Commodity Trading

Corn Commodity Trading Is Still Trading-a Horse By Another Name

If we took a trip back into time to an age when the family farmer produced the majority of meats and grains for the nation’s food demands we would find business as usual not entirely different as the trading and exchanges that take place today on the commodity trading floor.

When setting prices on the commodity that the farmer would bring to market and planning a budget for the year the farmer would have to take into consideration a number of important factors: purchasing of commodities, grains, equipment, infrastructure, sale of commodities and profit. Many of these factors can be recognized as considerations most businesses would consider when they are planning a managed budget for their company.

At the end of the season when the commodities, corn, grains, horses and cattle were ready to take to market the farmer would pack it up with a few of his buddies and head on down to the brokerage house or exchange to begin the process of trading his commodities. Of course this sometimes meant a two week cattle drive over 100 miles because that was the closest exchange to the location of the farm and railways hadn’t been invented. Most farmers or cattle ranchers at this time were their own traders and except for the brokerage house dealers most trading was done first person.

Now the dealer and the farmer usually had a range of prices to work with before any steps were taken to sell the commodities to buyers that would prepare the commodities for consumption by the purchasing public. This resembled an auction more than a trade but they referred to it as trading even though they were trading money for goods. Exchanges were not unheard of either; as cash was sometimes hard to come by and to exchange corn for oats to feed cattle was common trade.

The farmer would bring his commodity to the exchange or brokerage house, there would be a lot of yelling and pointing and traders would buy and sell their commodities.

Farmers and cattle ranchers would prefer to trade first person because they could get a higher price and eliminate the commission of the dealer or broker who factor in a percentage. Eliminating the commission entirely was difficult because higher prices were mostly gained through trading through auction and a commission was always incurred. This is an overview of how commodities were brought to market in times when trading was a bit more simplified.

Now a bird’s eye view of the trading floor of today might be described as follows: traders enter an exchange with commodities to sell and surround a pit of dealers and brokers with money to buy commodities. There’s a lot of yelling and finger pointing but everyone seems to get the trading done that they can to transact. Except for the smell of cattle and the missing chaps a lot of the trading that goes on today suspiciously resembles the trading exchanges of old. It seems that the old saying; the more things change the more they stay the same is true in the case of trading and traders. No matter how you slice it; trading is still trading.

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