oil market, which is the only speculative market in the country of that nature, and that is the only speculative market within the walls of the exchange. Nevertheless, a very large speculation in all grains

is conducted by the membership of the New York Produce Exchange and their customers.

We are an exporting market, clearing the largest amount of grain, I think, of any seaboard market, although that condition may change in some years. I would not be surprised but what this year the Gulf ports, particularly Galveston, would show a larger exportation of wheat than the port of New York. But taking it through a series of years, the port of New York probably clears more grain for abroad than any other seaboard market.

Now, in consequence of that most of the largest exporters of this country are located at New York. They not only buy for shipment from the port of New York but all other ports as well, but their operations are conducted at New York.

Foreign orders are received by them at times for enormous quantities of grain, be it wheat, corn, or oats. That grain is not always available for the time of delivery called for by the foreign inquiry. It is necessary, therefore, in order to accept the foreign bid-which may have been on the basis of an offer made by them to Europe the night previous-for them to cover that sale by a purchase of futures. That is the almost invariable rule where the cash grain is not immediately available.

In turn the futures is exchanged for the cash grain when the time of delivery or approach to that time occurs. Consequently the contention of the futures market is of primary importance to our exporters. It is of primary importance to the European buyer on that account; otherwise he would not be able to buy his grain as advantageously should trading in futures be eliminated or restricted to such an extent that it would require a much larger margin than at present prevails between the buyer and the seller-that is, between America and Europe or between the West and the eastern seaboard.

We do not think that the operations in futures can be conducted successfully-that is, for hedging purposes-either in hedging the purchases of grain by the western dealer as it is bought from the country dealer or the farmer or, on the other hand, sold abroad, unless there is a free and open market that is of sufficient dimension to absorb the offerings by hedging purposes or to provide sufficient protection to the exporter who is selling the grain abroad. We therefore think that it would be a grave mistake to change the system that has endured for so many years, and on the whole with general satisfaction, and has enabled the grain trade of the country to be conducted on probably the most economical basis that could be brought out.

I do not know of anything else that occurs to me at the moment with which I could amplify that statement. But there are various phases of the situation that appeal to one always that are afterwards brought out.

STATEMENT OF MR. FRED F. MUNSON, ARCOLA ELEVATOR CO., ARCOLA, ILL.

Mr. MUNSON. In our territory, which is the corn and oats territory, we have made a practice of purchasing corn early-in August and September. There not being any cash market, of course, we have had to take advantage of the hedge to sell the option against our cash purchases.