9 biggest futures changes in 30 years
At a fall seminar, a young farmer asked, “What are the biggest changes that you've seen in the futures industry in the years that you've been trading?” This was a tough question to answer on the spot, and before I could answer, he came up with an even harder question, “How can you be optimistic about farm profits after the recent run-up in prices?” Indeed, land, rent, fertilizer, and other input expenses have really gone up, and historically it has usually been dangerous to get bullish after two or three years of high grain prices.
To answer his first question, I've listed the 9 biggest changes that I've seen in the 30-plus years that I have been trading grain futures and working with farmers. I have broken the changes into three categories: information, globalization, and commercialization.
1. The Internet has changed how we get information and trade grain. When I first started in grain trading, most farmers would drive into town to check on the grain markets. Now they can check bids on their smart phones and process trades from a laptop in their tractor. It all happens a lot faster.
The Internet has changed what we analyze in the markets. In the 1970s, we would study supply-demand tables and analyze the farm program.
2. Now the markets are more driven by technical trading. Grain traders and farmers analyze charts and make pricing decisions based on areas of support and resistance, and use a wide array of technical analysis tools.
3. China has become the largest soybean buyer in the world and is also becoming a major export market for corn. This is a huge change from 30 years ago, when the country was an export competitor.
4. Brazil and Argentina have ramped up production, and now those two countries produce more soybeans than the U.S. That creates two critical growing seasons that we need to watch each year in the grain markets.
5. Traders around the world now trade in the Chicago Board of Trade futures market. I have traded grain futures from my laptop in six countries and 10 different time zones in the last six years. It is a very strange feeling to trade the night markets during the day and the day markets during the night.
6. When I first went to the CBOT in 1974, it was owned by the members. The members set policy and the rules of trading. In 2005, the CBOT went public and is now owned by the shareholders, which has made a good and profound difference in the way the CBOT works.
7. In 1996, the CBOT started “Project A,”, which allowed us to trade at night on the CBOT. By 1998, it adopted the Eurex system of electronic trading. This greatly increased investor participation in the markets and increased trade volume from around the world.