Daily quotations of spot cotton (middling uplands) in Liverpool. (Liverpool prices reduced to American money at the rate of 2 cents to a penny.)—Continued. Daily quotations of spot cotton (middling uplands) in Liverpool. (Liverpool prices reduced to American money at the rate of 2 cents to a penny.)-Continued. 11 6.31 6.69 6.81 6.75 12 Sun. 6.31 6.81 6.81 6.62 7.19 7.06 7.88 Sun. 8.62 6.88 6.81 6.75 6.81 Sun. 7.06 7.75 8.19 8.69 14 6.31 6.88 6.75 6.81 6.62 7.81 8.06 8.69 6.88 6.75 6.69 6.75 6.81 6.62 7.00 7.12 8.75 6.88 6.75 Sun. 6.75 Sun. 6.81 6.94 7.06 7.81 8.19 8.75 17 6.25 6.88 6.75 6.62 6.81 Sun. 6.81 6.75 6.75 Sun. 6.75 6.69 6.88 7.06 7.88 8.25 8.69 19 6.19 6.75 6.75 6.81 6.69 6.88 7.06 8.00 Sun. 8.56 6.81 6.75 6.75 Hol. 6.81 8.25 8.69 21 6.44 6.75 6.69 6.75 Sun. 6.75 6.75 6.88 7.19 7.94 8.25 8.62 6.75 7.25 Sun. 8.25 8.62 23 6.50 6.75 6.69 Sun. 6.75 6.69 1 Sun. 7.00 7.38 8.00 8.25 Hol. 6.50 6.69 6.69 6.75 6.75 6.69 6.75 7.94 6.50 6.69 6.69 6.75 6.75 7.06 7.38 7.94 8.50 Hol. 6.62 6.75 Hol. 6.62 6.75 7.12 Sun. 6.62 6.75 6.75 6.75 7.50 7.94 8.56 8.81 6.75 Sun. 6.75 6.62 6.75 7.12 7.88 8.88 Sun. 6.75 6.62 6.75 7.12 7.69 Sun. 8.56 9.00 6.75 Sun. 6.75 6.62 Sun. 7.75 7.06 8.06 8.62 Hol. 31 6.56 Hol. 6.81 6.75 6.94 8.06 Sun. 5. CONCLUSIONS. The depression in prices of agricultural products during the few years previous to 1898 has been no doubt responsible for most of the opposition to speculation in "futures." The several interests connected with the raising and marketing of these products feel that "something is wrong," and in search for the cause of the evil naturally turn against speculation as the most prominent factor in modern business life. That the condemnation of speculation is the result of misunderstanding and bitter feeling rather than intelligent research may be seen from the fact that it is quite frequently made on conflicting grounds, according to the interests involved. Thus, to quote Dr. Emery again: "It is not so many years ago since a large and representative meeting of Western American farmers passed a resolution against options on the score that they tended to unfairly reduce the price of wheat, and it was just three weeks after that meeting that a convention of the National Association of American Millers, attended by some 500 members, was held in Minneapolis, and passed a resolution condemning options on the ground that they unfairly raised the price of wheat." ן יי At the recent Chicago conference on trusts Mr. S. H. Greeley, of the National Grain Growers' Association, accused the railroads and elevator owners who deal in "futures" of unfair methods in dealing with grain. On the one hand, he charges them with depressing prices paid to producers by means of agreement not to bid in the same territory; on the other, he admits, by citing Judge Tuley, "that the warehouseman gets the grain" over the heads of other grain dealers "because he pays more for it than other bidders," an argument which is dismissed by the eminent judge with the simple statement that "no monopoly in grain dealing can operate in the long run to the interest of the producer," and that there is no truer maxim in economics than that 'competition is the life of trade."3 Mr. Greeley voices in his paper the grievances of the small grain dealer who is unable to pay as much to the producer (farmer) as the large warehouses pay, since the latter, being in league with the railroads, can afford to pay a higher price to the farmer and yet make a profit. It is true that hundreds, or perhaps thousands, of small dealers are thereby driven out of business; but this is due to the superior facilities of large capital, just as in any other industry, and not to speculation in futures. It is true that the monopoly, once established, may "in the long run" result in injury to the interest of the producer," to quote Judge Tuley. But again, that will be due rather to the power of monopoly than to speculation. 1 Quoted from Bradstreet's, August 12, 1896, p. 542. 2 Official Report of the Conference, published by the Civic Federation of Chicago, p. 203. 3 Loc. cit., p. 205. As we have attempted to show, it is a mistake to represent speculation in futures as an organized attempt to suppress prices to producers. First. Because every short seller must become a buyer before he carries out his contract. Second. Because, as far as spot prices are concerned, the short seller appears as a buyer and not as a seller, and therefore, against his own will, is instrumental in raising prices. 66 Third. Because, as far as "future" prices are concerned, the "bull" in speculative buying counteracts the effects of speculative selling of the "bear." Fourth. Because the bull" in his realizing operations when depressing prices, is counteracted by the opposite effect of the" covering" movements of the "bear," the two sides thus keeping the market price about where it would be kept in the long run if instead of "bulls" and "bears" there would be ordinary legitimate buyers and sellers. Fifth. Because, as has been shown, future sales are not made at a uniformly lower price than the corresponding spot price, but on the contrary are on the average a little above spot prices to meet the cost of storage, interest, and other charges. Sixth. Because, as has been shown, neither the "bears" nor the "bulls" are uniformly on the winning side, but are about equally losers and winners, thus proving that one is about as important and influential a factor in the market as the other. Seventh. Because evidence believed to be conclusive has been presented showing that, under speculation, prices prevailing at the time when producers dispose of the greater part of their products are greater in comparison to the rest of the year than they were before the advent of modern speculation. 6. FURTHER ANALYSIS OF WHEAT PRICES AND SPECULATION. A further comparison of prices may be made in a somewhat different form. We may first compare prices at different times at the same place, as for example, present (spot) and future prices at Chicago; we may, secondly, compare prices at different places such as Chicago and Liverpool. The purpose is to show that such differences in time prices are not caused by speculation, but can be adequately accounted for by the natural condition of supply and demand; and that differences in place prices can be explained just as adequately by the expenses of distribution. By time prices are of course meant prices based on difference in time at a given place; and by place prices, prices based on difference in places at the same time. The foregoing comparisons (1) of average monthly spot and future prices of wheat at Chicago, and (2) of spot prices at Liverpool and Chicago are based on Tables 6 and 7. pages 198 and 199, respectively. In these comparisons of spot and future prices of wheat at Chicago (Table 6), the May price of July futures (column 2) is compared with July spot prices (column 3), the July price of October futures (column 4) with October spot prices (column 5), and the October price of December futures (column 6) with December spot prices (column 7). During these fifteen years (Table 6) twelve of them show that the May prices for July futures (column 2) were higher than the spot prices of wheat in July (column 3), and in but three years were the spot prices realized higher than the future prices. In other words, in four cases out of five the speculative price proved to be higher than the cash price of the wheat at the expiration of the July-October contract. This is naturally explained by the fact that the May price of spot wheat is relatively higher owing to the comparative scarcity in the last month or two before harvest, and to the tendency of future contracts to be made on the basis of that scarcity price of spot wheat. By the time the May bids for July wheat mature the conditions of the new harvest are ascertained and the new wheat supply being immediately marketed depresses the price to the point expressed in the quotations for July spots. May spots are determined by conditions of relative scarcity of supply, but July spots are determined under conditions of relative abundance of supply; the July futures, being made under the former set of conditions, approximate more nearly to the May spot quotations than to the July spot quotations, as a comparison of column 2 with 1 and 3 will show. In the comparison of the July bids for October futures (column 4) with the October spot prices (column 5) the spot prices realized (5) were lower than the future bids (4) in nine out of fifteen cases, and higher in six out of fifteen cases. Here, as in the comparison of October bids for December futures (6) with December spot prices (7), the relations of supply and demand are reversed; by reason of the marketing of the bulk of the crop within the months between harvest and the end of the calendar year the supply is relatively abundant as com pared with the demand during the same period. This system of early marketing accounts for the fact that in the majority of cases the spot prices realized on future bids are lower than the speculative bids. Such are the conditions which seem to explain sufficiently the relation between speculative bids and spot prices in the same market, showing why the cash prices realized tend as a rule to fall below the speculative bids, whether we compare Chicago prices (spot and future) or Liverpool prices. The case is not materially different in different markets (Table 7). The spot price of wheat in Chicago and Liverpool, when compared, show for the corresponding 5 years, 1885-1889, taken for illustration, that the difference in prices averages for these years 20.83 cents per bushel. This is the average difference between the cash value of wheat at Chicago and Liverpool. Now, it is a singular coincidence that the average rates for transporting wheat from Chicago to Liverpool in these very five years was 21.06 cents, a difference or margin of less than a quarter of a cent per bushel (twenty-three one-hundredths of a cent). For 18931897 the difference in spot prices between Liverpool and Chicago was 18.59 cents per bushel and the published rate of transportation averaged 19.68, though actually lower. The difference in speculative prices or future bids at different places must necessarily conform to the same general rule, that the difference between prices for the same article in two markets tends to equal the cost of transportation between them. Extreme competition among carriers may reduce the difference to less than the published cost of transportation, as appears to have been the case in 1893-1897. Another cause of difference may occur, namely, that of the formation of a "corner" in future deliveries. This would of course cause future prices to rise because of the fear of inability to fill contracts or to meet demands for the commodity. Chicago is the supply end of the wheat trade, just as Liverpool is the demand end. Any anxiety affecting the trade in general would naturally show itself more emphatically at the point of final destination than at the primary market. Hence the speculative or future price bid at Liverpool should be correspondingly higher than the constant cost of transportation plus the Chicago future price. In other words, the difference between the future price at Liverpool and at Chicago may be slightly more than the cost of transportation by reason of the fear of a scarcity or "corner" that may arise to restrict the regular flow of the supply to the consumer abroad. This difference is a risk element, which speculation charges to the consumer. The modern system of transportation can easily foretell what it will cost to get wheat to Liverpool from Chicago 3 months hence, but nobody can tell what a bushel of wheat will be valued at by that time. The speculator tries to approximate it under the law of chances or probability, and his competitors keep him from charging too much for his foresight. The conclusion to which we are led is substantially this, that the speculative system has to consider two kinds of values in the commodities it deals with, namely, place values and time values. Place values vary by the difference, for example, between the value of a bushel of wheat at one place (Chicago) and another (Liverpool), or of a pound of cotton at one place (New Orleans) and another place (Liverpool). By time value is meant the difference between the value of a commodity (as cotton or wheat) at one time (July) and at another time (October). The difference in place value in the long run, where surplus capital is plentiful, tends to conform to the cost of carriage between the two places, cost of carriage including all elements of expense for distribution. Time values, on the other hand, differ according to the degree of correctness of the judgment of the speculative dealer whose business it is to foretell the factors and conditions that are likely to influence the course of future prices and give to each of these elements its proper weight in the formation of future prices. Inevitably the few of best foresight into future conditions are going to make the most money. Their fortune lies in foreseeing in advance of others the point at which price-making factors are going to find their focus. As President Hadley has said: "The speculator of to-day makes his money chiefly by taking advantage of differences of price between different times rather than between different markets. It is not so much the difference in the price of wheat in Chicago and in Liverpool which furnishes the source of his profits as the difference between its price in Chicago this month and next month. If the speculator foresees a rise he buys wheat to-day with the hope of selling at an advance. If he foresees a fall he contracts to make future deliveries at to-day's prices in the hope that he can secure the means of filling those contracts at rates low enough to leave him a profit. This is the type of transaction which forms the bulk of the business on all the leading exchanges of the world." " 1 Hadley's Economics, Ch. iv., § 118. PART FIFTH. THE MARKETING OF AMERICAN LIVE STOCK. 1. Relative importance of live stock in farming. 2. The economic functions of live stock.. 3. Areas of production of farm animals. 4. The four main live-stock markets.. 5. Changes in sources of supply.. 6. Origin and distribution of commercial cattle. 7. Movements within the primary markets 8. Territorial destination of stockers and feeders. 9. The east-bound movement of live stock 10. Seaboard receipts of cattle, sheep, hogs, and calves 11. East-bound rates on live stock, 1892 and 1900 12. Six years' exports, 1894-1899.. 13. Expenses of exporting cattle.. 14. The live-stock trade of St. Louis 15. Cost of marketing horses and mules at St. Louis. 16. Cost of marketing Iowa horses. 17. Cost of marketing cattle at St. Louis.. 18. Cost of marketing hogs at St. Louis. 19. Expenses of marketing a 1,000-pound steer 20. Cost of feeding cattle on long-distance shipments 21. Cost of marketing live stock at Kansas City 22. Methods of marketing cattle. 23. Terminal charges on live stock at different markets. 24. Sheep markets, East and West 25. Cost of producing beef cattle. 26. Daily prices at Kansas City, 1898 and 1899 27. Cattle loans in the Southwest.. 28. Inspection and charges at Kansas City 29. Cost of marketing live stock at Cincinnati. 30. The hog markets of the Mississippi Valley, 31. Hog prices (daily) at Kansas City, 1898 and 1899 32. Omaha prices for live stock, 1899.. 33. Prices of hogs in three markets compared 34. Tendencies affecting the producers' market. Page. 225 226 227 228 229 231 232 234 235 237 238 238 240 241 243 244 244 246 248 248 250 251 251 252 254 257 258 258 260 263 266 267 267 1. RELATIVE IMPORTANCE OF LIVE STOCK IN FARMING. Live stock still ranks as the second important form of farm capital in the United States. In the valuation of farms and farm property the census of 1890 gives farm valuations in four main classes, as follows: Valuation of farm property and products. This comparison indicates the relative importance of live stock in farming; it also shows that the live-stock interests were almost equal in value to the entire product of the 4,500,000 farms of the year of this census. The relative importance of the several kinds of live stock is further shown by the following percentages in each class: For every $100 invested in farm animals, taking the years 1890 to 1896 for an average, 37.4 per cent was invested in horses, 6.9 per cent in mules, 16.2 per cent in milch cows, 24.3 per cent in other cattle, 4.4 per cent in sheep, and 10.8 per cent in swine. It thus appears that nearly four-fifths of the value of farm animals is in horses and cattle and but one-fifth in mules, sheep, and swine. 166A-01-15 225 |