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Meanwhile, Chicago, located on the shore of Lake Michigan, was establishing itself as a center of trade in grain, livestock, and other physical commodities. As the city grew and roads, canals, and, eventually, railroads connected to it, Chicago cemented its position as the supplier of grain to the more populous East, as well as to much of the rest of the world.

While Chicago became a ready market for Midwestern grain, farmers had little to insulate themselves from cyclical price swings. Without much in the way of storage, producers usually had to take their crops to market soon after harvest. What's more, the farmers had no choice but to take the price offered. Often, prices plummeted as the harvest progressed and the grain markets were flooded with supply.

Eventually, a small group of farmers sought a more efficient way to price their crops, striking agreements with buyers to deliver grain at a set price in the future. If nothing else, the arrangement guaranteed the farmer a set price for the grain. While facing the risk of missing out on added profit if the price fell before the grain was delivered, the farmer was seemingly guaranteed not to suffer should the price plunge.

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Farmers benefited because price risk was being transferred in part to the buyer. Millers benefited as well. While they would miss out on a bargain if prices fell before the grain was delivered, they didn't have to worry that prices would rise sharply.

It was a great idea in theory. The shortcomings of these early forward contracts, however, included the fact that they were difficult to enforce. Since the contracts were agreements jointly between the buyer and seller, farmers were often tempted to wriggle out if prices rose before they made delivery. Millers were also known to renege on their obligations if prices had fallen in the interim.