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The same is true of the minority report of the Senate. I am perfectly willing it should go in the record with the explanation that I do not agree with the results stated in the minority report, and we do not offer it as expressing our views.

Now, gentlemen of the committee, this concludes substantially the ground I intended to cover, and I have taken more time than I should have taken, and I want to make the suggestion again, before I close, if I may have the privilege. There was a statement made by Mr. Drake in his testimony that I desire to refute if it remains in the record. The refutation by me disconnected from the statement would be meaningless, and I will ask the indulgence of the committee if the statement I am about to make be printed in the record immediately following the statement by Mr. Drake, to which I refer. The statement was a matter that it seems to me was clearly scandalous; reflected on the membership of the chamber of commerce; reflected on the reporters of the papers, and I would simply like to state the facts in reference to it.

Mr. LENROOT. You may make the statement and the committee will afterwards dispose of it.

Mr. SIMPSON. I wish to make the statement that I was present at the dinner referred to; that there were no excesses in eating or drinking at that dinner; that the dinner was given by Mr. Wells to a number of gentlemen, including newspaper reporters, who, during the investigation that had a short time before been concluded in the legislature, had been brought into almost daily contact, and it was simply such a dinner as a gentleman at any time may give to his friends, and should not be a subject for unfavorable comment, and, in my judgment, it is an outrage to assume or suggest that the newspaper men who were invited to that dinner were subsidized thereby, or that their attitude toward the chamber of commerce or the Equity Cooperative Exchange was in any degree changed by the fact that the dinner was given.

In conclusion, gentlemen, I think perhaps I have made my position sufficiently clear that we are not opposed to an investigation, a comprehensive investigation, by a high impartial committee or commission; but we are opposed to the passage of this resolution, because this is a narrow resolution. This resolution omits one of the agencies handling grain in the Northwest that should be investigated if any agencies or exchanges are investigated. If any investigation is had, it should cover the whole grain-growing and grain-handling area, not merely two States. The charges against the exchanges at Duluth, Minneapolis, and Chicago, it seems to me, have not been established by any evidence fairly considered in this case. The only statements tending to substantiate in any degree these charges are statements that arbitrarily and without foundation in facts call into question the integrity of individuals and officials and States, as well as the integrity of the exchanges against which the charges are made, and it seems to me that this committee ought not to in any way sanction those unsupported charges or lend itself to this campaign of the Equity Cooperative Exchange.

REPORT OF THE MAJORITY OF THE COMMITTEE OF THE SENATE OF THE MINNESOTA LEGISLATURE, SESSION OF 1913.

[To investigate the grading, cleaning, and mixing of grain; the spread between primary and terminal market prices; the methods of the chamber of commerce, the independent grain exchange, the hay exchange; and all matters pertaining to the grain markets.]

Hon. J. A. A. BURNQUIST,

President of the Senate:

Your committee, appointed under resolution S. F. - to investigate as to the grading, cleaning, and mixing of grain, prices at the primary and terminal markets, the methods of the chamber of commerce, the independent grain exchange, the hay exchange, and all matters pertaining to the grain markets, beg leave to submit the following report:

Your committee appointed H. L. Schmitt, Esq., as attorney for the committee. Beginning Tuesday, February 18, 1913, the committee held many public hearings. At these hearings various attorneys appeared for the different exchanges and for members of the same and for persons called before the committee as witnesses. To these attorneys the committee accorded the privilege of fully examining and crossexamining witnesses. While in this way considerable time was wasted and the testimony was unduly extended, yet there was afforded each interested party an opportunity to bring out any fact which he deemed favorable to his position or unfavorable to the position of any other interest. The committee feels warranted in the belief, therefore, that the evidence submitted to it covers quite fully the matters it was required to investigate.

A large number of witnesses were sworn and examined and their testimony reported. A transcript of this testimony is submitted herewith. Numerous reports, documents, letters, and memoranda were received in evidence. The State railroad and warehouse commission and different elevator companies prepared, verified, and submitted to your committee a table showing the quantities and grades of grain received in elevators and the quantities and grades delivered out of these elevators. Other tables and statements were prepared, verified, and submitted, giving data concerning grading, storing, buying, and selling grain. This documentary evidence is submitted herewith.

There is little conflict in the evidence heard by your committee relating to the inspection and grading of grain, the purchasing and handling of grain in the primary and terminal markets, the organization and methods of the exchange investigated, or the conduct of the members of such exchanges. The facts are, therefore, not in doubt, and the actual conditions surrounding the handling of grain in the primary and terminal markets may be stated with reasonable certainty.

STATE INSPECTION AND GRADING.

A careful investigation was made by your committee of the methods of grading grain by the State at the Minneapolis and Duluth terminals. The State grades of barley are not considered to any appreciable extent in buying and selling barley. It is sold by sample. The variations in price between different samples represent generally not a difference in State grade, but a difference in the value of the barley for malting or feed purposes in the judgment of men engaged in buying and selling barley. As to wheat, it is largely sold by grade. The same is true of flax and, to a lesser extent, of oats and other grains. Therefore, the fairness and accuracy of the official inspection and grading is a matter of the greatest importance to all interests the farmers, elevator companies, and millers. Your committee found no evidence of any attempt to favor any interest in the matter of grain inspection. Indeed, under the conditions surrounding the inspection it would be practically impossible for an inspector to favor any individual or interest. The grade is given by the inspectors upon samples taken from the cars by samplers, the inspector not knowing, when he gives the grade, to whom the wheat belongs. It is estimated that the farmers sell approximately 95 to 99 per cent of their wheat at the primary market to a line, independent or farmers' elevator company, and consign to some commission merchant for sale at the terminals the balance. At the time the wheat arrives at the terminal market, therefore, it is largely owned by elevator companies. The owners and consignees of the wheat, as well as the inspectors, obtain samples of the wheat on its arrival at the terminal. In case the owner or commission merchant having charge of a car of wheat is dissatisfied with the grade given by the inspector, he may call for reinspection, and, if still dissatisfied, may appeal to the appeal board, the decision of this board being final. In the same way, the purchaser of a car of grain, usually either a milling or terminal elevator company, if dissatisfied with the grade given the grain by the original in

spection, may call for reinspection and may take an appeal to the appeal board, and in practice reinspection is called in a large percentage of the cars, appeals are taken, in a lesser but still a substantial percentage. It thus appears that the inspection of wheat is always subjected to the scrutiny of expert representatives of both the buyer and the seller. Under this system there is little opportunity for mistake and none for fraud. The number and results of reinspection and appeals are shown by two tables prepared by the railroad and warehouse commission, and attached to this report. From these tables it appears that of the total cars inspected during the past 10 years

0.184 were reinspected as to grades.

0.052 raised on reinspection. 0.009 lowered on reinspection.

0.0017 lowered on appeal.

0.028 per cent crop changed on appeal, or less than 3 cars out of each 100 originally inspected.

The grading of wheat necessarily is a matter of judgment, and different men will arrive at different conclusions as to the proper grade of a sample of wheat that is near the border line between two grades. Naturally there are and will be buyers and sellers who are dissatisfied with the inspection of a particular car. Unquestionably, however, the Minnesota inspection and grading is fairly and accurately done by competent men. The inspection department is well organized and efficient. The Minnesota grades are accepted wherever wheat from the Minnesota terminals is sold. The inspectors are appointed on a merit basis from the ranks of the samplers. This is the established practice of the railroad and warehouse commission.

The grain-inspection boards are, by the manner of their appointment, made wholly independent of the balance of the grain-inspection department. To make their inspection and grading of grain on appeal likewise entirely independent it would be well if each board selected a special sampler to obtain new samples to be used on appeals in extraordinary cases. The railroad and warehouse commission favors this plan.

As these boards not only may finally determine the grade to be given a car of grain, but as well annually establish the "Minnesota grades" for all grain subject to State inspection, it is of the greatest importance to all grain interests that the members be experienced, skilled, and competent in all matters pertaining to establishing and passing on grades of grain. The law should require that appointments to these boards should only be made from men whose competency has been established in some proper

manner.

CLEANING, DRYING, AND MIXING GRAIN IN TERMINAL ELEVATORS.

Your committee investigated the cleaning, mixing, and drying of grain, as carried on in the terminal elevators. Tables submitted show that the terminal elevators shipped out in two years more No. 1 and 2 wheat than they received. This result is brought about by improving and mixing the wheat. During some seasons a considerable quantity of wheat is received at the terminals containing a surplus amount of moisture. Such wheat is graded "no grade" by the State inspection. After it is dried sufficiently it may be entitled to a higher grade. Again, by mixing some No. 2 wheat with a sufficient amount of choice or premium No. 1 wheat, the whole quantity will grade a medium or thin No. 1. A similar increase in quantity of any grade may be brought about by reducing the quality within the grade through additions of lowergrade wheat. The possibility of mixing a certain amount of the lower grades of wheat with higher grades increases the demand for and advances the price of the lower grades. "No grade" wheat frequently sells within 3 or 4 cents of No. 1, and the average price of the purchases of no grade" by one terminal elevator company during the present season was 53 cents below No. 1. The same company purchased its No. 4 wheat at an average of 5 cents below No. 1. The possibility of improving and using these grains with higher grades undoubtedly was a factor in making these prices; that is, the value which the wheat has for mixing purposes is paid for by terminal elevator companies as well as by millers.

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Section 2053, Revised Laws 1905, as amended by chapter 82, General Laws 1909, requires any warehouseman operating a terminal elevator to store grain in separate bins on the request of any owner or consignee, and requires the warehouseman, at the request of the owner or consignee, to clean, dry, mix, or otherwise improve the condition of or value of such grain, and to deliver the same separately from the grain of any other owner or consignee, upon order. Therefore, any owner or consignee of grain, unless he is offered full value for that grain in its condition on track, may use the same facilities the elevators and mills have to clean, dry, and mix and improve the

conditions of the grain. The fact that owners of grain seldom avail themselves of this privilege would seem to indicate clearly that buyers of grain at terminals pay the full value of that grain with reference to the possibility of improving it by drying, cleaning, or mixing.

Experience in the Canadian markets is interesting and instructive on this point. There are certain standard grades of wheat established by statute in the Dominion of Canada, and, in addition, each season a varying number of intermediate commercial grades are established by a commission, thus making a total of from 30 to 50 established grades of wheat. There are no sample markets, wheat is sold by these established grades, and the mixing has not been permitted. Under this method of marketing the crop, there is frequently a difference of 30 cents between the price paid for the highest and the price paid for the lowest established grades of wheat, a very much wider spread than exists in Minnesota. After an investigation covering two years, a law has been passed in Canada, to become effective September 1, 1913, establishing sample markets, and providing for mixing grain under established regulations. This new statute closely follows and adopts our methods.

It seems clear, therefore, that the cleaning, drying, and mixing of wheat carried on at the terminals is of indirect advantage to the farmer and does enhance the price of his grain, especially of the lower grades, through the introduction of competition for these grades, which otherwise would not exist. While the warehouseman may and does improve the average grade of the wheat taken into his elevator by cleaning, drying, and mixing it, thus raising it into commercial grade, when he buys this wheat the competition forces him to pay for it at a price having a direct relationship to the possibility of such improvement.

SPREAD IN PRICE BETWEEN THE PRIMARY AND TERMINAL MARKETS, AND CONDITIONS SURROUNDING THE PRIMARY MARKETS.

The price paid to the producer for wheat and other grain at the primary or local market is necessarily based on the price of the same wheat or grain at the terminal market. The spread between the two markets must be sufficient to cover freight, the cost of elevating and loading out grain, the proportionate share of the expense of operating and maintaining the elevator, and a fair profit. A less spread than this results in loss and impairment of necessary facilities. A greater spread deprives the producer of a fair price for his grain. At present some stations show a considerable variation in this spread. Complaints are made that some buyer raises the price paid for grain at certain stations to a point at which the grain must be handled at a less by the warehouseman, or without any return on his investment. At other stations the price paid seems below the point at which a reasonable profit only may be obtained. Such instances are exceptional, however. Generally, there is keen competition in buying grain at the primary or local market, and this competition keeps the price up. This price-raising competition exists not only with farmers and independent elevators, but among line elevators as well. One line elevator company, with houses at 56 stations in Minnesota, showed that at 18 of these stations where there were no independent or farmers' elevators the price paid for grain throughout the season was from 1 to 2 cents above the price card.

There is a greater spread in the price of flax between the country and terminal market than in wheat. The greater expense and waste in warehousing and shipping flax is responsible for part of this difference. Then, the risk in buying flax is greater because of sudden fluctuations in price. Again, there is no speculation in flax futures. The trading on the buying side is largely confined to interests engaged in the manufacture of linseed oil and other products of flaxseed. For this reason not infrequently consecutive quotations in flax futures vary from one-half to 1 cent per bushel, and large offerings of futures at times reduce the price several cents before a buyer is obtainable. The resulting uncertainty as to the price at which country buyers of flax can hedge their purchases leads them to adopt, for safety, a wider margin. The same principle applies to barley. There is no opportunity to hedge barley by the sale of futures, and, as a result, the spread of price between the country and terminal market is greater in barley than in wheat.

This competition not only tends to keep prices up, but in an even more marked degree results in giving to the farmers favorable grades and dockage on grain. The following tables, showing the grades actually given wheat by line elevator buyers and the grades given the same wheat by State inspection when shipped to the terminal market, indicate a general higher grading by the buyers in the country than wheat is entitled to under the established rules for grading. The first table shows wheat graded below No. 3, handled from August 1, 1912, to January 31, 1913, at 56 country elevators in Minnesota operated by one company.

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The second shows the grades given by country buyers and the actual grade as shown by State inspection, on wheat, between July 1, 1912, and February 1, 1913, handled at 22 country elevators in Minnesota owned by one company.

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A grain price card is sent out daily from Minneapolis to most of the line, independent and farmers' elevators in Minnesota and some adjoining States. The price card sent to elevators at a particular station purports to show the value of grain at that station. It is based on the closing price of the preceding day on the terminal market. In case of wheat this card gives a country station price 4 cents plus freight under the terminal price, unless some buyer at that station notifies the card publisher that he will pay a higher price, then the card shows this higher price. The figure 4 cents was arrived at by the publisher of the card after consulting grain men, and represents his conclusion as to a proper margin to cover operating expenses and profit. The Minneapolis Chamber of Commerce has no connection with the Grain Bulletin or the sending out of these price cards. The cost of this service is borne by the subscribers. No subscriber is bound to follow the price card. It serves merely as a guide. As a guide for both buyers and sellers, such a price card posted at the different stations throughout Minnesota would be of great use, if the price shown was a fair price and uniform at all stations, allowing for difference in freight. Such a card might be sent out under the supervision of the railroad and warehouse commission if it was authorized to do so, after an investigation determining the necessary and fair spread to cover expense and return on investment to the country elevator.

At most stations there is a surplus of elevator capacity. The line elevators have during the past 10 years handled a continually decreasing percentage of the grain at country stations, and the farmers and independent elevators a continually increasing percentage. (See table attached.) The larger volume of grain purchased by farmers and independent elevators indicates that there is no control of the primary markets by line elevators and no combination among buyers. The owners of line elevators in Minnesota generally are now selling these elevators whenever a reasonable opportunity to sell is presented, even at prices considerably below the cost of the elevator. It has been suggested that the aggregate expense of marketing the grain at country stations could be greatly lessened if some of these elevators were jointly owned or operated, provided always there be at least two competing elevators. This would permit a narrower price margin between primary and terminal markets.

It has been suggested also that country buyers of wheat be licensed by the State railroad and warehouse commission after an examination determining their competency. This suggestion has much to commend it. Even though the margin on which grain is bought on the average is fair, and storage rates are regulated by law, there may be,

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