The opening bell is seconds away, and the locals are already shouting across the pit and scrumming for position.
A guest, C. Ray Nagin, the mayor of New Orleans, opens the floor, and a game of mental rugby begins. What was right 30 seconds ago, might now be wrong now. There is no pride, no introspection, no hindsight. Floor reporters jab away at IPACs, which communicate through wireless antennas directly to a supervisor's screen. Above the wrangling, the supervisor somehow straightens the mess out real time.
There is no tomorrow in the workday of a floor trader at the New York Board of Trade — only now, and the rise and fall of adrenaline. Price discovery in the cotton pit at NYBOT is not for the faint of heart.
This is what visitors from the cotton industry saw July 16 in the trading pit and in a simulated trading session with floor traders the day before. The event was the Cotton Forum, held at NYBOT's facilities in the New York Mercantile Exchange Building in lower Manhattan.
Danny Finch, a cotton producer from northeast Arkansas, said the simulated trading session gave him a perspective he had never seen before. “I do some trading with Pat McClatchy (president of the Ag Market Network), but I had no clue about how cotton is actually traded.”
Finch says one weakness of his cotton farming operation is marketing. “Used to be you could look at the fundamentals, consumption and what we're growing, and if it was all a wash, we would have a pretty positive market. It's not like that anymore.”
On the age of the traders, most of whom were still in their 20s, Finch noted, “I expected that. You can't do this when you get older.”
Joe O'Neill, NYBOT's senior vice president, market development, said visitors to NYBOT's trading pits and mock sessions got a firsthand look at the human side of price discovery. “The farmers send an order and see it on the screen. When they come here where it actually takes place, they realize maybe it's not as easy as they thought.
“They can have a better understanding when things don't happen as quickly as they like or they don't get the exact price they like, because they realize you have 100 Type A personalities standing around elbow to elbow screaming and hollering, and they all think they're first.
“We all compete everyday, but nobody has to compete the way these guys do,” O'Neill said. “Sometimes, it's who has a better voice or sharper elbows.”
O'Neill also provided some insight into what moves the markets, especially from the technical side. “Charts are not mumbo-jumbo. Charts are indications. If a major cotton merchant sells a million bales of cotton to China, he's not going to call the media first to put it in a newspaper. He's going to come here and hedge. And all of a sudden the price starts moving.
“And when the price starts moving, somebody says it's because the speculators moved. When people don't know why the market moves, they blame the speculators. But the marketplace will tell you if something is going on before the news release will, because these guys want to cover their positions before anyone knows what they've done.”
O'Neill believes the move to trading agricultural futures on-line is still a long way off. “We see financial futures trading on-line, but the ags aren't quite ready for it.
“We rely on the locals here to provide liquidity,” O'Neill explained. “Locals (floor traders) comprise about 45 percent of the volume. For every trade order that comes in, a local will take the other side of the trade. We need him. Without him, we would have a very illiquid market.”
The trading floor in the NYMEX Building is the third floor NYBOT has traded on in three years. The first was destroyed on Sept. 11, 2001, during the terrorist attack at the World Trade Center. That same day, several NYBOT staffers wasted little time getting a backup facility in Long Island City in Queens up and running, and the exchange was trading again by Sept. 17.
For the next two years, the Long Island City site was NYBOT's home while a new trading floor and office complex was being constructed in the NYMEX building, just a few hundred yards from the destroyed World Trade Center complex.
During the time when NYBOT was struggling to get back to full speed, at least one foreign exchange indicated that it was going to try and transfer NYBOT's role as world price-setter in coffee, sugar, cocoa, cotton and orange juice to its own financial center. It did not succeed.
“We are the only exchange in the world that lost its trading floor,” O'Neill said. “We are the only exchange in the world that had a backup facility. We had to make some allowances, shorten some hours, but other than that, everything worked really well.”
The 13,000 square foot facility at the NYMEX building “is a state of the art facility. Communications are superb,” O'Neill said. “Volume is up 41 percent since we moved here. Things have been terrific. The guys like the facility.”
The Cotton Forum also included the Cotton Roundtable held the morning of July 16. A panel of cotton experts commented on cotton crop conditions in the United States and the world and discussed marketing strategies for cotton producers.
The events are sponsored by the Ag Market Network, New York Board of Trade, Certified FiberMax, Cotton Incorporated and Farm Press Publications.