Fri October 19, 2012
Farm Success At Heart Of Kansas City Board Of Trade Sale
Long a symbol of agriculture’s strength in America’s heartland, the Kansas City Board of Trade has an uncertain future in the wake of its proposed sale to a rival exchange.
Chicago’s CME Group, which owns the Chicago and New York Mercantile Exchanges and the Chicago Board of Trade, agreed to pay $126 million for the Kansas City institution.
The Kansas City Star’s Mark Davis, who has covered business in Kansas City for more than two decades, says the transaction reflects the importance of the hard red winter wheat crop, which is one of the largest crops in the Great Plains.
“The wheat that they grow in Kansas is the stuff that trades in Kansas City and what we’re seeing here is a great deal of interest in that product that Kansas City has and Chicago would like to own,” Davis said.
Farmers harvest more than 20 million acres of hard red winter wheat annually. It accounts for almost half of all wheat harvested in the United States. Farmers all over the country will be watching what happens to the exchange many use to hedge their risk, but it’s not yet clear how the exchange’s sale will affect wheat farmers. Certainly, farmers will still be able to hedge their wheat contracts.
“I don’t think they’re going to feel anything,” Davis said. "The way that your contract is traded doesn’t matter that much to you as long as it is executed and executed at the market price, which is what’s going to happen whether it’s hitting the floor or going through electronically in those systems.”
The CME Group says it committed to operating the trading floor at the Kansas City Board of Trade for at least six months after the deal closes, which is expected to be later this year. After that, CME Group could continue to operate the Kansas City Board of Trade, close the exchange and operate trading from Chicago, or choose some hybrid of the two.
These days, much of the trading on commodities exchanges is completed online and many physical trading floors have largely fallen out of favor. When I visited the Kansas City Board of Trade for a story earlier this summer, there wasn’t much action on the trading floor. In Chicago, the floor of the Chicago Board of Trade was a bit more active when I visited a few months ago, though nothing like the trading floors you see in movies like “Trading Places” or “Wall Street.”
Davis said he pressed CME Group executives on the future of the Kansas City exchange and he’s convinced they truly haven’t yet formed a plan. And regardless of what happens to the actual trading floor, commodity trading will continue.
CME Group’s interest in purchasing the Kansas City Board of Trade is in part because of the success of farmers in Kansas, Nebraska, Oklahoma and the like. Hard red winter wheat is an American staple.
“That’s really what CME wants because that’s the contract that the producer wants – that’s the product that the processors that turn wheat into flour want, that’s the product that the commercial bakers want,” Davis said. “And whether that’s (actually) traded here – it’s going to (continue to) be the ‘Kansas City wheat contract.’”