Grains of Wrath – Anger Grows Where Grain Does Not

LETTER TO READERS

On April 9 we published The Last Ships. The argument was that markets had misread the Strait of Hormuz closure as an energy event when the more durable damage ran through fertilizer, and that the consequence would not appear on a screen for months because it was accumulating in the ground rather than in a futures curve. Five days later, on April 13, we told readers where we thought that argument would pay. Not in crude. In wheat.

We were specific about it because vague calls cannot be graded. We said wheat was the purest expression of the food shock thesis and the highest conviction agricultural position available at that moment. We said to go out to at least the December contract, and we gave the reason: December is approximately when the yield shortfall from missed and under-fertilized planting windows begins showing up in actual supply data. We noted that wheat had barely moved since hostilities began and was sitting near where it stood when Operation Epic Fury commenced, and we argued that this was not evidence the thesis was wrong but evidence the market had not yet priced the agricultural lag. We named corn as the higher beta expression of the same idea. We bought both, initiating in the spring and adding through the summer.

When we made the call on April 13, Chicago wheat settled at $5.82¼ and corn at $4.40¼. On Friday, December wheat settled at $7.14¼ and December corn at $5.27½. The move has started.

The price has gone our way. The exact reason as to why has not been established, and some of what we expected has gone against us. So, this is a progress report, not a victory lap, and Chapter One gives the full accounting, including the parts we got wrong.

That is also why the paper in front of you is longer than the one that preceded it. In April we had a week to explain a fertilizer shock while it was happening, which meant compressing the reasoning into the part that was urgent. The reasoning deserves more room than that. What follows develops it properly: what nitrogen actually does to a yield curve and why the relationship is not linear, how weather is landing on a crop that went into the ground with a compromised input base, what the supply and demand picture looks like region by region rather than in aggregate, and where the demand side and the inventory buffer cut against us. We make the case against our own position as hard as we make the case for it.

We have called this report Grains of Wrath. John Steinbeck’s The Grapes of Wrath, published in 1939, followed the Joads, an Oklahoma farm family driven off their land when the Dust Bowl ruined their crops, and traced what hunger turns into. Steinbeck took his title from the Battle Hymn of the Republic, from the line about the vintage where the grapes of wrath are stored.

Our point is simpler, and it is the argument of everything that follows. Anger grows where grain does not. When bread stops being affordable, the consequence does not stay on the grocery bill. It moves into the street, and from the street into governments.

This post is for paid subscribers

Subscribe to Santiago Capital Pro to read the rest.

Terms:

$2,400 / Year

First Name:* First Name Required

Last Name:* Last Name Required

Username:* Invalid Username

Email:* Invalid Email

Password:* Invalid Password

Password Confirmation:* Password Confirmation Doesn't Match

Password Strength  Password must be "Medium" or stronger

Have a coupon?

Coupon Code: Invalid Coupon Coupon applied successfully

Terms: $2,400 / Year

 

Description	Amount
Professional – Initial Payment	$2,400.00
Total	$2,400.00

Stripe

Pay with your Credit Card via Stripe Checkout

I have read and agree to the Terms Of Service*

This site collects names, emails and other user information. I consent to the terms set forth in the Privacy Policy.

 

No val Please fix the errors above