Agricultural commodities have been traded between places for millennia before modern commodity exchanges were founded. However, these exchanges brought many of the services required by merchants and traders under a single roof. In the 19th century, exchanges became larger, partly the result of improved communications and transportation infrastructure. Two American commodities exchanges formed in the 1840s, the New York Corn Exchange and the Chicago Board of Trade, survived to this day in one form or another. Another one founded two decades later, the New York Produce Exchange, prospered in the 19th century but did not survive the 20th, partly because of a financial scandal involving neither oil nor gold, or even corn or hogs, but rather salad oil of all things.
Commodities Trade
New York had been a center for commodities trading since its settlement, first in beaver skins and timber and soon thereafter in agricultural produce. Its importance was partially the result of its location. The city is positioned on a large harbor and connected to adjacent regions by other waterways from the Hudson River to Long Island Sound; each offered access to easily developable land. In 1678, New York’s colonial governor, Edmund Andros, reported that the city was exporting 60,000 bushels of wheat yearly, along with peas, beef, pork, fish, and tobacco.
The city’s development as a financial center and the erection of new infrastructure furthered its advantages in trade. The construction of the Erie Canal, completed in 1825, connected New York to the American interior. So too would the railways. By 1886 there were 125,000 miles of track laid across the country as compared to just 30 miles a little over fifty years earlier.
In the 19th century, the most traded commodities were not exactly the most easily cultivated nor the most plentiful. It was commodities like cotton, planted in more localized areas, that were the most traded, partly because they were consumed far from where they were planted. By contrast, maize corn was widespread, growing on between five and twelve times more surface area in the pre-Civil War American South than was cotton. However, much of this corn was consumed locally, either as food, whiskey, or animal feed, rather than shipped to other markets.
Earlier Exchanges
That said, a trading venue for corn, namely the New York Corn Exchange, was founded in 1840. Later that decade, in 1848, the Chicago Board of Trade was established. It was the first exchange for trading commodity futures in America, and the world’s largest for much of its history. The Chicago Board of Trade specialized in trading wheat in its early years but corn was also traded on both the Chicago and New York commodities exchanges.
These new exchanges were marketplaces that brought buyers and sellers under one roof. They disseminated commodity prices to members and the broader public, thereby bringing even more traffic to the exchange. They were places where members could obtain daily information on the production, stocks, movements, and pricing of commodities. The exchanges were a place to transact, not just in the commodities themselves, but in auxiliary services like transport, insurance, warehousing, and more. The exchange itself set the rules that governed these transactions and handled any controversies and misunderstandings that might arise.
New York Produce Exchange
The New York Produce Exchange, which opened in 1860, evolved from the Corn Exchange. It was founded to secure suitable premises for the growing Corn Exchange, which had outgrown its headquarters on the waterfront corner of South Street and Broad Street. At the New York Produce Exchange, merchants, brokers, exporters, and shipping agents arranged shipments of a broad set of agricultural commodities while clerks recorded the going prices. Displayed on blackboards were quotes for wheat, corn, and oats from Chicago, Toledo, St. Louis, Kansas City, Minneapolis, Duluth, and Winnipeg and foreign prices were telegraphed in by cable from Liverpool, Paris, Antwerp, Berlin, Budapest, and Buenos Aires.
The Produce Exchange set the market structure, acting as regulators in an era of less lengthy statue books and non-existent official regulatory agencies. It set rules for shipping, storage, and inspection and employed its own statistics department for recording price data. The exchange handled disputes among members through its trade, arbitration, and complaint committees. Its inspectors graded grains based on factors like brightness, soundness, dryness, plumpness, and cleanness. Indeed, by the mid-1880s, eleven grades existed for corn, eight for oats, three for rye, three for peas, and an amazing sixteen different grades for barley. The Produce Exchange also maintained samples of each grade of each grain.
The economist Adam Smith once said that “people of the same trade seldom meet together, even for merriment and diversion”. The Produce Exchange made sure that was not so by organizing Christmas parties for members. These festivities surely provided far better opportunities for merriment and diversion than tracking the market price of the best bright, sound, dry, plump, and well cleaned grain in Chicago or the exchange’s enchanting rules for handling variations in the weights of casks of lard. On more gloomy matters, the exchange also provided some assistance; it maintained a mutual insurance program for the families of deceased members, funded by contributions by members but also by the profits of the exchange itself.
Membership
The New York Produce Exchange had 1,238 members after its first year in operation and 2,023 by 1870. Members included not just merchants but also bankers, insurers, grocers, brewers, and those connected to the shipping and steamship industries. In 1872 though, some merchants active at the exchange left it to form the competing Butter and Cheese Exchange of New York. They eventually added eggs to their list of traded foodstuffs and renamed themselves the Butter, Cheese, and Egg Exchange. Today, this is the New York Mercantile Exchange, still in existence. Nonetheless, the Produce Exchange continued to house trading in flour, corn, barley, oats, whiskey, hay, hops, and rice.
The exchange grew still larger after the split. It had 2,468 members by 1878 and efforts to develop a new exchange building soon got underway. New members paid an initiation fee that only grew through this period of growth. The going fee of $300 in 1872 rose to $500 in 1873, $1,000 in 1880 and to $2,500 in 1882, by which point membership had hit its 3,000-person limit. By 1880, the Produce Exchange was trading in roughly 60 million bushels of wheat and another 60 million of corn, in addition to 14 million bushels of oats and almost 4 million of barley. In the end, butter and cheese would return to the exchange by the early years of the 20th century. Indeed, by 1901, the exchange was a center for trading in numerous grains and meats and soon thereafter, evaporated and canned fruits as well.
Exchange Building
In May 1884, after three years of constructions, the Produce Exchange moved into a new purpose-built building on what two centuries earlier had been the site of an old market-field in colonial New York City. The new Italian Renaissance exchange building, clad with dark red brick and terra cotta exterior walls, was designed by George B. Post, the architect who would later design the present home of the New York Stock Exchange.
Post would also go on to design a building for the 1893 World’s Columbian Exposition in Chicago that was the largest building in the world at the time, enclosing 40 acres of exposition space. The main Exchange Hall at the new Produce Exchange building was supposedly the largest exchange room in the world at the time. It could fit 7,000 people and was lit by a skylight sixty feet above the floor.
The building contained several trading floors, also called ‘pits’ or ‘rings’, at least one each for wheat, lard, and cotton. In these pits, traders traded not only in produce for physical delivery but also for options to sell (‘puts’) or buy (‘calls’) the commodity in question at a future date. Even a physical commodities trader could conduct almost all his business from the exchange building. On the floor, a merchant may receive an order from Europe to purchase grain, may buy that grain from a seller, charter a ship to transport it, purchase insurance, and communicate back to the foreign buyer.
Decline
The New York Produce Exchange was by no means an undisputed market leader. Chicago was a rival center for agricultural commodities trading. By the mid-1880s, 22,000 head of livestock arrived in Chicago each day as its grain elevators stored 23 million bushels of grain; the city also slaughtered over 1 million cattle and packed over 4 million hogs annually. By contrast, there was also virtually no grain elevator space in New York so cereal had to be stored in canal-boats and barges.
By the late 19th century, trading centers for agricultural commodities further west and even in Canada began to take business away from New York. Other ports successfully competed with New York for freight traffic. They were aided in part by the fact railroad rates for freight into New York were more expensive than comparable distances elsewhere, the product of railroads into the city operating at their capacity. Precious space on rail lines was crowded out by higher value cargo. That said, while the New York Produce Exchange lost ground in trading cheap grains, it discovered new markets, such as that for cottonseed oil.
Indeed, cottonseed oil would be the subject of one of the exchange’s greatest sagas. In the early 1960s, a commodities trader active on the Produce Exchange, Tino De Angelis, had nearly managed to corner the market for soybean and cottonseed oil, used then as now in popular salad dressings. De Angelis managed to control 40% of the soybean oil futures outstanding at the Chicago Board of Trade and nearly 85% of the cottonseed oil futures outstanding on the New York Produce Exchange. He financed this by borrowing against fictitious inventories of salad oils.
The scheme unraveled in November 1963 and finding that one of its most active participants had been a fraud, the Produce Exchange discontinued trading in cottonseed oil, which had been one of its two most traded commodities. Trading in cottonseed oil shifted to Chicago where it was taken up by the Chicago Board of Trade. The New York exchange survived this crisis but only barely. It rebranded as the International Commercial Exchange in 1970, transitioned into currency futures, and soon thereafter closed entirely. It is not to be confused with the IntercontinentalExchange, which through its 2007 acquisition of the New York Board of Trade, took over what remained of the old New York Cotton Exchange.
Lesson
Cottonseed oil had been the source of some of the New York Produce Exchange’s success. It also contributed to its decline. In any case, the exchange never held a commanding position in its industry, rivaled as it was by sizable competitors, both local and distant. In its heyday though, the exchange found great success, growing quickly through the late 19th century. This respectable position was the result of more than its trading floors. Rather, the purveyors of numerous services were housed by the exchange, from freighters to insurers, all relied upon by merchants and traders. The New York Produce Exchange was so extensive and commercially successful it resembled its home city, albeit in miniature.
More from the Tontine Coffee-House
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Further Reading
1. Carhart, E.R. “The New York Produce Exchange.” The Annals of the American Academy of Political and Social Science, vol. 38, no. 2, 1911, pp. 206–221.
2. Newman, Kara. Secret Financial Life of Food: from Commodities Markets to Supermarkets. Columbia University Press, 2014.
3. Rodriguez, Luis. “Temples of Trade: George B. Post’s Stock Exchange and Produce Exchange Buildings.” From the Stacks, New-York Historical Society Museum & Library, 25 June 2014.
4. Wheatley, Richard. “The New York Produce Exchange.” Harper’s New Monthly Magazine, July 1886.
