Chicago, Spring Valley and Peoria, Illinois
Department of Plant Agriculture

Day 2

Chicago Board of Trade & Cargill Grain Terminal

US flag flyingAugust 28, 2017 – First official day of Crop Tour 2017: Chicago Board of Trade and Cargill Spring Valley Terminal
By: Nadine Anderson, Nicole Berardi, Kelvin Knip, and Michael Reijnen

Today is the first official day of the 2017 Midwest Tour! Each day we will be visiting different facilities related to the agricultural industry, with varying themes at each stop. Within this blog we aim to look at social, economic, environmental and production perspectives in an attempt to increase our understanding of agriculture, globally.

We started out the tour with breakfast at the Cellars cafeteria to prepare us for a big day of learning about world trade and grain transportation at the Chicago Mercantile Exchange and Cargill Spring Valley Terminal, respectively. While at the Chicago Mercantile Exchange, we learned about the ways, in which trades can be made, how trade prices are determined, the current state of the market and much more. We then got to see how trades are often fulfilled while learning about grain transport at Cargill’s Spring Valley Terminal.
Some of our group digging into some breakfast. Yum
Above: Some of our group digging into some breakfast. Yum!

After breakfast we were escorted to the viewing gallery in the Chicago Mercantile Exchange, where we were able to see the trading floor in action. We then got the opportunity to hear from and ask questions to two vice presidents at ADM, VP of Research, Steve Freed and VP of Trade, Matt King.

The outside of the Chicago Mercantile Exchange
Above: The outside of the Chicago Mercantile Exchange

Steve Freed talked to us about a variety of different topics, which provided a great overview of past, present and future market trends. He started out his talk with information on how far we have come in terms of grain production since he started with ADM. He attributed the production increases we have seen to vast improvements in technology and arising information. For example, we now know where and when to apply chemicals to crops and there have been great improvements to genetic material, essentially creating “super hybrids.” These so called super hybrids have contributed to a record corn crop despite adverse growing conditions. When this record corn crop is coupled with a large surplus from the previous cropping year, corn prices will remain low and may even approach the break even point.

One of the most interesting points of conversation that our group had with Steve was the use of machines to make trades. Machines were introduced to Chicago Mercantile Exchange about five years ago. These high performance machines integrate thousands of data points to determine when to buy and sell contracts. These machines work so efficiently that they can receive new data and within milliseconds make trades based on the information. Currently about 90% of the stock market is traded through these machines, accounting for about 80% of grain trades. The machines have been programmed to mainly make futures trades, and only occasionally do trade options. The machines also have the ability to detect how long the market will be bearish, aiding in making better future trades. Steve also spoke with us about the current volatility of the market. The volatility of the current market is, in part, due to the record amount of corn produced last growing season. This record amount of corn produced was carried over into this growing season resulting in a large surplus. With a large surplus and adverse weather conditions during the growing season, an unstable grain market has been created. He explained that many commercials got out of the market about a month ago because it is too risky to make trades in the market’s current state.

Matt King, the VP of Trade, spoke with us next and gave us insight into some of the history of the Chicago Mercantile Exchange and the process of becoming a trade member. Matt explained that in the 25 years since he started at what was then the Chicago Board of Trade many changes and developments have occurred. One of which is the name change to Chicago Mercantile Exchange after the purchase of the Chicago Board of Trade by this group in 2008. Other changes that Matt mentioned to us include the switch from ADM having 65 traders on the trading floor in the summer of 1995 to only two ADM traders, currently. Matt also hopes that by next year ADM will not have any traders on the floor in order to increase the efficiency of his team by capitalizing on the use of electronic trading. These drastic changes in the number of people on the trading floor exemplify the global shift to less in-person interactions as more technology is developed that can do the job more efficiently. Overall, our experience at the Chicago Mercantile Exchange taught us a lot about how technology is changing the way trades are made, and how advances in research and technology have made the global market more efficient. This is just one example of how the push towards automation and technology that we see as a social trend is also effecting large organizations in an attempt to keep them relevant in today’s day and age.

The group outside the Chicago Mercantile Exchange

Pictured Above: The group outside the Chicago Mercantile Exchange.

Our second stop was at Cargill’s Spring Valley Terminal, just outside of Spring Field, Illinois. When we arrived, David Caldwell and Shane McGillbon and 4 other employees at the plant greeted us. The group split up into two, one heading into the office building for a slide show with Shane and the other heading to check out a barge being loaded at the slip.

During the slideshow presentation with Shane he gave us a brief overview of Cargill. Cargill is sectioned into four broad categories: agriculture, food, finance, and industry. Cargill provides a large number of food ingredients globally to food processing companies. Examples range from the majority of beef served at McDonald's in the United States, to the starch used in Dannon yogurt. During Shane’s discussion we also learned about Cargill's main objectives in the grain industry. Cargill is a “basis trading” type of company. A basis is the difference between the commodity's futures price based at the Chicago Mercantile Exchange and the cash price at a local elevator. Being a basis trading company means they make a profit by buying grain at a low basis to sell at a higher basis. We also learned how the fluctuation in the cost of barging grain down the Mississippi influences the value of the basis. Currently, the price per bushel is around $0.57 and will rise to about $0.75 during peak barge demand at harvest. The Mississippi, and the barges that carry grain on it, have a large influence on the prices the farmers in the surrounding area will get for the crops they produce.

The Spring Valley terminal deals specifically with the storage and transportation of corn and soybeans. Corn and soybeans account for all of Cargill’s transports in Spring Valley because they make up the majority of crops grown in this area. In fact, the plant has not had wheat delivered to it in the last two years. The grain from Spring Valley is transported down the Illinois River to the Mississippi River and eventually reaches the Gulf of Mexico. Once the grain reaches the New Orleans port in the Gulf most of the grain Cargill is responsible for transporting is exported to an international destination: with the majority going to Japan and the Middle East. Shane also taught us that in both the United States and internationally, grain will flow from an area of surplus to an area of deficit. Similarly, from times of surplus to times of deficit through storage.

The course and watershed of the Mississippi River. Spring Valley loads barges on the Illinois river
Pictured Above: The course and watershed of the Mississippi River. Spring Valley loads barges on the Illinois river.

Empty barges on the Illinois river waiting to be filled at Spring Valley Terminal
Pictured above: Empty barges on the Illinois river waiting to be filled at Spring Valley Terminal.

The Mississippi River has played a huge role in the transportation of goods throughout the United States. At a maximum efficiency, the Cargill Spring Valley Terminal was able to load 6 barges in a 10 hour day at a load capacity of 40,000 bushels per hour. Cargill has five locations along the Illinois river that are capable of loading barges. From these locations they will ship around 62 million bushels of corn and soybeans (95% GMO and 5% Non-GMO) a year down the Illinois River to the Mississippi River.

Barges are typically transported as a 15-barge tow and take about two weeks to make it to their destination in the Gulf. The amount of grain transported in one 15-barge tow is equivalent to 2.25 trains with a length of 100 cars or 870 large semi-trucks. This means that transport of grain using barges has significant environmental benefits over both train and truck transport by reducing emissions and improving economic efficiency with reduced transport costs.

Pictured Above: One of the barge workers decided to stir up the carp with the tug boat so we could see some of the carp in action.

While viewing the barges, we also saw Asian Carp in the surrounding water. The employees at Cargill’s Spring Valley Terminal explained to us that for the past 24 years Asian Carp have occupied the water and become an invasive species, disrupting the river’s ecosystem by consuming fish species and decreasing native populations. The fish were introduced to the Mississippi and Illinois Rivers accidently when they escaped from a University’s research experiment in 1993. Since their escape, the fish have begun to take over both the Mississippi and Illinois Rivers. The Illinois River is also linked to Lake Michigan and if this invasive species migrates into the Great Lakes it could be catastrophic for native wildlife. The team at Cargill’s Spring Valley Terminal assured us that precautionary measures have been put in place to prevent the carp from entering the Great Lakes.

Asian Carp leaping in the air from the tug boat motor
Pictured above: The Asian Carp leaping in the air from the tug boat motor. The fish are notorious for being frightened by boats and personal watercraft. Numerous boaters have been injured by collisions with the fish because Asian carp can jump up to 2.5-3.0 m into the air.

In addition to the ecological damage that has resulted from the presence of the carp, the Cargill employees also told us that the carp have ruined recreational activities for the locals such as boating and waterskiing due to the danger of the fish jumping from the wake and possibly causing injuries. One benefit of the abundance of carp in the river is that companies have caught and used the fish for products such as fish oil pills for human consumption and as feed additives in the livestock and pet food industries.

Overall, our first day on the Midwest Tour was a success! We learned so much about both world trade and grain transportation from social, economic, environmental and production perspectives. It was interesting to see that specific factors effecting world trade would also effect the smaller scale transportation of grain on barges because of their relationship with one another. For example, trade has an effect on transportation as the transport of goods is only necessary when commodities are being traded. Therefore, factors effecting trade have a downstream effect on transport as well. It was a very unique opportunity to view and understand how trades are made at the Chicago Mercantile Exchange and then to see what goes on “behind the scenes” in order to deliver on these trades at Cargill’s Spring Valley Terminal, all in one day. We can’t wait to see what we learn tomorrow, see you then!