Grain Elevators/Hoarding and Speculation

Grain Elevators

Grain elevators are large warehouses or warehouse complexes where grains are stored, conditioned, and distributed. The facilities are named for the mechanical elevators that lift grain in buckets and into storage silos. Grain elevators were first developed at the key Great Lake port of Buffalo in the 1840s and soon after spread to Chicago to handle the millions of bushels of grain transported by rail from the newly settled Midwest farms. Chicago excelled at building the largest and greatest quantity of grain elevators and became an important grain trading center for the world market. Grain elevators contributed to the transformation of modern grain trading by facilitating new kinds of grain markets.

Grain Elevators and Commodity Markets

Grain elevators changed the grain market in two important ways. First, mechanized elevators facilitated the bulk trade of grain. Previously grain was transported in individual bushel sacks, which were labor-intensive because they had to be moved by hand. Grain elevators could unload grain from railcars by mechanically lifting it into storage, which required less labor and increased the speed of moving and storing the grain. The increased speed also necessitated a shift from measuring grain by volume to measuring grain by weight.

The second important shift was in the grain trading structure. In contrast to a sack of grain, grain elevators’ bulk storage meant that grain was no longer traceable to individual farmers. To transfer ownership, the Chicago Board of Trade developed categories and grades of grain and implemented a warehouse receipt system, which tied the stored grain to the market. By 1859, Chicago markets used warehouse receipts to trade and establish futures markets. The new grain market had implications for speculation and hoarding, as described in the following sections. The storage and warehousing of food commodities have changed over the 20th century. Contemporary grain elevators have dramatically increased in size and capacity. Since the 1970s, there have been rationalization and consolidation of grain elevators so that it is not unusual to have grain elevators with more than 2 million bushel capacity. Mergers in the railway industry and grain industry have also fostered very large grain elevator facilities. For example, shuttle grain elevators emerged in the 1990s and are specialty facilities that speed load shuttle trains consisting of more than 110 railcars. Warehouses at these sites can hold more than 7 million bushels of corn and use sophisticated information and computer technology to manage the grain.

Speculation

Speculation is a trade based on the prediction of price movements with the uncertain possibility of a reward. As a result, speculation is risky and trades are usually made with no intention of taking physical delivery but with the intention of resale. As commodity markets grew through the 19th century, they attracted financial traders interested in speculation.

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