Trading grain now and then: the relative performance of early grain-futures markets

Popular hostilities toward futures trading in the United States date to the nineteenth century, when many Americans perceived then-nascent grain exchanges as little more than gaming parlours that existed to serve the illegitimate aspirations of gamblers–a depiction that, if anything, compromises the legitimacy of modern futures exchanges. Yet, agricultural historians have largely praised the performance of these early markets, which they contend were shaped by commercial interests who sought successfully to mitigate price risk. In any case, our understanding of how early futures markets performed is fragmented, and so such claims remain largely unsubstantiated in a quantifiable sense. Even so, futures-price data are available for the late-nineteenth century, thanks to the Chicago Board of Trade (CBT), which pioneered grain-futures trading in the 1860s. In this article, I test and compare the performance of wheat, corn, and oats futures prices on the CBT from 1880 to 1890 and from 1997 to 2007. My results indicate that grain-futures markets in both periods are efficient in the long run. Short-run performance is mixed, and inefficiency is more evident in the nineteenth century. On balance, my results support the notion that early grain-futures exchanges benefited commercial interests and the grain trade more generally.