Mr. SPAULDING. He feels about the way I said, I think. Do you mean feels about whether a man should protect himself who buys or not?

Mr. PURNELL. Yes.

Mr. SPAULDING. He hesitates to leave for storage any amount of grain not in a concern which is known to protect itself at all times, and not speculate as a concern.

Mr. PURNELL. The thing I am most concerned about in these hearings is the purely speculative end of it. It seems to me that the consensus of opinion as expressed by the most of the witnesses is, that there are good features about this present system of marketing. Therefore the matter I am concerned with is whether or not the farmer wants the speculative features maintained, and whether or not he is benefited by them. And when I say speculative features, I mean the purely speculative features, the deals made by men who have no grain and never expect to have any grain.

Mr. SPAULDING. The farmer wants a market where he can sell the actual stuff, or if he still wants to hold it he can buy a future. If he still wants to hold it, or wants to gamble, whereby he can get the money himself.

Mr. PURNELL. You think if he profits by it he does not care what happens?

Mr. SPAULDING. I did not say he profits by that chance. It might encourage him to speculate. I will not say about that as I do not

know.

Mr. PURNELL. Do any of your farmers do any hedging themselves. Mr. SPAULDING. Yes, sir.

Mr. PURNELL. That is, they hedge their grain that is on the farm; I mean they hold it on the farm and then sell a hedge against it?

Mr. SPAULDING. No; the way they generally use the hedge is to sell it to protect themselves against the future decline, or to get 80 per cent of the money to use, and still get the advantage of a possible rise.

Mr. PURNELL. What percentage of the producers in your section use the hedge?

Mr. SPAULDING. Oh, probably 10 per cent, and they are mostly people who deal in larger quantities; not the man who raises 1,000 bushels, but the man who raises 10,000 or 20,000 or 30,000 or 40,000 bushels.

Mr. PURNELL. Another thing I am interested in, in connection with these hearings, is to determine, if possible, whether or not the market is actually affected by speculation or manipulation to the detriment of the producer.

Mr. SPAULDING. I could not say whether the market could be manipulated to the detriment of the producer or not. I do believe that the fact of the speculator having a chance to bet or speculate or invest, whatever you want to call it, broadens the scope of the market, and it gives the producer a chance always to have somebody to buy. Without him there would be times when the large mills and the large terminal elevators might not be in the market, for some reason or other.

Mr. PURNELL. The principal objection seems to be that there always exists the possibility that men of large means buying and

absorbing large quantities of commodities, and thereby forcing the market down or forcing it up quickly, and that they may do so to the detriment of the man who actually grows the stuff, or, more particularly, by forcing it down at the time when he has to have something on it, has to sell his product.

Mr. SPAULDING. Well, there is no time in our section of the country when the farmer really has to sell, because the most of them are fixed so that they can hold the bulk of their product if they want to, at least a part of the time, unless there is practically a crop failure. Then the so-called manipulator, from the farmers' standpoint, works to his advantage, because he often, pointing to a crop failure, manipulates it for a rise. That is the reason the farmer likes him. They would not like the manipulator who would try to depress prices, if it could be done.

Mr. PURNELL. You do not want to see the present system disturbed?

Mr. SPAULDING. I do not want to see the present system seriously disturbed; no, sir.

The CHAIRMAN. Any other questions?

Mr. SPAULDING. I wanted to explain, if you were interested, how the option assisted me this particular year.

Mr. VOIGT. As a grower?

Mr. SPAULDING. Yes, sir. Now, it seems that every farmer who is a shipper and ships his own grain to obtain the full benefit of the competitive-sample market in Minneapolis, or in Duluth, but principally Minneapolis, handles his car there, so that they can see the samples. It goes on a to-arrive basis from the country, 20 days delivery, and there are very few people who bid for it on that basis. The CHAIRMAN. Is there a uniform rule of 20 days?

Mr. SPAULDING. Yes, sir.

The CHAIRMAN. Does that apply to all markets?

Mr. SPAULDING. Yes, sir. There are specific times when you can get extensions, but these to-arrive bids have always been 5 cents under the competitive price, and in order to get the highest competitive price, or the only way it can be done, would be if the man was satisfied with the general price, say, $2.50, and if he were satisfied with that, he could sell his hedge and ship his car in, and by reason of its being sold on the track yesterday, get 5 cents more, and purchase back an equal amount. That is the reason it helped me as a farmer this year to the amount of $1,000 at least. If they would bid to arrive, as they will when put on a competitive basis, and have open markets at all times, it would make some difference to the farmer. He does not possibly because most people won't use that kind of wheat. That is the point I had reference to.

The CHAIRMAN. Your contention is that you can get 5 cents more for your wheat by hedging than by selling to arrive?

Mr. SPAULDING. Yes, sir; because it gives me a chance to get the full premium.

The CHAIRMAN. We thank you.

Mr. SPAULDING. And I wish to thank you for this opportunity. The CHAIRMAN. We will now hear the next witness, Mr. Stratton.

STATEMENT OF MR. H. M. STRATTON, PRESIDENT OF THE CHAMBER OF COMMERCE, MILWAUKEE, WIS.

Mr. STRATTON. Gentlemen of the committee, the Milwaukee Chamber of Commerce is one of the oldest grain exchanges in the West. It is not at present one of the leading future markets, but it is a very considerable cash market, and handles from 70,000,000 to 99,000.000 bushels a year of spot grain.

We are opposed to all legislation that will restrict trading in futures on the exchanges as it is now practiced, because we believe that the exchanges are performing an important public service. I think the grain-marketing methods, which include trading in futures, which have been developed under conditions of the keenest competition over a period of from 40 to 50 years, are economically sound and provide for the flow of grain and its products from the producer to the consumer at the very smallest margin of profit.

We think that in order to have a successful market you must have big crops, but the most important thing is keen competition. We do not believe that that competition is possible if there is no opportunity of hedging grain in the sale of futures. We do not think that the banks will finance the small dealer unless the banks know that they are protected and that the dealer is not standing to take a big market loss. So if the small dealer is not able to carry on the grain business as he is to-day, if he can not get the money to finance that business, it is reasonable to suppose that in a very short time the business will be in the hands of a few large concerns, of great financial resources, and that the margins between producer and consumer would be very much larger.

At the present time we all know that we have nothing like trust control in the grain business. There is no other line of business that I know of where the competition is as keen as it is to-day in the grain business. We believe that is because the small dealers, who have ability and integrity, are able to go to the banks and borrow a great deal more money to engage in the grain business than they might be able to borrow for almost any other line of business. No doubt that is partly true because it is considered first-class collateral in itself; but the banks would not loan anything like the amounts that they now loan to grain handlers unless they felt sure that those handlers were amply protected against market losses. If they did they would get sick.

We in Milwaukee are engaged in buying and shipping grain very largely, buying it in the West and shipping it to eastern points. We handle some wheat but more corn and oats than anything else.

A point has been made here to the effect that the southwestern elevator owners do not hedge in the sale of futures. We make a practice of putting out so-called card bids overnight to the country elevator people. We also put out overnight quotations to buyers in the East. The southwestern people, I think pretty generally, instead of hedging their purchases by the sale of futures, sell their grain on card bids to arrive to people like ourselves, who are engaged in the marketing of that grain and who put out bids overnight. In the Southwest they get daily bids from exporters and from millers and from terminal elevator operators. We are engaged in putting

out just that sort of bids. I think we are typical of those houses who do that regularly.

I want to say that if we were not able to hedge our purchases, should they exceed our cash sales, which they frequently do, we would not be able to put those bids out in the country without figuring on a very much larger margin of profit than we do at the present time. I think all grain dealers when they speak of hedging do not mean that they hedge every transaction that they enter into, but they either buy or sell futures to even themselves up on the market as they go along.

If we were to put out card bids all over the West to-night and were to buy 100,000 bushels of grain, and if we were at the same time to put out quotations to our customers in the East who buy from us and were to sell only 50,000 bushels overnight, we would sell 50,000 bushels in the future market with a hedge against our excess purchases. Or we would perform the reverse operation if we happened to sell more overnight than we bought.

My experience has been that we never find that the country is disposed to sell grain and the eastern trade is disposed to buy grain at one and the same time. Our purchases and sales very seldom match up. We find that if we are to get the business at all we have to sell the eastern buyer grain when he wants to buy it. We can not tell him when to buy it. And we have to take the grain from the western shipper when he wants to ship it; and that means the farmer, when he is ready to sell it. It very seldom occurs that these two trades will match up; that is, the western farmers will not be willing to sell at the time the eastern people are buying.

The result is that we have inquiries from our customers in the East for corn or oats to be shipped four or five months later. We will figure out a price and sell it to them and protect ourselves by buying a future that most nearly corresponds to the time of delivery specified in our sale.

On the other hand, a great deal of grain is offered in the West at a time when we are experiencing no demand from the East, but we will buy that grain and pay the market price for it and protect ourselves by selling futures. In that way we even ourselves up all the time and take no unusual hazard of a market loss.

It is for that reason that the banks will loan us a great deal more money than they would if they thought we were standing open on large purchases or sales.

On yesterday Mr. Voigt, I think, asked some questions about the commissions involved in this tremendous speculative trading which does not represent actual deliveries. I have outlined here a typical shipment of cash wheat from the country to the ultimate consumer with a view to showing you just what that wheat would have to stand in the way of margins all the way through. A typical shipment of wheat would be sold by a farmer to a country elevator man, who might be an independent elevator owner or a line-house elevator operator, or a cooperative elevator operator. We will say that he sends it to the terminal market to be sold by the commission man. He might sell it direct to a miller, but we will take the longest route. The commission man, when it reaches the terminal market, will sell it to a miller or to a terminal elevator.

The CHAIRMAN. When you say the longest route you mean the usual route, do you not?

Mr. STRATTON. I want to give you what would be involved in as long a transaction as we can get. The commission man will sell it to a miller or to a terminal elevator operator at the terminal market. If he sells it to a miller, that miller may sell it to a wholesale grocer or to a flour jobber. That wholesaler will sell it to a retailer, and the retailer will sell it to the consumer.

Of course, we know it to be a fact that frequently the miller sells to large bakers direct, and that would eliminate two of those people from the transaction. We also know that it is a fact that frequently the country-elevator man would sell to the miller direct. In that case only three people would be involved. But if it takes the longest route there would be six transactions in a typical shipment of wheat from the farmer to the consumer. If it were sold to a terminal-elevator man at the market instead of to the miller, he probably would in turn sell it to an exporter at the seaboard, or he might sell it to a miller located farther east, who in turn might sell it to a wholesaler and then to a retailer and then to the consumer.

The CHAIRMAN. You mean by selling it to a wholesaler after it is manufactured into flour by the miller?

Mr. STRATTON. Yes, sir. He might sell it to a wholesale grocer. I do not say he will, but on a big-volume transaction he might. The point I wish to make on that is that, even though there might be involved a tremendous lot of speculative trading, that much of the commissions are paid by those involved in them, and are not a direct charge against the grain, and are not borne by the producer or the consumer. Those trades pretty well even themselves up, and those who are engaged in the trading pay the expenses.

Mr. VOIGT. Maybe you did not get the point that I tried to make. We all know that there is a great deal of gambling going on on the exchanges. You know and I know that men speculate in wheat who never expect to see the wheat. They are simply speculating and gambling on the future price. For instance, suppose that I think wheat is going up, and I am speculating. I go to my broker and tell him to buy me so many thousand bushels of wheat, and I deposit a certain margin. Now, then, if my guess comes through and wheat goes up 2 or 3 or 5 cents a bushel, I am satisfied with my profits, and I order him to close it out, and I take my profit. Of course, I do not ever expect to see any wheat, and the man who was on the other end of that deal, or to whom that deal might have been transferred, did not ever expect to see any wheat. You will admit that any number of such transactions are made on the exchanges, won't you? Mr. STRATTON. Yes; they may be.

Mr. VOIGT. Why do you say they may be?

Mr. STRATTON. Well, I say that, Mr. Voigt, because you say the man who buys it from you does not expect to ever see it, and in fact he may expect to see it.

Mr. VOIGT. He may expect to see it; but you know, as a matter of fact, that in millions of such cases neither side to the transaction ever contemplates any delivery of wheat?

Mr. STRATTON. Well, delivery is contemplated in the contract, but I admit that a very large volume of trading is purely speculative,