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It appears that in certain parts of the Central West farms are by custom sold largely for transfer on March 1, regardless of when the agreement is made. Upon this foundation, during the recent land boom, what may be called trading in land futures has developed, contracts of sale changing hands several times before the final conveyance. In this case, however, a specific piece of land or farm is always in mind, and the objects of the trading are not interchangeable or homogeneous. No complete futures market could be developed on such a basis. Section 2.-Historical notes.

PROBABLE ORIGIN OF THE CHICAGO FUTURE CONTRACT.-A history of future trading in grain in the United States would be chiefly the history of the Chicago market. Although the present type of Chicago future contract was not then fully developed, future trading in practically the present form became important in the United States during the Civil War. The letting of large contracts for the supply of the armies in the field had much to do with the development of this system of dealing in provisions and oats.

The large development of “ to arrive” trading in grain at Chicago prior to the Civil War was probably the source from which the "future” was gradually evolved. Of course, "to arrive” dealing was much older, but previous to its development in the grain belt prior to the Civil War such trading had been mostly an incident of international trade involving shipment by water. The distance from which grain came to Chicago made the application of a similar system for land shipments natural there. It is of curious interest to note that “to arrive" dealing as now practiced in Chicago is, so to speak, a "tail” to future trading, the price for “to arrive” sales and shipments being usually based upon the price of the adjacent future as made on the day of sale. In other words, future trading has entirely outgrown in importance, and now dominates, the type of trading from which it was doubtless originally developed.

ADOPTION OF RULES GOVERNING FUTURE TRADING IN 1865.-Naturally it is difficult or impossible to give an exact date for the beginning of a commercial practice. Rules governing future trading were first formulated and adopted by the Chicago Board of Trade in 1863. In May of that year a rule on margins was adopted reading as follows: 1

On all time contracts made between members of this association satisfactory margins may be demanded by either party, not to exceed 10 per cent on the value of the article bought or sold on the day such margin is demanded, said margin to be deposited at such place or with such person as may be mutually agreed

1 Taylor's History, p. 325. (History of the Board of Trade of the City of Chicago, edited by Charles H. Taylor. Chicago, Robert O. Law Co., 1917.)

upon. Such margin may be demanded on or after the date of contract, and from time to time, as may be deemed necessary to fully protect the party calling for same. Should the party called upon for margin, as herein provided, fail to respond within 24 hours thereafter, it shall be optional with the party making such call to consider the contract filled at the market value of the article on the day said call is made, and all differences between said market value and the contract price shall be settled the same as though the contract had fully expired.

It is interesting to note that any changes made since that date affect phraseology and administrative details only. This rule, with an administrative change providing for the deposit of margins with the treasurer of the association unless otherwise agreed upon, was incorporated in a systematization of the general rules and by-laws of the Chicago Board of Trade, adopted in October, 1865, covering also other features of future trading and constituting the formal and comprehensive recognition in principle of this special type of commercial dealing. Such trading had been going on for at least 10 years and had become especially important during the Civil War, but provision had not previously been made for its regulation.

During the early days trading at “buyers' option, as well as buying and selling for a great variety of short periods, was practiced.3 Now the contracts are so well understood to be at seller's option that no reference to this feature of the contract need be made. The option in question is, of course, merely as to time of delivery within the specified delivery month. “Seller 15 days "-one of the forms in early use-suggests the ordinary to arrive sale. In fact, these earlier future contracts were commonly made by country owners of grain who expected to fulfill them by shipment to put into store for delivery at Chicago for loading into cargo boats. One reason, dating back to early conditions, for the importance of the May future is the fact that this month comes at about the time of the opening of navigation on the Great Lakes.

OFFICIAL QUOTATIONS PRINTED BY THE BOARD.—Quotations of futures first appear in the annual reports of the Chicago Board of Trade in the volume for 1877 in tables entitled “Daily current prices * * * for the leading speculative articles deliverable in succeeding months at sellers' option as to time.” The Chicago Daily Trade Bulletin (or its predecessor) doubtless contains quotations for futures prior to this.

A CLEARING HOUSE ESTABLISHED AT CHICAGO IN 1883.-A clearing house for facilitating the offsetting of trades between houses without waiting for customers to close them was organized at Chicago and put into operation on September 24, 1883.4 The system of clearing

· Taylor's History, pp. 331, 332.
• Taylor's History, p. 332.

: Taylor's History, p. 898. -
• Taylor's History, p. 664.

has remained the same at Chicago down to the present time, though other and more economical, as well as more thoroughgoing, methods have been adopted at Minneapolis and elsewhere. The date of the adoption of the clearing system is of interest in the history of future trading, not only because of its important place in the machinery of future trading, but also because the date probably marks a period of maximum activity in futures, and it was doubtless this condition that in large part compelled the use of some economical centralized method of settling trades..

A more highly developed and more economical type of clearing llouse was organized at Minneapolis in 1891 and is generally used by futures exchanges in the United States, but not at Chicago.

FUTURE TRADING METHODS NOT YET PERFECTED.—The 60 years during which Chicago has been the great market in the United States for grain futures show many improvements in rules and methods of dealing.

The most important of these, however, if one may judge by the incidents of such trading, have been made in the last 20 years. For the period prior to 1900, the history of future trading in Chicago seems to have been largely a history of corners, and the market seems to have afforded more opportunity for this and other forms of manipulation than for the development of an economic organization adapted to the needs of the public. However, this impression may be due to the tendency to record what is sensational rather than what is serviceable. Since 1900 there have been comparatively few important corners. The condition that developed in wheat futures in the spring of 1917 has been referred to as a corner, but not correctly, since there was not present the element of intentional manipulation which is essential to the idea.

Further development and improvement of the system and methods of future trading are, of course, to be expected. Trading as carried on at Chicago did not weather the entry of the United States into the World War, but perhaps that could not be expected of any system of speculative trading. If the conditions that developed in the spring of 1917 in relation to the trading in May wheat should be described as a “natural” corner, that argument does not alter the fact of a breakdown of the system. In this case the longs were desirous of accepting delivery and had purchased futures in order to obtain thereby the actual grain. The fixing of a settlement price considerably away from the cash market in place of requiring delivery or the buying in of contracts was unjust apparently to certain milling interests and other consuming purchasers.

The whole situation may, perhaps, be dismissed with the statement that there was an overshadowing need of Government action to prevent hoarding and profiteering under the extraordinary conditions due to the war. The tendency of prices on the exchanges to run wild may be regarded as but one incident of a generally abnormal situation.

OTHER FUTURES MARKETS PATTERNED AFTER CHICAGO.—The foregoing considerations relate directly to future trading at Chicago. The Chicago Board of Trade has been the pattern and pace maker for all the numerous grain exchanges in the country. Among those outside of Chicago, mentioned in approximately the order of their importance, are the following: Minneapolis, Kansas City, Duluth, St. Louis, Milwaukee, Toledo, Omaha, San Francisco, New York, and Baltimore, and perhaps others. In some of these cases there is no independent market in futures, the facilities having reference rather to trading on Chicago quotations. In some cases there is a - call ” or auction of futures, but no continuous market. If there is a futures market at all on the numerous smaller exchanges, it is of such character. A number of the more considerable cash grain centers have tried to develop futures markets and not made a success of it. Section 3.-Grain futures markets of the United States.

MARKETS WHERE GRAIN FUTURES ARE TRADED IN.-A grain exchange may or may not have a futures market. Even where the rules provide for such trading, there may actually be no such market. An interest in cash grain does not of necessity involve an interest in futures, hence the existence of an important cash-grain market does not involve the development of future trading on a scale that constitutes a serviceable market. Speculative dealings, furthermore, are not dependent upon contact with the grain or upon the product of any particular locality, hence they tend to be concentrated upon the best markets, instead of being decentralized and located at the natural outlet of a graingrowing territory. Important primary markets for cash grain may develop no future trading. Any future trades in the way of hedges, etc., that may be needed, can be executed on a central market, distance as such not (at least in theory) constituting any difficulty.

Grains traded in by way of future contracts, and also to a less extent the customary delivery months, naturally differ somewhat on the various exchanges. The rules of the exchanges are not a safe guide in this matter, since they provide for varieties of trading that do not actually occur. On the basis of published quotations, which may be taken to indicate transactions of sufficient magnitude and public interest to constitute a true futures market, it appears that there is (or was, prior to the entry of the United States into the war)

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1 A “call” market.

trading on this basis in one or more of the five principal cereals on the exchanges listed below:

TABLE 1.Trading in cereal futures-Grains traded in on, each erchange in

the l'nited States.

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There is also at Duluth a futures market for the special variety of wheat known as durum. There is similarly a market for kaffir corn (including milo maize and feterita) at Kansas City. In addition to the food grains, flax futures are traded in at Duluth. Toledo has futures markets for the several important kinds of hay.seedclover, alsike, and timothy. The New York Produce Exchange has a futures market in cottonseed oil. At New York, also, and at New Orleans are important markets in cotton futures. Butter and eggs, prior to the entrance of the United States into the World War, were traded in through a call for futures on the New York Mercantile Exchange, the New York Butter and Eggs Exchange, and the Chicago Butter and Egg Board. Provision futures (pork products) are traded in at Chicago. This enumeration probably exhausts the list of futures markets in the United States for this country's agricultural products.

It is easy to ntake up nominal quotations, however, on the basis of the normal spread from other markets, and where the importance of future trading is declining, such quotations may be compiled for some time after there has ceased to be a real market. Quotations at Baltimore are largely thus nominal. Prior to the time when future quotations in grain oeased to be published by the New York Produce Exchange there was little trading in futures for several years.

FUTURES QUOTED AT CHICAGO FROM 1877.—The special importance of Chicago as a futures market makes it worth while to trace the course of future trading there as regards the commodities thus dealt in as indicated by the published quotations. From 1877, when detailed quotations first appeared in the annual reports of the

* Established in 1915.

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