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have a profit of 154 cents a bushel in it. Now, had all his wheat graded 3 red and been the best quality, had that wheat been sold at $1.10, they could not even have held that in elevator without running it a few times. But say, for the sake of argument, that they didn't have to run it at all. That wheat Wednesday was worth $1.25 a bushel. He got $1.10. There would have been 15 cents advance. There would have been seven months storage and a cent and a half a bushel. You can figure that out and see how that would have benefited him.

Mr. McLAUGHLIN. You buy a great deal of wheat from men who have the actual wheat. Do you not also have a great many transactions with men who have no wheat at all ?

Mr. MESSMORE. We don't know their intent.
Mr. McLAUGHLIN. Don't you have such transactions ?

Mr. MESSMORE. We may, but we don't know it; that is, we don't know what their intentions are.

Mr. McLAUGHLIN. Don't you buy wheat from men who would not know a bushel of wheat if they would see one coming up the street with a bell on it ?

Mr. MESSMORE. No; we have very little trading with men who are not grain men.

Mr. LEVER. Mr. Fitch testified, I think, that 15 or 20 per cent of his dealings were speculative. What percentage of yours would you think are purely speculative?

Mr. MESSMORE. There is a percentage, but how much I could not say.

Mr. LEVER. Would it be as much as 20 per cent ?
Mr. MESSMORE. I could not hazard a guess.
Mr. LEVER. Would it be as much as 1 per cent ?

Mr. MESSMORE. I would think it would be more than 1 per cent. It might be 20 per cent. I have not given the matter enough thought to look it up, because we consider a speculation in grain just as legitimate as a speculation in real estate. I have known more men to go broke" speculating in real estate than I have known to lose money in speculating in wheat. Take any business. Ninety-five per cent of the men who go into mercantile business fail.

Mr. LEVER. What I want to bring out is this. Mr. Fitch testified that through his firm 15 or 20 per cent of the transactions were purely speculative, where there was no intention to deliver and no intention to receive delivery.

Mr. MESSMORE. With us, they expect to receive it and expect to sell it out. Whether we do that before the expiration of the contract, or wait until the month actually arrives, is merely a matter of bookkeeping and convenience with us.

Mr. LEVER. There are no contracts on your exchange which do not contemplate delivery and the receipt of delivery?

Mr. MESSMORE. 'No, none. We sign a written contract, and we exchange those every morning.

The CHAIRMAN. What grades of wheat does that contract cover ? Mr. MESSMORE. You can deliver No. 2 red or No. 2 hard. The CHAIRMAN. You do not have the three grades then ? Mr. MESSMORE. No, we do not have the spring wheat, because we are not tributary to a spring wheat market.

The CHAIRMAN. How do you sell these lower grades?

Mr. MESSMORE. The three's and four's ?
Mr. MESSMORE. By sample.
Mr. LEVER. You have the option of making either delivery?
Mr. MESSMORE. The seller has the option. •
Mr. HAUGEN. How many grades have you in corn?

Mr. MESSMORE. We trade in No. 2 corn and we make special contracts in No. 2 white corn.

Mr. HAUGEN. How about oats ?
Mr. MESSMORE. I think in standard oats, too.
Mr. HAUGEN. Do you operate a line of elevators ?
Mr. MESSMORE. No, we do not.

Mr. HOWELL. How is the dealer in “off” grades of wheat that are dealt in on your exchange protected ?

Mr. MESSMORE. No. 3 maintains almost the same parity all the time. For instance, if it is 3 cents under No. 2 in December, it is liable to be 3 cents under No. 2 in May. Of course, it fluctuates a little, depending on whether the supply and demand increases or decreases.

Mr. HOWELL. Does the future market, or dealing in futures, affect the distribution of these cheaper or other grades of grain that are not dealt in on the exchange ?

Mr. MESSMORE. I can not say as to that.
Mr. MERRILL. They all move together, do they not?
Mr. MESSMORE. Yes; they maintain the same parity all the time.

The CHAIRMAN. The point that Mr. Howell's question suggested to my mind was this: Suppose a dealer out in the country has a large quantity of low-grade wheat which is not provided for in your contract. Is there any way by which he can hedge on that ?

Mr. MESSMORE. No; he could just hedge in the grade of No. 2, because that No. 4 he has bought on a basis under the price of No. 2, and it maintains about the same parity all the time.

Mr. HOWELL. The other thought I had in mind was this: How is it possible to distribute all this vast quantity of grain that is not on the exchange? If it is necessary to have the exchange handle these few exclusive grains, how can all this other grain be handled without the exchange?

Mr. MESSMORE. You see the exchange brings buyer and seller together. It disseminates quotations all over the country, and everybody gets the benefit of that information that the exchange sends out.

Mr. HOWELL. The dealing in futures does not help the distribution of these grains that are not dealt in, as I see it.

Mr. MESSMORE. Just the same as No. 2; it is maintained at a parity.

Mr. MERRILL. The trading in futures as a hedge against off grades; that is, grades below No. 2, is a very large business in amount, is it not; that is, a large amount of business in the aggregate ?

Mr. MESSMORE. Yes, it is.

Mr. MERRILL. That of course could not be done if this bill should be enacted into law ?

Mr. MESSMORE. No; because you could not deliver that No. 3 or No. 4 on the contract. The one would be a hedge as a protection for the other, because a certain parity is maintained all the time.

Mr. LAMB. This hedging business that you describe in that paper acts as an insurance ?

Mr. MESSMORE. Exactly; it is a protection.
Mr. LAMB. Is there anything controlling it, like fire insurance ?

Mr. MESSMORE. No, sir; those prices are controlled by the laws of supply and demand.

The CHAIRMAN. We will have to adjourn now. Will you remain over until to-morrow ? Mr. MESSMORE. Oh, yes; I think so.

(Thereupon at 5 o'clock p. m. the committee adjourned until tomorrow, Saturday, February 19, 1910, at 10.30 o'clock a. m.)



Washington, D. C., Saturday, February 19, 1910. The committee met this day at 10.30 o'clock a. m., Hon. Charles M. Scott (chairman) presiding.

The CHAIRMAN. The committee is slow in assembling this morning but inasmuch as all of these proceedings are to be printed and will be available for use of anyone desiring to consult them, I think we will not wait any longer, but will proceed now with the hearings.

I understand some gentlemen are here who desire to appear before the committee, but are obliged to leave the city to-day. If you will present them first, Mr. Merrill, we will be glad to hear from them.

Mr. J. C. F. MERRILL, of Chicago. I thank you, Mr. Chariman. I will be glad to do so.

The main object of the presence of these gentlemen is by their presence to register the attitude of the exchanges which they represent toward this proposed legislation. None of them, I apprehend, sir, will have any lengthy remarks to make. Indeed, I think they will all be very short, and if it is proper for me to do so, I would like to ask you, so far as it may suit your convenience, to refrain from crossquestioning them during their original statements in order to save time and make it possible for you to hear them, sitting at this hearing to-day..

Mr. Cushing, of New York, and myself, representing Chicago, will be here to-day and later, and I feel sure that the gentlemen from Baltimore and Philadelphia will be at your service next week for such particular time as you may desire, and we shall be able, I feel sure, to answer all the questions bearing upon the general matter that you gentlemen may desire to ask.

The CHAIRMAN. I am sure that will be quite satisfactory to the committee, so that with the exception, possibly, of one or two questions that may be suggested by what is said, we will simply permit these gentlemen to make their appearance and their statements and not detain them any longer.

Mr. MERRILL. Thank you.

The first gentleman we will listen to, Mr. Chairman, is not a member of the Council of Grain Exchanges. He is the chairman of the legislative committee and the ex-president of the National Grain Dealers' Association, which embraces I do not know how many members, but running into thousands, I think, in the general scope of that organization.

I take pleasure in presenting Mr. Reynolds, Mr. Chairman.



(The witness was duly sworn by the Chairman.)

The CHAIRMAN. Mr. Reynolds, give your full name and business connection.

Mr. REYNOLDS. My name is A. E. Reynolds, of Crawfordsville, Ind. I am chairman of the legislative committee of the Grain Dealers' National Association.

Now, Mr. Chairman and gentlemen of the committee, coming as I do from the rural districts, and being engaged in that branch of the grain trade that puts me in touch with the producer and compels me also to find a market for my grain, I feel that I am somewhat at the beginning of things as they may affect the bill before you for consideration.

Perforce, owing to our location as country grain merchants, we are compelled to partake somewhat of the position of speculators, for the reason that I define the “speculator" as the party who, by reason of his own volition or by reason of the fact that he is compelled to, holds grain from the time it is delivered to him until he finds a market for it, and that defines him as a “speculator” to that extent in the cash article.

All of the 1,000,000,000 bushels of wheat and 1,100,000,000 bushels of oats and 2,800,000,000 bushels of corn are first owned by the farmer. In the first stage of its transportation to market or somewhere it is in the wagon box of the farmer that brings it to my elevator; and when I say my elevator I embrace the whole line of country elevators throughout the country. There are about 8,000,000 farmers in the United States, and, taking the average of the family of the country in his household, about 40,000,000 of our population would be embraced. He produces grain, and, by reason of producing it on his own farm, he has provided for himself the grain foods necessary for those 40,000,000 out of the 100,000,000 of people. The other 60,000,000 of these people must buy or provide themselves with food through the channels of commerce.

Between the 40,000,000 already provided for by their own labor or by reason of their position, and the distribution of grains to the other 60,000,000, lies the province of the grain trade of this great country. To them engaged in that trade is left the business of collecting the grain from the farmer, of transporting it over the lines of railways or steamships or other means of transportation, and delivering it to these 60,000,000 people. The farmer at first provides himself for the year's food from his farm. That he keeps in store against the day when he may need it. The other 60,000,000 people provide themselves from day to day with the amount of food required for their sustenance and comfort.

This process of doling out to these 60,000,000 people enough food at the proper time is a vast undertaking. Some one must carry, some one must provide storage, some one must finance that vast amount of cereals that is required to be carried from the time of delivery or the time of production until these 60,000,000 people, if you please, are ready to take their little portion for the day's s'istenance.

The proposition is very much greater than at first may present itself to anyone not having given it special study. At the average

market price the wheat would ordinarily bring probably about $900,000,000; at the present price very much more. The corn would bring about $1,500,000,000; the oats from $400,000,000 to $500,000,000. I do not take into consideration all of the rye, barley, and flax, and other minor grains or products, which would amount to many hundred millions more, making a total of about $2,800,000,000.

Supposing that the farmer uses half of it, we would still have to finance during each crop year the enormous amount of $1,400,000,000 of crops, which, as you will understand, with the generally known timidity of money and money markets, must be very carefully, judiciously, and uniformly managed in order that confusion and failure may not attend the undertaking.

Now, I am digressing a little from the primary object of my talk, but I want to impress upon the committee the proposition as it presents itself to me when I try to comprehend the entire problem that is before me. Anything that may happen anywhere to retard the best movement, the most judicious and profitable movement of this vast amount of grain from the farmer, must revert to his detriment. Anything that may in any way impede the progress of feeding this body of 60,000,000 of unprovided people must of necessity very greatly imperil their welfare.

I therefore begin with a simple, common transaction of receiving grain from the wagon box of the farmer, and will, in my weak way, try to show you the problems that present themselves to me. In the little business that I conduct it is not unusual to receive from the farmer 50,000 bushels of grain per day. If I am unable for any reason to take care of that grain that day at that particular time and place, I have impeded the progress of the farmer's transaction, which will revert to his detriment.

Now if it was a cash grain proposition always with the farmer, if I sat at my desk and paid the farmer for the grain this day received, each transaction would be a closed book and I would proceed day by day to take care of the problems that presented themselves to me. But that is not the case. I said at the beginning that perforce, from our circumstances, we were compelled in a degree to be speculators in cash grain. That occurs from the fact that we can not always get cars to take that grain when we want it.

The CHAIRMAN. Let me interrupt you there just to ask what is the meaning of your term “cash grain ?" Is it equivalent to “spot cotton?

Mr. REYNOLDS. Yes. That is the grain that is actually in my house to-day. It comes, 50,000 bushels to-day; I can get no transportation. It comes, 50,000 bushels to-morrow, and I have no transportation. It keeps on. You may say, “That is farfetched." No; it is not, gentlemen. In that line of elevators that I operate I have been fifteen days without one single car available. It is rare, of course. But I am getting 50,000 bushels a day. I say it is not unusual that I do it, however.

Now, I must speculate on that grain to the extent, you understand, that I must stand good for that grain until I can transport it. Now, that is not the worst side of it yet. As you all know, especially those of you who are conversant with the corn belt, our corn generally matures ready for harvesting from the 15th of November on to the winter. But the farmer is the speculator. He comes to me as early as

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