504 AGRICULTURAL ECONOMICS 



not in possession of any cotton at the moment. Immediately on 

 placing such an order, purchases of the required amount of cotton 

 may be made on the Cotton Exchange, and as soon as the spot cotton 

 for manufacture is secured, the long interest on the exchange is sold 

 out. The spinner is insured by his purchases, as the miller by his sales. 

 This practice of hedging is now universal in the trade in grain and 

 cotton. Not to hedge is considered the most reckless kind of business 

 among large dealers and millers. That is, the man who keeps out 

 of the speculative market is said to be a speculator. The spinner 

 however, uses the "future" market much less than the dealer or 

 miller. Dealers and exporters hedge all their purchases. Nine- 

 tenths of the cotton shipped to Liverpool is hedged there or in New 

 York. Probably over 90 per cent of the great wheat holdings in the 

 elevators of Duluth and Minneapolis are sold against in this way. 

 Some of the most prominent elevator men of Chicago claim that every 

 bushel which they buy for storage is invariably protected by a hedging 

 sale. It may be that the men who control the elevator companies are 

 independently "plungers" in the market, but this has nothing to do 

 with their regular elevator business. Some millers or elevators may 

 also carry a small amount, as a legitimate speculation; but in the 

 main the rule of the trade is to insure everything at all times and 

 under all circumstances. 



160. THE EFFECT OF SPECULATION IN WHEAT AND COTTON 1 



Let us review briefly the usual dealings in the speculative market 

 and notice the effect of the operations of the two sides constantly 

 working the market in opposite directions, the "bulls" and the 

 " bears." Let us first follow the action of a " bear" who sells October 

 wheat in July, hoping for a fall in prices or, as some would have it, 

 hoping to depress prices. The immediate effect of such a future sale 

 upon July spot prices will be practically nil, for the October wheat 

 cannot satisfy the immediate demand for spot wheat. What effect 

 will the sale have on prices of spot wheat in October? The "short 

 seller" of July now appears as a buyer in order to cover his contracts, 

 and, if his trading has any effect on the market at all, it is to increase 

 the demand, not the supply. As far then as he can influence spot 

 prices, i.e., prices paid to the producer, it will be in favor of higher 

 prices and not lower. If the conditions of the market are such as to 



' Adapted from Report of the Industrial Commission, VI, 189-91, 224. 



