Exchange Seats Hint at Direction of Commodities

Alas, industry consolidation has diluted the indicator's effectiveness. The Chicago Board of Trade has since gone public (and been acquired by CME Group (CME)), and the New York Board of Trade (along with the Coffee, Sugar, Cocoa Exchange) has since been taken over by the IntercontinentalExchange (ICE). Nymex (NMX) is in the process of being bought by CME as well.

Enter the Minneapolis Grain Exchange, the small but scrappy exchange that serves as the primary marketplace for hard red spring wheat. Still owned directly by its members, seat prices have boomed to over $220,000 today from $17,000 in September 2004. As you can see from the chart below, not unlike the markets I observed five years back, seats and grain prices tend to correlate quite closely. (See chart below.)

So if you're loaded up on the PowerShares DB Agriculture ETF (DBA) or the iPath Dow Jones-AIG Agriculture Total Return Sub-Index ETN (JJA) and looking for the sign of a top, then tracking membership prices both at the Minneapolis Grain Exchange MGEX Seat Prices) and still-independent Kansas City Board of Trade (KCBOT Seat Prices) are useful indicators worth watching.

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Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.