STATEMENT OF MR. D. L. BOYER, MEXICO, MO., REPRESENTING MISSOURI GRAIN DEALERS' ASSOCIATION.

Mr. BOYER. Mr. Chairman and gentlemen, our purpose in requesting the privilege of appearing before this committee was not to approve or condemn the present system of future trading, but to state briefly the general effect any legislation which would restrict the volume of trading to an extent of affecting legitimate hedging operations.

The volume of purchases and sales for future delivery in our smaller hedging markets is not greater than is sufficient to take care of ordinary hedging operations. In this statement I refer particularly to the St. Louis market, because of the fact that it is our principal wheat market, and for that reason I am more familiar with it than other hedging markets.

Should purchases and sales for hedging account only be permitted in the St. Louis market, it would cease to be a market for future delivery and as such would completely dry up, as happened in Toledo, Ohio, which would materially affect it as a cash grain market.

Our producers and other producers in the territory tributary to the market would be seriously injured, as elevators and mills in this market would be handicapped by the hazardous procedure of hedging in Chicago, which would be their only alternative, presuming, of course, that there would still be a sufficient volume in the Chicago market to permit of hedging operations.

That, gentlemen, is all I have to say. If there are any questions the gentlemen of the committee would like to ask relative to my statement, I will be glad to try and answer them.

Mr. TINCHER. We are very glad to have had you here, and we are under obligations to you. I have no questions.

STATEMENT OF MR. JOHN O. BALLARD, ST. LOUIS MERCHANTS' EXCHANGE, ST. LOUIS, MO.

Mr. BALLARD. Mr. Chairman and gentlemen of the committee, the members of our organization feel very apprehensive in regard to any action that would seriously affect hedging operations. We believe that it will prove detrimental to the producer and to the consumer, and eventually result in the grain trade of this country falling into the hands of a few strong interests.

The handler of grain receives a much smaller compensation than is received by the dealer in any other commodity, and that is due to what has been termed here a constant market.

I will give a specific case. Our firm has recently been buying corn in Nebraska. These people go to St. Louis on a margin of profit of about three quarters of a cent a bushel. We would not undertake to handle it for anything like that small margin if we were not in a position to hedge this grain when purchased, and also the ability to handle it in considerable volume. Such of this grain as has arrived has gone into the hands of the consumers and exporters.

If when we bought this grain we had to depend on another hedger, that is a man who came into the market to buy as a hedge, we might have to wait before we could get a purchaser, and then we would have only half of the transaction; we would later have to take off our hedge when we undertook to sell it.

If we had no facilities for hedging, even with the present low price of corn, gentlemen, we would not undertake to buy it at 10 times the profit I tell you we are getting. I firmly believe and I am a bull at heart, I have no stomach for short selling that if you prohibit short selling and encourage purchases only for long account, while that will temporarily and for a certain period give you a strong market, there is no question in my mind but what it will give you quite an advancing market-I believe the commodities under those conditions will go above their actual value-but in doing you so would create an unwieldy and scattered long interest in the market. It is always full of danger. And when liquidation periods came around, or when it became necessary through various developments which are bound to arise from time to time, or when it became desirable for these men to get out of their long contracts, I feel sure you would have very drastic contracts. In fact you would have demoralized markets, because there would be no stabilizing influence: there would be no constant interests.

The grain exchanges simply furnish machinery for handling, buying, and selling cash grain, and also buying and selling for future delivery; and I know positively that a large per cent of the influential members of the grain exchanges were very apprehensive about resuming trading in wheat when the Grain Corporation expired. I was one of them, and I advocated against it strongly. We have this abnormal condition. A great many people who were well posted in the trade thought that in 1917, when the British bought up our wheat, that wheat might go to $2 or $3. In that case we would have had the consumer on our back. Then, of course, we would have a period of readjustment to go through, when of course the producer would be dissatisfied.

I have heard it stated here that the wheat crop sold 14 times over before it was thrashed, in one case, or before it was harvested in another case. As a matter of fact, wheat was moving in large volume in St. Louis and other southwestern markets before July 15, and during the early weeks or the first two months after wheat_trading was resumed we had a demonstration of a hedging market. Speculators kept out of the market. There was practically no speculation in the early part of the trading in wheat, and I have never seen a more unsatisfactory market, where the fluctuations were wider. A small order would frequently turn the market sevearl cents; in fact, an order for the minimum amount would frequently turn the market 2 cents either up or down.

I have heard comment here about the large percentage of trades in the Chicago market and this would apply to other marketsof a speculative nature. I do not think that that can be determined. If an exporter finds a good outlet for stuff and he is selling, he is not telling his competitors about it, and when he gets orders for hedges to be put on the market he wants his commission man to keep that to himself, and the commission man knows that. The same thing is true of the miller. It is true in all lines. It is true in manufacturing lines as well as in the grain line, but particularly true, probably, in the grain line.

I am going to mention another specific case. In the last two or three years we have bought and carried as much as half a million bushels of corn for an exporter who had sold his corn to the West

Indies, and he made his contracts frequently 8, 9, and 10 months in advance. Yet there is argument against the 60-day contracts. He does not want that corn in Chicago; he could not use it in Chicago, but he felt it was of advantage to carry the hedge in the Chicago market. That hedge was turned over several different times from one man to another, and finally when time for shipment came he would buy his material in St. Louis or in the territory tributary to St. Louis, on top of his hedge.

In regard to the Argentine and the statement that the market there is controlled by three or four very rich concerns, I think it was about two years ago I saw that the quotations in the Argentine were materially under ours, and I gave a Chicago house an order to buy some grain for me there. I wrote that order in several times, and they finally came back and said it was impossible to trade there at all.

I do not know anything about cotton, but I have some friends who recently bought what was described to them and which was graded as low middling and slightly below middling, at 8 to 10 cents per pound in Oklahoma, and they hedged that cotton in March at from $15 to $20, and they told me they were assured of an unusual profit. It seems to me that that speaks well for speculation.

Mr. TINCHER. It does not speak very well for the fellow that produced the cotton in Oklahoma.

Mr. BALLARD. No; it does not, but I have heard where some fellow in the South said that they welcomed with open arms anybody that would come down and pay cash for cotton.

There is another thing I wanted to speak about, and that is in regard to stabilization when we had no trading in futures. Of course we should have had a stable market with the rock foundation of a guaranty by the Government with a billion dollars behind it. But we did not have a stable market. There were some wide fluctuations during that period. In the early part of 1915 there was an enormous break in wheat, and about that time-I think it is a matter of record-at a hearing before Senator Gronna's committee the statement was made by a dealer in the Minneapolis territory to the effect that he could not sell within 30 cents a bushel of the Minneapolis price for the identical wheat which he had on hand. And I know that at about the same time wheat was offered in the elevators at Kansas City at 20 cents per bushel less than the identical wheat was selling for on the tables at the same time. While that was to a large extent due to transportation conditions, yet that condition would not have existed if we had had trading in futures.

Owing to voluntary action of the exchanges, trading in corn was practically suspended during the latter part of 1917 and early in 1918. That was due to the maximum price having been fixed on corn, which was away below the actual price, and that was brought about by agitation and pressure from Government officials.

Mr. Hoover, who was at the head of the Food Administration at that time, realizing the large profits that were being exacted by everybody who was handling corn and the extreme fluctuations which we were having in cash corn-it was not infrequent for cash corn to go up 5 cents one day, 7 the next, and maybe break 10 the next— asked that the exchange representatives get together and resume

trading in futures in corn, so as to establish a close relation between futures and cash corn and to bring about a more stable market. And that was done.

I believe that is all, gentlemen.

The CHAIRMAN. Are there any questions? There appear to be none. We are very grateful to you, Mr. Ballard.

Mr. BALLARD. Thank you, gentlemen.

STATEMENT OF MR. C. A. CHAPMAN, BANKER, ROCHESTER, MINN.

Mr. CHAPMAN. Mr. Chairman and gentlemen of the committee, I thank the committee for giving us this opportunity to appear here. What I have to say will be very brief, because I know you have better information than I can give you.

It came to the attention of the agriculture committee of the Minnesota Bankers' Association that it was being recommended to your committee to pass legislation to eliminate future trading, and our committee felt that it was of sufficient importance to us to have representatives appear and to express ourselves briefly on the subject. I am present representing the association, together with my colleague, Mr. Hubbard, of Lake City. We are country bankers.

The subject is important to us in this, that we are accustomed to invest our surplus loanable funds in terminal paper and to finance our local mills and elevators and likewise the cooperative grain houses in our territory; and if they are to be subjected to the wide swings in the market, which it appears to us would be present without the controlling influence of such a market as is under discussion here to-day, we would restrict our financing very greatly.

I have in mind one customer who is operating a small country house in a village near Rochester, whose operations are small, and who does not believe in hedging. He buys the grain and stores it. and in my opinion in so doing, without a hedge, he speculates; and I am therefore unwilling to finance him within 50 per cent as much as I do those who hedge their purchases by future sales against them. As far as speculation is concerned, there is undoubtedly speculation and perhaps there are some elements in the speculation which legitimate commission houses would like to see excluded if they knew how it could be done. The bankers generally have been greatly concerned in the past year by the presence in the business volume of a measure of speculation, in every line, and if your committee were to undertake to eliminate it from the commodities market there are some other markets to which we would direct your attention.

He

I examined the statement of a man who deals in real estate. was carrying $452,000 worth of real estate at the purchase price on his contracts, and he had what amounted to a margin against it of $25,000, and he was asking for credit from the bank. Now, if there had been any way in the world by which he could have hedged that half million purchase of real estate he might have talked to me, but he certainly could not with all that load. Fortunately, the market operated in such a way as to save his bacon.

The thing we want to say to you is simply this, that we hope you will gather the best information possible from the best sources, and that

you will leave the largest possible measure of this method of insurance against wide price swings in the commodities market, and leave the means of insurance against them, which we bankers feel to be essential in the maintenance of the market and to avoid those wide spreads between the final sale price and the price which the intitial purchaser in these little warehouses and elevators in the country pays the producer. Without insurance, they are going to name a price which in itself will insure them, and I do not know how low that might be. That is all I have to say.

Mr. VOIGT. You are not in favor of manipulation in the market? Mr. CHAPMAN. I do not know what you mean by "manipulation." Mr. VOIGT. I mean a move, backed up by sufficient capital to actually cause a decided fluctuation.

Mr. CHAPMAN. You mean a corner?

Mr. VOIGT. I understand there may be a manipulation which does not result in a corner.

Mr. CHAPMAN. I am not in favor of manipulation. I believe the market should be open as nearly as it can be maintained as an open market without undue influence.

Mr. VOIGT. You have stated that you thought that the grain trade was in favor of remedying some abuses.

Mr. CHAPMAN. I do not recall just what I said, but I had in mind this: There might be some traders in the market who are not actually interested in the market except as speculators who might be eliminated. I do not know how much there is of that, but some measure of speculation it would seem is necessary to afford a future market; that is my impression. I am not an expert on this and do not profess to have any expert knowledge of it.

Mr. VOIGT. Is there any abuse now in the system of marketing grain that you would like to be abolished?

Mr. CHAPMAN. I know of none. I have seen some newspaper discussions which contained claims of large volumes of speculative trading from the country on the exchange, and asking that the bankers examine the volume of their financial business to see what percentage that might be, and I think it is very small, almost negligible, so far as I have observed in my business largely confined to those who are in the business, some department of it, either sales or elevators, and sometimes producers.

Mr. VOIGT. I understood you to say in your statement that you would be glad to see certain abuses remedied providing some means that carried the market were left? I want to ask you what abuses you had reference to.

Mr. VOIGT. Then, so far as you are concrened, you want to leave things in status quo.

I am

Mr. CHAPMAN. Unless some better plan can be evolved which will leave us the same measure of protection which we have now. not competent to say what that better plan would be.

Mr. VOIGT. What would you think of a plan to restrict the amount of trading that any individual could engage in during a period of 30 days?

Mr. CHAPMAN. Well, the general principle-the moment you begin to restrict their market is that it ceases to be a free market. Mr. VOIGT. Are you familiar with the operations undertaken by the British Government in this country last year?