Dough Boys

Wheat traders feverishly work the Pit at the Minneapolis Grain Exchange
Tony Nelson

It's 9:28 a.m. on a Wednesday, and the predators have assembled in the Pit, a sunken octagon of wooden steps perhaps 30 feet in diameter. It's an anxious crowd of no more than three dozen. They are mostly men, dressed in brightly colored jackets with large front pockets. Their eyes dart back and forth between a digital clock on the wall and their competition.

"Five seconds!" comes a cry from the Pit. At exactly 9:30 a buzzer sounds. Pandemonium ensues. The men begin screaming at one another, barking out an irregular cadence of months, numbers, and unintelligible phrases. "Four July!" screams one man. "Two July!" shouts another. They gesticulate wildly with their hands, like over-caffeinated traffic cops. Occasionally someone will pull back from the fray and pump both fists in the air, his face beaming in exultation. "Sold! Sold! Sold!" shouts one man with a bushy mustache and a Christmas-red blazer.

The maple wood around the Pit is worn so thin from the worried paces of the men that it can no longer be sanded or refinished. The cause of their angst? Grain. Or, more specifically, hard red spring wheat, a high-protein crop grown in the upper Midwest and Canada, used in bagels, cereals, and other foods. "Two July," in this morning's grain-trading parlance, simply means that a trader is looking to sell a contract, or 5,000 bushels of wheat--priced at $3.3225 a bushel--to be delivered in July. If the cadence is reversed (i.e., "July two"), then someone is looking to buy at that price.

Spring wheat accounts for more than 90 percent of the trades at the Minneapolis Grain Exchange, home of the Pit. For 119 years the Grain Exchange has provided a means for farmers, millers, and anyone else interested in purchasing or selling grain to barter for a fair price and a quality product. Every weekday, from 9:30 to 1:15, traders gather at the 98-year-old building adjacent to the U.S. District Courthouse in downtown Minneapolis and do business. Last year 1,164,591 contracts of spring wheat were traded.

"Every time you buy a box of cereal, every time you buy a loaf of bread, we're probably involved in that, but you just don't see it," says John Miller, chairman of the Grain Exchange's board of directors. Miller's eighth-floor office at the Grain Exchange overlooks the banks of the Mississippi River, where flour mills not so long ago flourished, providing Minneapolis with the moniker Mill City.

In addition to spring wheat, the Grain Exchange offers contracts on white wheat, durum wheat, and cottonseed, as well as non-grain markets such as black tiger shrimp, white shrimp, and electricity, but there are few traders in these markets.

Despite the continued might of the spring wheat market, however, the Grain Exchange--and the Pit--is an endangered institution; threatened by the advent of online trading. In Europe similar trading pits have vanished and experts such as Bob Wilmouth, president of the National Futures Association, predict a similar fate for their U.S. counterparts. "They'll have a difficult time surviving if they don't go to electronic trading," says Wilmouth, who is also a past president of the Chicago Board of Trade.

On this Wednesday morning, the price of spring red wheat has tanked by 9:50 a.m. July contracts have bottomed out at $3.215 per bushel, down 4.5 cents since the opening bell, setting a new low. The rapid decline (by grain standards anyway) has set off a particularly fervent round of trading.

"Some asshole at four in the morning came out with a new weather forecast and it looks bearish," explains trader Jerry Helfand as he surveys the action from just outside the Pit. The weather gods are calling for more rain, Helfand explains, which means more grain, which in turn means a lower price in the marketplace.

Helfand is a "recovering lawyer" and self-employed grain trader, gambling his own money on the whims of the wheat market. Like all traders in the pit, the 44-year-old is a member of the Grain Exchange, which carries an entrance fee of about $15,000 (seats on the 402-member exchange are auctioned off to the highest bidder, so the exact cost can vary from day to day). Helfand was drawn into the game by the prospect of testing his financial mettle against the market. "You're your own boss, and you're responsible for your own success or failure," he notes.

Helfand is dressed in a turquoise mesh jacket adorned with stars and planets. The outfit was picked out by Helfand's eight-year-old son. In his defense, Helfand points out that he is not the only one in the Pit with a tenuous grasp of style. "Rich has got vegetables on his jacket," Helfand notes, pointing to another trader. "Charlie's got that yellow checkerboard over there. I have the solar system." The loud attire is a smirking acknowledgment of a long-standing rule requiring sportcoats on the trading floor.

Inside the Pit a portly, disheveled man in a gray jacket screams out "two July!", inciting another frenzy of activity, and Helfand re-enters the fray. By 10:06, though, the crowd loses its vigor. Barely a half-hour has elapsed since the opening bell and half of the day's buying and selling has already been completed. Most of the traders now stand around idly, staring up at the board to see what's happening in Chicago or Kansas City, the only other active grain markets in the country.

Most traders couldn't care less about the price of a bushel of wheat. They are never going to actually see any of the grain that they purchase. The vast majority of trading at the Grain Exchange is in the futures markets. Investors are essentially hedging bets on whether the price of spring wheat will go up or down, in hopes of selling the contracts a short time later for a profit. If a trader buys a contract of July wheat at $3.2125, for example, he is looking to unload it at $3.22 or $3.23, thus securing a profit.

In other words, the men in the Pit are the farm-belt equivalent of day traders. "People here are risk takers," says Helfand. "This is a casino. There's times when guys are making six figures and there's times when you're lucky to rub two nickels together." But instead of gambling on the minute movements of Qualcomm stock or divining the intentions of Fed Chairman Alan Greenspan while squatting in front of computer terminals on Long Island, they spend their days studying weather reports and speculating on the fertility of the spring wheat crop in Saskatchewan.

Like their day-trading counterparts, the players in the Pit could soon find themselves hawking wheat from a desk. The Grain Exchange has tried to get ahead of the electronic trading curve--with mixed results. In October the nonprofit announced a partnership with San Francisco-based Internet company ePIT to develop the world's first Internet-based commodities exchange. In theory, traders would be able to play the grain markets with the click of a mouse. In response to the announcement, the price of memberships at the Grain Exchange soared to $25,000. But the project never got off the ground. "It just became obvious that there were differences between us that weren't gonna let it happen," says John Miller, the board chairman.

Richard Friesen, president of ePIT, says that the negotiations broke down over a disagreement about who would actually operate the online exchange. He notes that ePIT is not interested in running the day-to-day operations but merely wants to provide the technology. "We want to sell the picks and shovels to the miners," Friesen says. "We don't want to be miners ourselves."

James Lindau, president of the Grain Exchange for 12 years, retired at the end of May and the board of directors is in the process of searching for a replacement. Miller says one of the key attributes they are looking for is someone who can help the Grain Exchange adjust to changes in technology. "We continue to work feverishly to find a technology partner," he says. If online trading becomes the rule for commodities trading, the Pit will be relegated to a mere relic of the past--like ticker tape and men in gray flannel suits.

By Wednesday's end, spring wheat stages a modest rally, closing at $3.2425 per bushel. Jerry Helfand is able to unload six contracts that he'd bought at an average price of $3.215 for $3.24. The transactions yield a tidy $750 profit.

Even so, Helfand is not optimistic about his futures. "Whether I'll be doing this in three years remains to be seen," Helfand says, dejectedly. "Sitting in my basement with fuzzy pink slippers looking at a TV screen doesn't sound like a lot of fun. I can do that being a lawyer."

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