Gentlemen's Disagreement

If the New York Stock Exchange were to expel its biggest member firm, the act would be comparable to what happened last week on the Chicago grain exchange. Charging that it deliberately manipulated prices and attempted to corner corn futures last September, the Chicago Board of Trade expelled from membership Cargill Grain Co. of Illinois and its three top officers. Cargill Grain of Illinois is a subsidiary of Cargill Inc., generally accepted as the largest grain elevator and merchandising enterprise in the U. S. Snapped the Board of Trade: "Today's action is final and is not subject to review by any other tribunal." But grain traders agreed last week that the event was only the first round of the best knockdown & dragout speculators' battle that has taken place behind the U. S. farmer's barn in many a harvest moon.

Not unlike the "Old Guard" of the New York Stock Exchange, the members of the Chicago Board of Trade regard themselves as an exclusive club with a divine right not only to deal in grain but also to speculate in it. Just as the Stock Exchange has its SEC, so the Grain Pit has its CEA. But the Commodity Exchange Administration so far has been quite liberal and one of the few limits to speculative activity in grain is a mysterious "gentlemen's agreement" said to have been reached in 1926 by a Kansas city grain merchant named Lonsdale and the then Secretary of Agriculture, William M. Jardine. This limits the speculative interest in the Pit to 5,000,000 bu. per speculator in any one future. CEA has long brewed cutting this to 2,000,000, but has not done so in the face of bitter opposition from the Board of Trade.

Of all the Board of Trade's member firms, Cargill is the only one to advocate such CEA limitation of speculation. With the strict Scotch Presbyterianism of its bosses, Cargill claims to regard a future contract as a contract to be fulfilled to the letter--which means actual delivery of grain. Most brokers regard a future merely as a hedging or speculative mechanism. Nor is this the only seed of contention between Cargill and the Board of Trade. Though Cargill has been in business since 1865 and has branches from Seattle to Albany, not until 1935 did it pry its way to membership in the Chicago Board of Trade Clearing House. The Board of Trade long kept Cargill out because it was a corporation instead of the more clublike partnership the Board prefers. It was thus necessary for Cargill to clear its deals through other members, pay fat commissions. For similar reasons the Board of Trade tried to exclude Farmers National Grain Corp., biggest U. S. cooperative. Farmers National also got in after a fight.

Last July Cargill and Farmers National had a brisk little fight between themselves. Cargill then held the long interest in corn and Farmers the short, but at the last minute Farmers dumped 500,000 bu. of previously invisible corn on the market, gave Cargill a real trimming as the price fell 27-c-. Last September Cargill got even. With only a small carryover from the previous year, corn was scarce anyway and Cargill bought almost twice as much (6,000,000 bu.) as there was available for delivery that month. There followed a mad forage for corn by shorts, of whom the biggest was Farmers National. As the price soared to $1.16 a bu., it became apparent that the shorts could not cover and the Chicago Pit was threatened with the worst corn corner in years. Furious, the Board of Trade finally stepped in, told Cargill to sell 1,000,000 bu. in four hours in order to bring its holdings down to the 5,000,000 bu. allowed by the "gentlemen's agreement." Terming this "confiscation of the worst order," President John Hugh MacMillan Jr. of Cargill refused to comply and the Board stopped trading in September futures six days before settlement was clue, ordered all contracts closed at $1.10 1/4 a bu.

Since then the CEA and the Board of Trade have held hearings and Farmers National has dissolved, partly as a result of its losses from the corner (TIME, Feb. 7). Refusing to make any defense before the Chicago Board of Trade, Cargill laid its case in the hands of CEA Chief J.W.T. Duvel, has since maintained a wounded silence in its head offices at Minneapolis, awaiting the CEA decision in mid-April. Sniffed Cargill Attorney Weston B. Grimes: "It is not surprising that a committee of our competitors should find our purchases of September corn to be offensive."

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