FUTURES 319 



ing rules to govern and enforce them. The system gradually devel- 

 oped and brought about wonderful changes in the methods of mer- 

 chants and millers. 



Prior to the establishment of trading for future delivery, as now 

 practiced on the Chicago Board of Trade, every grain dealer was a 

 speculator in cash grain, with all the uncertainties of the markets to 

 contend with. Today he is a merchant working on an assured margin 

 of profit, by reason of his ability to protect himself by sales for future 

 delivery on the Chicago Board of Trade. This is illustrated in a 



simple manner. The grain dealer at , Iowa, buys 10,000 



bushels of ear corn in January of the farmers and stores it in his corn 

 crib. It will not be fit to shell and ship until the following May. He 

 orders his commission merchant on the Chicago Board of Trade to 

 sell 10,000 bushels of corn for May delivery. The commission mer- 

 chant makes the sale and reports back the prices. The dealer has 

 thus secured his profit, although it is five months before he can de- 

 Hver the corn in Chicago, that length of time being required for the 

 corn to cure. He in turn pays the farmer cash for his corn, who can 

 then pay rent on his land and buy machinery for the spring work. 

 Now, the dealer has made what the public call a speculative transac- 

 tion, viz., a trade for future delivery on the Chicago Board of Trade, 

 and yet he is the very opposite of the speculator. Suppose he had not 

 sold the corn for May delivery, but had taken all the risk of chances 

 in the market for five months, no one would think of calling him a 

 speculator, and yet that is exactly what he would be. 



Millers and grain dealers throughout the world trade in "futures" 

 in Chicago, in order to avoid speculating in their business, on exactly 



the same theory as the dealer at , Iowa, sells May corn in 



Chicago, against the ear corn in the crib at home. If you can find a 

 miller with 1,000 or 10,000 barrels of flour on hand that had not been 

 sold, you will find that he has wheat "futures" sold (usually in Chi- 

 cago) to the extent of about five bushels a barrel. As soon as he can 

 sell the flour he will buy back the "future." He may sell the flour at 

 50 cents a barrel less than it cost to grind it and yet he will not lose 

 a cent. On the contrary, he will save his manufacturing profit at 10 

 to 25 cents a barrel, for his sale of the wheat "future" has protected 

 him. Wheat and flour prices move together, and when he sells his 

 flour at 50 cents a barrel loss, he at the same time buys back the wheat 

 "future" at 10 to 12 cents a bushel profit — the wheat has declined in 

 the same proportion as the flour. Or, the miller may reverse this 

 operation and buy wheat "futures" and sell flour which he has not on 



