Wheat production and its trade existed long before the Chicago Board of Trade (CBOT) was founded. Some of the earliest trade can be traced back to the Silk Road when it was brought east to south-west Asia from the first cultivated wheat production in the Fertile Crescent. The Romans and Greeks are said to be the very first importers of wheat as it was brought north through trade routes along the Mediterranean.
Fast forward a few hundred years to the 17th century. Europeans were beginning to settle in the Americas in greater numbers. One of the treasures they brought with them over the Atlantic Ocean was wheat. As dictated by present day wheat production, the U.S. had perfect growing conditions, including a proper climate, nutritional soil, and a large amount of land, to support a very significant wheat crop. As the industry grew, the need for a proper clearing exchange was becoming more and more evident. There were several instances in U.S. wheat history of large supply shortages and gluts resulting from a lack of proper market information. Farmers didn’t know the situation regarding wheat production of their peers half way across the nation. They were also unaware of consumption needs. Having a proper wheat exchange consolidated the data. Another consequence of not having an exchange was the lack of proper price discovery. It was not at all uncommon for there to be very large price discrepancies in different regions of the U.S. The introduction of the CBOT allowed for a medium where buyers and sellers could meet, set a price, and exchange their wheat.
The very first semblance of a wheat futures market were the “to arrive” contracts for flour in 1849. Grain futures contracts were standardized and made official in 1865. The first trans-Atlantic cables of 1866 gave foreign access to domestic markets and information on U.S. wheat production and consumption. The development of electronic price displays and trading platforms took the global wheat trade to a new level. In 1994, the first night electronic trading session, known as Project A, began. It wasn’t until the release of side by side electronic and open out cry trading in 1998 that wheat futures markets came to be as we know them today.
Leaders in wheat production and consumption depend on these historic developments of the futures markets on a daily basis. Futures exchanges allow for proper price discovery and a consolidation of crucial market information (greater significance prior to the internet). Chicago has been a world leader of innovation and developments of futures exchanges and the products they offer.
Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.
