According to a Reuters report, Murray Stahl, chief executive of New York based hedge fund Horizon Kinetics, has bought up as many as 53 seats out of a total of 402 trading seats on the Minneapolis Grain Exchange, Inc (MGEX).
MGEX is a commodity exchange and the world’s largest market for Hard Red Spring Wheat futures and options trading. It is also the last independent U.S. grain exchange and is owned by its members.
Volumes at MGEX shoot up
The fortunes of the MGEX received a leg up when the Canadian government abolished the monopsony of the Canadian Wheat Board in 2012 and gave Canadian farmers the freedom to trade their grain produce as they saw fit. A huge number of Canadian farmers use the MGEX to hedge and protect the selling prices of their grain.
The exchange announced April 17, 2014, that open interest (including both wheat and apple juice concentrate) after the close of trading the previous day had reached an all time high again – in fact five of the last six trading sessions had already breached records.
According to Bloomberg, the price of U.S. hard red grain is already up 20% this year, the most since July 2012, and lending a boost to global food prices that shot up 2.3% during March.
Happy days are here again
Seat prices on the MGEX are on an upswing and have nearly doubled, purportedly after Stahl started his buying operation.
(Source: MGEX data)
Prices of seats on MGEX have been perhaps as volatile as the commodities traded on the exchange.
In the graph above the price of nearly $289,000 was the result of persistent speculation that the exchange could be the target of a buyout or other merger and acquisition activity such as that seen between the Chicago Mercantile Exchange and the Chicago Board of Trade in 2006, and later that of the ICE and the New York Board of Trade.
But the financial crisis put paid to all that and seat prices too crashed to a low of $81,000 soon thereafter.
The recent upswing started around August 2012, around the time the Canadian Wheat Board’s monopoly was dismantled, and later when Stahl started to mop up available seats.
Murray Stahl – Likely motives
According to Reuters, Stahl may also be betting on a buyout of the MGEX or other similar M&A deal. Alternatively, he might be planning to trade his fund products on the MGEX platform – something he mentioned on a conference call.
More likely, the MGEX seats may simply be a worthwhile investment, given the spurt in trading volumes in recent days that could enhance the profitability of trading members, and thereby result in increasing demand for seats on the exchange.
In fact, the real estate owned by the Exchange may be worth a tidy sum. In 2008, the three-building complex of the exchange was valued about $14 million, or $35,000 per seat.
That should definitely help the risk-reward analysis for Murray Stahl