Archive for Sunday, January 14, 1996

WHEAT FUTURES BREAK TRADING RECORDS

January 14, 1996

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The Kansas City Board of Trade reported its highest volume of trading last year.

They are a rainbow of colors in the red-and-blue pit. Men and a few women wear bright-colored blazers --glaring yellows, blaring oranges and awful purples. Colors have their place here, but the only color that matters today -- and most days -- is the color of money.

This is the Kansas City Board of Trade, and when the daily bell clangs at 9:30 a.m., these brightly garbed traders hope they've come dressed to kill.

At the bell, arms shoot into the air. Telephones ring. Voices bark prices, dates and the ever-anticipated "Sold!"

The board's business is about wheat, and yet there is no wheat in sight. Not a crumb. Yet tons of wheat pass through the room seconds at a time.

But wheat futures trading is much more than a bunch of guys in bright suits trying to sell or buy wheat futures to make money.

What takes place each day on the trading floor at the Kansas City Board of Trade affects farmers, bakers, exporters, millers, grain elevator operators, brokers and people across the world who are investing in wheat futures.

"Whether you're in Lawrence, Kansas, or Beijing, China, the price of wheat is discovered on this floor," said Kansas City Board of Trade president Michael Braude, pointing to the trading floor from an observatory above.

The board of trade, 4800 Main St., is just east of the Country Club Plaza in Kansas City, Mo.

As traders shout prices to negotiate a deal in the pit, a board of trade employee stands high above the ruckus to identify the value of wheat in the future. The employee then displays the price that was decided upon by the buyer and seller on the giant electronic "board," which is the focal point for everyone on the trading floor.

"Supply and demand determines the world's standard price for wheat," Braude said.

Knowing what the price of wheat will be three or four months from now limits the risk a farmer or exporter is forced to take.

Instead, investors assume the risk by purchasing futures. They gamble that the price they pay now will be less than the price when the wheat goes to market.

"A flour mill may be willing to forego potential profit to avoid cost fluctuations," said David Gibson, a broker with LIT Investor Services. "After all, they don't want to be a grain speculator; they want to operate a flour milling business."

Gibson has been trading wheat futures in Kansas City for 30 years and is the senior vice president of the company.

Other options

Wheat trading isn't the only action on the floor at the Kansas City Board of Trade. Spread among the phone stations, computer terminals and scurrying brokers are three other trading pits. The pit -- which is several steps lower than the trading floor -- is insider's lingo for the area a trader must stand to be eligible to buy or sell futures.

Since August, the Kansas City Board of Trade has offered western natural gas futures trading. And according to Braude, the new market has really taken off, exceeding first day trading at the successful eastern natural gas contract at the New York Mercantile Exchange.

Beside the natural gas pit, a group of traders sell and buy Value Line stock futures in their own pit. The Value Line stock index is a stock exchange that lists 1,650 stocks each day and operates similar to other exchanges, such as the New York Stock Exchange, but is tailored for the small investors.

A smaller pit in the middle of the trading floor exchanges options.

A broker's life

When the bell rings each day, traders step out of their role as mommy, daddy, husband or wife to become focused, loud, almost violent people seeking the best deal for themselves or their clients. And it could be anyone, from a retiree to an attorney to a farmer, as long as they've bought a board of trade membership, which now sells for about $60,000.

"There is really no identifiable common thread between the traders," Gibson said. "But to be a successful trader, you have to be unbelievably disciplined in humility."

Because traders get immediate results to their predictions, Gibson said they have to learn quickly to accept the errors along with the successes.

The pits are filled with young men and women, Braude said, because of the stress and pressure of the business.

"It's a young person's business because it's pretty intense in there," he said.

Between 9:30 a.m. and 1:30 p.m., the trading pit becomes a madhouse of activity. But before and after trading begins, many ambitious traders faithfully track the weather at computer terminals on the floor or read news from the variety of wire services available. Governments and weather are the primary factors affecting the price of wheat, Braude said.

"Humor is a big part of being in here," Gibson said. "It is used a lot in this field to get rid of the tension."

Record-breaking year

As the stock market's increases proved, 1995 was a phenomenal year for investors. The Dow Jones Industrial Average of blue-chip stocks jumped 33.5 percent and set a record 69 new highs.

Almost $1.5 trillion in profits were made in the U.S. stock market in 1995. Broader indexes such as the Standard & Poor's 500 jumped a total of 34.1 percent, and the technology-laden NASDAQ composite index surged 39.9 percent.

At the Kansas City Board of Trade, wheat futures volume almost topped 1.6 million, up 3.9 percent from the record set in 1994. Wheat futures prices during 1995 reached their highest levels since 1974.

Also, about 74,400 Mini Value Line futures contracts were traded, an increase of 43.2 percent from the past record year.

"Record volumes in wheat and the Mini Value Line stock index, combined with the successful launch of western natural gas futures and options in August, have made 1995 an historic year for the exchange," Braude said.

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