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Kai Ryssdal: On any given day, millions of contracts are traded at the Chicago Mercantile Exchange. You can buy and sell contracts on what you think the weather in Asia is going to be. Or how you think the dollar is going to hold up against the Norwegian Krone, too. The Chicago Merc’s probably best known, though, for its agricultural commodities trades. Corn, soybeans, oats and all of that stuff. Most of the trading happens away from the actual floor of the exchange on computer screens because electronic is just faster and more efficient.
There are still plenty of traders in the pit, wearing their colorful jackets, shouting and waving their arms. Open outcry is what that’s called. And one kind of commodity in particular, the four-legged variety, has been slower to make the digital transition. Marketplace’s Amy Scott explains why.
AMY SCOTT: On the floor of the Chicago Mercantile Exchange, dozens of traders mill about, staring up at electronic screens. At precisely 9:05 a.m., they spring to life.
This is the hog futures trading pit. All those shouting people are trading contracts to buy lean hogs at a certain price on a future date. And believe it or not, the crowd is fairly sedate by old standards. More and more of the futures trading in all commodities takes place silently on computer screens. But floor trader James “Bugsy” Brooks says the livestock markets, cattle and hogs, have been slower to go that way.
JAMES BROOKS: The cash livestock trade has always been a verbal, handshake, word-of-mouth agreement. And so they were very comfortable still having that personal relationship.
But even these holdouts are changing fast. More than half of cattle futures trading is now electronic. For hogs, it’s more like 70 percent. To understand why, I headed west to hog country.
On a farm in Walker, Iowa, Todd Wiley slips coveralls over his jeans and opens a door to a sea of pink. He’s greeted by close to 1,000 sows jostling and banging against their gates. It’s feeding time.
TODD WILEY: It’s amazing, you come in here at 5 or 6 in the morning, and it’s like you woke your kid up. They’re all groggy, and they don’t want to do anything. You come in at noon, they just go nuts. They’re just happy to be here I guess.
When Wiley buys corn and soybean meal for feed, he never knows if he’ll earn enough money selling his pigs to cover the costs and make a profit. So he hedges. He’ll often sell a futures contract on the Chicago Mercantile Exchange that guarantees a price for his hogs.
WILEY: I’m not a big gambler. I mean, we drive by casinos and my buddies say you want to stop and play a little bit, and I say “I play every day.” Everything’s a gamble, and you manage your risk to the best that you can.
But when Wiley buys or sells a contract in Chicago, he doesn’t really care if it’s traded face to face in the trading pit or electronically. He just calls his broker, a guy named Ken Jolliffe in Cedar Rapids.
KEN Jolliffe: He calls me and tells me what contract he wants to sell at what price…
Jolliffe’s been in the ag business for more than 30 years. He’s used to talking to an actual person when making a trade. And just a few years ago, he would have called someone on the trading floor in Chicago to place Wiley’s order. Now, he just taps a few keys on his computer.
Jolliffe: Then it is clicked and sent into the system in our clearinghouse in Chicago.
The thing about trading is you have to go where the volume is, where you’re most likely to find a speculator or sausage maker or maybe another hog farmer willing to take the other side of your trade.
Jolliffe says as trading in all commodities has moved away from the floor and onto the screen, he’s had to follow.
Jolliffe: You know there’s a lot of us that are still not as quick on learning how to run the computers. I’m sure there’s a little resistance in doing that, but it’s kind of like the kids tell you, “do it, Dad,” so you don’t fall behind.
By 10 o’clock on the floor in Chicago, the hog pit has settled down. Traders mostly stand around, with the occasional outburst. The livestock pits have been a refuge for traders in other commodities that went electronic faster.
But as people like Ken Jolliffe in Cedar Rapids send fewer orders to the floor, traders like Tres Knippa have had to evolve too.
TRES KNIPPA: I probably do 80 percent of my own volume on the screen. I’ll run up to the desk, trade on the screen, run to the pit, trade in the pit, and have them offset each other. I just have to adapt. That’s part of being a trader, is we’re the loudest to complain, but we’re the first to adapt.
If they keep adapting, even the still-rowdy livestock pits will get a lot quieter.
In Chicago, I’m Amy Scott for Marketplace.