Politics of Food: “Things are looking good at the Kansas City Board of Trade”

photo: Tammy Ljungblad / Kansas City Star

In my quest to learn about the food cycle in the United States and here in the "bread basket" of the Midwest, I took a tour of the Kansas City Board of Trade (KBOT). The tour provided insights into the methods of commodity trading in one of the nation’s three large sites. A communications professional and former trader introduced herself, shared a “Voices of Vision” video, then led a group of personal investors to a viewing area above the trading floor.

The video highlighted the success of the wheat growing capability of the US and the Midwest. The facilitator noted how problems with Russian wheat production, excess moisture in Europe, and dry climate in Argentina and Australia have elevated the price of wheat in recent months. This price increase is evident despite the highest volume in wheat production in the history of KBOT since 1856.

In a seeming self-serving comment, the facilitator emphasized these were heady days for the board - “things are looking good at the Kansas City Board of Trade.” Thirty people attended the tour, mostly middle-aged or older people.

The video presented a technical explanation of the board trading, starting with the trading term “open outcry” as explained by Greg O’Brien, a trader at the stock exchange. He started his career in trading and agriculture at an early age distributing the “Grain Market Review” to traders before becoming a pit reporter on the trading floor. He’s now a trader and vice chairman of the exchange.

The KBOT trades hard red winter wheat, which represents 42% of all wheat exported around the world. Trading involves nearly every part of the grain production lifecycle -- merchants, food processors, manufacturers, and brokers.

The exchange provides an estimate of prices -- it’s really all about information flow. “It’s the whole wealth of information” to ensure fair market.

The video showcased Larry Kheibel, a hard-working Kansas farmer, who said “you have to watch your investment costs but it’s been good.”

Mike Dean with Horizon Milling described how the operation maintains an elevator and blends wheat varieties to formula specifications. The product is ground and shipped to bakers.

The technical explanation focused on price establishment, namely how prices can be locked through futures or options contracts. One contract equals 5000 bushels with the low price at $3.17 per bushel and the recent high at $4.54 per bushel.

John Howard, Director of International Grains Program at Kansas State University, discussed how the university ag program educations foreign traders on growing, milling, and processing trends and practices. He mentioned how simple concepts like how grain shrinks during transport because of moisture loss is important for traders to know, especially overseas traders to educate their organization’s accountants.

“Transparency” in commodity trading is crucial as this term was mentioned time and time again during the video. Commodity trading covers a range of grain and livestock, including corn, wheat, sorghum, and soybeans. Howard went on to explain how the futures market is “highly regulated,” thus increasing the “transparency.”

Mike Howard started out as an intern with the exchange. He mentioned how the system’s transparency helps keep pricing low for consumers.

Scott Smith, Chairman of the board KBOT, mentioned how electronic trading will change the way they do business.

Despite the board’s focus on developing markets for grain it’s difficult to accept that transparency is the only driving motivation to crucial food supplies.

It makes no sense that a transparent operation is the most crucial measurement of a trading operation in a place where a large portion of its citizens to go hungry, as happens in the United States. Something’s clearly wrong with the grain and food cycle in the United States, if it allows this condition to persist.