At the crossroads of industry, railroads and farm country Kansas City has long been a capital of the plains. In recent years, though, Kansas City and other agriculture hubs have seen technology chip away at their importance.
Since 1856, for instance, wheat has been traded on the floor of the Kansas City Board of Trade. In the old days, there would be a swarm of traders around the pits, shouting orders, making those crazy hand signals you've seen in the movies, but that will end later this summer.
The CME Group, which bought the Kansas City Board of Trade in October 2012, announced Feb. 4 that it will move all wheat trading to Chicago, marking the end of an era for Kansas City and illustrating changes in the agriculture industry that are whittling away at the influence of prominent ag towns.
Technology is largely to blame. Joe Barker, the Kansas City branch manager of commodity firm CHS Hedging, and his fellow brokers used to trade wheat contracts on the floor of the Board of Trade. But now, Barker’s firm, which has offices just two floors above the trading pit, does almost all of its trading electronically.
“Taking care of that clerking function has really cleaned up the paperwork part of what we do and that’s made us more efficient,” Barker said. “We can handle more customers and we can do it for lower costs. And it’s helped our customers – their margins get better because we’re able to charge them less.”
Barker said about 80 percent of his branch’s trades were completed on the floor of the exchange just five years ago. Now, it’s less than 5 percent. That’s the way the industry has been moving.
Over the last decade, exchanges in Chicago, New York and Minneapolis have all closed or merged with larger exchanges. CME Group said June 28 will be the last day for trading wheat in-person in Kansas City.
“For 157 years the Kansas City Board of Trade was an integral part of the community,” said Michael Braude, who was president of the Board of Trade for 17 years until 2001. “I used to tell people when I would take them and give them a tour of the floor that it was the place in Kansas City where more money changed hands than any place else.”
By the fall, that money will skip Kansas City and flow from computer to computer in nanoseconds. And, as Braude said, it’s not as if the trading pits at the board of trade are very rowdy right now.
“You see very few people in the pit – it’s like walking into a ghost town,” Braude said.
That represents a sea change from a decade ago. That ghost town used to be crowded – and crowded with influence in Kansas City.
“Some of the famous names in our community – Kemper, Latshaw, Ohlmann – those are all names of people that were chairman of the Kansas City Board of Trade,” Braude said. “To see that kind of a piece of history disappear, that’s very depressing to me.”
The grain industry is a bedrock for cities throughout the Midwest. This season farmers are expected to produce over 1 billion bushels of the kind of wheat traded in Kansas City, so that industry isn’t going away. But losing the Kansas City Board of Trade is emblematic of a heartland landscape in flux.
Consolidation is a familiar theme for farmers across the country and it’s happening in agribusiness too. In this case, Chicago benefits thanks to the CME Group, whose trading floors will still feature in-person wheat trading.
“We like to think that what we’ve just done is combined 150 years of Kansas City history with 150 years of Chicago history,” said Tim Andriesen, the executive in charge of agricultural investments at CME Group.
He said the changes in agribusiness are indicative of the agriculture industry getting more and more efficient.
Farmers used to be connected to the markets through a game of telephone: A farmer would have to call his broker. He would call his man at the board of trade who would call his guy on the trading floor and he would actually place the trade. Now, farmers can log on from home, or even their iPhone, and check in on the markets.
“Agriculture is constantly changing,” Andriesen said. “Whether it’s the production side or the risk management side, I think that what you will continue to see is a progression in all elements of agriculture in terms of being able to deliver value to the customer.”
And for now, that progression has left Kansas City without a piece of its history.