Dr. DUVEL. They had to get it back.

Mr. HART. They might get caught taking it back.

Dr. DUVEL. I think that was sold as a hedge. Thus they were able to fix the price for their wheat.

Mr. HART. That is what they were trying to do.

Dr. DUVEL. Yes; I believe that is what they were trying to do. Mr. HART. Take in July, when the heavy movement of wheat starts out in Kansas; when the heavy wheat crops begin to move in June or July, some of these elevators will take in 5,000 or 6,000 bushels and higher a day. They are in the habit of hedging, too, aren't they?

Dr. DUVEL. Yes; many of them.

Mr. HART. And that is a short sale upon the market?

Dr. DUVEL. In our reports we do not consider transactions of that kind as short sales; they are of course, short sales as far as the crop is concerned.

Mr. HART. That has to be absorbed by a new buyer every day; that will run into millions, will it not?

Dr. DUVEL. It depends on the visible supply.

Mr. SANDLIN. That is only 5 percent of the whole.

Dr. DUVEL. That is, so far as actual volume of trading is concerned. Mr. HART. That is spread over the year?

Dr. DUVEL. So far as contracts that are open from day to day; there are more than 5 percent of the open contracts, that are hedging. Mr. HART. More than five?

Dr. DUVEL. Yes.

Mr. HART. But you take in that season of the year when the heavy movement from the farm to the elevator is taking place, you are liable to have 50 percent of hedging on your contracts?

Dr. DUVEL. It runs very high, of course, when the movement is heavy; you will get marketings of 5 and 6 millions a day.

Mr. HART. And most of that is hedged, is it not?

Dr. DUVEL. Most of that is hedged, yes.

Mr. HART. So that if we sell 5 or 6 million bushels of hedges a day, that will not have any more influence upon the futures market than if later in the season somebody sells 5 or 6 millions short?

Dr. DUVEL. So far as selling is concerned, it is the same thing. Mr. HART. Doctor, don't you think that the man who goes in with 1 or 2 million dollars and attempts to change the trend of the market, might just as well try to roll back the tide?

Dr. DUVEL. No.

Mr. HART. I mean, the general trend.

Dr. DUVEL. Yes, I understand.

Mr. HART. He might just as well try to roll back the tide.

Dr. DUVEL. You have to keep in mind that the large trader is not

so much interested in the general trend.

Mr. HART. The farmer is interested in the general trend.

Dr. DUVEL. Yes.

Mr. HART. The movement up and down in normal times is about the same.

Dr. DUVEL. The market may be advancing or declining, yet flucuating widely.

Mr. THURSTON. Do we have individual traders? Don't they mostly form pools?

Mr. HART. Not on the Chicago Board of Trade. You have not found many getting together and operating a pool, have you?

Dr. DUVEL. We find some running close together, right along, although we have not been able to prove pool operations. When we find 4 or 5 accounts moving together, each showing purchases of 500,000 or sales of 500,000, we have good reason to believe that there is but one guiding hand.

Mr. HART. The point I was making is if you do not change the general trend, it does not affect the farmer.

Dr. DUVEL. I think I can illustrate that with a chart which I have here.

Mr. HART. I will say I am a trader in grain.

Dr. DUVEL. Then you ought to know.

Mr. HART. I mean in cash grain; I have never bought nor sold a bushel on the Chicago Board of Trade or any other agency for specu

lative purposes.

Mr. SANDLIN. You are wise not to do that, unless you are a big trader.

Dr. DUVEL. We had in 1926 an outstanding case of short selling; there were two traders, and so far as we know, we have every reason to believe that they were both acting independently. They had sold, starting in July, late in July, until the 4th of September they had accumulated a line of approximately 23,000,000 bushels. At that time the December future was carrying most of the hedges, and these two traders had 32.6 percent of the total open contracts in the December future. These two speculators were short, and the price of wheat had declined about 18 cents; that was a period when the farmers were in the midst of the heavy marketing movement. That general situation had an influence on the price. Yet, we have no authority to deal with situations of that kind, but we do know those drives take place.

Mr. HART. The two had a 23,000,000 bushel short line in December?

Dr. DUVEL. Yes.

Mr. CANNON. What was the outcome of the deal?

Dr. DUVEL. They naturally made some profit; a very handsome profit.

Mr. HART. Were they able to buy without putting the market up? Dr. DUVEL. It is generally argued that the short seller is a potential buyer, and that he must buy back what he has previously sold. He must cover his short sales, but, as a rule, he does not buy it back in the open pit. He gets it back through privileges, at an artificially depressed price, which he very frequently brings about.

Mr. SINCLAIR. Please explain that privilege.

Dr. DUVEL. I believe the practice of covering through privileges can be explained best by an example involving actual transactions.

On the 17th of a certain month when farmers were marketing wheat heavily, one trader was short 3,815,000 bushels. At the close of the market on that date he sold "bids" good for the next day to the extent of 1,200,000 bushels. On the following day he sold in the futures market an additional 300,000 bushels, thereby materially aiding in forcing the price down through the "bids." The market closed at a loss of 24 cents. Bids were good. While he was not able to secure futures for all of the bids, there was put to him 600,000 bushels. Thus he was able to cover 600,000 bushels at an artificially depressed price which was influenced in part by his sale of 300,000 bushels.

On the 19th of the month he again sold futures to the extent of 1,200,000 bushels, increasing his short position to 4,715,000 bushels, and the market closed with a net loss of three fourths of a cent. On the same day he sold bids good for the next day to the extent of 1,000,000 bushels. The following day he added to the weight already on the market by selling an additional 500,000 bushels of futures, bringing his total short position up to 5,215,000 bushels. The price broke 1% cents and the market closed at 1% cents lower. Bids were good again, and the 500,000 bushels sold by this trader helped to make them so. There was put to him on bids 735,000 bushels, thus reducing his short position by that amount without purchasing a single bushel in the open market. This is the way that some of the big short sellers operate as potential buyers.

Mr. HART. Whoever said that there was a load on the Chicago market, when the weight of the market was 500,000 bushels, had a finer scale than you are using in the Bureau of Standards.

Dr. DUVEL. This is the way the larger traders operate: During the last minute of trading they place an order to sell a quarter of a million or a half a million bushels quick. It requires a very strong market to withstand an order of that kind without affecting the price. This illustrates how the "potential buyer" frequently operates. Somebody eventually has to absorb it. The trader to whom I have just referred carried on extensive covering operations through the use of bids over a period of several days.

Mr. HART. Did he cover his whole line?

Dr. DUVEL. He covered about 3,900,000 bushels, and he sold an additional 2,000,000, and the price during the period declined 6% cents. Mr. HART. He covered 3,900,000 bushels; what was his short line?

Dr. DUVEL. He had 3,815,000 bushels, all told, if I remember the figures. He sold an additional 2,000,000 bushels, and he bought 500,000 in the pit, so he sold a net of 1,500,000 in addition to what he had; that would make a little over 5,000,000.

Mr. HART. He had 5,300,000 and he bought in 3,900,000?

Dr. DUVEL. Yes.

Mr. HART. He still had a short line?

Dr. DUVEL. Yes; he still had a short line.

Mr. HART. And maybe he got caught with enough to even him up. Dr. DUVEL. Lots of times they do get caught; they do not always make money. Our contention is that these large operations are a detriment to the exchange and likewise a detriment to the agriculture.

Mr. THURSTON. Would you suggest a limitation of the amount any one individual or firm could have?

Dr. DUVEL. Yes; I think we suggested that first in 1925 or 1926. Mr. THURSTON. What was that limitation?

Dr. DUVEL. Something around 2,000,000.

Mr. THURSTON. For any individual?

Dr. DUVEL. Any speculator.

Mr. THURSTON. Or any group?

Dr. DUVEL. During the 8 years from 1925 through 1932, we have had 16 of those; that is, individuals whose accounts reached 2 million bushels or more. We had quite a number in the July 1933 advance but they are not included in that figure.

Mr. HART. When does wheat start to move in the market?
Dr. DUVEL. About the middle of June, in Texas.

Mr. HART. Would not a limitation be a good thing, beginning the 15th of June, a heavier limitation of short sales by any one party or associated parties, so the associates would be included, and make the limitation on these short sales from the 15th of June until the first of September; that is the period when the markets have to absorb that wheat?

Dr. DUVEL. That is when they have the heavy load.

Mr. HART. That is the time when it is liable to do the most damage. Dr. DUVEL. Yes; I think that is true.

Mr. HART. If we are going to have legislation on that, I think I would favor putting a heavier limitation during that movement, because you take this wheat that is moving out of Kansas; a lot of that comes in to the terminal markets for storage; sometimes the elevator man buys that for the purpose of filling his storage.

Dr. DUVEL. We would not put any limitation on hedges by the elevator man, or others accumulating stocks of wheat, even though at times he may have 10 or 12 million bushels in storage.

Mr. HART. He sells the futures and he advances on the futures, carries his storage, insurance and interest, and that is the only way he can store that wheat.

Dr. DUVEL. That is the only way he can store it; yes.

Mr. HART. There would have to be a discrimination between him and the fellow actually short, or who was just speculating.

Dr. DUVEL. I think every man who has studied future trading at close range from an impartial standpoint is thoroughly convinced that there is very little hope for agriculture as to stabilization of prices unless something is done with reference to excessive speculative operations. Our view is that we would have better markets if all classes of traders had a reasonably fair chance.

Mr. HART. There is no evidence that might prove that they are good guessers? They are not always guessing; there is a certain psychology about trading; they view conditions; something happens in New York or England.

Mr. SINCLAIR. There is too much psychology.

Mr. HART. Something happens to indicate that commodity prices are likely to take a slump, and their guess is pretty good. I have been an operator, in another commodity, over in Michigan; you know

we do not have large grain crops there; our big crop over there, which is marketed, is navy beans. We handle them through elevators, and so forth; we clean them. I was the trading end of the firm. Things would transpire and I would get a hunch that the market looked pretty good; that we were going to get an advance, but if you asked me to put that down in black and white, I could not do it. I was right 75 to 80 percent of the time when I bought those beans. I bought in small lots. I would buy in the general market; I would buy 20 cars and run them into my warehouse, and I think 80 percent of the time I was right. We bought direct from the farmers and paid the same prices as everybody else, and instead of selling my stocks out of the elevators, I met the market and kept in the market by buying these cars from others and letting my stocks accumulate. We would accumulate maybe 40 or 50 cars and some morning I would get a hunch, I would see something that indicated that the market was high enough on those beans and I proceeded to unload them. I sold them to the trade generally and maybe cut the price a nickel to move them; I turned around and sold some to my competitors who had a longer view of the market. In 8 out of 9 times I was right.

Mr. SINCLAIR. That is the way we want to have our wheat. That is not speculating; that is, with the actual wheat.

Mr. HART. Because these fellows went in there, when that price movement was that way, at least 75 percent of them had guessed the trend of the market. They might have exaggerated it a little, but I do not believe a sale of 1 million or 2 million on the Chicago Board of Trade will give a general trend to the market.

Dr. DUVEL. Do you think that a trader ought to be permitted to sell 5,000,000 bushels?

Mr. SINCLAIR. He is in there just to scalp the market. He will do it with big sales, of course.

Mr. HART. Did not Patten make his money on the long side?
Dr. DUVEL. Yes.

Mr. HART. He was helpful to the farmer.

Dr. DUVEL. I may say that Patten was almost always a buyer. While he is credited with having cornered the market he was not a pig in his transactions. He did not press his advantages nearly as far as he might have done.

Mr. HART. He took a profit.

Dr. DUVEL. Yes; he took a profit. To give an illustration, in 1925, when wheat went wild and advanced to $2.05 I was in Chicago at the time and many times talked to Mr. Patten about it. He said, "It is going higher"; and added, "I have sold mine"; I said, "Yes; that is the reason I am talking to you." He said, "I think it will go higher, but I had a good profit in mine; I think it will go much higher, but when this market breaks it is going to be demoralized." The top for May wheat was $2.05% on the 28th of January. Early in April the price was around $1.36. The severe break was in March and this collapse was very much like we had last July, Both were due to overspeculation.

Mr. HART. It only illustrates that a bear or a bull may make money, but a hog never will.

Mr. DUVEL. That is a good illustration.