In the corn pit, a group gamble
CHICAGO — In the loose tan cotton coats they
wear, they look like shoemakers. At 9:30 one recent
Wednesday morning, 250 to 300 of them stood
squeezed sweatily together on the steps of a small
wooden pit, octagonal in shape, on the floor of a
cavernous four-story room inside a fashionable
downtown office building here.
Suddenly an iron gong was run, and all seemed
to go berserk, shouting hoarsely at each other,
leaping up and down to see and be seen,
gesticulating wildly, occasionally scribbling hasty
notations on cards they held in their hands.
Several feet above the pit, a calm man in a blue
jacket stood in a kind of pulpit, looking down into the
melee, listening closely. The man turned and spoke
a few words to a clerk at his side, and seconds later,
numbers flashed on huge green boards high on the
walls at each end of the room.
The price of every bushel of corn in the world
was two cents higher than it had been at 1:30 p.m.
the day before.
The men in the shoemakers’ smocks were com
traders. The wooden octagon is the com pit on the
trading floor of the Chicago Board of Trade, the
world’s largest, and in the case of com, its dominant
commodity exchange.
ABSENT MEMBERS
The corn that they were buying and selling has
two important characteristics. One is that most of it
does not yet exist. The action in the pit is the trading
in corn future, mostly right now in the coming crop,
the one that is still in the ground and will not be
harvested until late fall.
The other fact is that this corn is not the kind
you eat. It is the kind that is fed to animals, to cattle,
hogs and poultry being fattened on their way to
market.
There were a lot of things at stake that Wed
nesday in the corn pit. The main one was the price
that you will pay next winter and much of the next
year for meat.
The new crop will not be harvested and
available in sizable amounts until October, at the
earliest. In January of this year, you could have
bought some of this com for December delivery
here for as little as $1.34 a bushel. On July 11, no
one in the pit could sell any for less than about $1.93
a bushel, and by the time the trading stopped for the
day—promptly at 1:30—the price was about$2.03.
That is an increase—in this key ingredient of
what you ultimately buy as steak or ham or eggs—
of 51 per cent in six months. The last time anyone
can remember $2 corn like this is 1947 and 1948.
Question, then: why won’t any of the men in the
cotton coats sell for less?
The first part of the answer is that only a
relative handful of the traders in the pit are holding
any great quantities of com in their own names at
any given time. Most of them are either in-and
outers, men who make their livings on quick fluc
tuations in prices from day to day or even hour to
hour, or who are simply brokers, like stock brokers,
filling orders on commission for outsiders.
A GROUP GUESS
These outsiders range from huge grain ex
porting corporations that may buy or sell a million
bushels at a time, to small investors who think
buying com might be more fun, or more profitable,
than buying shares in U.S. Steel.
As a practical matter, if com is scarce in
December, the price will be high, and if it is
abundant, the price will be low. What the daily price
in the pit represents is a great collective estimate of
what corn supply and com demand are going to be
six or 12 months from now.
Benjamin Raskin is <me of those traders who
sometimes does buy com and hold it for the price to
rise—or the reverse: if he thinks that the price will
fall, he will agree to sell com at the price prevailing
now, and wait to buy until the price is lower
The only tricky part for Raskin is deciding in
advance which way the price is going to go. In an
interview in his office, Raskin listed some of the
things he keeps tabs on, things that make the price
go up and down.
It gets complicated. It is not just corn you have
to watch, but things like the world wheat supply, the
drought in Africa, the price of hogs, the daily ups
and downs of the dollar abroad, and least predic
table of all sometimes, the doings of the U.S.
government.
Take wheat and drought, for instance. In many
countries, and to some extent in the United States as
well, wheat is grown'for animal consumption as
well as human. When wheat gets scarce, however,
humans get it all, and animals are given other
things to eat, like U S. corn.
A LOGICAL JUDGMENT
In some African countries, drought has hurt the
wheat crop. These countries have come out into the
world market to buy wheat. Egypt, Raskin noted, is
reportedly in the U.S. market for 400,000 tons, and
“normally Egypt would go any place but the U.S.
because of politics.”
Deduction: Things are serious. Tentative
conclusion: if they’re coming out for wheat, they
may soon be coming out for corn as well. That
means more demand, and more demand means
higher prices.
There are similar calculations to be made about
U.S. demand, and that is where the price of hogs
comes in. Frequently, typically perhaps, a farmer
who grows corn also raises hogs. Every year he has
two choices. One is to raise more hogs, feed the hogs
the corn he grows, and send the hogs to market.
The other is the opposite: not spend time on the
hogs, and simply send the corn to market. He does
the first if hog prices are high and corn prices are
low, the second if it is the other way around. If he
doesn’t send the corn to market, corn prices will
start to rise; if he does, they won’t, and may go
down.
Raskin has to do whatever the farmers don’t
do: buy futures if farmers aren’t selling corn
(because the price then will go up, and he can sell
out later at a profit), or sell futures if the farmers
are sending their corn to market (because then the
price will fall, and he can buy an equal number of
futures later at a lower price, leaving him with no
futures but with a profit.)
On Wednesday, July 11, however, it was neither
wheat nor hogs that had the market fluttering, but
corn itself, and words from Washington. On
Tuesday afternoon, after the market closed, the
Department of Agriculture had issued its July 1
crop report. The report contained the first official
estimate of how many acres of com U.S. farmers
planted this year, what the yield per acre might be,
thus how much com might finally be produced.
EXTRA DISTRUST
Production last year was 5.5 billion bushels. The
government had earlier projected, on the basis of
farmers’ announced intentions, that this year’s
production would be 6 billion bushels. The projec
tion in the new report was close to that, just under
5.9 billion bushels.
In a normal year, projection of a big crop like
that would depress corn prices, just as a low
projection would send them upward. This year,
however, is not normal. Many of the traders here
think that the government’s projection is too op
timistic. The government thinks that the average
yield per acre of com will be 94 bushels this year: it
was 97 last year.
The skeptics among the traders point out that a
lot of this year’s com was planted late, the result of
too much wet weather both bst fall and this spring.
The delay in planting was one of the things that sent
the price up this spring. “The corn is only three feet
high,” one trader said last week. “It’s too early to
be making predictions.”
A lot of the men in the cotton coats are of the
view that the government is not going to let a bushel
of corn go much beyond $2, no matter what. “The
government’s committed to just one thing,” one
broker said last week. “Lower food prices.”
“I’ve been friendly to com so far this year,”
this man went on, meaning he had been buying
futures in the expectation that the price would rise.
Now, he said, the friendship is over for a while. “I
think maybe com is fully priced for now.”
He won’t find out if he is right until it snows.
Read the Emerald Classifieds
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