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Formerly wheat was sold by sample, and grading was in effect merely the determination of the value of the grain. In storage, particular lots of grain, even if of the same grade, had to be kept separate, and when called for, they had to be delivered to the proper owner. The receipts or warrants issued for the grain by the storehouse became the equivalent of the grain in the market. In the early fifties, the movement of vast crops from scattered sources became very unwieldy and difficult under the old methods of selling by sample. It was necessary to store in bulk enormous quantities of grain. The difficulties of delivering on demand particular lots of wheat to individual owners became very great. As a result, the grain trade made the most important advance of its history. Storage in bulk of all grain of the same grade was made without preserving the identity of particular lots, and general receipts were issued for the specified amount of grain of a certain grade. These receipts could be delivered in fulfillment of contracts, and when grain was withdrawn from storage, a specified amount instead of a specified lot of a particular grade was delivered by the warehouseman. Most of the wheat in Chicago was thus graded by 1860, but general receipts were not adopted in New York until 1874. In some markets, the inspection and grading of grain have reached such a degree of honesty and efficiency that samples are dispensed with entirely.
Contract Grades.—Trade organizations whose members deal in grain exist in nearly all of the larger cities of the United States. These organizations have an important function in the grain trade, for they afford means for easy communication between producer and consumer, and they aid in avoiding acute conditions of supply and demand. They have adopted rules of trade which aim at a maximum of business with a minimum of expense and friction. The established grades of grain form a part of these regulations. The trade organization of each market establishes a "contract grade" for its own market. The contract grades are understood in all contracts not specifying otherwise. There may be several contract grades on the same market, and there may be a difference of several cents in the actual milling value of a contract grade designated by the same name in different markets. This variation arises from a difference in the rules which regulate the respective inspecting bureaus, and is the cause of some confusion. Where there is no state inspection, the trade organizations manage their own inspection departments.
The Need of Uniform Grades.—Great as has been the value of inspection and grading to the grain trade, the service is not without its shortcomings. The greatest difficulty is lack of uniformity in grades. The different states and trade organizations establish their grades quite independently of each other, and this does not tend to give the uniform grades which the intermarket, interstate and international grain trade demands. The inspector begins with indefinite standards. He is buffeted about by opposing interests which are vitally concerned in his decisions. He must work rapidly. Sometimes the weather and light place him at a great disadvantage. Frequently he lacks apparatus for deciding doubtful cases. If reinspection is called for, he rarely knows when a change of grade is made, and why. In many cases, not only do the inspectors grade with their unaided judgment, but they also have little opportunity for correcting this judgment. The demands of the domestic and foreign wheat trade for more uniform grades are imperative.
Interest in the exact and uniform grading of wheat and other grains has come mainly from two sources, the grain dealers and the United States department of agriculture. The general concensus of opinion has been that existing difficulties can best be removed without governmental control, which, however, has some advocates. The grain-inspection work of the department of agriculture has had for its principal objects the study of methods used in the determination of different varieties of wheat, and the study of commercial grades of cereals. The work of the grain dealers has found expression in the national organization of the chief inspectors. This organization established grades of wheat which it recommended to the grain trade for uniform use.
Commercial Classes and Grades of Wheat officially recognized and adopted at Chicago and New York are given below. Wheaf may be of such poor quality or condition as to be graded "rejected," or "no grade." Wheat that is wet, in a heating condition, burned, or badly smutted generally falls into the lowest grades.
White winter wheat, Nos. 1, 2, 3 and 4.
Winter wheat, Nos. 1, 2, 3 and 4. Red winter wheat, Nos. 1,2, 3 and 4.
Mixed winter wheat, Nos. 1, 2, 3 and 4. Hard winter wheat, Nos. 1, 2, 3 and 4. Western wheat, Nos. 1 and 2.
Spring wheat, Nos. 1, 2, 3, 4 and No. 1 Northern. Macaroni wheat, Nos. 1, 2 and 3.
The rules for grading red winter wheat in New York are as follows:
No. 1. Red winter wheat shall be sound, plump, dry, wtll cleaned, and weigh not less than 60 lbs. Winchester standard.
No. 2. Red winter wheat shall be sound, dry and reasonably clean, contain not more than 10 per cent of white winter wheat, and weigh not less than 58 lbs. Winchester standard.
No. 3. Red winter wheat shall be sound, dry and reasonably clean, contain not more than 10 per cent of white winter wheat, and weigh not less than 56% lbs. Winchester standard.
No. 4 Red winter wheat shall include all red winter wheat not fit for a higher grade in consequence of being of poor quality, damp, musty, dirty and weigh not less than 52 lbs. Winchester standard.
The first wheat that was raised in the Red river valley grew on a rich virgin soil that was free from weeds, and consequently the grain was of high quality and quite free from foreign matter. As the soil became impoverished and weeds became more prevalent, wheat deteriorated in quality and extraneous matter increased. In the eighties, "No. 1 hard" was the contract grade in the terminal markets, and for several years over onehalf of the wheat received at Duluth was of this grade. Later the contract grade was reduced to No. 1 northern. Not 15 per cent of the crop of 1898 which came to Minneapolis was good enough for even this grade. Of 125,564 cars of wheat received at the six terminal points of Minnesota during 1905, 109,160 contained northern spring wheat, 11,118 winter wheat, 3,391 western white wheat, and 1,557 western red wheat. Of 143,375 cars received during 1902, 139,857 contained northern spring, 2,909 winter, 516 red winter, 53 northern white, 21 white winter, and 19 western white and red. The net average dockage was 21.5 ounces per bushel in 1904, and 18.6 ounces in 1905. Eighteen grades of wheat were recognized in Minnesota in 1902. Wheat contracts well illustrate Gresham's law and the action of a double standard, inasmuch as that grade which is most abundant and cheapest in any one year becomes the contract grade for that year, and other grades are delivered only at a premium.1 The grade is always either understood or specified in contracts on the produce exchanges, and a contract cannot be settled except by a delivery of that grade, or of some higher grade. It is only in comparatively recent times that a contract can be settled by a higher grade, for this is now allowed in order to avoid "corners." Wheat taken out of storage is not always of the same quality as that stored. The buyer who purchases in a territory where a low grade of wheat predominates is at a great disadvantage in competing with a buyer who purchases in a territory where the grade varies. Most of the mixing of wheat is done at the primary markets.1
The Mixing of Wheat.—After grades became fixed, houses for cleaning grains and bringing them up to the standard were established. These branched out to include a system of mixing higher and lower grades of wheat to "bring the whole up so it would pass muster, according to the rules of the respective inspection departments for which the mixture might have been made." Grades were thus manufactured. In New York, for example, there were two classifications of grades, one for delivery on the New York produce exchange, and the other for export, both under the same name. The mixing houses were private enterprises, and under no inspection. The practice increased the profit of the mixing house, but it lowered the grades of wheat. The mixer often makes a greater profit per bushel than the producer, and the business is so important that practically all terminal elevators in Chicago have their mixing houses. In running wheat of a high quality through the cleaning house, some of a lower grade is mixed with it in such proportion that the mixture barely passes the contract grade. Two cars of No. 2 wheat mixed with three cars of No. 3 may make five cars of No. 2 wheat. The difference in price between the grades may range as high as 15 cents per bushel. The mixing of wheat tends to fix its price to the disadvantage of the producer. In order to obtain a special quality of wheat, a premium must be paid for it. Export grain sold by sample commands a premium of from 1 to 4 cents per bushel over the speculative grades held in store in American grain centers. The benefit of this premium goes to the mixer and seller of the wheat, and not to the farmer. 1 Emery, Speculation, p. 137.
The Advantages of Mixing Wheat are great, and perhaps more than counterbalance the evils resulting from the practice. Without the mixing of wheat, the farmer would be at a great disadvantage because the demand for off grades would cease. Legislative efforts have been made to stop the mixing of grain, but supervision by duly authorized inspectors is a more probable solution of the difficulty. Some elevators make an exclusive business of handling wheat that is shrunken, damp or injured, and work it up a grade by drying, cleaning and mixing. Damp wheat is turned over to them by the regular companies, who do not care to put it in their elevators.
Insurance.—There was insurance on goods in trust at least as early as 1704. On granary risks of stored grain the rate under the London mercantile tariff in 1877 was 0.76 per cent. After the fire at the King and Queen Wharf of that year, the rate was raised to 1.08 per cent. In recent years in the United States, a few companies are writing insurance on wheat in the stack or granary, upon which they charge a rate of 1 per cent per annum. Wheat in elevators at the local market is insured by most of the large fire insurance companies at a rate depending upon the construction and hazard of the elevator, and varying from 1.5 per cent to 3 per cent per annum. Grain in transit is insured under railroad schedule policies written by a syndicate of companies in New York. The rate upon this class of risks is from .60 per cent to 1.5 per cent, for it varies from year to year. The rate of insurance for wheat stored in elevators at the primary or seaboard markets varies from .50 per cent in modern elevators of steel and concrete construction to 3.15 per cent in elevators of other construction, according to type of construction and surroundings. In Canada, the law compels warehousemen to insure stored grain, and the average rate on grain in elevators is nearly 2 per cent.
1 Industrial Commission, 10:cccxxl; cocxxix.