Grain-Price Volatility Propels Frenzied Boom in Futures

Article excerpt

It's tornado season across the Midwest and, apparently, inside the Chicago Board of Trade: Every day a twister seems to bound off the prairie, whip down its tail, and scour the CBOT's futures trading pits.

Traders have churned their way since March to the highest sales volumes for grain futures and options contracts in two decades.

"It's like an all-day rugby scrum," says floor trader Brian Scott, shouting over the trading floor's full-throated mayhem.

The CBOT is the epicenter for tumultuous grain-price volatility kicked up by several forces: rising worldwide demand for grain, foul weather, a phase-out of government farm subsidies, and falling grain stocks. Trading in corn futures last month surged 169 percent above the 1995 level. Wheat options changed hands at a volume 612 percent higher than last April's level.

With grain stocks and yields scant, there is no end in sight for the turmoil, say traders and agricultural economists.

A look at the grain economy from fields and grain elevators to mills, distributors, and supermarket shelves reveals many pocket-jingling winners and wallet-wasted losers in the Great Grain Price Churn of 1996.

Within the CBOT itself, the current commotion shows how the volatility can cut both ways.

From the vantage of a 40th-floor dining room, exchange chairman Patrick Arbor recently depicted the trading-pit pandemonium as the dawning of "golden times and golden opportunities." The CBOT, of course, profits from its customers' risk-management and speculative trading. Mr. Arbor says the stratospheric volume has created "good problems, not bad problems," for the CBOT.

But several floors below, amid the baying bedlam of the pits, traders see things differently.

"I'm tired, I'm real tired. Come Friday I just want to crawl home," says Roy Huckabay, a floor trader at LIT Investor Services in Chicago. Since March, he has endured several back-to-back, 13-hour days as grain prices have routinely careened as much as 40 percent within a 10-day period.

The high volume and whipsaw volatility has packed the pits to overflowing, delayed the filing and completion of orders, prompted huge errors, and triggered a steady barrage of customer complaints. Several stressed traders have raised their fees by 20 percent, in part to compensate for the hefty penalties for mistakes, traders say.

Arbor acknowledges that the CBOT could lose customers if it fails to smoothly handle this spring's relentless stream of high-volume days. …