Mr. WELLS. I can only judge from what they have done elsewhere. For instance, there is a year when we in the Northwest only have, we will say, 25 per cent of No. 1 northern wheat, and the balance of the crop is largely No. 3 wheat. Now, the technical man says, "We have tested this wheat in our test mill, this No. 3 wheat, and it is worth within 4 cents a bushel of No. 1 northern. So you are directed to fix your discount on your No. 1 northern contract for delivery of No. 3 wheat at 4 cents a bushel discount.

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My tests

Now, our millers know-they have practical laboratories, and they have gone further than the Government, and every big baker has his laboratory. Our millers know that flour made from that wheat will not sell at all. It is not a matter of 4 cents discount, it may not be worth within 14 cents of No. 1 northern, but the technical man in the laboratory in Washington says, show that this wheat is worth 4 cents a bushel less than No. 1 northern.' Now, what is going to happen in a situation like that? Do you suppose the milier will ever go in and buy a future contract? Instead of being a buyer of futures he will select his wheat and put it away, and he will be a seller of futures as a hedge. He will remove his buying power from the futures market, and when he sells his flour he will buy back his future contract.

You can not run those things technically. It has to be a matter of commercial experience and practice. The interests of the buyer and seller are both at stake, and no contract that is unfair to either buyer or seller will enjoy any popularity.

Mr. Tincher speaks a great deal about the form of the contract. It is not a question of the form of the contract; the question of form cuts very little figure. It is a question of what is deliverable on the contract and what premiums or what discounts are to be enforcel on grades other than contract grades.

Mr. TINCHER. I think that the question of the grades deliverable under the contract, as shown by the form of the contract entered into, might become a very material proposition, as to whether the traders on the exchange could manipulate the price of wheat.

Mr. WELLS. They could if you restricted it to one grade that was just a very small proportion of the crop.

Mr. TINCHER. Now, absolutely following your suggestion there, getting back to the basis of this proposition, the question comes up, whose interests are at stake, and who should be consulted in deciding it? The producer's and the buyer's interests are looked after by the exchanges, and personally I am frank to say to you that I agree with the Department of Agriculture that this is a subject in which they should have some rights; that is, not for the purpose of hindering or hurting or finding something in the laboratory, but for the purpose of preventing manipulation. That is one of the objects of this bill.

Mr. WELLS. For the sake of argument, if it were possible to have a trade in a future that represented only 10 per cent of the crop, that would mean that that future would be all the time congested and the price would be way up. That would theoretically help the producer, but it would also immediately kill all futures. That 10 per cent would have a fictitious value because it would be the only thing that could satisfy the contract. And that only constitutes 10 per cent of the producer's crop. Those things can not be fixed by any department, in my judgment. The case of cotton, where you can determine the value. is another thing. You can not determine the value of wheat. All No. 1 northern wheat is not No. 1 northern wheat, except in name. It all comes up to certain Government specifications, yes, but the chemical qualities of that wheat, its flour-producing qualities, show a variation in value of 5 or 10 cents a bushel. Those things have to be determined commercially.

And let me tell you again that the question of discounts is a very material question, for this reason: Suppose the Government said that No. 3 wheat should be delivered on No. 1 northern contracts at 10 cents discount. We will say the movement of the No. 3 wheat crop demonstrated that that grade had commercially a value within 5 cents of No. 1 northern. Do you suppose any of it would ever be delivered on a future contract? Not at all. That wheat would be sold, and the man would buy back his future contract. It would not mean that he would have to deliver it at 10 cents discount.

This bill puts it absolutely in the hands of the Secretary of Agriculture to dominate the whole marketing system of the country, and I do not believe there is any living man of sufficient intelligence to have that power placed in his hands. It is a power that is not given to any other department head in any form that I know of.

Mr. KINCHELOE. Have you ever had any trouble in the past about the contracts?

Mr. WELLS. Yes; and we have changed them during my career in the business. Mr. KINCHELOE. The reason I ask that is this: I imagine that probably the Secretary had some reason for putting that in there.

Mr. WELLS. I believe that was put in on the basis of the cotton futures act, and the cotton. as I have tried to explain to you, is an entirely different thing from wheat. You can buy certain grades of cotton, and you know they are worth certain amounts of money. You can buy certain grades of wheat, and there will be a range of 15 cents a bushel in that same grade. Mr. Haugen spoke of that to-day. The two are not parallel at all.

Mr. TINCHER. Mr. Haugen has always taken the position, at all the hearings I have ever attended, that there was more opportunity for the manipulation of the grain market through the exchanges fixing the grades deliverable upon contracts to suit themselves than in any other way, and some things have transpired recently with reference to the closing out of certain futures which have rather confirmed me in the same idea. I do not know just who prepared that memorandum there construing this bill

Mr. WELLS. I suppose Mr. Morrill did; I do not know.

Mr. TINCHER. I hardly believe that the section, concerning which I did know something before it went in, would give them all the authority that some of the men in the department would want.

Mr. MCLAUGHLIN of Michigan. It gives them authority as to the form and conditions of the contract. I think myself that there are a lot of things that they propose to take notice of that they would not have control over under a proper construction of that subdivision (f). I know they reach out and take anything within reach.

Mr. WELLS. I am absolutely opposed to that whole subsection. I think that if you leave that in the bill you are simply signing the death warrant of efficient hedging markets. It has never been in any other bill, and is far more radical and far-reaching, without any excuse for being incorporated in a bill.

Mr. KINCHELOE. I thought you might have some suggestions about amending it.

Mr. WELLS. I have no suggestions for amendment. In my judgment, elimination of that action is the only thing that will preserve the integrity of the future markets.

Now, you may say the Secretary would not do this and he would not do that. What right have we to delegate to a man authority which puts him in a position where he may do this or may do that?

Mr. TINCHER. The Secretary would answer that by saying that you would say the exchanges would not do this and would not do that, and what right should they have to determine whether they would do this or do that?

Mr. WELLS. I can only say this: The exchanges are made up of two bodies whose interests are diametrically opposed, the buyer and the seller. The seller wants to get as much as he can, and the buyer wants to pay as little as he has to. Consequently you always have those conflicting interests working in opposition.

Mr. TINCHER. However, Mr. Wells, those men are speculators

Mr. WELLS. What men are speculators?

Mr. TINCHER. The men you speak of.

Mr. WELLS. The buyer and seller? No; they are not speculators. I am not a speculator, and I am one of the biggest sellers there is in the Northwest. Mr. TINCHER. You are not a producer?

Mr. WELLS. I am not a producer; no.

Mr. TINCHER. That is what I mean. It has been admitted before this committee, by men high in the profession or business, that their big profits come with big fluctuations.

Mr. WELLS. Speculators?

Mr. TINCHER. Well, the men who buy and sell the product.

Mr. WELLS. No; I beg your pardon. I make less money if I buy wheat for a dollar and it goes up to a dollar and a half than I would make if I bought wheat for a dollar and it went down to 50 cents, because I have to pay interest and insurance on a higher value of grain.

Mr. TINCHER. You mean to say that you would make less money if you bought wheat for a dollar and sold it for a dollar and a half than you would if you bought it for a dollar and sold it for 50 cents?

Mr. WELLS. Exactly what I say, because my investment in one case is in dollar and a half wheat and I pay interest and insurance on that, and in the other case it would be 50-cent wheat, and I would have a reduced cost of carrying.

Mr. KINCHELOE. Then how do you make any money at all?

Mr. WELLS. Because it goes down to 50 cents a bushel-I have all my wheat hedged, mind you. If I buy it for a dollar and it goes down to 50 cents I get back 50 cents from the clearing house. Consequently I have invested in my wheat only 50 cents a bushel, and it obviously costs less to carry.

Mr. KINCHELOE. The hedgers pay you back 50 cents a bushel, which would be profit?

Mr. WELLS. No; it would not be profit.

Mr. TINCHER. I can easily understand how you must be likely to look at this matter through different glasses than the producer if you say you can buy wheat at a dollar and sell it at 50 cents and make as much as if you sold it at a dollar and a half. I can understand how there might be a little difference in the viewpoint.

Mr. WELLS. I simply cite that to show you that there is no advantage to me in having the price go up. The saving would be a saving of interest on the investment.

Mr. KINCHELOE. This section here gives the Secretary of Agriculture pretty nearly plenary power, but at the same time do you not think from a close reading of it that a lot of things would have to happen before he would exercise that power? It says here, "When the governing board provides for making changes," etc., and only “after investigation and public hearing and communicated by him to such board, which substantially affects the price or prices of such contracts so as to render them hazardous or unreliable as hedges or price bases for transactions in interstate commerce," etc. It seems to me that before the Secretary could take any step in exercising that power there would have to be a pretty bad situation.

Mr. WELLS. You gentlemen assume in all this discussic -at the Secretary of Agriculture is going to administer the act. He does not.

Mr. KINCHELOE. Of course, he does not personally.

Mr. WELLS. He does not administer the act at all, and a great many things are done that the Secretary does not know anything at all about until after they are done.

Mr. KINCHELOE. But he certainly would not let his chiefs act on an important proposition like that without reference to him.

Mr. WELLS. The Secretary told me himself that he was handicapped in working out these problems because he can not pay enough money to get good men. He has some very good men. Mr. Morrill is an excellent man, and there are other men of that type. The particular men to whom he has to delegate this authority are not men of broad experience. They can not be, or they could not be secured by the department.

Mr. KINCHELOE. We have helped him a little just recently on that. Mr. WELLS. Now, there has been a lot said about what the Secretary of Agriculture wants and what he does not want. I have been very closely in contact with Mr. Wallace, whom I claim as a good friend, for a year or more, and have been here for several conferences on different subjects, agricultural and otherwise, and the Secretary has told me, and I think he would say the same thing to-day, that what he wants is the authority to secure first-hand information so that he may make a survey of the marketing situation and make suggestions either to the boards of trade or to Congress for such changes in that system as would be of benefit to the producer. Now, that is exactly what Secretary Wallace has said to me repeatedly, and that is what he is for. Mr. KINCHELOE. Did the Secretary have reference to the grading of spring wheat in that conversation?

Mr. WELLS. No; this was not in connection with grading. It was in connection with the future trading act. Now, that is what the Secretary wants, and that is what I am personally strongly in favor of granting him. I think the position of the grain exchanges has been consistent from the start. We are not opposing reasonable, sane supervision which is not burdensome and does not entail additional expense in the marketing of grain. We are opposed to regulation which restricts markets and which will inevitably reduce their efficiency. I think if you would ask Secretary Wallace, he would tell you what he wants is information, and I am strongly in favor of every legitimate step being taken to grant him the information he wants first-hand.

Mr. KINCHELOE. Have you ever discussed this special section with him? Mr. WELLS. No; I just received this bill before I left home from the Secretary and I have not had an opportunity to see him.

Mr. THOMPSON. Mr. Wells, are there any propositions except subsection (f) in this bill that you refer to?

Mr. WELLS. I have already filed my objections to portions of section 3, where I think certain wording is not warranted by the record or by the report submitted by the committee. I have objected, and have made recommendations as to certain changes in paragraph (b) in section 5, and have submitted as a basis for those recommendations the rule which was drafted by the Solicitor of the Department of Agriculture in connection with the grain exchanges. I have objected to the proviso in connection with subsection (e) of section 5. Mr. MCLAUGHLIN of Michigan. Mr. Wells, you told of what you conceive to be the evil of that method of doing business, and it was the distribution among farmers, buyers, or sellers or whoever they are, who are not members. Mr. WELLS. I think that is a great evil.

Mr. MCLAUGHLIN of Michigan. This proviso applies to the distribution of excess earnings among the bona fide members of any such cooperative association.

Mr. WELLS. Very true; but there is no definition of what a cooperative association is or what constitutes membership. If I want to run a cooperative association, I can charge a dollar apiece for membership, and I could distribute my earnings then to those people. Their investment would be $1 and they might save one-fourth of a cent a bushel by having their marketing done through me, which I claim is unfair competition and would break down the commission rule. I am not a commission merchant, Mr. McLaughlin, and it does not affect me one particle, but I do know what happens in markets where the commission rule is broken down. I have seen that happen in the Northwest. Mr. KINCHELOE. I do not know whether I understood you a while ago or not, but I understood you to say that this farmers organization that you spoke of was now a member of this board.

Mr. WELLS. The Northwest Wheat Growers Association?
Mr. KINCHELOE. Yes.

Mr. WELLS. They have been negotiating for membership and are entirely satisfied with the terms upon which they can secure membership.

Mr. KINCHELOE. If they go into your association, they are the owners of the wheat, and the wheat is pooled, of course, for the purpose of getting a better price.

Mr. WELLS. Yes; that is what they hope to do.

Mr. KINCHELOE. In other words, it might be that the commission is reflected in the price of the wheat by reason of their going into it.

Mr. WELLS. Yes, sir.

Mr. KINCHELOE. Will they handle any wheat for any other farmers who are not members of that organization?

Mr. WELLS. No.

Mr. KINCHELOE. That will be one of your rules?

Mr. WELLS. No; we do not have to have a rule about that because the title to the wheat passes and they will advance to the producer an arbitrary amount, and then they divide up the proceeds after the grain is sold.

Mr. KINCHELOE. And that applies to only the members of that organization? Mr. WELLS. Yes, sir.

Now, the Minneapolis Chamber of Commerce has other cooperative and farmers' organizations among its membership. There is the Farmers Grain Co., of Devils Lake, N. Dak., which has been a member since 1900; the Saskatchewan Cooperative Elevator Co. of Canada, which is the biggest cooperative grain company in the world and which has been a member since June, 1917; and the Farmers' Elevator Commission Co., which is a commission company formed by a number of country farmers' elevators, and they have been members since 1919.

Mr. KINCHELOE. Has the farm bureau ever made application for membership? Mr. WELLS. No.

Mr. TINCHER. Mr. Chairman, I desire to move at this time that the chairman of the committee, inasmuch as we are going to close the hearings the first of the week, be requested to ask for the consideration of this bill in such form as we may amend it and report it out on Thursday.

Mr. RAINEY. Mr. Chairman, I do not see the need of such great rush on this bill. Heretofore, after the consideration of a bill, we have always appointed

a subcommittee to redraft and consider the bill and then send it back to the full committee so that we might consider it at length and make whatever amendments we deemed advisable, and I think from the testimony of Mr. Weils that this is a matter that demands considerable attention.

Mr. TINCHER. If we do not get the bill ready by that time, of course, then we will have to switch to something else.

Mr. MCLAUGHLIN of Michigan. I have not any choice among the different bills, but this is a matter of great importance and I would like to have it thoroughly studied in the committee, whether it is to come up Thursday or at any other time.

Mr. CLAGUE. Can we not leave that open until we hear Mr. Jacobson?

Mr. TINCHER. All right; I will withdraw my motion until we hear Mr. Jacobson, but I am going to use every effort I can to get the bill up as quickly as possible.

STATEMENT OF HON. CARL R. CHINDBLOM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS.

Mr. CHINDBLOM. Mr. Chairman, will you permit me to make a little statement for the record?

There are other gentlemen here from Chicago who are intensely interested in this legislation. They have not taken up the time of the committee, but I would like the record to show that they have come here and have attended the hearings and they join in the views which have been expressed by Mr. Gates and Mr. Wells. I refer to Mr. Henry A. Rumsey, one of the directors of the Chicago Board of Trade and for many years mayor of the city of Lake Forest, in the district which it is my honor to represent; and Mr. L. L. Winters, also of Chicago, who is also a director of the Chicago Board of Trade.

Mr. KINCHELOE. I think that is perfectly proper, and I would like to ask whether they have any statement of their own they would like to put in the record.

Mr. WINTERS. We have no statement to make except we represent the Board of Trade officially and we subscribe to what has been said here.

Mr. KINCHELOE. I would be willing to give you the further courtesy of filing any statement you desired to submit.

Mr. MCLAUGHLIN of Michigan. If you have anything additional to say that has not been covered, we will be pleased to have your statement.

Mr. WINTERS. You gentlemen have been very patient and Mr. Wells and Mr. Gates have covered the situation very thoroughly, we think, and there is nothing we could add to their statement.

Mr. CHINDBLOM. I would like to introduce Mr. Rumsey to the committee, if I may.

Mr. MCLAUGHLIN of Michigan. We will be glad to have any statement you have to make for the record.

Mr. RUMSEY. We have no additional statement to submit, but we would like to simply concur in the statements heretofore made by Mr. Gates and Mr. Wells. (The committee thereupon adjourned until Monday, June 12, 1922, at 10 o'clock a. m.)

COMMITTEE ON AGRICULTURE,
HOUSE OF REPRESENTATIVES,
Monday, June 12, 1922.

The committee met at 10 o'clock a. m., Hon. Gilbert N. Haugen (chairman) presiding.

There were present: Messrs. Haugen (chairman), McLaughlin of Michigan. Purnell, Riddick, Tincher, Williams, Thompson, Clague, Clarke, Jacoway, Rainey, Aswell, Kincheloe, and Jones.

There were also present: Messrs. Halvor Steenerson, Andrew J. Volstead. and Walter H. Newton, Representatives in Congress from the State of Minnesota.

The CHAIRMAN. The committee will come to order.

Mr. NEWTON. Mr. Chairman, I regret to advise the committee that Mr. Jacobson was unable to leave St. Paul so as to arrive here on Monday, and he was advised that somebody would have to be here on Monday, so he sent Mr. Quist. who is chief of the weighmasters, and one other gentleman to represent him.