the particular terminal market. Chicago rules are not, therefore, in practice appreciably less important, since most future trading in grain is done under its rules.

DELIVERY OF BETTER THAN THE CONTRACT GRADE.-A general principle underlying delivery on future contracts is expressed in Rule XXII of the Chicago Board of Trade, section 3, as follows:

On contracts for grain or flaxseed for future delivery the tender of a higher grade of the same kind of grain or flaxseed than the one contracted for shall be deemed sufficient.1

This provision is at least as old as 1869. Furthermore, if there are several varieties of contract grade, they may be combined on a particular contract "in such proportions as may be convenient to the seller," this being provided for in connection with the enumeration of deliverable grades for each grain dealt in by way of futures. But "in no case an amount less than 1,000 bushels of any one grain in one elevator shall be deemed a valid tender, except in the case of corn."3 Formerly the quantity mentioned for oats in this connection was 1,500 bushels. Corn is made an exception doubtless because mixed corn is standard for delivery on future contracts and the premium on straight yellow or straight white corn is only onehalf cent per bushel.

CONTRACT AND DELIVERABLE WHEAT AT CHICAGO.-The great number of varieties of "contract" wheat is noteworthy. The list as shown for 1917 and 1918 reads as follows:

4

No. 1 dark hard winter wheat, No. 1 hard winter wheat, No. 1 yellow hard winter wheat, No. 2 dark hard winter wheat, No. 2 hard winter wheat, No. 2 yellow hard winter wheat, No. 1 red winter wheat, No. 2 red winter wheat, No. 1 northern spring wheat, No. 1 velvet chaff wheat, No. 1 dark hard winter wheat, No. 1 hard winter wheat, No. 1 yellow hard winter wheat, No. 2 dark hard winter wheat, No. 2 hard winter wheat, No. 2 yellow hard winter wheat, No. 1 red winter wheat, No. 2 red winter wheat, No. 1 dark northern spring wheat, No. 1 northern spring wheat, No. 2 dark northern spring wheat, No. 2 northern spring wheat, No. 1 red spring wheat, No. 2 red spring wheat.

Most of these are winter wheats, as is natural, since Chicago is mainly a winter-wheat market. Prior to July 31, 1917, from the year 1897, only the No. 1 grade of northern spring wheat was of contract grade, although this in general shows considerably higher prices at Chicago than No. 2 red winter.

Since the summer of 1917, moreover, certain grades are deliverable at specified discounts. These are:

No. 3 dark hard winter wheat, No. 3 hard winter wheat, No. 3 yellow hard winter wheat, No. 3 red winter wheat, No. 1 hard white wheat, and No. 2

1 An exception to this principle is noted for Minneapolis oats futures where, under the 1908 rules, No. 3 was the contract grade and No. 2 not deliverable.

2 Sec. 3, various parts.

End of sec. 3. All references to the rules on contract grades made below are to Rule XXII, sec. 3.

In effect only since the abolition of future trading in wheat.

hard white wheat, at a discount of 5 cents per bushel; No. 3 dark northern spring wheat, No. 3 northern spring wheat, and No. 3 red spring wheat, at a discount of 8 cents per bushel.

Prior to July 1, 1917, no provision was made for discounted deliveries of wheat. There is a special provision against the delivery of treated wheat, not applicable to other grains, which reads:

Wheat that is inspected as smutty, or treated by any other process than drying, shall not be deliverable on contracts.

The extensive changes made in the enumeration of contract and deliverable grades in the summer of 1917 were mainly due to the adoption of Federal grades for wheat. This involved a stricter distinction between grades and an extended description of varieties. However, the Chicago Board had previous to this shown a tendency to broader deliveries.

EARLIER STANDARDS.-Immediately prior to July 1, 1917, as already stated, there were no discounted deliveries of wheat. An examination of the rules for previous years shows a constant tendency in the direction of liberalization. From 1886 to 1896 the contract grades appear to have been only No. 2 red winter and No. 2 spring. From 1897 to 1913, of spring wheats, only No. 1 northern was contract grade. No. 1 velvet chaff, another variety of spring wheat, was made a contract grade from July 1, 1913. No. 1 and No. 2 hard winter became deliverable from July 1, 1903, at 5 cents per bushel discount, and from July 1, 1904, at 2 cents per bushel discount, which discount disappears after October 1, 1908. These changes affecting hard winter wheat resulted from a gradual change in the market estimation of hard as compared with soft winter wheat and reflected the commercial situation. At the same time they involved a broadening of deliverable grades. They necessitated trading in "new style" and "old style" contracts for brief periods.

In general, for the purposes of this section no attempt has been made to trace contract grades at Chicago prior to 1900, and for other markets only a contemporary comparison is made. In the early eighties it is said that only soft spring wheat was delivered on contracts at Chicago. This, however, must have been a matter of custom and the convenience of traders. The 1881 rules make no reference to contract grades of any grain, that evidently being specified in the contract. It is still at the present time possible to make contracts for other than the fixed grades, but the importance of standardization makes it desirable that contract grades be defined and established by rule, though there is no need of making the rule exclusive.

DELIVERABLE STANDING OF WHEAT WITH DOCKAGE.-In 1915 there was considerable discussion and debate among the members and before the directorate of the Chicago Board on the subject of the deliv

erable standing of No. 1 northern wheat with dockage, the latter being removable by cleaning, and of course not counted as part of the wheat. Many of the members believed it to be deliverable, their opinion being based upon their interpretation of the rules of the State inspection office. The opinion of the legal counsel of the Board was to the opposite effect. The president also was opposed to giving it deliverable standing.1 Special proposed rules were framed to protect the parties receiving such deliveries. The directors finally adopted a resolution favorable to the broader view of what was deliverable.

CONTRACT WHEAT AT KANSAS CITY.-With regard to deliverable grades on wheat, the Kansas City rules, doubtless largely because of the location of this market in relation to the hard winter wheat territory, show a policy quite different from that of Chicago. The only grade and variety made deliverable is No. 2 hard winter. In effect, of course, this means Nos. 1 and 2. There is no provision for premium or discount deliveries.

The Kansas City rule as to contract wheat is stated to have very materially broadened that futures market, because customers can buy futures knowing just what kind of wheat will be delivered under the contract. Mill trading is said to have grown to considerable proportions because of this characteristic of the rule. "Considerable delivery of contract grain on warehouse receipts" is said to distinguish Kansas City from other futures markets. The wide range of contract corn on the same market is justified on the ground that a very small proportion of corn is used for milling, and one grade is about as good as another for feeding purposes.

The Kansas City rule regarding deliverable grades may have been influenced by the law of Oklahoma, from which a good deal of wheat is shipped to that market. According to the clause of the law in question, making or offering to make a future contract on, by, or through any exchange or board of trade, the rules, by-laws, customs, or regulations of which "permit such a contract or transaction to be settled or closed by delivery or tender of any grade or grades of the thing mentioned in such contract or transaction other than the grade

1 Passages from the president's letter (Oct. 14, 1915) on the subject are as follows: "My opinion is that those who support our great future market, those who by their investment purchases create the real attractive force which brings the grain here, are entitled to the delivery of wheat which requires no treatment or manipulation whatever before it is ready for consumptive purposes in interstate commerce by all classes of dealers.

"The delivery of dockage grain to a shipper who must have clean wheat would simply amount to an extension of time on his contract, and at times create an added uncertainty which might easily entail considerable loss. Everyone who handles wheat in commerce can use clean wheat, but everyone can not use dockage grain.

Furthermore, it is an open question whether or not the presence of any kinds of substances in the grain might not at times during certain seasons of the year, when the Chicago climate is most uncertain, seriously affect its keeping power.

The delivery of wheat subject to compulsory cleaning by the seller after delivery seems to be entirely impracticable."

upon which the price is based in said transaction,"1 is presumptively illegal and subject to fine.

St. Louis.-St. Louis also provides only for winter-wheat deliveries on future contracts, but Nos. 1 and 2 of four varieties are contract grades, namely, dark hard, hard, yellow hard, and red; also No. 3 of each is deliverable at 5 cents discount.

Toledo.-At Toledo the variety appears to be determined by specification in the contract. This is mainly a soft white winter-wheat market.

Duluth.-Duluth, on the other hand, has spring-wheat futures, Nos. 1 and 2 of northern spring and dark northern spring, together with No. 1 of red spring, being the standard contract grades. But the same numbers of hard winter and dark hard winter, together with the next lower number of the spring wheat varieties just listed, are deliverable at a discount of 5 cents. Duluth also has a special durum future, with Nos. 1 and 2 of durum and amber durum contract, and No. 3 deliverable at 5 cents discount.

Minneapolis.-At Minneapolis the contract grades are Nos. 1 and 2 of red spring, dark northern spring, and northern spring. There is also provision for delivery as contract grades on a separate winterwheat future of Nos. 1 and 2 hard winter and dark hard winter and No. 1 yellow hard winter. If winter wheat is not specified, spring wheat is understood in all future contracts.2 No. 3 of the varieties specified and No. 2 of yellow hard winter (on winter-wheat contracts) are deliverable at 5 cents discount. Very little winter wheat is in fact traded in or delivered at Minneapolis. The published quotations are for spring wheat, so that this market is practically as much a spring-wheat futures market as is that of Kansas City an exclusively winter-wheat futures market.

Prior to the introduction of Federal grades on August 1, 1917, No. 1 northern spring wheat was the contract grade at Minneapolis, with No. 2 northern applicable at a discount of 3 cents. The adoption of Federal standards necessitated a change in definitions but the intention was to make the grades deliverable correspond as nearly as possible to the previously used Minnesota grades. No. 2 red spring was considered to approximate reasonably the No. 1 northern Minnesota grade and this became the contract grade for the spring-wheat future. Higher grades were made applicable without premium. No. 3 grades of dark northern spring, northern spring and red spring. were considered to represent approximately choice, average, and poor of the former No. 2 northern Minnesota grade and were made applicable at 5 cents discount.

1 See the discussion of statutory prohibitions in sec. 11 of Ch. VII below.
2 Rule XI, sec. 1.

Prior to June 6, 1908, lower grades than No. 1 northern were not applicable on Minneapolis wheat futures at any discount. No. 1 hard wheat could be applied, but without any premium. The percentage of the wheat crop represented by these two grades had, however, decreased until it was the general sentiment that these grades did not represent a sufficiently large proportion of the wheat crop to make the wheat future safe for hedging purposes. The rules were again changed as above indicated on July 20, 1917, to meet the situation created by the greater number of grades distinguished in the Federal standards.

Minneapolis, perhaps, more than other exchanges, has been the scene of a conflict of opinion with regard to the definition of deliverable grain between those who wish a broad range and those who want only a specific kind and quality made deliverable. The millers, of course, are on the latter side. The commission houses incline to a broader rule. Some still advise the inclusion of another deliverable grade of wheat, that is, No. 3. In 1903 an attempt to make No. 2 deliverable at a discount was voted down. The inclusion of No. 2 on August 1, 1917, was coincident with a considerable raising of grade standards by reason of the adoption of Federal grades.

Milwaukee.-The Milwaukee deliverable grades are not different enough from those of Chicago to call for listing, and are describable in the same general terms.

New York and Baltimore.-The rules at the two seaboard markets, New York and Baltimore, are alike in providing for deliveries of Nos. 1 and 2 red winter and hard winter, and for No. 1 northern spring and hard spring.

CONTRACT AND DELIVERABLE GRADES OF CORN AT CHICAGO.--The standard contract grade for corn at Chicago is No. 2 mixed, also No. 1. mixed. In this case there is and long has been comprehensive provision for deliveries at premiums and discounts. Unmixed white or unmixed yellow, both No. 1 and No. 2, are deliverable at a premium of one-half cent per bushel. Grades deliverable at a specified discount are: No. 3 white and No. 3 yellow at 2 cents per bushel under the contract price; No. 3 mixed at 2 cents under; No. 4 white and No. 4 yellow at 44 cents under; and No. 4 mixed at 5 cents under. But there is a provision that "No. 4 corn of the new crop can be delivered only during the months of November, December, January, and February." Doubtless this has reference to the critical character of the germinating period for stored corn containing a high degree of moisture. In effect this means that No. 4 corn, unless it has been held over from a preceding crop, is not deliverable on May contracts.

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