The Kansas City Board of Trade – where face-to-face haggling over the price of a bushel of wheat began before Lincoln was president – is being bought by its larger Chicago brethren and now faces an uncertain future.
CME Group, owner of the Chicago Mercantile Exchange, Chicago Board of Trade and other markets, has agreed to pay $126 million for the 192 membership seats that make up the ownership of Kansas City’s wheat market.
“Holy cow!” said Harold Bradley, the former chief investment officer of the Ewing Marion Kauffman Foundation who launched his investment career as a floor trader there in 1983.
The sale, if approved by regulators and the Kansas City exchange’s members, ends the 156-year independence of one of this city’s longest continuing enterprises. It also raises the question of how much longer trading will take place in Kansas City.
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CME, as part of its purchase agreement, committed to keep the Kansas City trading floor open for “at least six months” beyond the expected year-end closing of the sale.
Beyond that, no decisions have been made, said Terry Duffy, CME Group’s executive chairman and president. He emphasized that no conclusions had been reached about keeping the pits open, moving them to Chicago or shuttering them.
Observers said changes may save money or generate benefits by locating similar trading pits near each other.
The board of trade, at 4800 Main St., is a fixture in the heart of the nation’s wheat belt, trading hard red winter wheat, the stuff that bread is made of.
Generations of millers, farmers, bakers, speculators and others turned here to find out whether prices were trending in their favor.
Longtime exchange officials say they’re saddened by the sale but chalk it up to the relentless advance of technology.
“I felt this was inevitable when trading started to go electronic,” said Michael Braude, who ran the exchange from 1984 to 2001 and was among the Kansas City directors who unanimously approved the sale.
Machines handle 87 percent of the trading activity in Kansas City’s contract for hard red winter wheat. An additional 7 percent of trades occur through the exchange but represent deals reached beyond its trading pits.
Those pits, essentially a set of steps in a polygon shape, once housed boisterous and often chaotic dealing. Now, they account for only 6 percent of the trade in Kansas City wheat futures contracts. They still house 60 percent of the trading in options contracts in Kansas City wheat, which is much less active.
The once busy pits gave Kansas City a landmark image that travelers could witness firsthand and take home with them.
“I sat on that visitors’ balcony for a lot of years with a lot of guests from all over the world,” Braude said of his long career. “And I told them it was the place in Kansas City where more money changed hands than any other place. And I believe that’s true.”
Trading in Kansas City’s wheat contract will continue regardless of what happens to the trading floor here.
Kansas City’s contract is a key tool for farmers, processors and users of wheat to manage their exposure to wide swings in wheat prices.
A drought can drive up wheat and benefit the farmers but punish big flour mills and commercial bakers. Conversely, a bumper crop can drive down costs for the millers and bakers while costing the farmer a big harvest payday.
Wheat futures contracts provide a way to buy or sell wheat at a set price months in advance. It locks in the price and protects farmers and their big customers from a swing that isn’t in their favor. It also means forgoing the benefit of a price swing in their favor but generally makes business easier to manage.