40 BULLETIN 558, U. S. DEPARTMENT OF AGRICULTURE. 



FINANCING THE BUSINESS. 



Few operators of country elevators have sufficient capital of their 

 own to operate their business and must depend to a considerable 

 extent on outside assistance, which is obtained from several sources, 

 such as local banking institutions, farmers, and commission mer- 

 chants. In some instances the larger concerns in the Western States 

 obtain the necessary funds from eastern banks or through "paper 

 brokers," in this wa} 7 reducing the interest rate from 8 or 10 to 5 or 

 6 per. cent. The smaller dealers can not avail themselves of this 

 practice, but in the eastern and southern portion of the grain belt 

 there seems to be little difficulty in securing necessary funds from 

 local bankers, although in some parts of the Southwest the rate of 

 interest ranges from 8 to 12 per cent. 



Sometimes local banks are unwilling to furnish the necessary 

 funds, either because they lack sufficient capital or because of the 

 uncertainty of the moral hazard. In these cases the country dealer 

 is usually able to obtain the necessary accommodation from grain 

 commission firms located at central markets. These firms act in 

 the capacity of buffers, securing the money from the banks in the 

 large cities at a rate of 5 or 6 per cent and subloaning it to the 

 country elevators at the same or a slightly higher rate. As compen- 

 sation for their trouble they receive not only the small difference in 

 the interest rate but also most of the borrower's business. Fre- 

 quently, one of the conditions under which the loan is made provides 

 that the borrower must consign a certain proportion of the grain he 

 ships (varying from 50 to 90 per cent) to the lender. In a few 

 cases farmer members are leaving returns from their grain with the 

 cooperative companies or loaning them other money; in this way 

 they receive 6 per cent interest on funds on which they would obtain 

 only 3 to 4 per cent at the local banks. But even with all these 

 sources from which to draw needed funds, the country elevator 

 operator at times finds himself unable to secure necessary capital, 

 and either sustains large losses through inability to fill contracts or 

 is compelled to sell his grain at a sacrifice in order to obtain money. 



FURNISHING BAGS TO FARMERS. 



In some sections dealers for many years have furnished the farmers 

 with bags for their grain. Upon the approach of harvest the farmer 

 ma} 7 obtain the bags needed from a near-by dealer, whose hope of 

 remuneration lies in the expectation of purchasing the farmer's 

 grain. Sometimes, however, the farmer disposes of his grain to a 

 rival dealer and the bags are widely scattered over that section. 

 Sometimes, also, the farmer uses as many bags as may be required for 

 the grain held for his own use. Many bags are thus lost and dam- 



