Powerful impact from three events
Oct. 31, 2012
A trifle more than a week ago three events unfolded that while being quite different from one another joined in the minds of people concerned with grain-based foods to symbolize in dramatic fashion the dimensions of the changes that are under way across this industry. The events include an explosive breaking news story, the death of someone not active in the industry for 40 years, and the decision by a major weekly news magazine to discontinue its print edition. Perhaps the last of these is more relevant to this magazine than it might appear to be of moment for grain-based foods. Yet, all three developments are directly related to the industry and they also affect this page and this publication in its role as spokesperson for all that happens and, yes, for all that is bad and all that is good for the grain-based foods business.
The hugely significant news event was the announcement by the CME Group of its acquisition of the Kansas City Board of Trade. In the scheme of national and global financial events, this transaction, involving a payment of $126 million by the group owning the Chicago Board of Trade and other markets to add the Kansas City exchange to its assets, hardly won notice from the national media. Not a line about this event appeared in The New York Times, a newspaper proclaiming itself as providing “All the News That’s Fit to Print.” From the viewpoint of grain-based foods and its role as the ranking supplier of food to people in the United States and around the world, that omission signifies neglect of a truly momentous event in the long history of food.
While the announcement of the sale says the purchaser has agreed to maintain the floor of the Kansas City Board of Trade for “at least six months,” the prospect of this once proud trading hub being shut down and dealings in hard red winter wheat futures transferred to Chicago is openly discussed as the likely outcome of this transaction. Indeed, closing floor trading might have occurred in the foreseeable future even if no purchase had been made. This is due to the apparent preference among traders for computer-driven electronic trading. With amazing speed, open-outcry dealings in trading pits that once were feverishly active trading centers — a business made up of individuals dealing on behalf of clients and individually — has experienced a sharp contraction. Recent days on Kansas City’s floor have seen a blank in floor trading coincident with substantial volume being accomplished electronically. This is no different from what has happened in similar trading environments in other commodities around the country and the world as electronics overwhelm person-to-person dealings.
Without passing judgment on the longtime wisdom of such a transformation and how it has facilitated expanded volume at lower costs, the disappearance of pit trading is an event well worth careful examination. Hardly any move underscores the impact of this change more powerfully than the CME acquisition of Kansas City. Anyone who has witnessed firsthand the action in a futures trading pit has to be aware of the personal interchange and the importance of human judgment, intelligence and information that is difficult, if not impossible, to replicate in electronic systems. Making the prices that affect the basic cost of food as well as the well-being of agriculture and the supply chain comprising grain-based foods is no small matter. The many millions of bushels that are priced using Kansas City wheat futures make the embrace of a system replacing one operating well for several centuries a significant and fundamental change.
It is in looking at the way this transaction may affect Kansas City as the “capital” of hard red winter wheat that ought to produce the most intense wonder. This class of wheat became the exclusive province of Kansas City thanks to the efforts of millers and grain merchants who understood the advantages of a market focused on this wheat alone. Sure, this wheat is the raw material for producing bread, but its pricing is central to the cost of food around the world. The exchange’s location, at the threshold to Kansas, the state that produces more of this wheat than any other, helped make the city a center of flour milling and the focal point of an industry where the ability to react to fast-moving markets often made companies successful or not. It was appreciation for the value and importance of this location that prompted the founders of this magazine to put its offices in the same building as the Board of Trade occupied. That practice continues to this day. Now, as the exchange’s operations are about to be transformed, the same is likely for locating companies and offices aligned with the Board of Trade. All of these dramatic changes are not just triggered by this transaction but also symbolized by it in specific actions that will likely follow. Most fundamental to the change is that hard red winter wheat futures trading could not have ended up, if change was certain, in better hands than the CME provides.
Technology at work in other fields
While computer-driven electronics may be identified as the underlying cause of this fundamental shift in the hard red winter wheat market, it is instructive to note that the same technological revolution accounts for the announcement that Newsweek, a weekly magazine with an 80-year history, will be halting its print-on-paper edition at yearend in favor of publishing solely on the web. Described as “transitioning to an all-digital format in early 2013,” this action will result in a new publication name, Newsweek Global, and a new approach as the magazine seeks to maintain its relevance in the Internet era. Established in 1933 to be a reputable source of news and interpretation, the magazine to the present has lost half of its peak reader numbers and has been incurring large financial losses. Blaming “enormous disruptive innovation,” the company’s management is emphasizing how important it is to move quickly forward in reaction to change.
The publishers of Milling & Baking News are experiencing many similar forces. The array of food-related magazines this company publishes, centered on grain-based foods, has done well in maintaining both readership and advertising revenues. This happy outcome has been facilitated by focusing on fresh and informative news accompanied by helpful commentary. The consistent goal across these pages is to reflect the expertise and province of this company’s editorial and management staff. At the same time, websites are offered and are constantly being updated to assure that readers preferring these approaches may comfortably continue to rely on familiar and committed sources. Indeed, the aim has been to keep ahead of the technology and thus to assure that the wide-ranging pool of information required for companies and their executives to prosper in grain-based foods is available in whatever way is preferred.
Losing industry leader from past
If everyone currently associated with grain-based foods was taken aback by the transaction involving the major wheat futures markets, it is also likely that news of the death of George S. Pillsbury prompted similar regrets and lamentations. Mr. Pillsbury, who died at the age of 91, bore a family name that probably is as well known for its flour milling antecedents as any other name in an industry that has been built by families like his. It is not overreaching to believe that when Mr. Pillsbury engaged in his numerous public service activities, which won him high praise, anyone hearing or reading his name would have immediately related him to flour and flour milling. That may be said about no one else.
Mr. Pillsbury left active management of his family’s milling company at the age of 51, but his decades in leadership at the Pillsbury Co. were memorable to fellow staff members as well as for his peers in the industry. A leader in the Minneapolis community as well as nationally, Mr. Pillsbury enjoyed a life of commitment to public service. He was in the Minnesota state senate for a dozen years where he devoted his energy to education and governmental reform. Yet, he maintained contact with his associates in milling and just a few weeks before his death, he hosted a lunch for former Pillsbury Co. associates where good cheer ruled.
Linking these three seemingly quite different events provides a path for assuring that grain-based foods, while facing “disruptive innovation” on numerous fronts, never may overlook the proud history that made the industry fundamental to the nation’s and world’s supply of nutritious food. Yes, change will definitely occur due to technology and also reflecting the normal course of existence. That’s why it is important to remember what happened before to create the present-day environment and the bright promise the future holds. Preparing for that new future is tough. It also ought to be rewarding.