a revisionist chronology of papers by t. a....

A REVISIONIST CHRONOLOGY

OF PAPERS BY T. A. HIERONYMUS

A Consistency of Biases

edited by T. A. Hieronymus Office for Futures and Options Research University of Illinois at Urbana-Champaign

© The Board of Trustees of the University of Illinois, 1996 www.illinois.edu

A REVISIONIST CHRONOLOGY

OF PAPERS BY T. A. HIERONYMUS

A Consistency of Biases

edited by T. A. Hieronymus Office for Futures and Options Research University of Illinois at Urbana-Champaign


published by Office for Futures and Options Research 314MumfordHall University of Illinois at Urbana-Champaign Urbana, Illinois 61801

Copyright © 1996 by the Board of Trustees of the University of Illinois

The Office for Futures and Options Research (OFOR] at the University of Illinois at Urbana-Champaign depends on individuals and firms within the futures industry for financial support. If you are interested in learning more about the programs and activities of OFOR and how you can participate, support and make a difference, contact

Raymond M. Leuthold, Professor and Director Office for Futures and Options Research 314MumfordHall 1301 West Gregory Drive University of Illinois Urbana, Illinois 61801 (217)333-1811


1950

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PREFACE

FOREWORD

Chapter 1

FUTURES TRADING AND SPECULATION IN SOYBEANS

Chapter 2 SOYBEAN AND SOYBEAN PRODUCT CEILINGS

Chapter 3 A COMMENT ON MARGIN REQUIREMENTS IN FUTURES TRADING

Chapter 4 PRINCIPLES OF INVENTORY AND RISK MANAGEMENT

Chapter 5 PRICE SUPPORTS SHOULD BE LOWER!

Chapter 6 PROSPECTS FOR FURTHER INCREASE IN SOYBEAN PRODUCTION

Chapter 7 A COMMENT ON M R . BLAKE'S PAPER

Chapter 8 SHOULD CCC INITIATE A BUYING PROGRAM FOR COTTONSEED AND

SOYBEAN OILS?

Chapter 9 WELFARE IMPLICATIONS OF MARKET PRICES

Chapter 10 FUTURES TRADING IN ONIONS

Chapter 11 THE FEED GRAIN PROBLEM

Chapter 12 MARKET POTENTIAL FOR HIGH-PROTEIN CONCENTRATES IN NORTHWEST EUROPE

Chapter 13 SOYBEAN PRICE SUPPORTS SHOULD BE REDUCED

Chapter 14 THE COMPETITIVE POSITION OF SOYBEANS

Chapter 15 CHANGES NEEDED IN FUTURES CONTRACTS

Chapter 16 MAKING USE OF BASIS CHANGES TO EARN INCOME

Chapter 17 A COMMENT ON SOYBEAN PRICE SUPPORTS

Chapter 18 AGRICULTURAL SUPPLY MANAGEMENT

Chapter 19 LESSONS TO BE LEARNED FROM AGRICULTURAL POLICIES OF OTHER COUNTRIES

Chapter 20 ELEVATOR ADJUSTMENTS TO CORN COMBINES

Chapter 21 THE DESIRABILITY OF A CATTLE FUTURES MARKET

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Chapter 22

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THE COLLINS LETTER: TINO DE ANGELIS

Chapter 23 NEW CONCEPTS IN FUTURES TRADING

Chapter 24 STATEMENT TO THE DOMESTIC MARKETING AND CONSUMER RELATIONS

SUBCOMMITTEE OF THE HOUSE AGRICULTURE COMMITTEE

Chapter 25 WHERE ARE W E IN MODERNIZING OUR GRAIN MARKETS?

Chapter 26 GOVERNMENT AND THE SOYBEAN SITUATION

Chapter 27 COMMODITY SPECULATION AS AN INVESTMENT M E D I U M

Chapter 28 FUTURES MARKETS AND EQUITY CAPITAL

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Chapter 29 2972 STATEMENT TO THE DOMESTIC MARKETING AND CONSUMER RELATIONS

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SUBCOMMITTEE OF THE HOUSE AGRICULTURE COMMITTEE

Chapter 30 NOTE ON THE SOYBEAN PRICE AND SPECULATION

Chapter 31 A NOTE ON BEING A COMMODITY REGISTERED REPRESENTATIVE

Chapter 32 A COMMENT ON REVIEW OF FUTURES TRADING LEGISLATION

Chapter 33 THE USE OF FUNDAMENTAL ANALYSIS AND PRICE FORECASTING

Chapter 34 CURRENT SUPPLY-DEMAND SITUATION FOR FOOD AND FIBER

Chapter 35 THINGS LEARNED ABOUT CATTLE FUTURES TRADING

Chapter 36 A DEFINITION OF HEDGING FOR ADMINISTRATIVE PURPOSES

Chapter 37 DESIGNATION OF DELIVERY POINTS

Chapter 38 TOWARD A DEFINITION OF MANIPULATION

Chapter 39 PEOPLE WITH ORDERLY MINDS SHOULD NOT TRADE COMMODITIES

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Chapter 40 2982 SURVIVAL AND CHANGE: POST WORLD W A R II AT THE CHICAGO BOARD

OF TRADE 367

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Chapter 41 IMPROVING THE EFFICIENCY OF COMMODITY FUTURES MARKETS

Chapter 42 LETTER TO THE EDITOR OF CHOICES

Chapter 43 THE ROLE OF FUTURES MARKETS AND OPPORTUNITIES FOR OFOR

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PREFACE

RAYMOND M. LEUTHOLD

DIRECTOR, OFOR

The Office for Futures and Options Research (OFOR) owes its roots to Professor

Thomas A. Hieronymus. OFOR was established with an endowment from Gary

and Carlotta Bielfeldt and their family through the Bielfeldt Foundation, Peoria,

Illinois. Gary and Carlotta and their three children—Linda, David and Karen—

are all graduates of the University of Illinois at Urbana-Champaign (TJTUC). While

at UIUC, Gary studied under Professor Hieronymus in the late 1950s, earning

both B.S. and M.S. degrees. However, the two men remained in contact over the

years—Gary the trader, Tom the teacher—sharing common interests, not the

least being the price of soybeans and UIUC sports. The Bielfeldt family's leadership

toward creating OFOR, and establishing the Thomas A. Hieronymus Professorship

in Futures Markets, builds on Professor Hieronymus's many contributions to the

development of the futures market industry.

OFOR is honored to present this group of writings by Professor Hieronymus, who

served his entire academic career from 1949 to 1981 as a faculty member in the

UIUC Department of Agricultural Economics. Careful reading of these papers,

dating from 1950 to 1993, will clearly show that Professor Hieronymus has had sig

nificant influence not only on the futures industry but also on agricultural policy.

The papers show both depth and breadth of expertise about policy, markets, prices,

and trade.

Pivotal contributions by Professor Hieronymus were made in the 1950s and 1960s

when he explained and demonstrated the use of futures markets to the grain

industry. At the time, the markets were languishing, there was little respect for or

understanding of futures markets, and the markets were not recognized for their

commercial base. Besides some of the papers reproduced here, other important

writings were the following bulletins: Futures Trading and Speculation in Soybeans

by Country Elevators, published in 1951; When to Sell Corn, Soybeans, Wheat, and

Oats, published in 1961; Uses of Grain Futures Markets in the Farm Business,

published in 1963; and Hedging for Country Elevators, published in 1968. These

writings were unique and impacted market practitioners, research scholars, class

room teachers, and extension agents.

His most recognized publication in the futures profession was his textbook,

Economics of Futures Trading, first published in 1971, with a second edition in

1977. This book became the guide for traders and students in the futures industry

during the crucial changes and tremendous market growth of the 1970s and 1980s.


It is the grandparent of futures texts and is footnoted in practically all currently pub

lished futures-market textbooks. This book stood for nearly twenty years as the only

available textbook on futures theory and practice.

Most readers will not have seen many of the writings reproduced in this publication. Several deal with agricultural policy, especially policy related to soybeans. You will find that Professor Hieronymus began educating Congress about futures markets and speculation as early as 1957 (paper #10), and he repeated that education process with testimonies in 1966 (#24), 1972 (#29), 1973 (#32), 1974 (#34), and 1984 (#41). He did not avoid controversy and even relished it. Examples include a paper at a session on welfare at the annual meeting of the American Farm Economics Association in 1955 (#9). He told the Chicago Board of Trade to get its act together in 1959 (#15) and told Midwest elevators to "get good or get out" in 1964 (#20). He gave speeches on controversial topics in New York in 1962 (#18) and 1970 (#27), advocated cattle futures before a reluctant meat industry in 1964 (#21), led numerous discussions on soybean price and production policy (for example, #7 in 1954), and repeatedly called for the government to stay out of agricultural markets (for example, #17 in 1961 and #18 in 1962). Research ideas run through many papers, often under a common theme, such as calling for research on the role and quality of speculation in 1966 (#23), 1984 (#41), and 1993 (#43). Some papers are basic to futures markets, such as how to hedge (#16 in 1959), futures markets and financial equity (#28 in 1971), definition of hedging (#36 in 1976), designation of delivery points (#37 in 1976), and a definition of manipulation (#38 in 1977).

Professor Hieronymus is clearly a defender of free markets and an outspoken supporter of capitalism and of the futures exchanges. He, perhaps more clearly than anyone else, defines the important role of speculators in directing economic activity. Expression of these beliefs appeared in 1950 (#1) and 1951 (#3), continued through many papers, and are well summarized in 1978 (#39). According to Professor Hieronymus, markets provide the best guide for decision making, and government intervention in price formation is undesirable and counterproductive. The wisdom of the marketplace exceeds that of the government. And, so you know there are no hidden trading secrets, he clearly states that markets work well and that price forecasting and successful speculation are very difficult (#33 in 1973 and #39 in 1978).

You will find these papers challenging, interesting, and even entertaining. They are a unique set and truly vintage Tom Hieronymus.


It is clear that Tom received support from his family over these years, especially from his wife, Jimmie. I wish to thank Tom for making these papers available for an OFOR publication. Special thanks go to Stephanie Spaulding for much of the typing but also for managing these manuscripts as they passed through many hands in the preparation process. Also to be thanked are Nancy Nichols and Francine Weinbaum, who provided valuable editing and proofreading, and Dawn Hachenski, who created the design.


FOREWORD

A Revisionist Chronology of Papers by T. A. Hieronymus

One solid rule of life is that people who live a long time tend to collect a lot of stuff.

Stuff takes a variety of forms: pictures, recipes, quilts, autographs, books, beer

cans, etc. Some professors are particularly avid collectors with a tendency toward

diplomas, citations of merit, awards, and in a context of "publish or perish," lit

erature that they have written. There is nothing quite as deathless as one's own

prose. But collections of stuff eventually present a problem: how to dispose of it if

one runs out of space or how to preserve it for eternal use and appreciation.

In my own case I found myself moderately at peace in that my great-grandfather's

gold watch was in good repair and with instructions that my sons share it year-

about, and the books, monographs, bulletins, circulars, and journal articles that I

had written had been properly catalogued and libraried. But a problem remained.

There were about twenty notebooks filled with manuscripts of speeches, papers,

testimony, seminar presentations, etc. I knew that eventually something had to be

done. The thought of wholesale dumping into the garbage receptacle was too hor

rible. I decided to sort and select.


The first run-through took out about three-quarters as repetitive or embarrassing. Over the years I had received a lot of attention for price outlook particularly that of soybeans; being conversant about the current situation was useful in opening a lot of doors. But outlook statements are loaded with numerical detail and are timely rather than timeless. So they went without being graded right or wrong. My best guess is that it was about 50-50, which is par for the course. As for the rest, there was a lot of repetition; the audiences were diverse, from fellow academicians, to government, to legislators, to courts, but mainly to commodity tradespeople. The geography of presentation was widespread—as far north as Dawson Creek, British Columbia, as far south as Lima, Peru, as far west as Zheng Zhou, China, and as far east as Bucharest, Romania. Most were within the United States with a heavy emphasis on the Midwest.

A second run took out about half of the remaining material, primarily on the basis of redundancy. What remains? For the most part, they are papers that were fun to write and the occasions of presentation that were particularly interesting. They have not been edited or corrected (I tried to be at least reasonably honest), but substantial sections have been purged from many to reduce bulk and increase readability. They are arranged chronologically, so, in a sense, it is a career history. The time span from first to last is forty-three years. The activities that this collection represents were an interesting part of my career.

I have no illusion that anyone will read an appreciable amount of this stuff, but I

rest in peace knowing that it is now part of other people's stuff.

TAH Champaign, Illinois

July 1995


a revisionist chronology of papers by t. a....

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