FUTURE TRADING. COMMITTEE ON AGRICULTURE, The committee met at 10 o'clock a. m., Hon. Gilbert N. Haugen (chairman) presiding. The CHAIRMAN. Pursuant to the resolution adopted by the committee December 21 determining to hold hearings on future trading legislation, I have called the committee together this morning to consider legislation bearing on future trading. The Chair lays before the committee the various bills on this subject which have been referred to this committee: H. R. 14657, by Mr. Tincher. H. R. 14654, by Mr. Dickinson of Iowa. H. R. 14656 and 14742, by Mr. Caraway. H. R. 14667, by Mr. Steenerson. It has been suggested that some arrangement as to a division or apportionment of the time be made. Is there any one present who desires to ask for time in favor or against the legislation? Mr. SILVER. I do not know just what time we will need, Mr. Chairman, but we have three witnesses who would like to be heard. Mr. DUPRÉ. Mr. Chairman, I did not know until yesterday that this hearing was scheduled for to-day, and when I learned of it, I brought the matter to the attention of certain parties in interest in Louisiana and in my home city of New Orleans, and I am advised they would like an opportunity to be heard some time during the course of the 10 days during which I understand this hearing will last. If it be agreeable to the committee, I think next Monday would be a satisfactory time for this committee to be here. I do not imagine they would consume very much of the time of the committee when they arrive. I would like to fix a late date, if possible, so that they may have an opportunity to come here. It takes about 48 hours to get here from New Orleans. Mr. MCKINLEY. I move that they be heard, Mr. Chairman. Mr. HULINGS. I move, Mr. Chairman, that the request of Mr. Dupré be granted and that Monday be fixed as the time, if that is convenient. The CHAIRMAN. It has been suggested that the time allotted to these hearings be divided between the proponents of the legislation and those opposed to it. If that is agreeable to the committee, without objection such an agreement will be carried out. Mr. DICKINSON of Iowa. Mr. Chairman, is there any one here appearing in opposition to the bill at the present time? The CHAIRMAN. Is there anyone present who desires to appear in opposition to the legislation? Mr. DICKINSON of Iowa. Could not a division of the time be agreed upon until some one arrives here who wants to oppose the bill and take time in opposition to it? Mr. MCLAUGHLIN of Michigan. Is there any one present now who has come here for the purpose of opposing the bill? Mr. DUPRÉ. I imagine my words could be construed. Mr. MCLAUGHLIN of Michigan. But Mr. Dupré, I suppose, wants to advise his people. Mr. DUPRÉ. I would like to be able to advise them with reasonable certainty. I can advise the gentlemen that if they will be here by next Monday the committee will hear them or give them such proportion of the time allotted to the opposition to the bill as may be agreed upon. The CHAIRMAN. How much time will they want.? Mr. DUPRÉ. I can not forecast that now; I imagine an hour or so. Mr. MCKINLEY. I move that Mr. Dupré's committee be allowed to appear for two hours on next Monday. Mr. DUPRÉ. Of course, they may not consume the whole time. (The motion being duly seconded, prevailed.) Mr. DUPRÉ. Next Monday at 10 o'clock, I presume. The CHAIRMAN. From 10 to 12 o'clock. Mr. DUPRÉ. Thank you very much. The CHAIRMAN. Mr. Osborne, of California, desires an opportunity to be heard. He will have some parties here from California. I believe representatives of the Pacific Cotton Exchange, who desire to be heard on his bill. Without objection, a hearing will be granted to Mr. Osborne and the representatives from his State next Monday afternoon or Tuesday morning. We will hear Mr. Silver now. STATEMENT OF MR. GRAY SILVER, WASHINGTON REPRESENTATIVE OF THE AMERICAN FARM BUREAU FEDERATION, 1411 PENNSYLVANIA AVENUE, WASHINGTON, D. C. Mr. SILVER. Mr. Chairman and gentlemen of the committee, my name is Gray Silver, I am the Washington representative of the American Farm Bureau Federation. The members of this federation feel aggrieved at certain practices that obtain upon the grain exchanges, and in endeavoring to bring more light to bear on that subject and to play by note rather by ear, have appointed a committee known as the committee of 17, which are investigating that subject for them. This committee is not yet ready to report, but in the meantime there are members of farm organizations here who are doing work that has to do with and comes in contact with the results of these practices to which I referred, and I would like to have those gentlemen heard. I would ask that you first hear Mr. Middleton, of the Farmers' Elevator Co. of Iowa. The CHAIRMAN. We will be glad to hear Mr. Middleton. STATEMENT OF MR. A. L. MIDDLETON, OF EAGLE GROVE, IOWA. Mr. HUTCHINSON. Mr. Middleton, what is your business? Mr. HUTCHINSON. Do you represent any organization? Mr. MIDDLETON. I will testify here as president of the Eagle Grove Farmers' Elevator Co., Eagle Grove, Iowa. We have been in business there since the year 1906 as an elevator company, a cooperative company. This company is owned by 268 farmers, I believe, at the present time, tributary to this point and have their grain handled by this company. We have had the experience during those years of competing with numerous line companies and also one private company from the beginning of our corporation's existence. Mr. HULINGS. Mr. Chairman, my I ask some questions. The CHAIRMAN. Certainly. Mr. HULINGS. What are the comparative rates between your company and the competing companies? What does it cost you there? Mr. MIDDLETON. What does it cost us to operate? Mr. HULINGS. Yes. Mr. MIDDLETON. Well, I will go back to the beginning and give you a little picture Mr. HULINGS (interposing). I mean just at the present time. Mr. MIDDLETON. At the present time I could not tell you what the rate of our competitor is, because our competitor is a company that gives us no information. All I can judge of them is the price they pay and to give you a picture of the dealings, I would like to go back to the time when we organized and just give you a short statement of what we knew to be their rate at that time and what we charged as our rate following that time. Mr. MCLAUGHLIN of Michigan. Would it not be advisable for the committee to make his statement first? The CHAIRMAN. Would you prefer to do that? Mr. MIDDLETON. In regard to the effect of future trading? Mr. MCLAUGHLIN of Michigan. My idea was for you to make the statement first that you came here to make. Mr. MIDDLETON. All right; I will do that. Mr. MCLAUGHLIN of Michigan. And then the questions can be asked you. Mr. MIDDLETON. The statement I wish to make regarding the bill and its effect upon us will be this: As farmers we have had experiences since our entrance into the grain trade that have biased us, if I might put it in those terms, against the practice of selling futures or even hedging there at Eagle Grove. We have had companies about us there that have permitted their managers to use the hedge which is considered legitimate by our grain trade. We have had many of them granted that privilege by their board of directors; men that did not understand the hedge; men who in a measure were afraid of it. Their managers are given leeway, many of them too much, and the temptation has been placed before these men after they are given the privilege to hedge the grain they buy and have on hand to speculate. They oftentimes will carry their hedge after they have sold the actual grain that was in their elevator and, of course, as soon as they sell the grain they have on hand, if they hold the hedge they have on the exchange, it becomes a speculation, and it has had a demoralizing influence on many of our managers that have gone wrong and eventually have broken the company. I could cite you several instances of that kind; one that happened two years ago at Plover, Iowa, a company that was a well-organized company and had done a splendid business. They employed a new manager and gave him the privilege to hedge. This man carried it on and handled it as a speculation. His board did not keep a check on him and the result was that in one year's time after he took charge he had the company absolutely broke, their capital all gone, and they closed up. Case after case of that kind has taken place. I could name you another one at Renwick, Iowa. They had two experiences there along the same line. So we have been careful about the hedge. Our company never hedged until three years ago. Our board had ordered our manager not to hedge. About three years ago we laid the matter before our stockholders as a board and they voted at our annual meeting, instructing us as a board of directors to use the hedge when our board, after consulting with our manager, deemed that conditions warranted it. We have placed our hedging in a way so that we keep in touch with the manager. He is a man whom we have found to be reliable. A few times when the exchanges were opened for hedging we have used the hedge. We used the hedge during the past summer after the exchanges were opened. We were absolutely unable to get cars. We established our company, not with the object of making a large amount of money on the investment we have in our corporation, but for the purpose of enabling our farmers to secure the best possible market for their grain. We have the farm to produce and we have that cooperative marketing organization to put our product on the markets, and the big thing is to put that product on the markets so that it will give us the best return for our labor and our feeds, and when our market is open it is always open as long as we have any bin room in our elevator. We could not get cars during the summer. Our elevator was filled with corn. Our farmers were anxious to unload. They needed the money and the price was satisfactory and our elevator was filled. We permitted our manager to hedge. He attempted to. for June delivery, but the trouble was that the hedge was short and we could not get cars to deliver. He could not unload, in the meantime. When he attempted to renew his hedge he found that there was a spread between cash and future which was unusually wide. It reached a point where there was a difference of 20 cents between cash and future. Cash was 20 cents higher than future. It placed our manager where there is only one thing to do. He had to buy back his hedge. He bought back the hedge and the result was they dumped the cash corn on him in the exchange and the props were taken from under cash corn and he had that cash corn on his hands and had to unload it. He took his loss of 20 cents a bushel on that corn and still had his corn in the elevator. That was our one experience with the hedge, and I believe it will be our last. Now, we do not make a practice of hedging regularly. We had that experience. There are other experiences where it runs uniformly, and if the spread does not vary, it is said to be a form of insurance. The general effect on the average manager of handling hedges is to break down his prejudice against speculation and he is led to break over and speculate with the money of the cooperative |