Ear on Chicago; Mercantile Exchange

In exactly 30 seconds, you will hear the sound of Chicago's mercantile exchange opening for business. It opens each morning at 9 .20 a .m. It is now 20 seconds before the mercantile exchange will open, and it's a rather dramatic moment. It's quiet now, but in a moment you'll hear a lot of noise, in precisely 10 seconds. 9, 8, 7, 6, 5, 4, 3, 2, 1. The mercantile exchange is open for business, and this is Hugh Hill speaking to you from the pit area of Chicago's mercantile exchange. Each morning at precisely 9

.20 the outcry of offers and bids opens the exchange for business. To help tell the story of the mercantile exchange, we'll talk to Mr. Everett Harris, president of the exchange. Mr. Harris, suppose we walk over here a little bit away from the noise, and what sounds like a good deal of confusion. What's going on? Well, this undoubtedly does seem like confusion, but Hugh, it's certainly organized confusion. This is really a continuous auction. It's simply that instead of having one auctionaire selling to everyone, our qualified brokers who may trade for themselves as agents for people they represent, can either buy our sell, but they naturally try to buy, slightly below the market or sell, slightly above it. What are they buying or selling? They are buying and selling carlots of eggs at the moment. Carlots of eggs that have 15 ,000 dozen to the car. What else do you sell and buy at the mercantile exchange? Well, we trade in frozen eggs, a new commodity which is becoming quite active due to the technological changes in our industry, as in all other industries, we are finding change. And we are meeting it by

opening this new contract in frozen eggs, which we think will be used by bakers and all elements of the egg -consuming trades. That is a commercial egg -consuming trades. I assume that after you've been here for a while, you could distinguish what they're seeing over there. I heard, for example, 40, 30 and numbers such as that. What do those mean? Well, we trade in what we call five points or a 20th of a set, a dozen. For example, this morning, a dozen eggs are offered at 36 and a half cents. That's 36 .50 points and 36 .45 points are bid. Now, what? It's getting quite noisy here and before we have the opening of the onion market, which will be in about three or four minutes, perhaps we could retreat to a quieter place, you. Why don't we do that? We have moved approximately 15 or 20 feet away from where they are bidding in the egg market over to another pit.

Mr. Harris, allow me to describe just briefly the physical characteristics of the exchange. I think if some of the people in the Chicago area have ever seen the grain market, they would know what the mercantile exchange is because it's very similar. They have three pits and the pits are actually steps. They step up and then step down into the pit, right in the center of the pit is a large circle enclosed by some sort of a metal bar and a man in there with a headphone on is listening to something or other. Now, what is this pit over here? We have three pits. We talked about the egg pit and here is another one right in front of us. This is the onion pit. We have a very large volume of trading onions. It happens to be seasonally quiet time at the moment, but in season, we are as busy opening the moment ago. Well, now, will you have an opening in the onion market? Yes, within a minute or so in this octagonal pit, if you're right. Now, to continue a little bit of the description before we get into this onion market, up here on boards, blackboards, there are a number of man and

white jackets marking down numbers, figures on the big blackboard. It runs from one end of the room to the other and this is a very large room. I suppose about 150 feet long or so, maybe about 75 feet wide. That's approximately correct. We have about 25 ,000 square feet in the room. And the boards, the blackboards run from one end of the other. I've just gotten a signal one minute to the opening of the onion market. Hugh, this is always a rather tense moment before the opening of any market. The young men that you described on the area above us at the blackboards are exchange employees. Trading is all done between members, of course, and it's done on an honor system. But nonetheless, to keep it straight, in terms of the large volume transacted, we need to make immediate records so there's no confusion. And that's what these gentlemen do. The information being conveyed to them through the headsets that you referred to earlier. In this half a minute or so before the opening, as I say, there's always a side amount of tension. Prior to the opening, these brokers have received their orders from their offices by telephones from all over the country and also by telegraph, although phones

mostly these days. Ten seconds is getting very dramatic here. Then they come into the pit and they stand, poise ready, hoping that they can fill their orders at the price levels they've been given to them by their customers. Five seconds. Will we hear the bell again? Yes, you'll hear the bell. It's short. Let's kick off in our football game here. Five, seven. Seven, seven. I'm so that six. What's exactly four to five? Five to five. Five to five. Twenty -five. Twenty -five. Twenty -five. That's not quite as noisy in this particular market as it was in the other. No, not at the season of the year, Hugh. Why is that? Is this not the growing season or the sanks? That's correct. We have just entered the season of distribution and we're awaiting the panning season, which is late in April and May, in the case of onions. Now besides the bank of blackboards and the bottom shelf down here at the Mercantill Exchange there's a similar bank of blackboards above and then just above in the center of the

Exchange is a large clock and the Translux Machines the one on the left I understand is transmitting the board of trade market and on the right the New York Stock Exchange. That's correct you many of our members are interested in the other markets and that information is essential to them. The information that's along the blackboards above is of course statistical information showing supply and demand conditions from day to day. Now back over here there are a large number of desks and men sitting at the desk here's a man over here with a pair of opera glasses looking up at the board. What's he checking? Well there there is so much price information so many statistics on these boards that it's a little difficult to see all of it unless you are far -sighted. Now who are these men sitting over here at these desks? These gentlemen sitting at these desks are representatives of all the large major wirehouses or what we call a Sal Street Houses, Wall Street Houses if you will all over the country who accept orders for purchase and sale of commodities. Also representative of these desks are representatives of firms Swift and company armor, the large suppliers and purveyors

of perishable commodities in which we trade. Finally up here to our left is a board which reads trading limits on the left and on the right it says settlements. Now what do those boards mean? The settlement prices are the prices at which the markets cause yesterday and the limits are the limits at which the prices are allowed to go in one day. We limit the price fluctuation which can occur in any individual day. Well I think that's pretty good for an opening description of what the market does. I think perhaps one of the best ways to tell a story completely is next to perhaps talk to one of the brokers what's going on over here. Well we will we're putting the onion trading on the board since it's not too active we're taking it out of the pit and putting the bids and offers on the board to release the brokers from their stations here. Well let's go over and listen to that. All right let's move into your office where it's a little bit more quiet. It'll be more comfortable

to you. Away from us, then. We have come into the office of Mr. Harris now and we have found with us a visitor to the Mercantile Exchange. He is Mr. Adam R. DeBarras who is the mayor of San Paulo, Brazil. Mr. Mayor I understand that you're interested in the food business. Really? I am here to learn how you supply big city like Chicago. Some Paul is more or less like Chicago free and half millions inhabitants. Three and a half million. Three and a half millions. You first see it in Brazil the second in Latin America. First is Buenos Aires second some bowl bigger than Rio Janeiro our capital. I know Chicago since 1927 when I was the only medical doctor. Now I am in politics. Twice governor of my state, state of San Paulo. Now Mayor waiting next president in 1960. Come here to see you for the tenth time. I like very much your

people, your city. When I have to learn something I come to Chicago and to us a wonderful experience I had this morning here. Have you met our mayor? Not yet. He is in Washington. Comes today. We're going to see this afternoon. Don, do you have anything in San Paulo that resembles the Mercantile Exchange? Not equal. What we have is one hundred percent not so beautiful, so organized as here. But we came to learn people who knows. Know how? What went to do? Now Mr. Mayor tell us something about your community. You say it's three and a half million which makes it a very large city. It would probably be the third largest city in the United States if we were located here. How does it compare with other communities down there in South America? I said the first is Buenos Aires in Argentina and Brazil the first is San Paulo. Rio Janeiro is three millions is our capital. We are the

second city in all Latin America. But the first industrial city in all Latin America is San Paulo. Our increasing through the United Nations is the first in the world since ten years ago. Every year we are in first place. We are building six homes every second. That means one hundred eight homes every minute. I don't know but I believe San Paulo will maintain the first place in the world. It's another world, a new world, big possibilities, only question of organization, of credit, of capital and people who know people to teach us to be like you here in states. What industries do you have there? We have iron, we have steel, we have lead and textile. But the third is textile. But Brazil has tremendous possibilities,

tremendous. What we need is capital. What we need is people, technical people. That's what I want to take to Brazil to San Paulo. Mr. Mayor on behalf of the city of Chicago let me welcome you here and thank you very much for appearing on Iran Chicago. Thank you very much and I came here for many times first as medical doctor to see your hospitals. Now I am in politics. It is a call I do to you. It's for me it's always a pleasure to see such a wonderful people, a wonderful city and I want to come again in future to see another problem. Now is only food supply of a big city. Next time maybe in July August I come to see transports. It's a second big problem in Brazil. A worker, a man in Brazil to work he loses three hours daily to go and come back to his home. We want to reduce to one hour, half an hour to go and half an hour to come back. Thank you very much and

we see maybe next time in August. Bye. Thank you very much Mr. Mayor and we hope you come back soon. Mr. Mayor we might visit you in Brazil too you know more and more Americans are visiting your wonderful countries there and I think the tourist business of going to come very important to you. You shall have a friend at the city hall in São Paulo. I know your country I study in Baltimore John Hopkins University in 1927 and at Boston University you have a friend all people Chicago will be receiving with open arms. Thank you. We've been happy to have you here you've been very welcome and you're going to see many other interesting aspects of the Chicago Food and Industry in Chicago. Now let's talk to the Chairman of the Board of the Mercantile Exchange. Mr. Michael Weinberg. Mr. Weinberg tell us something of the history and background of the exchange. First of all when did it come into being? Well the Mercantile Exchange

as an exchange started in 1919 and those days we had mostly cash butter and eggs not so much futures then we branched into future trading where you can sell 10 days ahead and then six months ahead the way we do now or even 11 months ahead. You mean in the old days the market the market used to be nothing but the farmers bringing his produce in and somebody buying it? Well it wasn't so much that most of the merchandise that came in on those days came in by railroad cars they loaded 400 cases in the car see in the with the coming of the trucks the entire thing changed because now I'd say that 90 % of the merchandise that comes into the cities comes in by truck and about maybe 10 % by rail. How does Chicago fit into the picture of Mercantile Exchange? Is it the largest community for that? Oh Chicago is by far the largest community for for handling futures. We're the second largest commodity exchange in the world only the board of trade is larger than we but we handle

more more eggs than any other exchange in the world and we store more eggs in our warehouses here than any place else in the in the world. So Chicago like it is in many other industries is right up there on top in this one. That's correct. Thank you very much Mr. Weinberg for talking to us. Thank you and nice meeting you. That noise was from the commodity news service incorporated which sends information in here to the Mercantile Exchange I'm going to talk about that in just a minute. I want to hear another sound that's the sound of the weather ticker I wanted to pick up this Western Union ticker which is sending a tape through there it is. Now these sounds that you're hearing are coming from the communication center as Mr. Harris calls it the nerve center of the Mercantile Exchange. First of all may I ask you Mr. Harris

what the commodity news service is? Well we have the commodity news ticker here which gives worldwide news digested with particular reference to commodity prices over on the right the Dow Jones ticker has similar news but that covers securities primarily with a minimum news about commodities. Then the weather ticker which you saw we have another ticker up here which is giving us prices instantly from the New York Mercantile Exchange which trades potatoes and other commodities. Our own ticker is here. You see this young man sitting alertly above us sends out this information to our ticker system over 300 tickers scattered throughout this country and Canada. Now what is this what is this man doing on the phone over here is he talking to someone here in the exchange? No he is probably talking with one of the newspapers giving them information for publication. Well one thing I wanted to question you about Mr. Harris is the role that the government plays here in the Mercantile Exchange. Well the government plays a great role in all business today we are supervised by the commodity exchange authority. Their

representatives are not present at the moment but we do have with us this morning Mr. Floyd Simpson who is a government market reporter. One of the great services that a free market gives to farmers is to let him know at all times what the price is. You can see the advantage of that if you were raising produce on a farm. Yes. No one could take advantage of you and buying it from you. So we originate much of this information we convey it on. It goes out through media such as your own radio broadcasts on markets, newspapers and other media. Well may I ask Mr. Simpson just a few questions. How do you get this information to the farmer? Well we usually cover the street early in the morning and then here at the Mercantile Exchange later about 10 o 'clock these reports are set out by radio market news letter. Newspaper reports I suppose. Newspaper reports yes. Do they have reporters over here the newspapers and wire services to pick up this information? There will be at different times during the day and your job then primarily is to see that all this is

coordinated. That's right as far as the Department of Agriculture is concerned I've just finished sending a preliminary wire on the butter and egg market. Thank you very much Mr. Simpson. Mr. Harris I wonder if we could talk to a typical broker here at the exchange to find out the story of that aspect of it. Well it's doubtful if we have a typical broker we have brokers of various types. Joe Sigeru happens to be standing on my left here represents one of our largest Los Alstreet houses and he's been with the exchange for many years in various capacities. Joe I wonder if we could talk to just briefly. Mr. Harris mentioned just a moment ago that you're with the Merrill Lynch. I'm I'm one of their brokers on this floor here yes. Merrill Lynch, Pierceman and Bing. I exactly what do you do here? I handle their orders and see that their orders are executed properly. Their orders come in on this floor from all over the country. We were here at 920 this morning. Joe and we were over there recording some of the sounds of the pit. Now that was

the egg pit as I understand and were you in there? Yes I was. And you were betting? I filled a few orders from Merrill Lynch on both sides of the market. You come in in the morning with orders in your hand for to buy certain things. We make what we call a deck of the orders from Merrill Lynch before the market opens. They orders to buy and sell and as the Bell rings we have an idea as to what we're going to do and depending on the opening quotations our orders are filled. How things work out for you this morning? It worked out fine we had some mostly something orders and the market advanced in the opening and we were able to fill all the orders that we had to sell. Is that happened most every morning? No no we this was a particularly good day. Most every morning we're we're in a confusion the same as everybody else. Okay Joe thank you very welcome sir. Now Mr. Harris we'd like to talk briefly about some of the publicity and public relations that you have here. Well in the old days doing a good job seemed to be enough but nowadays in business you have to tell the public about it and I think it's much better that way.

We're trying just as vigorously as we know how on the exchange to educate the public to inform the public to make our operation open and well known. At the moment Mr. Robert Asher of L .D. Shriver and company is chairman of our Public Relations Committee. I would like for you to meet him. Well Mr. Asher this is certainly a very dramatic and interesting operation here at the Mercantile Exchange seems like it shouldn't be too much trouble getting some information in the papers now. Well we're doing our best to put on an energetic campaign this year to inform the general public and also producers and growers of the products traded on our exchange the various advantages in using the exchange. How do you go about doing that sending out news releases calling in the papers and showing them what you have? Yes that's correct and we also have dinners in various parts of the country to enlighten the growers and producers of the hedging opportunities afforded on the exchange and we hope that this year more and more will take advantage of it. The program similar to this then falls in your category. You'd like to hear a thing like that's right we

certainly do and the more that we can get the happier we are. Well thank you very much sir for telling us about it. Now what about another broker house Mr. Harris? You ask for a typical broker which doesn't exist. Here is Rudy Redmond just walked up. He represents the type of house which is developed out of our produce business off of Fulton Street which was a nucleus of this business originally water street market. I'd like to meet Mr. Redmond. He now operates as the other houses do. Well Rudy we just talked to a representative from Merrill Lynch Pierce Fender and Bean and he said he had a pretty good morning. What about you? Well we've had a little action this morning as matter of fact we've been busy on the phones contacting our people advising him as to what the market has been doing. I don't know. Well Rudy tell us something about your company first of all what's the name of it? Oh it's Redmond Citron brokerage company. And you deal simply in this sort of thing we seem to think that we're specialists to a degree and eggs primarily in onions that's the

bulk of our trading. As a matter of fact if I told you to eat another egg today that would help too. Well I probably will later on just for you to keep that sale going. Only if I'm long in the market. Well what do you mean long in the market? Well when we mean long we we seem to feel that the production based on the demand isn't there in other words we feel that the market will go up. That's what the expression long means. Well now Rudy we've been talking this morning about the futures market. I have done a story on the futures market in grain but never have I done a story in the futures market here in butter and eggs for example. Now just exactly what is the futures market? Well here we have a situation existing in eggs the production of eggs at this time the years are reasonably heavy. If we had all these eggs hitting the cash market or the consumer all at one time why the price of eggs would definitely be down to almost zero. The farmer would definitely lose a lot of money. We have the storage picture here when we're talking about futures

we're talking about the storage egg where we take the surplus off the market goes into the storage where the time during the year where production is limited we still are able to supply the demand in other words you don't get the whole surplus of eggs at the market letting the market at one time. Where is the storage? Well you have storage outfits all over the country of course one of the big ones here is central cold storage you have mini yards you have all over the country you said that you were bidding in the future what month are you bidding in now? Well because those are the first two leading months that's where the volume is. Well Rudy I think that pretty much takes care of telling us the story about how the brokerage houses operate here at the exchange very interesting indeed and thank you for talking to us. Thank you very much for asking me. Once again for purposes of getting somewhere where we can talk more easily Mr. Harris and I have come back to his office. Now Mr. Harris we have told the story through sound and interviews of how the mercantile exchange actually operates.

The question I want to ask you is why it operates? Well the free market as an institution is a heart of American enterprise and is the thing which makes our country so efficient and makes our country so productive. The thing that is a heart of the free market is competition. Competition may be cruel at times but I've often said that it more social benefits a crew as a byproduct are almost accidentally from the competitive system that can ever happen on purpose in a planned economy and today we saw our friends from South America up here looking for know how and I think the main spring of America know how and American productiveness is a free market. The future markets of America exemplify this competitive situation. This is my favorite subject so I hope I'm not saying too much on it you but I want to say this that futures markets and competitive trading means higher prices to producers means lower prices to consumers and it means less for the middle man than any other system that's ever been devised in the history of mankind. Well I suppose Mr. Harris it would be a sad day if the

farmer had to go back to the old system of throwing his butter and his eggs and his onions and the truck and bringing him in and selling him for cash wouldn't. I think it would be a very sad day because obviously buyers take any advantage they can in any situation if the farmers are not fully informed of what the prices are set on competition it's easy to take advantage of or at least it used to be in the good old days so called. Well now how is the farmer represented here at the exchange? Individuals are not the important thing in this matter although farmers are represented. The important thing is that we have a marketing system whereby competition sets a price. The exchange has nothing to do with the setting of price. Supply and demand sets a price. We furnish the hall here for trading and we furnish the rules for the dancing so to speak. We keep artored and we see that everything is above board but aside from that farmers and others all over the country through their brokers may buy and sell and let the forces of competition supply and demand really set the price. That's what happens. It's a simplest app for some reason seems difficult to explain. Now there's one final thing we

have talked about the brokers represented here and actually interviewed several of them. What about the companies that buy the produce? Well the companies that buy the produce and store it the Chicago is a center of coal storage as you know and the perishable commodities in which we trade particularly are in great abundance at harvest time and they're stored and used up over the year. Who are some of those companies? Oh there are many of them in the stockyards all the packers. I wouldn't want to name all the individuals because I might leave out some and be giving a little free advertising here this morning but Chicago is a center of that sort of thing. Well Mr. Harris has been a pleasure for me to tour the mercantilics change and once again may I say going back to the opening that we did at the beginning of the program that opening at 9 .20 in the morning is a very dramatic story indeed and as you said like the minutes before a football game starts once again let me thank you for allowing us to take a tour of the mercantilics change and talking to the various individuals here and telling the people in the Chicago area the story

of how you operate. Oh thank you for coming who hadn't come any time and that's the story of the mercantilics change this is Hill Hill speaking.