An angry confrontation last March between farmers and commodity brokers at Chicago's Board of Trade momentarily brought together opposite poles of our agricultural market system.
On one side were the farmers who grow the crops, protesting against the low prices they receive and the high prices they must pay for fertilizer, equipment and land. On the other were the brokers and traders on the Commodities Futures Exchange who may never have plowed a field of corn yet harvest millions by frenzied dealings in the farmers' crops. The brokers' paper transactions also set the ultimate price the farmers get for their product.
On a foray into the Farm Belt, our reporter Hal Bernton found hostility toward the traders widespread. The farmers charged that speculators "with dollar signs on their foreheads" have disrupted the normal workings of a free market and have caused grain and beef prices to rise and fall like a runaway yo-yo.
Members of the exchange, in response, said they operate in one of the last free-market bastions in the United States where the laws of supply and demand are still supreme. They argued that their trading practices ensure the farmer of the true cash value of his crops and provide consumers with a steady supply of food.
To learn how this hectic wheeling and dealing influences farm prices, our reporter arranged to spend a day in "the Pit" of the Chicago exchange. He went to the floor shortly before the 9:30 opening bell touched off a flurry of activity. The arena exploded in an uproar as brokers shouted to make themselves heard above rival bidders. Fists shot into the air frantically signaling buy or sell orders. A clenched fist means the brokers wants to sell; an open one means he's buying. If it weren't for the fortunes at stake, the scene might be described as a free-for-all, with brokers pushing and pulling to get a person offering a deal. In the midst of the pandemonium, fist fights have broken out.
The physical demands can be devastating. Exhausted dealers have hit the floor, and one has died in the turmoil. A paramedic stands by in the wings daily to deal with heart attacks and other collapses. But the occasional casualties don't affect the ebb and flow of the battle. Once witness told Bernton: "The last time someone hit the floor, the trading didn't even stop for an instant."
Those who participate in this economic inferno pay a steep price for the privilege. To obtain a seat, applicants for the 1,400 registered broker memberships must wait until a holder dies or retires. The last membership sold for $179,000. But one of the privileged members observed: "When you think of the cost of a good McDonald's hamburger franchise, the price of a broker's seat isn't so bad."
Unlike their stock-market colleagues on Wall Street, the commodity brokers are allowed to speculate on their own behalf. Some of the shrewder ones have accumulated large personal fortunes through their inside knowledge.
On the perimeter of the floor, scores of trading experts man phones to receive buy-and-sell orders from around the world. Messengers are constantly sprinting to place an order with a broker or to relay information of a crop failure in Poland or a bumper grain harvest on the Argentine pampas.
A successful broker not only must have a strong voice and a good rabbit punch; he must also understand how international events will affect the price of grain and cattle. "I don't care whether the market goes up or down," said one broker, "as long as I'm right." But equally important, it takes a killer instinct for a broker to survive in the melee. Confided a woman who has worked in the Pit for eight years: "You have to be willing to step on anyone at any time."
Increasingly, farmers believe they are the ones being stepped on. Leaders of the farm strike earlier this year urged Congress to place some curbs on the freewheeling speculators in Chicago. The speculators can drive down grain prices by selling thousands of "paper bushels" whenever they fear the market might falter, complained the farm leaders.
Vince Rossiter, a farm banker in the small town of Hartington, Neb., told us that the commodities market has become "a pure money market" that can ruin a farmer. Few of the farmers who till the soil fully understand the make-or-break play of the commodities exchange market. A few have installed little black "squawk boxes" that provide them with current quotations, and a handful have even installed elaborate ticker-tape systems to bring them daily prices.
Yet only one of every 20 understands the exchange well enough to invest in brokerage accounts. They get angry when Chicago sets crop prices that have no relationship to production costs. With chemical pesticides, fertilizers and oil rigidly controlled by multi-national corporations and international cartels, many farmers question whether they can continue to operate under the free-market system.
But on this issue, the farmers don't seem to carry the clout in Congress that the Chicago money men do. Once a year, the Chicago Board of Trade arranges a lavish buffet for members of Congress. It is held in the chandeliered premises of the House Agriculture Committee and is considered one of the classiest spreads of the year. After the sumptuous repast, key members of the House and Senate join with their broker hosts in lighting up expensive Jamaican cigars.
Footnote: Howard Stottler, a leading Chicago broker, said that speculators cause only temporary price fluctuations and that the true market value of the crops is eventually revealed. He feels that farmers have made some unreasonable demands that are not in line with the facts.