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The Kansas City Board of Trade

The Kansas City Board of Trade
May 04
03:00 2011

The list of commodity futures traded at the Kansas City Board of Trade (the KCBOT) is all of one item long: 1. Wheat. So you may start wondering why this exchange exists at all. If you can buy wheat futures at the Chicago Board of Trade, why does there need to be a separate exchange, in a separate city, with separate wheat contracts?

In fact, the KCBOT plays a crucial role in pricing the raw material for the world’s bread, and without it, the actual cash market for wheat could grow very inefficient, and producers and end users would struggle to accurately manage their risk and establish prices for future deliveries. While the total open interest in KCBOT wheat futures (the number of trades which are currently held by traders) is generally less than half the total open interest in Chicago Board of Trade wheat futures, more than 75% of KCBOT positions are held by entities recognized as “commercial” traders by the CFTC. These are the people and companies using the KCBOT to directly hedge actual cash wheat transactions: farmers, elevators, millers, and exporters. In Chicago, the market tends to be made up of about half commercial traders.

This means the KCBOT futures market tends to track its associated cash wheat market more accurately than Chicago wheat futures do (there is better convergence in the basis), and this is important because the KCBOT’s wheat contracts are specifically written to represent one of the most important kinds of wheat grown in the U.S. – hard red winter wheat (HRWW). This is the type of wheat generally used to create bread flour, and it typically has a higher protein than the Soft Red Winter Wheat which can be hedged with Chicago wheat futures, and which is sometimes used as animal feed.

Because HRWW is mostly grown in the Southern Plains, it makes sense for the KCBOT to have sprung up on the edge of Kansas, along the Missouri River. Since 1876, commercial wheat producers and end users have been using this exchange to confidently trade wheat derivatives. But the KCBOT has evolved since that time, keeping up with – and sometime leading – the innovations of other U.S. futures exchanges. It offers wheat futures and options, traded during both an open outcry and electronic day session, and also traded in an overnight electronic session. The KCBOT was also the birthplace of stock index futures in the 1980’s, and it still exchanges the Value Line Composite Index, an arithmetic average of over 1600 companies on the American Stock Exchange, the NASDAQ, the New York Stock Exchange, and the Toronto Stock Exchange.

Trade at the KCBOT is conducted during the same hours and paused for the same holidays as agricultural commodity futures trade at the Chicago Board of Trade. For more detail on those hours and holidays, see

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