Who's next?

Back in December I wrote a story about the four grain exchanges and the liquidity that was pouring into them as they went electronic on the Chicago Board of Trade’s e-CBOT trading platform and began offering side by side trading (see “Trade locally, think globally,” December 2006, page 52). The idea behind that story was that with exchange consolidation fever in the air, the regional grain exchanges just might be tasty targets for acquisition.

Since then, the CBOT merged with the Chicago Mercantile Exchange, and the Intercontinental Exchange (ICE) made an offer for the Winnipeg Commodity Exchange (WCE); the latest news is that a competitive unsolicited bid of CAN $50 million, or $77.59 per share, has been made for the WCE by an unnamed third party. That exceeds the CAN $40 million, or $62.08 per share that ICE bid.

Two down and two to go. But what about the Minneapolis Grain Exchange (MGEX) and the Kansas City Board of Trade?

Since December, the price of a membership at the Minneapolis Grain Exchange has increased to $170,000 from $65,000, and the exchange, which owns its own clearing operation, trades hard red spring wheat and five financially settled index contracts, has logged record trading volumes in three of the last six months, both in pit trading and electronic trading. But the exchange is still a mutual organization, making it an unlikely target for acquisition due to the lack of common currency.

Meanwhile at the Kansas City Board of Trade (KCBT), the home of the hard red winter wheat contract, the last membership traded hands in April for $465,000, up from $300,000 in December. Jeffrey C. Borchardt, president of the KCBT, says that the exchange converted to a Delaware for-profit corporation in 1973, not for the purposes of merger and acquisition, he says, but to unlock the value for members in the form of dividends, which the company has paid for each of the last nine years.

So what’s keeping them from being assimilated?

“There is nothing keeping us from doing that. It’s all a matter of interest and strategy,” Borchardt says. “The trend will continue, and at some point in time we may have to consider whether that is in the best interest of our members and customers to get involved with something like that, either on the buying or the selling end.”

Now don’t get the wrong idea. Borchardt DID NOT cop to anything in the works. In fact he wouldn’t even deny that the KCBT hadn’t made the offer for the WCE, (how’s that for canny?) But with 50% increase in seat prices over the last seven months, wheat prices as high as they are, and the issue of e-CBOT going away in the next 12 to 18 months, nothing would surprise me.

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