—Coöperative marketing associations and the intermediate dealer, that is a man who buys directly from the producer and resells to other purchasers, are said to have two points of superiority over the commission merchant: (a) The care and solicitude of the owner replaces the zeal of the agent; (b) by combining the products of many they are able to handle large quantities and thus secure better shipping rates, and take advantage of other benefits of quantity business. The farmer or local dealer, or coöperative association, ships to the commission merchant only in carload lots. The freight charge, nowadays, no matter what the custom may have been in the past, is the same whether one or a dozen cars are shipped at a time. There may be some favoritism in the securing of cars when asked for by the large shipper. The inspection charges are fixed by law. The commission merchant’s fee is a percentage of the sale and thoroughly regulated by custom and the rules of the grain exchange. The commission merchant being acquainted with buyers can usually place all grain the day it is received, so the advantage, if any, of an intermediate dealer are more in name than in reality.
With the idea of eliminating some of the cost of marketing coöperative associations have sprung up over the whole country. While there are many advantages of coöperation, such as by pooling interests, larger quantities can be handled in one bulk, thus getting any advantage that might come in freight rates. Also where large quantities are collected it is practically always possible to take care of buyers; or, the agency may know where to find buyers when an individual would not. The buyer for overseas exports wants to get his grain in as large lots as possible to reduce handling charges. The association usually has facilities to examine and separate the grain or other commodities into the several grades, and the buyer can rely on the grade being as stated by the seller. In the case of some perishable goods, such as fruit, the association advertises freely, spreading the cost over many raisers, and creating a desire on the part of consumers for the association’s named brand of fruit. “Sunkist” lemons and oranges and “Sun Maid” raisins are household words due to extensive advertising by their respective coöperative associations. Coöperative associations purchase from non-members and profits on these purchases go to the association and in due time are distributed to its members. The California Fruit Growers’ Exchange advertises itself as “A non-profit coöperative organization of 10,500 growers.” The object of all such associations is two-fold: (1) To decrease the cost and trouble of marketing, and (2) to increase the common desire for their products. Both of which will tend to increase the grower’s profits.
The grain merchant, whether in business as a dealer for himself, or a coöperative concern must have an elevator, or place, where the grain may be collected and prepared for the larger market. Fruit dealers have houses for the collection and care of the fruit. Since these commodities are collected a little from one, a little from another, or for ripening, grading, or other purposes, they must be kept usually several days before the car is loaded. After it is loaded there is quite a little time before it reaches its destination. During this time there is money invested in these products, that is, capital is required. The local banker is called upon to help finance the purchases. The elevator company or fruit company has some capital, he depends upon borrowing for more. The banks when commodities are freely moving are frequently severely taxed to furnish the required money for the movement of crops. The banks at the terminal markets are also stressed for they are furnishing money to the buyers there, and the export commodities are paid for by money from abroad. So that many financial institutions are intimately interested in the crop movement capital.
Whenever a local dealer consigns a car load of wheat to a responsible merchant he can deposit the bill of lading with his banker and draw upon the merchant for some 90 per cent of the value of the grain, providing the dealer has hedged so that there is no chance of loss. The banker will honor the dealer’s checks and hold the credit of the merchant as collateral.
When grain or other food commodities have been stored the warehouse receipt is considered the best possible collateral for bank loans. Mr. Forgan, president of the National City Bank of Chicago, is quoted as saying:[190] “I have seen the time more than once when high-class stocks and bonds, and even government bonds, could not readily be sold, but I have never seen the time, nor do I ever expect to see it, when anything that has to be eaten could not be sold.” The warehouse receipts, therefore, above alluded to, constitute a collateral which is always available for the payment of debts. Furthermore, if the grain or provisions represented by the warehouse receipts are sold for future delivery, that fact adds a great element of strength to the loan, because there is a third party obligated to take the grain at a certain time for a given price.... The sale for future delivery—the ‘hedge’—is the final link in the chain that makes such loans the best in the world.”
It has been shown that in the production of grain or other farm commodities the three elements, change in form, change in place, and potential change in time enter; while the factors entering are, nature, labor, and capital. These all must be present no matter which method of procedure is followed in the marketing. The cost of marketing must always be counted in the cost of production. A decrease in the cost of any element or factor will of course have its effect on the cost of the whole process. For example, it is claimed by grain merchants that where there is an opportunity to hedge there is less risk and consequently the profits of the middlemen may be less thus decreasing the cost of production.
To get a concrete example of what part transportation bears in marketing the following analysis is made:
Elements Entering into the Cost of Marketing Wheat Grown in Kansas or Nebraska
| Farm Expense | Cents per bushel | |
|---|---|---|
| Loading | 0.25 | |
| If sacked, add about 5 cents per bushel. | ||
| Highway Haulage | ||
| A bulletin of the Bureau of Crop Estimates, U. S. Department of Agriculture gives the cost at 30 cents per ton-mile when horses are used and 15 cents per ton-mile by motor-car, the average distance being 9.4 miles, rough average, say | 6.00 | 6.25 |
| Total cost of getting to local market | 6.25 | |
| Local Elevator | ||
| Unloading, storage, cleaning, and mixing, shrinkage. Overhead—interest on investment, taxes,insurance, office expense, depreciation, repairs, hired help, etc., and profit | 3.00 | 3.00 |
| Total cost up to the commission merchant | 9.25 | |
| Freight | ||
| Terminal and hauling charge | 16.00 | |
| Inspection and weighing at terminal | .25 | |
| Profit of commission merchant | 1.25 | 17.50 |
| Total cost up to the exporter | 26.75 | |
| Exporter’s cost | ||
| Elevation, loading into boat, etc. | 1.25 | |
| Ocean freight (very variable), say | 6.00 | |
| Insurance, leakage, etc., in transit | .75 | |
| Overhead expenses of exporter | 1.00 | |
| Profit of exporter | 1.25 | 10.25 |
| Total to Liverpool market | 37.00 | |
The above would indicate that if all wheat were shipped to Liverpool the local price in Nebraska or Kansas should be about 27 cents per bushel below the New York price and 37 cents below the Liverpool price. As a matter of fact the Omaha and Kansas City prices are frequently equal to or exceed the New York prices because there is quite a large local demand for wheat from the mills of the Middle West. It is said nearly one-half the Kansas wheat is milled in that state.