Ali’s blog

Mostly quant stuff with occasional digressions

Wheat price surge

Posted by alifinmath on February 9, 2008

The FT:

QUOTE

US wheat futures – global benchmarks for the grain – have jumped by their daily trading limit each day this week. Prices for Minneapolis wheat, the US variety most suitable for making flour, rose 10.7 per cent on the week, extending its price surge since the beginning of the year to 50 per cent.

As a result of the price pressure, the Minneapolis Grain Exchange will remove the daily price limit on the spot-month hard red spring wheat contract for trading on February 25, the first time it has done so.

UNQUOTE

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3 Responses to “Wheat price surge”

  1. Chris Prouty said

    Forget the wheat, if you want to know where the real money is just look at the value of a membership on the Minneapolis Grain Exchange. Just a few years ago, a membership, also known as a “seat,” was selling for about $10-15k. Today they are selling for $285k. When the CBOT went public, seats there were selling for $2-3MM. MGEX will probably never get to that level, but $285k will look like a bargain if the CME decides to acquire MGEX. With all the consolidation among exchanges, an acquisition might not be so far away.

  2. alifinmath said

    Any idea how much a member of the MGEX makes in a good year? And now much the variance is? (If these questions admit of a quantitative response, that is.)

  3. Chris Prouty said

    Well, a member of MGEX may choose to trade or not. Some members lease their seats out to other folks who want to be “locals”. Locals are the guys who want to trade in the pit with their own money for their own profit. Lease rates are very low…maybe $100/mo? If a member chose to trade their own account, income is totally related to the skill of the trader. Keep in mind that the advantage of a local is that s/he can act as a market maker. It would make no sense to get a membership simply to take a directional position in the market, since you could easily do that through a broker. The big locals at MGEX do very well, but here is the most telling statistic: the number of locals, as I understand, has basically not grown at all in the last few years. However, the open interest in the Minneapolis wheat contract has exploded. Essentially, the same number of traders get to skim their cut off a larger number of contracts. This leads me to believe that the locals there are doing very very well right now.

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