Filed under: Commodities trading, solutions & positive steps | Tags: CFTC, Chicago, chicago board of trade, chicago mercantile exchange, commodities trading, family farm defenders, insider trading, protest
Come one, come all, to the Chicago Mercantile Exchange / Board of Trade building at La Salle & Jackson on Friday, April 15 (tax day): It’s time for the annual Family Farm Defenders protest!
FFD has been protesting down at the CME for several years now, and from what I’ve been told (oh, how I wish I were able to be in Chicago for this) the traders actually know about – and sort of look forward to – the protest and the discussion. The web link above has a concise, cogent explanation of what’s wrong with the CME and what needs to change to make the institution more transparent, fair and democratic. If you don’t live in Chicago, there’s information about who to call at the Commodity Futures Trading Commission and Senate Judiciary Committee to demand reforms.
Filed under: project updates | Tags: art, Chicago, chicago board of trade, documentation, flour, futures contract, industrial harvest, mess hall, residency, wheat
I’ve been meaning to post more about my time at Mess Hall BEFORE my residency ended, but as things have been more hectic than expected the last couple of weeks, it just hasn’t happened until now. I was thrilled to be asked to contribute to this anti-institution. Mess Hall’s structure and spirit reflects much of my own philosophy about art, and the emphasis on non-monetary exchange makes it a perfect place to, you got it, give away flour for free. For these two weeks, I wanted to focus on conclusions and solutions, and start to wrap up everything I’ve learned: make some sense of all this movement of flour, money, markets and goodwill; draw some conclusions about all these intersecting systems and maybe, just maybe, start to think about how we might need to change them (with lots of help from people more knowledgeable than I).
This was not an insignificant task, as it meant getting serious about things like math, which I typically avoid. I wish more of the programming had worked out. Unfortunately this is the time of year when farmers are the most busy and their priority is harvesting and working around seemingly constant weather issues (like tornadoes, which threw a monkey wrench in the plans of the ASFC). I hope that the annoyance of all the multiple date changes does not prohibit anyone from staying engaged in this discussion and attending the (dates to be determined) rescheduled sessions. For those folks who came to the commodity trading 101 session, thanks for your thoughtful participation; a special thanks to guest trader Paul Maggio who created a open, congenial atmosphere in which we could start to pick apart this stuff.
Having a storefront was a blast. People watching in Rogers Park is fruitful, and about 90 percent of passers-by would pick through the free box and clothes rack (about 1 in 20 would stop in for flour). One woman came in, thrilled at her free box scores (and wanting to share, as the ladies do, the thrill of a good bargain), and then asked me for a bag, which of course we had. About every other day when I arrived there would be a bag or two of clothes on the doorstep of Mess Hall, which would be incorporated into the free box and clothes rack. I also took the liberty of adopting 4 boxes of records that someone brought in, which has made a couple people very happy (including myself) but may be pushing the free store thing too far for such a small space.
All in all, people took 261 pounds of flour. Which is not bad for about 35 open hours, perhaps. Most folks that came in did not look like they actually needed free flour, they were just ardent bakers or interested in the project. But a few did look like having this gift was going to be of real value to them. Two people came in and left with one of the bulk (50-lb) bags – one guy whose wife bakes for all their friends and neighbors, and a student at Loyola who helps out with Food Not Bombs Rogers Park.
The documentation and “research results” from the project are still at Mess Hall for the time being. You can also see pictures here.
Filed under: Commodities trading | Tags: Chicago, chicago board of trade, family history, kennedy assassination, ted kavage, the 60s, the el
“I’ll bet you didn’t know this…I worked on that exchange for 2 years. I was a “runner” on the trading floor. The exchange was open from 9 to noon. I went to school from 2 to 8. It was a perfect part time job. I worked for Dean Whitter at the time.”
“I was on the trading floor when Kennedy was assassinated. Was an interesting experience. At that time they had 20 cent price stops on all the grains traded. It took about 10 minutes for all commodies to hit the stops after the shooting. Took abut 3 days to recover. It was an incredible panic. (Oh, a STOP was when trading stopped until the price came back up or down to the norm. The stops were reset every trading day…i.e. let’s say December wheat was selling for 230 a bushel and went to 250, then trading would stop. The next trading day December wheat would start at 250 and could go to 270. Probably more than you wanted to know).”
Filed under: Commodities trading | Tags: architecture, CBOT, CBOT building history, Chicago, chicago board of trade, chicago board of trade building, Mike Wolf, walking tour
Back in December, I met Mike Wolf, a talented artist and thoughtful person who has done a lot of perambulating and mulling over global institutions and big systems. Being a bit of a perambulator myself, we hatched up a plan to go for a walk around the financial district and check out the new home of the Chicago Mercantile Exchange (otherwise known as the old home of the Chicago Board of Trade).
Looking down the LaSalle St. canyon, Chicago flags flap in the wind on a bitterly cold day. The CBOT is at end of the 'canyon,' fading into the sky in this photo.
For those of you who don’t follow commodities or futures markets, up until 2007 there were TWO commodities and futures exchanges in Chicago: the Chicago Board of Trade (the CBOT, est. 1848), which traded grains, gold and ethanol, and the Chicago Mercantile Exchange (the Merc, est. 1898), which traded butter, pork bellies, and lumber.
The CBOT and the Merc merged in 2007 and are now known as the CME Group. It’s pretty confusing trying to decide what to call them now – no one seems to use the term ‘CME Group’, some call it the CME and other folks still call it the Board of Trade, depending on what is being traded of course. With the merger, the CME moved into the CBOT building; trading pits, already going out of style, were consolidated and there was apparently quite a bit of controversy around whose hand signals would be the new standard in the pits. Yep, each exchange had its own unique signals! Pity the poor trader that screws that one up.
Mike speculated that the names of two of Chicago’s sports teams – the Bulls and the Bears – might be connected to the city’s financial markets. I would guess the Bulls actually probably refers to the stockyards, but if Mike’s not right, he should be. Although Wall Street gets all the attention, there’s a huge amount of $$$ and power rolling through Chicago’s financial district, at the heart of which is the Mercantile Exchange. I mean the Board of Trade. Er, no, the CME Group. In 2008, the CME Group acquired the New York Mercantile Exchange (NYMEX), and this year bought up 90% of the Dow Jones indexes, including the ubiquitous Dow Jones Industrial Average. That’s quite a portfolio.
Here’s – to the degree that I’ve been able to reconstruct it – the CBOT building history. If there are any people out there that know these dates / locations definitively, by all means tell me if these need to be corrected…I found some conflicting – or not quite clear – information.
1848: First site at 105 S. Water St.
1856: Moved to S. Water & LaSalle
1860: Moved to temporary location on S. Water St.
1865: Moved to LaSalle & Washington (Chamber of Commerce Building); this building was destroyed by the Chicago fire of 1871. After the fire, the CBOT moved to the Wigwam at Washington & Market. The Wigwam was a gigantic convention center built to house the Republication national convention that nominated Lincoln for president. Once the Chamber of Commerce Building was re-built, the CBOT moved there until 1885, when it opened its own building, a large brick Victorian style designed by William Boyington, in the current location at LaSalle & Jackson. The building was the tallest in Chicago for a time.
1930: The first LaSalle & Jackson building was replaced with the current art deco building. It’s a beauty (although I heard somewhere that Frank Lloyd Wright poo-poohed it when it first was built) and was recently renovated back to its art deco grandeur. Unfortunately, since 9/11 access into most of the building and to the trading floors are limited – Mike and I had to stick to the lobbies, the main hallways and the lower level restaurant Ceres. It looks like if you go with the Chicago Architecure Foundation on a lunchtime tour you can take a peek at the trading floor.
We also walked around the outside of the building, noting the ornamental touches: grain motifs everywhere, the famous faceless sculpture of Ceres, goddess of grain at the top, and the gorgeous portraits to either side of the clock by Alvin Meyer – a Native American Indian woman to the left holding corn, and an Egyptian holding wheat.
1980: A major addition was tacked onto the existing building. I have to say, Helmut Jahn’s postmodern rectangular steel and glass box clinging to the back of the tall and stately existing building was impressive, but lacked the grace of the original building and certainly has a tough time relating to it architecturally. Still, it’s not as bad as the dull boxlike Chicago Board Options Exchange (CBOE) building lurking just behind it.
the CBOT's postmodern addition
Other modern additions include a parking garage and widespread use of the CBOT octagon logo, which represents the octagonal trading ‘pits.’
CBOT parking garage, featuring octagonal 'pit' logo
A close-up of the CBOT (CME Group) logo.
Filed under: Commodities trading | Tags: association, bailout, bear market, causation, chicago board of trade, euro, financial markets, futures contract, greece, mini-wheat, statistics
If you follow commodities prices, you may have noticed that the they have dropped quite a bit since my last post – in fact, since I bought in the market has pretty much done little but go down. Several days after I bought in, wheat prices started to falter, brought on by all that stuff going on in Europe with Greece needing to be bailed out, Germany balking and the Euro falling. I sold as things began turning bearish, and am now sitting on the sidelines, waiting to jump back in the game at a point where I might recover what money I lost on the way down. My losses didn’t add up to a lot, but they were apparently enough for me to start, as we urban planners like to say, “engaging in the process.” I am now dilligently checking prices, trying to make some sense out of these daily market reports as they come in, and even got up a little bit early this morning so that I could call broker Jim before the trading floor opened.
The market reports, however are full of advice like “we have no new passion for new positions” and “stay bearish.” We seem to be in the midst of a rally in grain prices, which was why I was up out of bed before the opening bell, but when I spoke to Jim he’s convinced that the rally is unsustainable, prices are still up about 15 cents too high, and “as soon as Greece coughs, it’ll go back down.”
This has all spurred me to think back to a conversation I had with another Jim – Jim Braun – back in Chicago in December. For those of you who don’t know Jim, he’s an Iowa hog farmer turned advocate in favor of small farmers, local food and organic agriculture, and was one of the brains behind Illinois’ groundbreaking Food, Farms Jobs Act passed by the state legislature in 2007. Jim pointed out to me that all these market reports continually make up reasons for why the market is moving up or down as if they know exactly what’s going on – it might be that the weather is bad, it might be that a certain country is deciding whether or not to import a bunch of grain from the US, it might be the larger economic conditions (which seems to be the consensus this week) or index fund movements driving prices – and usually all of these factors at once pushing and pulling the price around.
Anyway, Jim’s point was that no one ever really knows what is causing the price to move, and while it could be any of these things it could also be something else entirely. Because my day job involves social science research – trying to tease out the multiple factors that influence whether people walk, drive or take the bus – I know that people equate association with causation all the time. Just because your statistical model says that two factors are associated, that doesn’t mean one factor is causing the other. If carrying umbrellas is associated with traffic accidents, it doesn’t mean that umbrellas cause traffic accidents. Rather, carrying umbrellas and traffic accidents are both associated with rain, and if you don’t pick up on this, you’re going to have a hard time getting that journal article accepted.
The thing is that with the markets, you can do all the statistical modeling you want but ultimately it doesn’t really matter what the cause actually is, it only matters what people think the cause is, or what people think that others think the cause is (and so on, ad infinitum). Talk about speculation! Jim B. and I talked about the huge agricultural corporations that grow commodities on contract with farmers, own their own networks of grain elevators, trucks, barges and mills, get large payments from the government, export massive amounts of grain and also trade on the CBOT. Surely, they wouldn’t ever take advantage of the knowledge and influence they have in order to make money as the rest of us stand on the sidelines, guessing…
Filed under: Commodities trading, project updates | Tags: chicago board of trade, commercial grain inc., futures contract, futures contract delivery, grain elevator, hedging, mini-wheat, wheat
Well, yesterday morning I became the proud owner of a July Chicago Board of Trade wheat futures contract (the 1000-bushel “mini” contract) – so perhaps it’s time to start telling the story of how all the pieces of this project will connect.
A futures contract is, in essence, an agreement to buy a certain quantity (in my case, 1000 bushels) of a certain grain (wheat) by a certain date in the future (July). Buying a futures contract is one thing, but actually following it through to delivery is pretty rare – out of the millions of bushels of wheat that are traded as futures contracts on the Board of Trade, only a very few end in the exchange of actual grain. So, futures contract delivery is a specialized and complicated transaction, and most commodities brokers don’t deal with it very often, if ever (within the commodities brokerage world, there are folks that specialize in deliveries of futures contracts). With help from Joanna, some of her co-workers, and a contact at the Board of Trade, I found out a few months ago that to actually deliver on a mini-wheat contract (1000 bushels), I’d need to have 5 mini contracts, or 5000 bushels. That’s not only too rich for my blood, but 1000 bushels is going to be tough enough to deal with, thanks.
So, we (they, really I can’t take any credit for this), devised an alternate approach. Basically, I’m going to be using my futures contract to hedge, or manage risk – exactly the same way a baker or miller would use it. The contract I bought today will basically lock in my price – any increase in price between now and then will make me money on the futures contract, offseting the higher price for the wheat on the “cash” market. Instead of letting the contract expire and taking delivery, I’ll settle the contract shortly before its expiration date and then, in a separate transaction, go pick up the grain at an elevator. I’ll be getting the wheat from the only grain elevator in Chicago that is certified for CBOT deliveries, a 12.3 million bushel behemoth on the Illinois River, now owned by Nidera.
My brokers Jim and Steven at Commercial Grain, Inc. (out of Arkansas, of all places) have been great to work with and super helpful and patient explaining how our relationship works and what my hedging strategy should be. The lower I can get “in” to the market, the better covered I’ll be in the case of price increases between now and when I pick up the grain. I was advised that $5.00 / bushel is probably a good point to jump in (and that’s basically what I’ve budgeted for), that although prices are on the upswing they aren’t expected to swing too wildly before we close out the contract, and that I should watch the weather reports and the upcoming USDA crop report to make sure (full disclosure, for those who might be inclined to nitpick my brokers’ advice: my notes on this conversation are not that great, so it’s my translation, not the actual advice, that would be the issue – if there is an issue. Do I sound like a lawyer yet?).
So there were a few quiet days in which I filled out the requisite forms and pretended to understand the significance of the daily grain market reports these guys were sending me. Then, there was that inexplicable insane swing in the markets last week, which I missed the day it happened. The next day when I talked to Steven he was like “What?? You don’t know??” like there had been a nuclear explosion or something, although I’d probably miss that too because I’m apparently living under a rock out on the edge of the continent here…
Anyway, we played it cool for another day or two, and then Monday morning, just as I was reading the grain market report saying prices seemed to be headed up and up above $5 for the foreseeable future, I got the call from Steven that the trigger had been pulled – he’d jumped on it first thing in the morning while prices were still low, and I was in at $4.99 3/4!
Industrial Harvest 