Either obituary or bright new day
June 25, 2013
Of the memorial tributes that have appeared on this page over the years, this may be a rarity for marking the death of an institution. It is meant to mark the end of the Kansas City Board of Trade as a free-standing futures exchange. The last trade occurs this Friday, June 28, 2013, writing finis to 157 years of trade mainly in wheat. Of course, it is important to note that unlike most deaths, the closing of the Kansas City market stems from the voluntary decision of its membership to sell its hard winter wheat futures to the CME, which is engaged in vigorously promoting these contracts. Memorialized here are the Kansas City presence and the major role it earned in the evolution of the modern-day grain-based foods business.
Founded in 1856 as a chamber of commerce, the chartering as a grain market occurred in 1876. Several periods and developments stand out. The market’s early years primarily depended on expansion of the wheat crop into what are now the hard winter wheat states of the central Plains. Cash wheat trading volume vied with futures dealings as an important business conducted on the floor until cash trade moved to different channels in the late 20th century.
It was World War I and its influence on American family life, especially the new position of women and its consequences for home cooking and baking, that exerted great power. During the 1920s, hard winter wheat suddenly became dominant in making baked foods. Kansas City’s milling industry flourished and the city, due in part to the exchange’s presence, provided the foundation for newborn national commercial bread baking chains.
In the wake of World War II, in the 1950s, flour millers operating in Kansas and adjoining states waged a hard-fought campaign to persuade the Board to limits its trade to hard red winter wheat, not just wheat. Not only did that make the exchange’s futures contract more effective for hedging for millers and for bakers who were newly learning how to use futures, but also to attract international attention to Kansas City as the price-setter for a major share of international trade. As exports grew, primarily with the opening of markets in the Former Soviet Union and China, the exchange enjoyed great prosperity.
The Kansas City exchange did not slumber even as good times ruled, including annual volume records above 10 billion bushels. The Board named a committee to explore new futures trading opportunities in non-agricultural commodities. This led the exchange to do the essential spade work that launched trade in stock futures, a tremendously important move for the futures industry. Sadly, this became a Kansas City achievement that did little or nothing for the market as exchanges in Chicago and other larger cities emerged as trading centers.
The massive growth in trade in these new contracts in places beyond Kansas City made the local membership aware of its diminished position as a futures market. This was not the only force at work. Like the disappearance of cash trading on the exchange floor, person-to-person trading in the futures pit on the exchange was rapidly shrinking as electronic transactions captured larger and larger shares. This was the experience of all markets, making sense of the proposal that would have administration in one place like the CME, itself a combination of several once powerful independent exchanges.
As efficient as trading hard red winter wheat futures on the CME is proving and as welcoming as that market has been, it is difficult to witness without some regret the closing of the once proud Kansas City Board of Trade. Yes, it is a great loss for the Kansas City community. Hardly anything that has occurred in recent years more sharply signifies the changes under way in grain-based foods. It demands the ability to face transformation, making what might be an obituary into a piece hailing a bright new day.