The summary of ‘The Maine potato War of 1976 | Planet Money’

00:00:00

In this segment of the video, the hosts discuss the history and transformation of the American potato market. They highlight that the russet potato, particularly from Washington or Idaho, currently dominates the market. However, they explain that Maine was once the potato capital of the United States, growing a signature white potato known as the “Ked.” Mainers, including Donald “Don” Silver, who grew up in Maine’s potato-growing region, have fond memories of the local potato industry, including school closures for the harvest. Despite Maine’s historical dominance, the western states began to outcompete Maine due to fertile soil, favorable climate, and the development of dams and irrigation infrastructure, allowing for significantly higher yields.

00:03:00

In this segment, the video introduces the “Maine potato war of 1976,” a significant conflict in the world of potato farming. It discusses the pivotal role Maine held in a special financial market, unrelated to the quality of their potatoes. Western potato growers made a substantial bet to challenge Maine’s dominance. The war involved major players from the Western U.S. potato industry against long-standing New England traditions, aiming to shift economic power within the national potato commodity market. The segment emphasizes the importance of commodities markets like the New York Mercantile Exchange (referred to as “The Merc”), where this battle played out, and features insights from Michael Mars, who would later manage the exchange.

00:06:00

In this part of the video, the speaker describes walking into a loud, bustling trading floor, likening the noise to a Roman Coliseum or the Super Bowl. The focus then shifts to trading commodities, specifically potatoes, which were the most traded item. The concept of “future potatoes” is introduced, explaining that this practice allows farmers to hedge against price fluctuations by selling their crops before they are harvested, securing a price in advance. This benefits both farmers, who want to avoid the risk of prices dropping, and buyers, like potato chip manufacturers, who want to lock in costs. While most potatoes were sold post-harvest, hedging played a significant role in agriculture’s unpredictable market. The process of matching future supply with demand through trader-farmer interactions is termed “price discovery,” a critical market function. Additionally, the segment mentions a second, larger group in the potato futures market: speculators.

00:09:00

In this part of the video, the discussion focuses on the concept of speculation in the potato market, specifically at the Mercantile Exchange where only Maine potatoes were traded. Speculators played a crucial role in keeping the market active but this limited trading to Maine potatoes, excluding Idaho and Washington growers. This exclusion disadvantaged western growers who couldn’t hedge and reduce their risks like the Maine growers, leading to missed profit opportunities.

The dissatisfaction of the western growers, particularly from Idaho led by J.R. Simplot, sparked what is referred to as the “main potato war.” Simplot, a significant figure in the US potato market and McDonald’s largest french fry supplier, symbolized the western resistance. A notable anecdote highlights Simplot’s assertive personality: during a business meeting, he had Don (a potato trader) change out of his suit into more casual attire as a power move. The segment alludes to conflicting stories about the war’s events but confirms who initiated it.

00:12:00

In this part of the video, the narrative revolves around a significant event in 1976 known as the “potato war” involving two major potato magnates, Simplot and Pete Taras, who opened a million-dollar trading account to trade Maine potato futures. This year saw a dramatic price increase in Maine potato futures due to a poor growing season and increased demand caused by a potato blight in Europe.

Simplot and Taras’s bet hinged on the hope that the lower prices of Western potatoes, resulting from a good harvest, might lead buyers to switch preferences from Maine potatoes to Western russets, potentially causing a price drop in Maine potatoes.

The potato farmers and traders in Maine, aware of the tight supply and strong demand for their potatoes, bet on prices increasing. This situation set off a conflict between the Westerners and the Maine potato supporters (the Mayers). The Mayers responded by buying up futures contracts, causing prices to rise further, especially after federal inspectors confirmed the lower supply in April. The Westerners, in turn, attempted to flood the East Coast market with surplus potatoes to drive prices down.

All these maneuvers were building up to a critical moment—the last day of potato trading, May 7, 1976—when the futures contracts would be settled, forcing the Westerners to deliver vast quantities of Maine potatoes.

00:15:00

In this part of the video, the focus is on the trading of futures contracts for thousands of pounds of potatoes. The video explains that until the final day of trading, these contracts are just abstract pieces of paper. However, by the end of trading, these papers must be converted into actual deliveries of potatoes unless the traders settle their contracts. The transcript details how speculators often avoid holding real potatoes by buying contracts from others to cancel their obligations. In 1976, a group known as the “Mayers” saw an opportunity to exploit the market condition by holding onto large obligations to force other traders to buy them out at inflated prices, an action described as “putting on the squeeze.” The segment ends with a teaser about an upcoming break, hinting at further chaos in the potato market.

00:18:00

In this segment, the podcast discusses various themes from cultural resolutions to environmental restoration efforts and economic history. The hosts revisit their past year’s resolutions concerning reading books and starting new projects, then transition to discussing how humanity is attempting to repair the damage done to nature, particularly focusing on the Florida Everglades. They highlight the success of NPR’s Body Electric study in encouraging active lifestyles and introduce a new bonus episode on the historical reinvention of the wheel. Additionally, the segment recounts an intense trading day on May 7th, 1976, when unexpected market events caused chaos during the closing bell, illustrating the unpredictability and drama in the financial markets.

00:21:00

In this segment, the video discusses a major issue in 1976 where the number of outstanding contracts for Maine potatoes surged to almost 2,000, signaling a problem. Simplot and Tares, instead of exiting their positions at a loss, doubled down and committed to sourcing, buying, and delivering 50 million pounds of Maine potatoes—a nearly impossible task. Attempts to fulfill this obligation with Idaho potatoes or local Maine purchases failed, leading to an impending default.

This default was significant, threatening the very foundation of the New York Mercantile Exchange and shaking the confidence in the commodities market. The event marked the largest commodities default in American history at the time, raising the question of the reliability of the market if contracts could be ignored. The video also explores two perspectives on the situation: one where Simplot and Tares made a risky bet on overvalued potato futures that backfired, resulting in fines, trading bans, and years of legal troubles.

00:24:00

In this segment, the video discusses how Simplot and Taris targeted the Maine potato futures market with the goal of destroying it, rather than merely betting on market movements. Their actions eroded confidence in Maine potato futures to such an extent that traders exited the market, causing it to collapse and be delisted by the Merc. Consequently, companies like Simplot and Taris became more powerful, as Maine farmers were forced to sell their potatoes to these large companies at whatever price was offered. This resulted in increased risk for farmers who could no longer hedge effectively. Although Simplot and Taris incurred financial losses, they gained substantial market power. Today, Simplot remains a major player in the potato industry, while Maine potato growers face greater challenges without the futures market.

00:27:00

In this segment of the video, the narrator discusses the complexities surrounding the multiple legal trials of former President Trump, including state and federal charges, plea deals, and witness testimonies. They introduce a weekly podcast called “Trump’s Trials” from NPR’s TED Radio Hour, which aims to break down significant news from these cases and their implications for democracy in about 15 minutes. The segment also touches on other NPR podcasts, including one where data scientist Hannah Richie offers a hopeful message to young people regarding climate change, and another called “Body Electric” that explores the physical effects of prolonged technology use, encouraging listeners to take a challenge to improve their well-being.