May

17

 The founder of the modern cow flesh trade Phillip Danforth Armour was born on this day in 1832 in Stockbridge, NY. The town then was the same size that it is now -  two thousand people.  Armour went to California when he was twenty and came back four years later with a fortune - what would be roughly $5 million now ($8000 then).  His next killing came when he got the contract to sell beef to the Union Army. 

Thanks to Nelson Miles, Roosevelt's "brave peacock", Armour and Swift are still seen as villains.  Miles was, what else, a Progressive Democrat; thanks largely to Miles' testimony as a non-witness,  the body counts of the last Indian War have the same accuracy as John Kerry's estimates of what our Genghis Kahn hoards did in Viet-Nam.  

The thing about PD Armour that intrigues me the most is his actions in the wheat market in 1897. In the spring of 1897, 28 year old Joe Leiter decided to corner the wheat market. Leiter had money as his dad was a partner of Marshall Field. The novice Leiter also had a great first trade in wheat, netting $500,000. When he started buying wheat in 1897, it was trading at $0.50 and his buying promptly ran it up to a dollar. (Armour was a seller of wheat). Since dollar wheat hadn't been seen since the Civil War, the farmers sold every grain of wheat they had in storage. Leiter was a hero to the farmers for his "Patriotism." Leiter happened to be a customer of PD Armour, as Armour owned many grain elevators with a capacity of a few million bushels of wheat. He also owned 7,000 reefer rail cars for shipping meat that could be used to ship wheat(or tie up rail lines,) if necessary. Leiter had 1.2 million bushels of wheat in Armour's elevators, which he exported during November of that year, emptying Armour's elevators.

Leiter had a few million bushels of Dec wheat (WZ8 Comdty) and intended on taking delivery which would have left Armour short because he had no wheat to deliver. Armour had his agents scour the country buying up every bushel they could get, plus he also bought wheat futures to cover his short position. Since it was late in the season, Armour had to charter tugs to keep the ice from blocking the waterways and Great Lakes clear so he could get his grain ships through. Armour also built the largest grain elevator in the world on Goose Island to store all the wheat. Interesting factoid…the elevator was built in 28 days.

 Armour got all the cash wheat he needed(he had been short 9 million bushels) and was able to make delivery of 9 million bushels of Dec wheat to Leiter. Incidentally, Leiter had to pay storage to Armour of 3/4 cent per bushel per month. In the spring of 1898, the US went to war with Spain, and the wheat market rallied. However, Leiter was forced to buy May wheat (WK8 Comdty) to keep his corner going. Armour had the wheat, and stuffed another million bushels of wheat on Leiter in May. Armour was hoping that Leiter didn't have the cash but he did have the cash, barely, and was able to hang on.

In March 1898, Leiter charted 21 ships and started exporting wheat. He began lightening up on his July wheat position, selling 6.5 million bushels. While he was selling his July (WN8 Comdty) position, he was attempting to corner the May wheat. Leiter went to Pillsbury and Peavey and got them to double cross Armour and not sell him any wheat. In the meantime, with the war against Spain, wheat traded up to $1.85 and Leiter looked golden. However, Leiter never thought of other variables and left his flank exposed. The wheat crop came in early and huge, and as much as 4.5 million bushels flooded into Chicago in May alone. Armour got Peavey and Pillsbury to re-double cross Leiter and sell him the wheat to stuff down Leiter's throat. The rest of the summer saw Chicago's elevators fill up to the bursting point. All the elevators in the country quickly became full of wheat. The crop turned out to be 650+ million bushels, the war with Spain was short, and the wheat price broke hard very quickly.

Leiter was long 15 million bushels of wheat in both cash and futures. To say he was hurting would be an understatement. His father, Levi, had to come out of retirement to bail Joe out. They ended up selling the 15 million bushels using the very wily Armour as their broker. Leiter never traded wheat again, and he spent the rest of his days being a dandy while hanging around at the track.

The moral of this story is that the cash grain market will always trump the grain futures market. This is very apparent when the front month goes into delivery near the contract expiration.


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