Cash Market Moves

Last Man Standing Falls: Minneapolis Grain Exchange Sold

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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The last independent grain exchange in the U.S., the Minneapolis Grain Exchange, was acquired by Miami International Holdings, according to a news release on Aug. 14. (DTN photo on left by Mary Kennedy; photo on right courtesy of MGEX)

Miami International Holdings (MIH), the parent holding company of the MIAX Exchange Group, and the Minneapolis Grain Exchange (MGEX), a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), announced on Aug. 14 in a new release that they have entered into a definitive agreement and plan of merger.

Under the agreement, MIH will acquire MGEX for a combination of cash and MIH common stock following a demutualization of MGEX by its members. As a result of the acquisition, MGEX will become a wholly owned subsidiary of MIH. MIH will continue to maintain the trading and clearing operations of MGEX, including its hard red spring wheat contract, while adding new futures products.

Here is a link to the news release: https://www.dtn.com/….

A letter written to members obtained by DTN said: "The proposed transaction consists of two distinct components. The first contemplates the change of MGEX's organizational structure from a Delaware non-stock corporation owned by the Members to become a wholly owned subsidiary of MGEX Holdings, Inc., a newly formed Delaware stock corporation ('MGEX Holdings'). This type of organizational restructuring is sometimes referred to as a 'demutualization' or 'restructuring' transaction, and this is what the board is asking you to approve. Following consummation of the demutualization, the board has approved the merger of MGEX with and into a wholly owned subsidiary of MIH, with the result being that MGEX will become a wholly owned subsidiary of MIH."

The letter went on to explain that the closing of the MIH merger is dependent upon several conditions outlined in the Acquisition Merger agreement, one of which is approval by the members of the demutualization. "You, as a member of MGEX, should make your decision regarding the demutualization knowing that the parties intend for the acquisition mergers to occur as soon as practicable following the demutualization, and all shares of common stock of MGEX Holdings issued in the demutualization will be converted to the right to receive the Merger Consideration.

"While you are only being asked to approve the demutualization and not the MIH merger, it is extremely important to understand that approval of the demutualization by the members will likely result in the closing of the Acquisition Mergers, subject to satisfaction of certain other closing conditions. Information regarding MIH, the Acquisition Mergers and the Merger Consideration is included with this proxy statement and you should understand those transactions when deciding whether to approve the demutualization."

The letter also stated: "As consideration for the MIH merger, each stockholder will be entitled to receive $275,000 per share of common stock of MGEX Holdings (the 'Merger Consideration'). The Merger Consideration will be paid either in cash, newly issued shares of common stock of MIH, with a stated value of $7.25 per share (the 'MIH stock'), or a combination of cash and MIH stock, depending on the stockholder's accredited investor status."

A meeting is expected to be held for the members to approve the demutualization (the "Member Meeting"). "The proposed demutualization must be approved by an affirmative vote of the majority of all of the memberships in good standing and entitled to vote cast by the members through their authorized voters (as defined in the proxy statement) present at the meeting (whether by proxy or in person), provided that a quorum is present." The letter also noted that the Board of Directors of MGEX unanimously approved the demutualization transaction and "recommends that you vote for its approval."

MGEX: AN ESTABLISHMENT RICH IN HISTORY AND TRADITION

The 139-year-old MGEX is one of the oldest trading venues in America with more than 400 seats. It historically concentrated on trading in agricultural products, with the principal market being hard red spring wheat contracts.

In "Grain Merchants, An Illustrated History of the Minneapolis Grain Exchange," author Dave Kenney noted that, in the fall of 1881, just one year after Minneapolis surpassed St. Louis as the nation's leading producer of flour, 21 prominent businessmen met in the basement of a fledging bank to create one of the Mill City's most enduring commercial enterprises. Known originally as the Minneapolis Chamber of Commerce, the Minneapolis Grain Exchange provided a market for most of the grains grown in the Upper Midwest, particularly the much-prized spring wheat.

"Throughout the decades, buyers and sellers on the trading floor engaged in elaborate rituals that helped move farmers' grain to the consumer's table. As its members traded thousands, then millions, then billions of dollars in cash grains and futures, the exchange grew into one of the premier grain markets in the world," wrote Kenney. In the early days, farmers would bring their own wheat in to sell to waiting buyers, and farm trucks would be lined up outside around the Grain Exchange.

I am privileged to have been a prior member, and I spent most of my 18 years there trading cash wheat. "Cash tables" were lined up on the trading floor opposite the trading pit, and elevators in the Midwest would load cars of wheat and send a sample(s) to the MGEX to then be placed in sample pans on the cash tables with official grades to be bought by the highest bidder. End users would sniff, and some would even taste, to see if the quality was good enough for their needs either to mill into bread or send for export.

That all changed on Dec. 19, 2008, when the trading floor was closed as the MGEX shifted to an all-electronic futures trading platform. Those of us who had been a part of the cash market and trading pit gathered to watch the last trade made that day. It was a bittersweet moment for so many of us, and a few tears were shed in the process. Even though the actual trading floor closed, the cash spot market continues to this day in a different area of the Grain Exchange building.

The process was the same as was done on the trading floor, except there was no sniffing and tasting being done -- an art that ended with many of the old-timers retiring. As for the sniffing, one of the old-timers -- a mill buyer -- went to the doctor thinking he had a sinus infection, and it turned out to be a kernel of sprouted wheat in his sinus cavity. While it didn't stop him from his routine, he was more careful when checking the samples.

The USDA Agricultural Marketing Service, Minneapolis, Minnesota, reports the daily spot trades, and it is expected that this important cash market will continue even after the merger. Here is the link to the daily report: https://www.ams.usda.gov/….

Sadly, it's the end of an era for an institution that so many of us in the agriculture business called home for many years and where so many lasting friendships were made.

Editor's Note: DTN supplies grain price data to the Minneapolis Grain Exchange.

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn