Section 14. Line and nonline results in the Northwest.

As noted elsewhere in this report, the line elevator results obtained by the commission were confined to the larger line elevator companies operating in the four Northwest grain States, while the results for independent and cooperative houses were procured by schedule from elevators operating throughout all of the larger producing States. For this reason the preceding comparisons of the results of the two nonline types with those of the line are not entirely fair to the latter, particularly in view of wide differences in the relative importance of the various kinds of grain handled in the Northwest area, as compared with the territory to the South, where oats and corn are relatively more important than in the Northwest. For the purpose of obtaining a more exact comparison of line and nonline elevators, therefore, the operating results of these two types in only the four Northwest grain States were compared.

While schedules were returned by nonline elevators for all the years 1913-14 to 1917-18, inclusive, and for 1919-20 the returns from the four Northwest States for 1914-15 were too few to warrant their use, while no line figures were obtained for the year 1917-18. The comparisons in question, therefore, are presented for only four years, 191314, 1915-16, 1916-17, and 1919-20.

It will be observed that the number of line elevators employed in this connection is less than the number used in the preceding sections. This is due to the fact that one line company operated a few houses in Iowa and Nebraska, and as results for those houses could not be separated from the results for the lines as a whole the figures of this line were excluded. The houses of another company, the results for which were not obtainable in two of the years, were also excluded. GROSS PROFITS ON GRAIN SOLD.-The following table presents the gross profit on grain sold by the line and nonline elevators for four years, both before and after including hedging results. The following averages are based upon figures appearing in Appendix Table 10:

TABLE 37.-Average gross profit on grain sold, before and after including hedging results, of line and nonline elevators in the Northwestern grain States in specified

The nonline elevators earned considerably larger gross profits on grain before including hedges than did their line competitors and even larger ones when the hedging gains and losses are included.

The lines lost heavily in both 1916-17 and 1919-20 on their hedges, while the nonline elevator results before and after, including hedges, show but slight differences in any year, owing to the comparatively small amount of hedging done by these types.

GROSS PROFITS PER BUSHEL. The larger gross profits realized by the nonline elevator companies were obtained in the face of much lower gross margins per bushel than those secured by the line companies, as appears from the following table:

TABLE 38.-Average gross profit in cents per bushel, before including hedges, of line and nonline elevators in the Northwestern grain States in specified years.

gross

In three of the four years for which results are presented the profit per bushel of the line companies was around twice that of the nonline elevators and in the other year was considerably in excess of it.

BUSHELS SOLD.-The higher total gross profits of the nonline elevators must be attributed to the fact that they sold a larger volume of grain, since, as shown in Table 38, the average nonline elevator profit per bushel was less than that of the line.

TABLE 39.—Average bushels sold by line and nonline elevators in the Northwestern States in specified years.

While with the exception of the year 1915-16, the gross profit or margin per bushel of the lines was about twice as great as that of the nonline elevators, it appears from this table that the volume of bushels sold by the nonline elevator averaged nearly three times that of the line elevator. The discrepancy in bushels sold in favor of the nonline elevator being much greater than the discrepancy in margins in favor of the line house, the former type of elevators show larger total gross profits on grain than the latter.

GROSS PROFITS PER BUSHEL INCLUDING HEDGES.-The following table presents the gross profits per bushel including hedges:

TABLE 40.-Average gross profit in cents per bushel including hedges of line and nonline elevators in the Northwestern grain States.

These figures reflect the heavy losses of the lines from hedging operations in 1916-17 and 1919-20, losses which in the former year amounted to over 4 cents a bushel. (Table 38.) The lower per bushel profits including hedges shown by the nonline elevators as compared with the lines coincide with the larger volume of grain sold by the former type.

INVESTMENT PER ELEVATOR.-The following table presents both the total and proprietary investment per elevator for line and nonline houses in the northwestern grain States for specified years. The figures on which the averages are based appear in Appendix Tables 11 and 12.

TABLE 41.-Average total and proprietary investment of line and nonline elevators in the Northwestern grain States in specified years.

The nonline elevators show a larger investment, both total and proprietary, in every year than do the line elevators excepting in 1913-14, when the total investment of the lines was larger. These differences can be accounted for on a variety of grounds. The nonline houses handle a large volume of grain, are of a more expensive construction, as a rule, are more frequently equipped with cleaning machinery, and more often engage in the handling of side lines and handle a larger variety of them than do the lines, all of which are factors in the larger investment of the former.

RATE OF RETURN.-The following table presents the rates of return of line and nonline elevators in the northwestern grain States on both the total and proprietary investments:

TABLE 42.-Average rates of return of line and nonline elevators in the Northwestern grain States on total and proprietary investment in specified years.

In every year without exception the nonline elevators, despite their generally higher investment, earned much larger rates of return on both total and proprietary investments than did the line elevators.

CHAPTER III.

COSTS AND PROFITS OF TERMINAL ELEVATOR MERCHANDISING.

Section 1. Nature of the terminal elevator merchandising.

Terminal elevator merchandisers are concerns which operate elevators at terminal points in connection with their business of buying and selling grain. Their principal revenues are derived from this merchandising and from the mixing and conditioning of grain for their own account.

Grain purchased by an elevator is usually hedged in the futures market. The hedge is employed as a protection against loss from a decline in prices during the period of such ownership. Sales of futures against grain held are supposed to serve another important purpose during part of the year. Under ordinary conditions the basis of the operations of most terminal elevator companies from the months of November or December to May is largely the "carrying charge." In the fall and winter the futures sometimes sells at a sufficiently large premium-or carrying charge-over the cash price to allow elevator merchandisers to buy cash grain for storage in their elevators and simultaneously contract to sell it for delivery in the future at a price that will give them a sufficient return for carrying it till spring or on occasion for earlier sale.

To illustrate by a hypothetical case, assume that in December the May wheat future is selling at $1.50 and cash wheat at $1.45. Assume further that the actual cost of carrying the wheat plus necessary profits is a cent a month, or 5 cents from December to May. If the elevator buys 1,000 bushels of cash wheat in December at $1.45 and sells a 1,000 bushels of futures, May delivery, at $1.50, it will secure a gross profit of 5 cents a bushel by holding the wheat till May and delivering it out on the future contract. If the May future fails to show any premium such an operation is likely to result in a loss.

In practice, the terminal elevator merchandiser frequently buys and stores even when the spread between the cash and the future does not show a margin over the cost of carriage. The elevator has a large fixed investment in plant, and profitable operating is largely dependent upon the volume of grain handled by the elevator. If the elevator, therefore, believes there is a reasonable opportunity to meet its expenses by buying cash and selling futures, it will usually begin to store on little more than an operating expense basis. If a sufficient quantity of grain can be accumulated the unit cost of carrying will be reduced and a profit obtained. Furthermore, the elevator does not expect to deliver out on its future contracts any considerable proportion of the grain which it buys and puts into the house. The elevator sells the future largely as a hedge and expects in practice to sell the cash grain whenever it is profitable to do so, taking off its hedges for the corresponding number of bushels (buying back an equivalent number of future bushels) at the same time. A considerable portion of the large grain handlers believe that the use of the hedge affords them a protection which they loosely designate as

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