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SPEAKER_12: This is Planet Money from NPR.
SPEAKER_11: If you have eaten a potato recently, and I sincerely hope you have, chances are it was a russet, a Western russet.
You know the type, brown, starchy, oblong, delicious when baked, especially when made into French fries.
And this potato, it was probably grown in the rich volcanic soils of Washington or Idaho.
These are two of the Western states that dominate the American potato market.
SPEAKER_09:
But that wasn't always the case. There was a time not so long ago when Maine, the home of rocky beaches, steamed lobster, and pine forests, yes, Maine,
was the potato capital of America.
They grew potatoes with a near religious intensity, even wrote songs about them. Well, if you've never been to Maine,
SPEAKER_02:
you had a taste of God's earth.
Take home a bag of Maine potato, discover what a good land's worth.
SPEAKER_11:
For years, Maine's signature potato was called the Kitata. It was white, a little bit round, a lot a bit delicious.
The all purpose Maine potato, naturally good any way you fix it.
SPEAKER_11: Is there just something about the taste of the Maine potato?
SPEAKER_03: Oh, the best, we always promoted it. Maine potatoes tasted better.
SPEAKER_09: This Maine potato booster is Donald Silver.
SPEAKER_03: Can I call you Don? Please do, I've been called worse than that, believe me.
SPEAKER_09: Don grew up in the heart of Maine's potato growing region. When he was a kid, they would cancel school during harvest. And little Don was out there in the fields filling up potato barrels.
SPEAKER_03: And we got paid so much per barrel.
Very little I'm imagining.
SPEAKER_03: But it was fun.
SPEAKER_09: Back in those days, Maine was the number one potato growing state.
But the West was quickly becoming a potato paradise.
SPEAKER_11: Yeah, Idaho and Eastern Washington had everything. Fertile soil, hot days and cold nights. The only thing they needed was water.
And in the first half of the 20th century, they got it in the form of new dams and irrigation infrastructure.
SPEAKER_09: Pretty soon, Maine potato growers were finding it hard to compete with the states out West.
SPEAKER_03: We used to say we could get 125 barrels an acre.
But out West, they talked tons. 22 tons an acre, 25 tons an acre.
SPEAKER_03: The West seemed like it had everything working
SPEAKER_11: in its favor.
It was on its way to potato domination.
But in this one key way, Maine was still king.
And the reason for that had nothing to do with the quality of their potatoes. No, it had to do with Maine status in a very special financial market.
SPEAKER_09:
To challenge that, the Western potato growers would make a huge bet.
A bet so big that if it worked, it could knock Maine off its potato pedestal forever.
SPEAKER_11: Were you like a general in the Maine Potato War?
SPEAKER_03: Oh, I might have been a second lieutenant.
SPEAKER_11: Hello and welcome to Planet Money. I'm Dylan Sloan.
And I'm Nick Fountain. Today on the show, the Maine Potato War of 1976. The war of the Russets and the Katahdens. When the ambition or maybe ego of a couple of Western potato barons went up against decades of hardened New England potato growing tradition.
SPEAKER_09: This battle for economic control of one of the nation's largest commodity markets would leave the national balance of potato power forever changed.
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SPEAKER_11: This whole potato tale, it's gonna play out
SPEAKER_11: in what's called the commodities market.
And just hear me out for a moment because I think commodities markets are absolute miracles. They're things of beauty.
They're the reason your butcher, your baker, your candlestick maker doesn't have to go buy their raw materials directly from the source, from the rancher or the Miller or the precious metals miner. Instead, there's this centralized marketplace that matches buyers and sellers and makes the whole world go round.
SPEAKER_09: Now, the main potato war of 1976 happened in one of the most important commodities exchanges at the time, the New York Mercantile Exchange.
SPEAKER_12: Do you call it the Merc? Yes, it was called the Merc then and it's now called Nimex. This is Michael Marks.
SPEAKER_11: Michael would eventually run the Merc, but in the 70s, he was just a young floor trader, still remembers the feeling of walking into the tall brick building with vaulted ceilings and just being assaulted by the sound of unbridled capitalism.
SPEAKER_12: A cacophony of noise that sounded like I was entering the Roman Colosseum or the Super Bowl in the last quarter.
SPEAKER_11: Yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah. Were you like a loud guy or did you have to learn how to start yelling like that?
SPEAKER_12: Nick, I'm 5'4", 135 pounds. Yeah.
Not much more than a sack of potatoes
SPEAKER_12: now that you mentioned it.
SPEAKER_11:
So yeah, he had to learn to yell in order to beat out competitors and get the best price on the trading floor.
SPEAKER_09:
At the time, the Merc traded a whole bunch of commodities.
SPEAKER_12: Platinum, palladium, US silver coins, apples,
imported boneless beef, foreign currencies, and the main potato contract. Yeah, potatoes. At the Merc, that was where all the action was.
SPEAKER_11: Potatoes were by far the most traded thing.
And the Merc let potato growers do something almost magical.
It let them sell potatoes that didn't even exist yet.
Future potatoes.
SPEAKER_09: Now, why would you want to sell future potatoes?
In a word? Hedging.
Hedging. Like say, Dylan, you're a potato farmer.
SPEAKER_12: Sure am.
Dylan grows 100 acres of potatoes during the summer,
harvests them in November,
doesn't know what the price is gonna be
in March, April, or May.
SPEAKER_12: But I don't want to risk the price going down.
SPEAKER_12: So instead, I call up my broker at the Merc.
SPEAKER_12:
And they got a nice price there already.
I can sell my potatoes now.
He can sell his potatoes
SPEAKER_11: while there are still seeds in the ground?
SPEAKER_12:
Yes.
SPEAKER_09:
And lock in a price. It's like insurance against the price of potatoes going down. And on the other side, people like, I don't know, potato chip makers, can of course buy my potatoes in the future, lock in their price, and guard against their costs going up.
Now, to be clear, most potatoes weren't being bought and sold on the futures market. They were sold after harvest to supermarket chains and produce wholesalers for whatever the going price was at the time.
But hedging was a really important thing in the unpredictable world of agriculture.
SPEAKER_11: And this constant back and forth at the Merc between potato growers and potato buyers, it is supposed to correspond with the actual physical world of growing and transporting potatoes. If things are working right, traders are calling up their potato farmer friends, asking about the weather in Maine, seeing how much supply there will be in the future, and trying to match that to future demand.
Economists call this price discovery. It's one of the most important functions of any market.
SPEAKER_09:
Right, for people who actually grow and process potatoes, futures are a very useful tool.
But there was also a second, much larger category of investors in the Maine potato futures market.
These were the speculators.
SPEAKER_11: And were you working on the like,
the speculation side or the hedging side? Nope, totally speculation.
SPEAKER_09: Speculators like Michael, just wanted to buy in, get out and turn a profit without ever having to touch a real potato.
SPEAKER_11: And that's not necessarily a bad thing, right? Even if they're just betting, speculators provide something else that economists think is really important for a functioning marketplace. Lots of money, lots of transactions, more people to trade with.
So the market keeps moving and doesn't freeze up.
Now, one very important detail for our story
SPEAKER_09: is that the only potatoes traded at the Merck were Maine potatoes. It had been that way for decades. If you were a grower from Idaho or Washington, your potatoes had no place there.
SPEAKER_11:
And there wasn't necessarily a reason for that. It was just habit mostly. The New York traders knew Maine potatoes.
Those were the only potatoes they cared about, they gossiped about, and they threw their money at.
SPEAKER_09: And not being traded at the Merck, that was a disadvantage for Western growers because they didn't have the same ability to hedge and reduce their risk that the Maine growers did.
And there were some potato buyers who would only get their future potatoes in New York,
meaning that the Westerners were missing out on potential profits.
SPEAKER_11: Now, Don, our second lieutenant in the potato war who grew up picking potatoes by the barrel, he says this is where the Maine potato war started.
The Westerners, they were not happy with this arrangement.
SPEAKER_03: The word that I heard is that they wanted to do away with the exchange because they couldn't control the price.
SPEAKER_11: If you had to pick a face for the Western potato upstarts, there is one clear choice, J.R. Simplot,
Idaho's potato kingpin.
In the 1970s, he was one of the richest men in the country. He controlled a sizable fraction of the US potato market. As a grower, but also as a buyer and a processor, he was McDonald's largest french fry supplier.
SPEAKER_09: It's a big deal. Don, who by that time was a potato trader at the Merc, he has a story I love about the kind of larger than life character Simplot was. One time Don went out to Idaho to meet Simplot, walked into Simplot's office wearing his nicest pinstripe suit.
SPEAKER_03: Said, hey, Silver, and he always called me Silver. Because that's Don's last name, Silver. He looked at me and he called his secretary in, said take this guy out of here,
get him downtown, get him something to wear appropriate, seeing me. What the hell is he talking about?
I'm dressed like a million dollars.
SPEAKER_09: Simplot's secretary took Don to a clothing store down the street.
SPEAKER_03: He gets me outfitted in dungarees, cowboy boots, and a Stetson.
SPEAKER_03: Love that cowboy hat.
SPEAKER_09: Yeah, total power play.
SPEAKER_11:
Now, like with all wars, in the Maine potato war, there are conflicting narratives about what happened when and who wronged who. But some things are for sure, including who started it.
SPEAKER_09: In late March 1976, Simplot and another Western potato magnate named Pete Tagarez made the first move when they opened up a million dollar trading account so they could trade Maine potato futures on the New York Mercantile Exchange.
SPEAKER_11: And 1976, the year of the potato war,
it was not a normal year.
The price of Maine potato futures was at an all time high. Like more than double what it had been the year prior,
for a couple of reasons. One, supply was down because Maine had a lousy growing season, and also demand was up.
Word was there was a potato blight across the Atlantic.
Michael was hearing about it on the trading floor.
SPEAKER_12: So there were rumors that they were exporting
Maine potatoes to Europe.
SPEAKER_11:
And we don't exactly know what Simplot and Tagarez
were thinking when they made that bet.
But one version of the story is this.
In 1976, Western growers had a good harvest. Their potatoes were a lot cheaper than the Maine potatoes trading at the Merc.
SPEAKER_09: Yeah, and so maybe the Westerners figured that at some point when prices were far enough apart,
people would look past their longstanding preference for the Maine potato.
Maybe they second guessed their old habits, and maybe they'd buy Western russets instead.
And if they did that, the price for Maine potatoes
should fall.
SPEAKER_11:
Now, for every futures contract sold, somebody else has to buy it. They have to take the other side of the bet. They have to bet that the price of potatoes is gonna go up.
SPEAKER_09: And the Maine potato farmers and traders are happy to take that bet.
They know all of the factors that are making Maine potatoes scarce and pushing up prices. They can see them right there in their storehouses and in the orders they're getting from Europe.
So this loose band of farmers and traders from around the Northeast goes on the offensive. They start buying up the other side of the bet.
SPEAKER_11:
The sides were set. The Westerners versus, we're gonna call them the Mainers. And all throughout the month of April, the potato war heated up.
Almost immediately after the Mainers staked out their side, the tide started turning in their favor.
Federal inspectors in Maine issued a report in April confirming that that year's supply was down. The market responded.
Prices went up.
SPEAKER_09: But the Westerners punched back.
According to reports, they started shipping train cars full of potatoes to the East Coast without buyers lined up ahead of time, trying to flood the market with supply to send the prices back down.
SPEAKER_11: All of this is happening in anticipation of one date, the last day of potato trading and by far the most consequential. In 1976, it was gonna be on May 7th.
SPEAKER_09: And here's why that day was so high stakes.
All those potato futures that the Westerners were holding, that enormous bet they'd made,
each of those futures contracts was a promise to deliver future potatoes. Specifically, each one represented 50,000 pounds of Maine spuds. Now until closing day, that's just an abstract idea, piece of paper.
But on the final day of trading,
it becomes real potatoes.
So it's almost, it makes me think of like
Cinderella's carriage turning back into a pumpkin or something.
SPEAKER_09:
When the bell rings, this piece of paper, turns into 50,000 pounds of potatoes.
That's it.
SPEAKER_09: Yup.
Yeah. So unless the Westerners got rid of those pieces of paper, they'd have to figure out where to find train cars upon train cars full of Maine potatoes.
SPEAKER_11:
Now, there was a tried and true way
of getting out of those obligations. Say I'm holding one of those pieces of paper that says, I have to deliver a train car full of potatoes. I can just find someone who's holding a piece of paper saying they're owed a train car full of potatoes. And I buy that piece of paper off them, cancel out my potato debts.
SPEAKER_09: Yeah, that was happening on a much larger scale on the last day of trading. Usually right up to the last minute because of all the speculators in the market.
Speculators didn't want to touch any actual potatoes and so they'd scramble to get out.
Over 90% of all the promises to deliver potatoes were usually wiped out on the last day of trading.
SPEAKER_11:
But in 1976, because of the size of the obligation that the Westerners were holding, the Mainers found themselves in a very special position.
As far as they could see it, they were about to pull off one of the most exciting and most satisfying maneuvers in modern day capitalism.
They were about to put on the squeeze.
SPEAKER_09: Here's what that means.
Going into deadline day, the Mainers knew that there were people in the market promising to deliver tens of millions of pounds of main potatoes, unless they got out of the market in time.
And the Mainers knew this promise was a total bluff. They knew from firsthand experience.
And so whoever was on the other side was going to have to come to them and buy them out.
Buy their little pieces of paper and cancel out that potato debt.
They had nowhere else to go.
SPEAKER_03: Or as Don puts it.
They knew they had them by the walls.
They couldn't buy potatoes, they couldn't deliver them. So what's going to happen?
SPEAKER_11: Yeah, what is going to happen?
Coming up after the break, Potato Man Spudgement Day.
SPEAKER_02:
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SPEAKER_08: Darien Woods here. Now the saying goes, let's not reinvent the wheel, but maybe we should reinvent that saying.
SPEAKER_00: I find this expression that we shouldn't reinvent the wheel really annoying because the fact is that ever since
we did invent the wheel, we have been reinventing it.
SPEAKER_08: The wheel, the spoked wheel, the gear, and more. The wheel's invention and reinvention throughout history has been crucial to modern life and the economy.
SPEAKER_00: Things that you invent for one purpose can eventually end up doing completely new things that you never imagined.
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SPEAKER_11:
It was the day of the squeeze, May 7th, 1976.
SPEAKER_09: Michael from the Merc says crowds of people showed up to witness the chaos.
SPEAKER_12: They came in from Maine, they came in from Chicago,
and they were not just spectating,
a lot of them had positions in the market.
So the drama was intense going into that closing bell.
SPEAKER_11: As the clock ticked down, getting closer and closer to that bell, everyone was expecting a tsunami of trades as the Westerners tried to get out of their massive potato delivery obligations.
And the market was busy.
But after the bell rang,
it was clear that something weird had happened.
SPEAKER_12:
After the last day of trading,
the number of outstanding contracts,
which are the ones then where there would have to be a physical delivery, that number is posted.
Normally it would have been two or 300.
SPEAKER_09: Yeah, two or 300, that was reasonable.
That's how many actual train cars of Maine potatoes would usually get delivered after the May deadline. But in 1976, the number of outstanding contracts was way higher than normal.
It was almost 2000.
SPEAKER_12:
So immediately anyone knew that there was a problem.
Here's what had happened.
SPEAKER_11:
Rather than doing what everyone expected, submitting to the squeeze and getting out of their positions at a loss, Simplot and Tugueras had done the opposite. They had doubled down.
And in doing so, they signed themselves up for an extraordinarily difficult task. Sourcing, buying and delivering 50 million pounds of Maine potatoes.
SPEAKER_09: The Westerners were on the hook to deliver more potatoes than some people thought even existed in the entire state of Maine.
Don had his doubts too.
SPEAKER_03: They couldn't deliver. Nobody can deliver that many potatoes.
SPEAKER_09: The Westerners tried to settle their obligations a few ways.
They offered to make good on their potato obligation with Western potatoes. They said, hey, we have lots of Russet potatoes from Idaho.
How about you take those instead?
Mostly the answer they got was no way. The contract specified Maine potatoes. Won't take anything else.
SPEAKER_11:
The Westerners also sent representatives to Maine to buy potatoes, but they couldn't get nearly enough.
As the weeks went by, the truth slowly set in.
Simplot and Tugueras were not going to deliver the potatoes. They were going to default.
SPEAKER_09: Default.
Simplot and Tugueras were legally obligated to deliver all these potatoes
and they just weren't going to do it.
SPEAKER_11: It's hard to overstate just how terrifying this was.
The New York Mercantile Exchange, the entire commodities industry, it is predicated on the shared understanding that if someone is supposed to deliver, they're going to deliver. And these guys just didn't. At the time, this was the largest commodities default in American history.
SPEAKER_09: And this futures fiasco, it wasn't just confined to potatoes. It shook people's confidence.
If people could just get away with not delivering on a contract, then why would anyone use the market at all?
Michael thought that the default might take down the entire New York Mercantile Exchange.
SPEAKER_12: I was devastated.
I thought that was the end of the exchange.
For me, it was, I was pretty despondent.
SPEAKER_11: Now, there are a couple of ways to make sense of the Maine Potato War.
In one version of events, Simplot and Tugueras had a view that Maine potato futures were overvalued and made a massive bet based on that view
that blew up in their face.
Because of their actions, they had to pay fines and penalties for all the contracts they defaulted on, they got banned from commodities trading for a while, and they were stuck in court for years.
SPEAKER_09: They lost.
The other version of this story is very different.
And it kind of comes into focus over the next few years.
In this telling, Simplot and Tugueras aren't merely making a bet.
They don't get into Maine potato futures based on a reading of the market. They had their sights set on a bigger goal,
destroying that market once and for all.
And in this version of things, they are the undisputed victors.
SPEAKER_11:
Because here is what ultimately happened as a result of the Maine potato war.
The Westerners so thoroughly damaged confidence in Maine potato futures that traders got out and the market never recovered.
Not too long after, the Merck delisted Maine potato futures.
You couldn't buy or sell them. They didn't exist anymore.
SPEAKER_09: Without the Maine potato futures market, companies like Simplots and Tugueras became all the more powerful.
Don, our potato trader from Maine,
he says farmers had no choice but to sell to big companies like theirs at whatever price they were offering.
SPEAKER_03: You had to take their contract and you couldn't grow potatoes.
It kind of sounds like they won the Maine potato war. I would say they didn't lose much, except, well, they lost a lot of money, but it was like peanuts to them. That was nothing.
SPEAKER_09: Nearly 50 years later, the J.R. Simplot company
is still one of the biggest privately held companies in the United States. You've almost certainly eaten one of their potato products.
SPEAKER_11: As for the Maine potato growers, Don says without the futures market, they could no longer effectively hedge their risk, no longer lock in high prices and protect against a bad market.
This made farming riskier.
These days, there still is a sizable Maine potato crop, but when you think of potatoes, you don't think...
SPEAKER_06: We've got mountains, we've got ocean, fertile land and summer rain.
We're the home of the great potato.
We're the hardest land on the Maine.
SPEAKER_09: Yeah, instead, everyone just thinks...
SPEAKER_04: When you want the right potato, you know just where to go.
So look for the seal that stands in swing.
Genuine Idaho.
SPEAKER_10: Real good. That's because it's real Idaho.
SPEAKER_11: On The Next Planet Money, three big ideas to improve the economy, improve efficiency, maybe improve our lives.
My big idea is at intersections,
SPEAKER_09: we should get rid of left turns.
SPEAKER_06: Ban left turns.
Ban left turns.
SPEAKER_11:
We'll hear them out. That's next time.
This episode was produced by Sam Yellow Horse Kessler with help from Emma Peaslee. It was edited by Molly Messick, engineered by Valentina Rodriguez Sanchez and fact-checked by Sierra Juarez. Our executive producer is Alex Goldmar.
SPEAKER_09:
Special thanks to Stephen Sondheimer, Jerry Rafferty, Greta Schroeder at the Bangor Public Library and the fine folks at Boise State's Archives Department. I'm Dylan Sloan.
SPEAKER_11: And I'm Nick Fountain. This is NPR. Thanks for listening.
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