things which a miller considers in purchasing wheat are, first, yield; second, protein; third, baking characteristics; and in addition, fourth, condition, which is represented largely by moisture. The yield quality of the wheat is to a very large extent, or to some extent at least indicated by the test weight of the wheat, and therefore, is to that degree indicated by the grade. The grades do not correspond to protein content.

I have recently had some inquiry made and I compiled some figures indicating the premiums which are paid for wheat carrying what we call extra protein.

Senator KENDRICK. Did you mean to make just that statement preceding the one just concluded as to the grades failing to correspond to the actual facts as shown by the milling? Do you mean by that that the grades are not made with integrity?

Mr. ANDERSON. No; I do not mean that at all. What I mean is that at the time they were made, they were made on the basis of test weight and foreign material. The milling industry in its attempts to make a flour for specific purposes has gone far beyond those factors in determining the value of wheat to it. For example, this year, No. 1 northern wheat has sold for premiums above the option of as high as 60 cents a bushel. The average premium for No. 1 northern has been about 8 cents a bushel. The premiums for No. 1 Dart northern fancy, which is an extra grade in use by the Minneapolis and Duluth markets, have been on an average for the past three years 31 cents above the Liverpool option. In other words, we are paying for protein in wheat, for the characteristics in wheat which fit in with the characteristics which we desire to produce in flour, an extra premium of anywhere from 2 cents up to 60 cents a bushel.

Senator GOODING. What States produce that No. 1 winter wheat? Mr. ANDERSON. Minnesota, North and South Dakota, Montana, and to some extent Washington. The same thing, however, is true with respect to the hard wheats of the South, the red winters. Premiums are paid there also for extra protein and the delicacy with which the entire matter is adjusted you will readily realize when I say to you that premiums are paid as high as from 2 to 4 cents for onequarter of 1 per cent of extra protein above 111⁄2 per cent in wheat. Senator GOODING. What does the tariff have to do with that extra premium, there being a shortage of that wheat in the United States, but an ample supply in Canada?

Mr. ANDERSON. It means that the tariff is to a very considerable extent effective.

Senator GOODING. On that class of wheat?

Mr. ANDERSON. Yes; on that class of wheat. I want to point out in that connection, though I am getting a little ahead of my story, that this year we had a short crop of red winter wheat and the premiums for red winter wheat are relatively higher this year than the premiums for spring wheat. I am trying to make the point that wheat is not wheat, that when we have a short crop of red winter wheat, the price of red winter wheat will be relatively higher than the price of spring wheat. When we have a short spring wheat crop, the premiums paid for spring wheat will be relatively higher than those paid for winter wheat.

I have here a statement showing the monthly weighted average cash prices of comparable wheat at Minneapolis, St. Louis, Kansas

City, Winnipeg, and Liverpool, which I think demonstrates the point I am trying to make, namely, that the price of one class of wheat in one year may be, and frequently is, higher in this country than the price of another wheat, and it should be. This year, when the hard red winter wheat farmer in the Southwest produced a slim crop of wheat, he was entitled to a compensatory advantage in his price for that wheat, and he got it.

Senator GOODING. But the farmer who produced the soft grade of wheat never gets that advantage?

Mr. ANDERSON. No; that is not quite true either.

Senator GOODING. There is more than an ample supply of that?

Mr. ANDERSON. No; there is a shortage of soft wheat. As a matter of fact, soft wheat has been selling higher this year than either spring wheat or winter wheat, and that has very frequently been the case.

Senator GOODING. I am sorry I was not here when you began. Your line of argument is to the effect that a commission would disturb the relationship that exists now so far as the miller is concerned?

Mr. ANDERSON. I think so.

Senator GOODING. Why should it do so?

Mr. ANDERSON. If you will allow me to proceed, I will develop that.

Senator GOODING. I will not ask you to go back over it, if you have already explained it.

Mr. ANDERSON. I was just coming to it. I am trying to lay the background first to the wheat structure in a very brief way and the factors which the miller considers in buying wheat.

The CHAIRMAN. Your argument is that the ordinary grade of wheat does not necessarily fix the price the miller bids?

Mr. ANDERSON. Not at all.

The CHAIRMAN. There are other factors in the wheat that the grain grading does not take into consideration?

Mr. ANDERSON. That is very true, and can not take into consideration.

The CHAIRMAN. I understand, and that is the basis of a part of your argument?

Mr. ANDERSON. Yes, that is true.

The CHAIRMAN. I think you have made that clear.

Mr. ANDERSON. For example, during the last year, No. 3 wheat has frequently sold, with high protein, for a higher price than the No. 1 northern.

Senator KENDRICK. May I ask a question right there?

Mr. ANDERSON. Certainly.

Senator KENDRICK. As I understand you, the price of the wheat up to the time or in any event the last but one moment before it reaches the mill, is based upon the grading, is it not?

Senator KENDRICK. Wherein do the actual merits of the wheat, according to your very clear analysis of it, apply in fixing the price? Mr. ANDERSON. It applies in two ways.

The CHAIRMAN. Before you answer that question, I am rather inclined to think you did not just grasp the question of the Senator. He asks where? In other words, the farmer, when he sells his wheat, sells it on the grade.

Mr. ANDERSON. I caught the question all right, and I am coming to it.

The CHAIRMAN. Where is it in this travel of the wheat from the producer to the consumer that this operation, that does not depend on the grade, becomes valuable in fixing the price?

Senator KENDRICK. Yes. Your original statement, as I understand it, under present conditions

Mr. ANDERSON (interrupting). I think it must be admitted that under present conditions the full premium that is paid by a miller for those characteristics of wheat to which I have referred is not always reflected back to the farmer. I would not tell quite the whole story there if I did not go a little bit further and say that ordinarily the mills at the terminals, at the beginning of the crop, take samples of the wheat as it comes into the country elevator. They take it often times at the threshing machines and make analyses of the wheat to determine the protein content and the baking characteristics. They block out, by counties and by townships, the protein content of wheat produced in those townships and counties. Consequently, they know in a very specific way, if they know the territory average of the wheat crop, what the protein content in that wheat will average in each locality. As a consequence, the competition for that wheat, on the basis of that knowledge, does reflect back to the farmer, a portion, and I think in most cases a considerable portion of the premium. Senator GOODING. Are the mills organized?

Mr. ANDERSON. Just what do you mean?

Senator GOODING. Have they national organization?

Mr. ANDERSON. Yes. I am speaking for the national organization. Senator GOODING. This happened in my State last fall. A certain class of wheat started out to bring a very good price, a premium over all other grades of wheat. They sat back and let one or two buyers take what they wanted, and then the price was broken, I think, as much as 10 or 15 cents a bushel.

Mr. ANDERSON. I do not know what your local competition out there might be.

Senator GOODING. Do your millers fix the prices of certain grades of wheat?

Mr. ANDERSON. I never heard of such a thing being done. I would think that the premiums that are being paid would be a pretty flat contradiction of the claim that any such situation existed or could exist.

Senator GOODING. There was evidence of it in wheat buying last year, that there was a combination to bid down the price of wheat on a desirable class of wheat, so much so that it was generally believed that it was the work of an organized effort to do it.

Mr. ANDERSON. If that were true it was entirely a local situation with which I am not familiar. I am speaking wholly from the standpoint of the great bulk of grain which moves into the larger terminals of the country.

With this brief and perhaps inadequate background, I want to refer to one provision of the bill in particular. The bill provides that no purchase shall be made by a cooperative or other organization with which the board has a contract at a higher than a just and reasonable rate. I think it is a fair assumption that no Government agency will allow any cooperative or other agency with which it has

a contract to buy, at less than a just and reasonable price. That just and reasonable price necessarily is fixed with reference to the tariff, and it therefore establishes the upper limits of the price in two ways. First, it does it by establishing the upper limit of price for wheat, and, second, by establishing the upper limit of the price for flour, because the price for flour is directly a reflection of the price for wheat. A just and reasonable price must relate to something and it must relate to somebody. It must be a just and reasonable price, not merely for wheat, but for wheat of particular characteristics and value, and it must be a price to somebody.

I have endeavored to explain that the margin of value, for instance, in No. 1 northern wheat, because of its protein or other characteristic, may be as much as from 2 to 60 cents a bushel. Let us suppose, for example, that this just and reasonable price is related to No. 1 northern wheat. The immediate effect of it is to make all the No. 1 northern wheat of one price, and to depress the premiums which would otherwise be paid to a common level. To put it in another way, your basis of operation would then be not that of premiums for good wheat, but of discounts for wheat of inferior value. Those of you who were here and remember the situation that was created during the war, will recall that when the Government fixed the price of wheat and established it on the basis of No. 1 northern and No. 2 red and so on down the line, the result was that lower grades of wheat went to enormous discounts. They went to discounts much greater than their intrinsic value justified. That will be the inevitable result here. Poorer grades of wheat will go to a discount far greater than their intrinsic value merits if you set up an upper limit which permits your price to move in only one direction.

Senator GOODING. Mr. Anderson, I understood you to say that the grade of wheat was the grade that was exported-the lower grade of wheat.

Mr. ANDERSON. Not always, Senator.

Senator GOODING. Very generally, if I understood your statement. Mr. ANDERSON. To a very considerable extent that would be true. Senator GOODING. If that is the case, of course that wheat would be exported for the commission.

Mr. ANDERSON. I think perhaps you took my statement too literally. There is a great deal of wheat equivalent to that which we export which goes into the mills and is made into flour. I shall later indicate, and, I think, demonstrate that whether it goes into export or stays in domestic consumption, the aggregate effect upon the price is just the same. The point I am making is that when you establish a price by grade of wheat, some of which is worth more than others, and you can not go above that level, you must inevitably discount the wheat of inferior quality, and because your competition is entirely on the basis of quality and not on the basis of price, your inferior wheat will go to abnormal discounts. That puts you up against the necessity which we immediately confronted during the war of establishing prices all up and down the line for all of the grades, and establishing yourselves in a position to accept those grades on the basis of the differential which you establish, which puts your contracting buyers in the position of purchasing all of the crop rather than the surplus.

There is some other factor which I neglected to mention, and that is that no two wheat crops are alike. The percentage of wheat which falls in No. 1 or No. 2 in one year is very different from the percentage which falls in each grade the next or another year. That difference is normally justified as a matter of competition under present conditions. It can not be known in advance. Therefore, any attempt to adjust it in terms of artificial differentials will result in complete dislocations of the prices all up and down the line.

Senator GOODING. Is there any intelligent direction of wheat as it goes to the elevators from the different parts of the country? How is that handled at the present time?

Mr. ANDERSON. The only direction which it gets now so far as I know is the direction which results as a consequence of competition for it between mills and between exports. I think you know the course of the wheat to the market just as well as I do.

Senator GOODING. I am wondering what can happen to it and how it will be distributed if a commission were created for handling it any different than now. It goes into the elevator and becomes mixed to a

certain extent.

Mr. ANDERSON. It goes in there upon an entirely different basis. Senator KENDRICK. May I ask a question in connection with one asked a moment ago by Senator Gooding?

Mr. ANDERSON. Certainly.

Senator KENDRICK. Can you tell the committee whether or not there is any plan of regrading wheat by which the purchasers are enabled to increase the price of their wheat when it is finally delivered to the miller? I am prompted to ask the question by reason of complaints I have heard in the West that the wheat graded there as a certain quality was afterwards regraded and sold as a higher quality to the mills in the East.

Mr. ANDERSON. I do not know whether you have reference to the practice of mixing or whether you have reference to the practice of making protein determinations at the terminal market.

Senator KENDRICK. The impression I have drawn from the complaints, not to say protests, from the producers in the West, is to the effect that the wheat is actually undergraded at the original points of shipment or country elevators, and more accurately graded at the terminal markets or centers in which the great bulk of the wheat is handled. Do you know anything of that practice?

Mr. ANDERSON. I would assume, Senator Kendrick, that the grading at the terminal market is more accurate than the grading at the local markets, for two reasons: First, because the technique is better, and, second, because the facilities are better at the terminal markets and the supervision is better.

Senator GOODING. Is there not at the local market a disposition for the local buyer to keep the grading down as low as possible? Is not that only natural?

Mr. ANDERSON. I have no doubt, Senator Gooding, that the local elevator buys as cheaply as it can.

Senator GOODING. That is only human and it is to be expected.

Mr. ANDERSON. Of course, it does, and it will do it under the bill which you are considering now.

Senator GOODING. The farmers generally believe that they are enduring great hardship by reason of the passage of legislation or a