O’Connors and the early 1970’s grain rally

One of the great things about the trading floor is some of the market lore that is handed down…maybe a lot of it falls under the heading of ‘urban legend’…but I keep thinking about a story I heard about the O’Connor brothers making a fortune…probably in the 1970’s.* 
 
I recall walking up to the CBOT in the late 1980’s and seeing a black Lincoln limo pull up with one of the O’Connors getting out, and the interior was upholstered in plaid. No kidding.  And I know at least someone who receives this note is going to correct me and fill me in on the REAL story 
 
In any event, the tale I heard, which I can attribute only to memory, is the following:  The O’Connor brothers were visiting Peru.  Why? I have no idea…  And they kept hearing downbeat stories about the local economy and wondered why.  And it was because there was a weather phenomenon…either la Nina or el Nino, I can’t remember which*… that had ruined the fishing industry for the season.  The importance of this problem was that the fish in question, anchovies, are hugely plentiful ordinarily, the change in ocean current had diverted the fish away from the South American coast.  The fish was mostly dried and ground and used for meal…critically important to not only Peru, but the entire S American economy.   
 
So the O’Connors placed orders to buy up all the soybean meal they could back at the CBOT, and of course the market exploded.  Hence the black limo. 
 
*of course at the time there wasn’t instantaneous information and telecommunications.  Now I just looked up a couple of things on the internet and realize it was el Nino, which creates warmer ocean surface temps on the western S Amer coast that reduce anchovy population. And I further discovered it must have been the 1972-73 el Nino which virtually destroyed the Peruvian fishing industry.
http://www.csa.com/discoveryguides/archives/elnino.php
Now of course that was also the time of the oil crisis/OPEC embargo when all commodity prices shot up due to inflation.  Soybeans went from around $3 bushel to $8 (and now only around $9.50, amazingly enough).
http://www.chartsrus.com/chart1.php?image=http://www.sharelynx.com/chartstemp/free/chartind1CRUvoi.php?ticker=FUTS
 
 
The reason I am thinking about this story is because of the Gulf oil leak, and the possibility of widespread contamination to the food supply.  There are some stories circulating that dispersants used by BP are now diffused through rain, possibly damaging crops. 

http://mideast.beforeitsnews.com/news/76/057/Scientists_Warn_Gulf_Of_Mexico_Sea_Floor_Fractured_Beyond_Repair.html

In addition, talk of another round of QE by the Fed could spark depreciation in the dollar vis-a-vis THINGS, like FOOD.  At the suggestion of JK, who further cites the Australian locust plague, rains in Canada delaying canola plantings, the Icelandic volcano fallout…human sacrifice, dogs and cats living together… mass hysteria! 
I have begun buying some way out of the money calls in deferred Corn and Wheat.

Posted on June 27, 2010 at 1:15 pm by alexmanzara · Permalink
In: Eurodollar Options

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