MINNEAPOLIS, Minn. – The lights are off above the now-silent trading floors at the Minneapolis Grain Exchange, but it’s still possible to see where the futures traders went about their business.
Large windows at either end bathe the long trading floor with a soft, refracted light, and the place seems like a seldom-visited museum for a trading culture now extinct.
“It’s a little eerie coming up here now,” said Roger Hipwell, the MGEX’s vice-president for product development, as he stood above the trading floors that closed Dec. 19 when electronic trading replaced the open outcry method.
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About half the length of the floor is filled with rectangular wooden tables where the cash market operated for decades. It’s been quiet there for years, but until a couple of years ago a handful of cash market traders would occasionally use a table or two to discuss bids for physical grain at the terminals in Minneapolis and St. Paul.
Live prices are still updated above the floor, even though no one is there to use them.
Despite the quiet, however, the MGEX’s price discovery and trading function remains vital to the hard red spring wheat industry.
Prices are still discovered in the MGEX’s futures contracts, even though traders can’t see each other, and the cash market still exists beside it, if only in the form of a page on the MGEX website that offers links to U.S. Department of Agriculture cash market summaries.
“Even though (the trading at) the tables are gone and all that activity is gone, the cash market is still being called and determined,” Hipwell said. “The USDA’s still monitoring.”
At one time, the cash market tables were thronged with traders making bids on metal pans of wheat samples, which represented grain in rail cars and elevators across the wheat zone.
However, that central marketplace began unraveling decades before the futures market turned electronic.
Hipwell said the deregulation of rail rates meant bids on the exchange floor for grain held outside Minneapolis started facing more basis risk, which undermined their value.
As well, farmers, elevators and milling companies began forming tighter relationships, weakening the desire to gather at a central place.
“At one time you wanted it so that the whole marketplace had a shot at it,” Hipwell said.
“Now it’s more organized. It’s becoming more private. It was always private trade, but it was done in a public place.”
Futures trading at the MGEX has been robust in recent years, surging during the commodity bull market that peaked in mid-2008. On June 3, 2009, the exchange set a new record for electronic trading. Its top five days of electronic trading have come within the last two months.
Futures trading still has a tight connection to the underlying cash market, but the exchange’s only relation to the cash market is through its index products, which are based on DTN surveyed prices, and links to the USDA summaries.
That’s what’s so eerie about the trading floor now. The exchange is booming, but quieter than ever.
