The CHAIRMAN. That is all the statement you wish to make? Mr. MERRILL. Mr. Chairman, I now wish to present Mr. Hallet, of the Minneapolis Exchange. TESTIMONY OF MR. F. A. HALLET, OF MINNEAPOLIS, MINN., DIRECTOR OF THE MINNEAPOLIS CHAMBER OF COMMERCE. (The witness was duly sworn by the chairman.) The CHAIRMAN. Mr. Hallet, please state your name and any official connection you may have. Mr. HALLET. My name is F. A. Hallet. I am director of the Chamber of Commerce, Minneapolis, Minn. Mr. Chairman and gentlemen, representing the Chamber of Commerce of Minneapolis, the greatest primary wheat market of the world and the milling center of the world, also the largest flax-crushing center, I desire to register a protest against the enactment of this bill into a law, as I think it would seriously interfere with our vast grain interests of Minneapolis and the Northwest. That is all. The CHAIRMAN. Is there a future market in flax? Mr. HALLET. There is a future market in flax in Duluth only. The CHAIRMAN. Can you give any reason why there is not a future market in Chicago? Mr. HALLET. Well, the flax interests are in the East, and the shipments of flax and the receipts of flax are, I think, larger at Duluth than in any other market of the country. The crushing interests are larger in Minneapolis than in any other center. The flax market has been established at Duluth and has continued there. We have traded in flax futures, but the trade was so very light and not on the increase that it has been abandoned entirely. The CHAIRMAN. Do you know whether the millers of Minneapolis make a rule of hedging on the future market? Mr. HALLET. They do, Mr. Chairman. Mr. Cocks. Is there much fluctuation in the flax market? Mr. HALLET. I do not know very much about the flax market; but there have been some very large fluctuations. Mr. Cocks. In proportion to the wheat or other futures, what are the flax fluctuations? Mr. HALLET. They are much greater. Mr. HAUGEN. The price of flax has nearly doubled in the last six months, has it not? Mr. HALLET. Yes, sir. Mr. CHAPMAN. Where do the Minneapolis millers place most of their hedges? Mr. HALLET. In their own markets. That is, they have done so in the past year. The CHAIRMAN. I presume there is more wheat handled in Minneapolis than in Chicago? Mr. HALLET. Yes; more wheat is handled in Minneapolis than in any other market in the country. The CHAIRMAN. Can you give comparative figures? Mr. HALLET. We will handle this year something like 100,000,000 bushels of wheat. I do not know how that compares with the Chicago receipts. The mills at Minneapolis this year will probably grind something like 16,000,000 barrels of flour. The CHAIRMAN. Do you know how the future transactions on the exchange in Minneapolis compare with the same transactions in Chicago? Mr. HALLET. Yes, sir. The CHAIRMAN. Can you state that in volume ? Mr. HALLET. I could not make a comparison in volume. They are much lighter in Minneapolis than they are in Chicago. The CHAIRMAN. Ought not the future transactions to bear some relation to the cash transactions, so that if you handle, say, four or five times as much actual wheat in Minneapolis as in Chicago, you ought, on that account, if this proper relation is maintained, to have a correspondingly greater volume in futures in Minneapolis? Mr. HALLET. The entire hedging of the wheat handled in Minneapolis is not done in Minneapolis. The market at times is not broad enough. The CHAIRMAN. What do you mean by that? Mr. HALLET. It is not sufficient; the volume of trade is not sufficient to take the hedges. The CHAIRMAN. That is, a man having sold flour for future will wish to buy contracts for future wheat which they will find nobody to sell? Mr. HALLET. That might be the case at times. Of course the Minneapolis mills would probably place a transaction of that kind right in their own market, and make their purchase in the Minneapolis market; but the volume of trade at times is not large enough to take care of all the hedges that come in, especially at the time of the movement of the crop. The CHAIRMAN. Is there very much really speculative business on the Minneapolis exchange? Mr. HALLET. No. The amount of speculation in Minneapolis is not very large. The CHAIRMAN. It is a very minor feature of your exchange? Mr. HALLET. I would not say "minor." It is a very important feature. The CHAIRMAN. In your judgment is there any business importance attached to the purely speculative transactions as distinguished from hedging transactions? Mr. HALLET. I do not quite understand your question, Mr. Chair man. The CHAIRMAN. Could you eliminate the pure speculation from your exchange without interfering with any other of its functions? Mr. HALLET. I do not think you could. The CHAIRMAN. You think the maintenance of the market in which men can speculate simply on margins, with no thought of either receiving or delivering grain, is necessary to the maintenance of the general market? Mr. HALLET. I do, Mr. Chairman. The CHAIRMAN. In what way is it necessary-financially? Mr. HALLET. That is one way, and it furnishes a broader market. The speculator comes in and acts as a middleman and serves as a sort of balance between the producer and the ultimate consumer. The CHAIRMAN. You can not elaborate on that? That about cov ers the ground, in your judgment? Mr. HALLET. Yes. Mr. CHAPMAN. I would like to ask you one question. You are a grain broker, are you? Mr. HALLET. Yes, sir. Mr. CHAPMAN. You sell futures? Mr. HALLET. Yes, sir. Mr. CHAPMAN. What proportion of your business, as you estimate or know, comes from the country towns or from the country contiguous to Minneapolis? Mr. HALLET. You mean speculating in futures? Mr. CHAPMAN. Yes. Mr. HALLET. I could not say. Mr. CHAPMAN. You have business of that kind? Mr. HALLET. Yes, sir. Mr. CHAPMAN. What advantage would there be to a man in a small town contiguous to Minneapolis to buy from ten to twenty thousand bushels of wheat of you? Can you explain what advantage that would be? Mr. HALLET. I do not think I could elaborate or explain that. Mr. HOWELL. Do the banks that accommodate you encourage you to sell futures on hedges? Mr. HALLET. Yes, sir; they do. Mr. HOWELL. Does it not involve the carrying of an extra amount of capital to carry those dealing in grain as well as those dealing in futures? Mr. HALLET. It certainly does. Mr. HANNA. In the Northwestern country most of the grain is bought by the line elevators-in Minnesota and the Dakotas, is it not? Mr. HALLET. The farmers are becoming quite a factor now. Mr. HANNA. I know; but they are farmers' elevators. When a man buys a thousand bushels of wheat he wires it into his company or his commission house, and that is sold? Mr. HALLET. Yes. Mr. HANNA. Now, then, it may be possible that there may not be cars enough at the right time to get that grain out and make the delivery at that time, and then that wheat must be bought in and sold at some future time? Mr. HALLET. Yes, sir. Mr. HANNA. As I understand it, that, in a sense, might be called a "speculation," might it not? Mr. HALLET. Yes. Mr. HANNA. But as to drawing a line between that and purely speculative buying, and the further fact of these elevators and the country farmer elevators and the country millmen, and all these people who buy wheat in the country and sell wheat in Duluth and Minneapolis, is it not a fact that the wheat men and producers protect themselves by buying and protecting themselves for future delivery? I know that these people will buy, say, 50,000 bushels of wheat, and get it in their elevators and can not get cars; and they must sell that wheat to arrive or for some future delivery or buy on a wide margin from the farmer, must they not? Mr. HALLET. Yes, sir. Mr. HANNA. If they could not sell that wheat ahead they would have to buy on a good deal wider margin than they would have to do otherwise? Mr. HALLET. Yes. The CHAIRMAN. There is nothing in this bill to prevent that kind of a transaction. Mr. HANNA. It is hard for me to make up my mind as to how you are going to divide the line between speculators and those engaged in legitimate business. I have an elevator to-day with a capacity of 60,000 bushels. I could not get cars in 1907 to get that wheat loaded out. I sold it for May delivery, and later I could not make deliveries until late in June and July. How is anyone going to tell which one of these sales is legitimate and which one is speculation? Mr. BURLESON. Every one of those is a bona fide transaction in actual grain. Now, I would like to ask the witness a few questions. You spoke, Mr. Hallet, in response to the question from Mr. Haugen, that flax had doubled in value in the last six months. Do you know why? Mr. HALLET. I do not think I made that statement. The CHAIRMAN. I think it was another witness made that statement. Mr. BURLESON. You are the only man that spoke about the flax market. Mr. HALLET. I did not say that the flax market had doubled in the last six months. I did not make any such statement as that. The CHAIRMAN. I think Mr. Haugen made the statement that the price of flax had doubled in the last six months. Mr. BURLESON. The fact I am trying to get at is as to the material increase in value. I do not care whether it has doubled or not. Mr. HALLET. Yes. Mr. BURLESON. Why? Mr. HALLET. I do not know much about the flax market. Mr. BURLESON. If it has advanced, is it not because there is a less supply or more of a demand, one of the two? Mr. MERRILL. The flaxseed market made its great advance because of information from the Argentine that the crop had failed there. Argentine, you know, is our greatest competitor in the growing of flax. Mr. BURLESON. I accept that statement. You say you deal in futures on your exchange? Mr. HALLET. Yes, sir. Mr. BURLESON. On wheat? Mr. HALLET. Yes, sir. Mr. BURLESON. How many grades of wheat are embraced within your contracts? Mr. HALLET. Only one grade. Mr. BURLESON. What grade is that? Mr. HALLET. One northern. Mr. BURLESON. There is only one grade that could be delivered under the terms of your contract if delivery was demanded. Mr. HALLET. No. 2 northern could be delivered at a difference of 3 cents. The CHAIRMAN. Who fixes that difference? Mr. BURLESON. How do you arrive at that difference between the value of those two grades? Mr. HALLET. That is about the difference that exists in the cash price of the No. 1 and 2. Mr. BURLESON. That is the commercial difference fixed by the law of supply and demand. That is the difference in the market price of the two grades, is it? Mr. HALLET. Yes, sir. Mr. BURLESON. And if the market price changes you make a change in that difference, do you not? Mr. HALLET. No, sir; we do not. Mr. BURLESON. How long does that difference obtain? Mr. HALLET. You mean how long has it been in existence? Mr. BURLESON. Yes. Mr. HALLET. I think something like a year or so. Mr. BURLESON. Who fixed it then? Mr. HALLET. I think it was fixed by the action of the board of directors of the chamber of commerce. Mr. BURLESON. And it was based upon the difference of the value of the two grades of wheat-the market value, I mean? Mr. HALLET. The crop of the Northwest in the last two or three years has been of a poorer quality. No. 1 northern wheat has been very scarce, and that was the object of making No. 2 apply on contracts with that difference. In the last two or three years past the percentage of No. 1 northern wheat raised was very small. Mr. BURLESON. What percentage of this northern wheat Mr. HALLET. I think this year the crop will run 60 per cent of No. 1 northern. That is a better crop than for some years past. Mr. BURLESON. Theretofore it contributed only about 1 per cent of the crop, did it? Mr. HALLET. Oh, no; I do not think we ever had a crop of so small a per cent as 1 per cent of No. 1 northern. One year we had a crop of 80 per cent of No. 1 northern. This year I think the crop is fully 60 per cent of No. 1 northern. Mr. LEE. Is that a hard wheat, a spring wheat? Mr. HALLET. Yes, sir. The CHAIRMAN. I understand your contract calls for the delivery of No. 1 northern, and the next grade is No. 2 northern, and if it is tendered it must be accepted, but the penalty of 3 cents a bushel is charged? Mr. HALLET. Yes, sir. The CHAIRMAN. That difference has been fixed, you believe, by your board of directors? Mr. HALLET. Yes, sir. The CHAIRMAN. Is there anything in your by-laws providing for the period during which such a difference shall be fixed-once a year or once in two years? Mr. HALLET. No, sir. The CHAIRMAN. It is fixed from time to time to suit the conditions that the board of directors regard as necessary? Mr. HALLET. Yes, sir. The CHAIRMAN. How many grades of wheat come into your market? Mr. HALLET. This year I presume we have No. 1 northern and No. 2 northern, and No. 3, and rejected. Besides that, we receive winter wheat, No. 2 hard winter, and some of the other lower grades. The CHAIRMAN. Then how are the grades, aside from those deliverable under your board of trade contract, delivered in? They are handled altogether by sample, are they? |