va་སཔ༥ ཅདྨ houses among whom its business on a given market but no attempt has been made to preserve this subdi compilation, all trades on a given market being combin of who executed them." The Minneapolis and Winn markets were so unimportant, comparatively, for the h elevator that in no case did they affect the decisive p either of Chicago or of Duluth. In the following spec more than 50 per cent of the future sales were made December, 1914; July, 1915; January, April, May, and A and February, 1917. In all other months of the 35 cove future sales account for over 50 per cent of the total any generalization is permissible on the basis of this s that Duluth futures are used preferably to those of Chi the heaviest movement of wheat in the Northwest. Wi comparative trading in Chicago and Duluth wheat fu tributed through the year, the use of the latter market centrated in the autumn, while Chicago trades are sea scattered. That the open trades of a terminal elevator should alr exception show a net sold figure is to be expected. In options the final net figure of Appendix Table 87 was a but in 10 out of 36 trading months there were net open tr for Duluth wheat. Such a situation is not found for market. The simplest explanation is spreading betw and Chicago. Although transactions in wheat at D greater in volume than at Chicago, the volume of ope Chicago was greater than at Duluth. The latter may economizing in transactions on the Chicago market in or commissions (at member rates). USE OF THE OPTIONS.-As regards the net change in by options, one might expect, in general, for each optio rise to a maximum and a regular decline from there to trading in that option, supposing, of course, that the working well and that the purpose of the trading is hedging of grain owned. If the hedges are switched profits from the spread between options, however, the be different. The regularity referred to as one to be lo cases of straight hedging is not dependent upon whethe of grain on hand increases or declines in quantity with since with two or more options to choose from, the tende naturally be to prefer one for new hedges and to take off in another, presumably the expiring option. But the n paying commissions on trades is likely to mean the kee of a hedge to serve for a number of successive transacti actual grain, so that the shifting of quantities hedged fro tion to another is likely to be done somewhat more fre Data for this elevator were available in so great detail as to present to how to condense them to manageable proportions. 7 No sales of futures were made in June, 1917. See Appendix A. 8 Two months show no trades open and in June, 1917, there was no tr et was divided odivision in the pined regardless innipeg futures hedges of this preponderance pecified months Ele at Chicago: August, 1916: vered Duluth al. So far as showing it is Chicago during Vith regard to Futures as dis t is more coneasonally well for Elevator A sales predominate with reasonable consistency for the transactions of several months and then purchases with similar consistency to the maturity of the option. In the May, 1917, option the closing change is by sales. There are alternations in many of the options suggestive of switching or spreading practices on the part of the elevator, perhaps the result of attempts to deal with irregularities in one or another option. The predominant interest of the May option appears from the following tabular statement, in which D or I marks those months in which a decrease or an increase in the open interest in wheat futures is confined to a single option. July. January Imost without ■ 12 out of 13 an open sale, trades bought For any other ween Duluth Duluth were pen trades at y be due to order to save open trades on a regular the close of futures are merely the d to obtain result will oked for in er the stock constancy ency would old hedges necessity of eping open ions in the om one opeely in the a problem as ading. 1914 1915 Out of 35 possibilities (months) 11 months show net purchases or sales in a single option accompanied by net sales or purchases also in a single option. In 18 other cases the change in one direc-. tion (increase or decrease, as the case may be) is in a single option with a scattered change or no change in the other options. In the six remaining cases the change in one or both directions is divided between two options. There is little opportunity for generalization as to the seasonal variation of the preference for different options. Section 4. Hedging practices of flour mills. GENERAL POLICIES.-The variation in policy among the larger mills (such as ship their products by rail beyond the circle of a local market) with reference to use of wheat hedges appears in Table 3, which is based on returns from 242 milling companies made in 1919 but referring to conditions and practices before the suspension of trading in wheat futures. Well over half the active milling capacity (barrels per day) of the United States appears to be included in the returns. 1 Returns tabulated under "in part" are difficult of interpretation and this intermedia defined. ? Minnesota, North Dakota, South Dakota, and Montana. 3 This company reported hedging possibly 5 per cent of both flour and cash grain. + Missouri, Kansas, Oklahoma, and Texas. 5 One company reported 1 per cent hedged. One company reported only 10 per cent hedged. 7 Ohio, Indiana, Illinois, Iowa, Nebraska, Wisconsin, and Michigan. Three companies reported hedging to the extent of 5 per cent. New York, Pennsylvania, Maryland, and West Virginia. 10 Virginia, North Carolina, Tennessee, Kentucky, and Georgia. 11 Colorado and Wyoming. 12 Includes 25 mills operated by the Colorado Milling & Elevator Co., all in Colorado and 3 each in Idaho and Kansas. 13 Washington, Oregon, and California. 14 Two companies reported "Do not hedge," then answered "Yes" to question "Do you on future contracts as a general practice?" Some consideration of the totals will serve to indicat acter of the table as well as to throw light on the gener as regards mill hedging. With regard only to the number companies included in the returns, of the 242 in the (slightly more than half the number) stated flatly tha not hedge, or reported so small a percentage of hedging treated as accidental. Of the 116 who did hedge, 9 did flour contracts, though they hedged wheat held unprotect of flour. Slightly more than half of the number of hedged flour contracts hedged only in part. The numbe all flour contracts, which is 52, is identical in the total hedging all wheat, but there are frequent variations of i detail. 9 9,350 6 16, 150 29. 6. 21,150 Total.. 232, 850 100. 9 Treatment of wheat purchased by hedging companies: 140, 625 60. 250 52 525 iate class is not we!! ce the charal situation r of milling total, 126 at they did g that it is not hedge ed by sales those who er hedging with that dentity in The importance of the practice of hedging is greater when meas ured in terms of the capacity of mills than in terms of numbers Nevertheless only three-fifths of the capacity of mills reporting be longs in any sense in the hedging class. This ratio is considerabl influenced by the large capacity of certain Minnesota mills, whic hedge systematically. The ratio of consistent and full hedging t partial hedging is similarly increased by the capacity basis of com parison. Some allowance for dilution in the intermediate group would still leave less than half the capacity of mills in the Unite States practicing hedging. This comparison on the basis of capacity means that the larg mills hedge to a greater extent than the smaller mills. Averag capacities for milling companies in the above table are: Hedgin completely, 2,856 barrels per day; hedging in part, 1,244; not hedg ing, 1,194.9 HEDGING BY MILLS IN VARIOUS GEOGRAPHICAL SECTIONS.-The practic of hedging varies greatly among mills located in different sections The northwestern mills in the Minneapolis territory, even the me dium-size mills, generally protect themselves by hedges in futures a completely as it is possible for them to do. In the Southwest, how ever, many of the rather large mills in Missouri, Kansas, and Okla homa do not make a general practice of hedging. The mills in th central group of States between the Mississippi River and the Ap palachian Mountains do not hedge as much as those in the Northwest but do hedge to a greater extent than those in the Southwest. East ern mills hedge more generally than do those in the central group The mills in the Southern Pacific and Rocky Mountain States hedg even less than those in the Southwest. As a general rule mills hedg less in proportion to their remoteness from Chicago, except in th In order to avoid the effect upon these results of the capacities of a few larg Minneapolis mills, the 242 companies have been given ordinal numbers from the larges to the smallest. The average of ordinals for the hedging group is 80, for those hedgin in part 113, and for those not hedging 141. MINNEAPOLIS PRACTICE.-Minneapolis millers consist futures market for hedging purposes, either by selling against uncovered stocks of wheat accumulated or by bu to hedge uncovered flour contracts accepted. The proces flour sales may be described as follows: The miller rece for 10,000 barrels of flour at a certain price. He looks quotation and if satisfied with the price accepts the ord for flour being such that, using the grain-future quotatio the cost of the flour will yield a satisfactory margin. diately buys 45,000 bushels (42 bushels per barrel) wheat futures market. As fast as the miller's cash picks up the needed wheat, his pit man will sell out the o It has been frequently stated in times past that the m was initially a purchase; that whereas the terminal elev its futures account by selling against stocks accumulated opened his account by buying against contracts for flo setting to some extent the operations of the elevator com examination of examples of recent mill hedging shows, ho millers have recently hedged almost as frequently by sell have by buying futures. An illustration of the use of t market to protect an accumulation of supplies in anticipa close of navigation on the Great Lakes appears in the of a representative of a large milling company, with Minneapolis and Buffalo, that in operating their Bu on account of transportation, it is necessary to have on December 1 a very large proportion of their winter gr seldom are flour sales on hand at that date sufficient to wheat as well as Minneapolis stocks. Therefore such wh in the futures markets, and as flour buyers come into the milling company purchases back the futures and sells Without the futures (the statement continues), if compe in the stocks of wheat, they would do so with considerable sion, and undoubtedly base their prices both to the purchas consumer on far wider margins than they do now with t ance" carried by the future trading. OPPOSING THEORIES ON MILL HEDGING.- The following are advanced by the trade in support of the practice of h mills. Hedging enables the miller to operate on a smaller n to sell flour at a lower price relative to the price of whe otherwise could. It enables the miller to accept flour cor forward delivery and thus to utilize to the fullest degree th of the plant. Credit can be more readily secured, especia smaller mills, when the banks are assured that the earnin mill will not be impaired unexpectedly by fluctuations in of wheat. The use of the futures market for hedging, and 10 F. M. Crosby (1922 Federal Trade Commission hearings on Market of Grain, p. 960) says the flour movement comes after the wheat movement not offset. He also says (p. 991) that in the two years preceding October had very little forward selling of flour. The hearings here referred to are but the typed transcript of the record is accessible to the public at the office mission. |