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August, and he says, “I want to sell you some corn.” “How much?“Ten thousand bushels.” It is not unusual for a farmer to come to me and sell me 10,000 bushels in August, September, October, or early in November. I must be and would be a speculator of the rankest sort if I should buy that corn without knowing of, or in some way being protected in, the future course of market fluctuations. I must be a speculator somewhat, even with the best system of hedging that is known to a country elevator man, for the reason--and I will give you an instance on the present crop of corn; I mean the crop harvested within the year of 1909, the crop year, including 1909 and 1910. Before one single bushel of the corn was received at our elevators this fall, we had contracted with the farmers for more than 600,000 bushels of corn.

As part of the financial scheme of that, I will say to you that we had advanced to the farmers more than $75,000 on that corn before a single bushel of it had been harvested.

You may say, and it may be urged, that that is an abuse of trade, a usage that has grown up that is unnecessary. But you must recognize the fact, gentlemen, that in rural districts the farmer very largely dictates the course of the merchant. If the farmer wants credit, it is up to the merchant, be he grain merchant or not, to give him credit. If he wants to sell his corn or his cattle for future delivery, it is up to the merchant in that line of business to accommodate him. I want to say that in a way the greatest speculators we have are the farmers. They have ideas very well fixed and defined in September and October on the growing corn crop.

That was expressed last year with respect to the 600,000 bushels that I mentioned. Now, they sold me this corn. How do I know, when a man comes to me in August to sell me a crop of corn that is growing, prospective for delivery in December-how do I know what to pay him? I must depend upon a broad commercial system that gives me a market of future values.

Certainly no blame can attach to me as a country elevator man if Jones comes to me to sell me 10,000 bushels of corn, and if I arrive at the conclusion as to its value, from the commercial reports, that that corn is worth 50 cents a bushel, December corn. And if I buy it from Jones it is certainly a commercial transaction commendable absolutely within the bounds of good sound business, and a transaction that I can not avoid making, if I serve that community in which I am the local grain dealer. I buy the corn. Why? Because I have on my desk this morning when I open up 10 or 20 or 30 or 40 bids. They come on postal cards. They are not secret bids at all. The United States mail is used freely for that purpose. They are sent to the trade broadcast all over the country, bidding me so much for December corn. I am leaving out now the grades, because that all is a matter, gentlemen, that has been discussed here so much already that it is not necessary to go into it. I buy from the farmer No. 3 yellow corn, and I sell No. 3 yellow corn and better. The rule is that if the grain is better than No. 3 yellow corn it still goes at the price I name, and if less, I have to take the discount. I look up those cards.

It may be that Mr. Walter Fitch, of Chicago, puts out a bid for so much per bushel, and that Mr. John Snyder, of Baltimore, or Mr. Cushing, of New York, does so. I look them all over. I take into consideration freight rates, terminal charges, and everything of the

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kind, and I figure out how much I can pay for the corn, and I bid to Jones that price. He sells it to me. "I make a written contract for the delivery.

Now, as I stated to you, we had 60,000 bushels of that kind of contracts entered into before the corn was grown. I must protect myself or I will come up against the proposition of having 500,000 bushels of corn delivered to me in December, bought at 50 cents, which I can sell for only 45 cents. We in the country figure that it is worth, for taking it from the farmer's wagon box, shelling the corn, standing the expense of grading and loading it in, about 21 cents a bushel; and that, you understand, maintains our help and elevator and other things, and leaves us a small margin of profit, which I think the commerce of the country will show is not unwarranted. Say that profit is net to me 14 cents profit. That cent and a quarter can be absorbed any day by the fluctuations of the market.

The demands for cash corn—I am speaking of cash corn all the time, which I expect to ship-I will make an application of that in a few moments. When the corn comes in I load it in the car, and I fill my contracts. I understand, gentlemen, there is nothing in this bill prohibiting that now. But here is the application to it: How are the men who put out these cards and back me in the way of giving me a current open market for my cash corn for future delivery-how are they every day in the year to put in my hand those cards unless behind it, somewhere higher up, they are protected also ? That is the part they have been explaining to you. My part in this matter only comes up to the part they have been talking to you about.

Now, I want to say to you in all earnestness and candor that a complete revolution of the country grain business must take place unless we every day, and possibly every hour of every day, are able to sell grain for delivery at any time that conditions may demand by reason of our purchases from the farmers. If the contention that these other gentlemen make-and I believe, men, that it is true—if the contention is true that they make, that in order to do that they must have the use of and the broadest exercise of a speculative market, such as exists in the various exchanges of the country, then the abolishing of the present rule would be disastrous to us lower down in the scale, where the grain originates.

Twenty-five years of experience have given me the knowledge that conditions change in the country in regard to receipts from the farmers, in regard to the farmer's own idea of the growing conditions of crops, in regard to his idea of the home consumption of grains; that conditions change almost as rapidly as they do in the central markets. For instance, I have a man come to me and say, “Here, Reynolds, I want to sell you 10,000 bushels of corn.” “All right; it is worth so much." We will talk the matter all over, and the result will be that he will say, "I have decided to think about it to-morrow, or next week;" or next week he will say, “I do not think I will sell that corn. I find that the prospect is not so good as it was.” Another will come in and say, “I have decided not to sell that corn. I think it will be more profitable to feed it to the hogs." The conditions with the farmer change from day to day, because the conditions are largely his own ideas of conditions. Therefore the conditions and fluctuations gorerning the grain trade do not all originate in the grain exchanges.

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The initial point from which they largely emanate is the farmer's own idea, and it is reflected by his own speculative idea that by holding onto the foodstuffs of these other 60,000,000 people that are unprovided for he can force the price up. He is the potent factor, the potent element, in making the conditions that prevail in the markets of the country. They are not all made on the exchanges.

Those conditions must be met as they arise by the country grain shipper. You can not go averse to the farmer's general idea and say, "I am not going to sell corn and wheat until I get it.from the farmer.” He may decide not to deliver it to me. Therefore I deal directly with the cash proposition. I rarely ever hedge on the same grain or the same kind of hedging, if you please, that has been spoken of here. I rarely ever hedge grain that I have in a deal for future delivery because I have the cash stuff to ship. But of those 600,000 bushels of corn that I have bought, gentlemen, I only get about 500,000 bushels, in round numbers; therefore the farmer himself exercised that option of buying in, or failing to deliver or exchanging for cash consideration to me, one-sixth of the grain I had bought of him for cash delivery. I had to go higher up. I had to buy, and if I had been unable to do that, if I had been unable to extend to the farmer that accommodation, if you please, that he asked me for, when he said he wanted to deliver only 500,000 bushels instead of 600,000 bushels, I would have been in a proposition wholly beyond my control, simply because the farmer, you understand, will not brook consideration of anything beyond what he wants done. That is the truth. He sells me 10,000 bushels and presently comes along and says, “I only want to deliver 6,000.” He only delivers 6,000. I can not go into court and make him deliver 10,000 for reasons of expediency. Maybe he did not raise it. Therefore, I do the best I can. I get out with him the best way I can.

As you know, December corn advanced about 10 cents this year. You can say to me, “You would have been in fine shape if you had not sold any." I would. But what would I have been? A rank speculator. As one gentleman said yesterday, it would have taken all the cash I possessed to have got out in a few days. Those farmers came to me and paid me that extra 10 cents. They came to me and settled when the market was 60 cents, and some of them, I understand, have the corn now. They have 10 cents more invested in it. I got out of the transaction as best I could.

Now, gentlemen, I want to make this just as brief as possible, and I only want to define the position and the situation as it presents itself to me, and I have tried to do it in the shortest and most concise manner. Now, I would be glad to answer any questions that are along the line of my part of the grain traffic.

The CHAIRMAN. We are very much obliged to you. Mr. MERRILL. Mr. Chairman, I now present Mr. H. D. Irwin, representing the Philadelphia Commercial Exchange, who wishes merely to file a brief. And to say that one of the five representatives of that exchange will be here next week to answer any questions that the committee may have to ask.

The CHAIRMAN. Your brief is in writing ? Mr. IRWIN. It is.

TESTIMONY OF MR. H. D. IRWIN, OF PHILADELPHIA, PA., GRAIN

EXPORTER.

(The witness was duly sworn by the chairman.)
The CHAIRMAN. Just give your name and business connection.

Mr. IRWIN. My name is H. D. Irwin. I am a grain exporter in Philadelphia.

We would be very glad, Mr. Chairman, to come back any day next week to answer any questions and throw any light on the subject. We are interested there, in Philadelphia, from the export and milling standpoint.

The CHAIRMAN. Yes. If the hearings are continued next week you will be advised.

(The following protest was filed by Mr. Irwin.)

THE PROTEST OF THE COMMERCIAL EXCHANGE OF PHILADELPHIA

AGAINST THE PASSAGE OF THE LEGISLATION COMPRISED IN H. E. 7521, WHICH IS NOW IN THE HANDS OF THE COMMITTEE ON AGRICULTURE OF THE HOUSE OF REPRESENTATIVES.

ANALYSIS OF THE SECTIONS OF THE BILL.

Section 1 makes it unlawful for any person or association to send or receive by any telegraph or telephone line any message relating to a contract for future delivery of grain, cotton, or other farm products without intending that the said products so contracted for shall be actually delivered or received, etc., and provides that any person guilty of violating this section shall, upon conviction, be fined not more than $1,000 nor less than $500 and imprisoned for from one to six months for each message.

Section 2 provides that it shall be the duty of any person or association sending or receiving any message relating to a contract for the future delivery of said farm products to furnish on demand an affidavit to the sender or recipient that he is the owner of the products so contracted for, and that he has the intention to deliver said products or that the said products are at the time in actual course of growth on land owned or occupied by him and that he has the intention to deliver said products or that he is at the time legally entitled to the right of future possession of said products under and by virtue of a contract for the sale and future delivery thereof, previously made by the owner of said products, etc.

Section 3 provides that it shall be unlawful for telegraph or telephone lines or their owners or employees to allow the use of said lines for the transmission of messages relating to such contracts as are described in section 1 to interstate or foreign countries, and infractions shall be punished by a fine of not more than $1,000 nor less than $500).

Section 4 makes it unlawful for telegraph or telephone companies or their employees to transmit or to receive from persons engaged in a commission or brokerage business or from a produce exchange, corporation, or association any interstate or foreign mes sages relating to contracts for the purchase or sale of the named farm products unless the person or produce exchange, corporation, or association shall have filed with the telegraph or telephone company an affidavit that the message or messages sent or to be sent for the following six months will not relate to any such contracts as are described in section 1, etc. Lapses upon the part of telegraph or telephone companies are to be penalized in the sum of from five hundred to one thousand dollars, and false state ments in affidavits shall be punished by a fine of from one thousand to five thousand dollars.

Section 5 provides that every book, newspaper, pamphlet, letter, writing, or othes publication containing a notice, account, or record of the transactions of any produce exchange wherein such contracts as are described in section 1 are made, is declared to be unmailable matter, and for using the mails with it anyone shall be fined frora one thousand to five thousand dollars and imprisoned not more than five years, or both.

Section 6 gives the Postmaster-General the right to stamp with the word “ unlawful* any mail matter containing a notice, account, or record of the transactions of any produce exchange wherein option transactions are made, and to prevent its delivery to the addressee.

Paraphrasing the famous utterance of Madame Roland, one might well exclaim after reading the above, “0, Interstate Commerce, how many crimes are sought to be cotomitted in thy name."

It is difficult to specifically state with any degree of brevity our opposition as merchants to the provisions of this bill, which appears to us to have but one object in view, and that is the destruction of our organizations under the pretense of being aimed at the suppression of trading in “futures." The authors of these ill-conceived and, as we regard them, unconstitutional measures do not seem to comprehend that in destroying the exchanges and boards of trade they are taking away from the large class of agriculturists their greatest safeguard and protection, and that their attempts to stop speculation in grain would take from the farmers the balance wheel that has done more for the farmer's benefit than any legislation devised by man could effect. They seem to lose sight of the fact that for every seller there must be a buyer and for every buyer a seller, and that the supply and demand of the world regulates prices, which are never to be controlled by legislation.

Ex-President Roosevelt in a public address some time ago wisely said: “It seems to me that the one lesson more important for our people to learn than any other is, that no division of our people by classes or sections can work any good. In the long run, we are all going up or down together."

If we will substitute the word “legislators” for the word "people," the sentence is well adapted to the present case.

It were well to remember that the grain crops of the United States are well above the requirements of our population, and that a large proportion of the production is consumed at points far distant from those where the crops are grown, and that this surplus plays a large part in both interstate and foreign traffic. We have gone beyond the time when the trader bartered jackknives for skins, or when the settler planted sufficient seed to provide only enough bread for his family.

Production having passed local or home consumption, the natural evolution or development of trade required an adaptation of conditions, so that the surplus of our crops could be marketed advantageously, and the demands of that trade brought into play the forces required to handle greater quantities, and from these demands great railroads multiplied their tracks and with the advancement of ocean commerce, opened to the farmer the marts of the world.

Naturally, as trade expanded, new machinery was necessary to handle a greater surplusage of production, and as a part of this machinery the grain exchanges of the country grew out of nothing into that proficiency by which the surplus of the crops was distributed to the highest bidders with the least cost to the producer, to whom were brought the daily prices ruling in all parts of the civilized world, that he might be guided in his dealings.

These grain exchanges, which have enjoyed a fairly good reputation until recent sessions of Congress, seemed to fill an important need, and some in the large cities, near the point of production or near the chief export markets, have become recognized as peculiarly fitted for operations that are not common to all. Several of the large exchanges in great cities have become the centers of what is known as option trading as a natural result of very large handling of the actual grain through those cities, which have become known as the chief grain markets of the United States, as, for instance, Chicago, Minneapolis, Duluth, Milwaukee, Toledo, and New York.

Chicago, by reason of its central position, its lake and rail facilities for receiving and shipping, its many commercial advantages, and the enterprise of its merchants, takes the first rank as an option market because of its immense volume of actual or “cash” grain business. Minneapolis and Duluth are natural markets, by their geographical position best adapted to the handling of the immense spring-wheat crops of the Northwest, and by the natural evolution of trade supplied with facilities for storing, for milling, and for shipping, at a minimum expense, the gigantic trade resulting from the agricultural wealth of that section.

Milwaukee and Toledo, from their advantageous sites, offer peculiar advantages for marketing certain grains and their products and New York (with Buffalo practically upon its warehouse list, to furnish additional facilities as a depot and distributing point to the East and to Europe) and its great transportation lines, giving an outlet from the interior to the entire world, offers a market to every commodity. These places do large volumes of option trading because they do large volumes of actual grain business, one producing the other.

The grain exchanges in these marts have become a recognized necessity of commerce. The functions of an exchange are to centralize trading by giving a place of meeting to the individuals engaged in one branch of trade or such other branches as are naturally allied with that trade; to provide and disseminate news from other markets for the common information of its members; to regulate the trade by rules that have grown out of the common experience; and to adjust speedily any business controversies of members, or their clients represented by members. They systematize the business, distribute the cost of their maintenance over the many, and in every way work to the public good. Indirectly and directly they work to the benefit of millions of people

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