It was May of 1976. The Apple Computer Company had started a month ago, The Bad News Bears showed in theaters, kids hummed along to Peter Frampton and, in New York, 50 million pounds of Maine potatoes that were supposed to be delivered never showed up. A Maine potato war for the ages had broken out.
The story behind the Maine potato war would take more than 10 years to sort itself out in the courts. The potatoes in question hadn’t disappeared. Many simply rotted in warehouses in Maine and elsewhere, unavailable for delivery.
The spuds were destroyed by an out-of-control market and two groups of mega-millionaires hell bent on cheating each other, with neither side willing to back down.
The Maine Potato War
Corruption in the Maine potato market was nothing new. Contracts for the future delivery of potatoes and other commodities such as grain were traded on the New York Mercantile Exchange, notorious for its dishonesty.
As one regulator put it to author Leah McGrath Goodman for her book The Asylum: The Renegades Who Hijacked the World’s Oil Market: “Any customer who traded there was molested, if not raped … As far as we could see, the NYMEX traders did nothing but run scams.”
In 1976, potatoes were big business for NYMEX. And traders constantly manipulated the potato market to turn profit.
In 1913, powdery scab did the trick. Speculators spread rumors that the government would block imports of potatoes from Ireland and Canada because it feared powdery scab spreading to the U.S. All the while, they hoped the scare would drive the price of U.S. potatoes higher.
In 1917, importers in Rhode Island and elsewhere in the Northeast doubled their profits by taking advantage of a scheme by the New Haven Railroad to block shipments of spuds and drive prices skyward.
In 1927, Massachusetts investigated the spike in potato prices and found a market “exceedingly sensitive to romancing.” With the investigation under way, the manipulators abandoned their scam, leaving latecomers and customers out of their money.
The wild price gyrations burdened consumers, but they weighed most on farmers who struggled to know what to spend and how many potatoes to produce.
As the government tried to step in, the opportunities for dishonesty seemed to worsen. In 1948, price supports resulted in a glut of potatoes, with potatoes being given away. A year later, the government had to paint the potatoes it bought to prevent them from being slipped back into the market.
By 1952 the pendulum had swung the other way. Pork subsidies pushed farmers into raising pigs. Meanwhile, the Office of Price Stabilization no longer supported potatoes. Spuds were in such short supply that vendors had to bribe suppliers to acquire even meager amounts for their customers.
On this black market, a store might have to buy left-over coconuts from the holiday season in order to get hold of high-priced potatoes. And again, customers screamed and restaurants pushed rice.
But despite all the manipulation in potatoes, no one had ever seen anything like the Maine potato war of 1975 and 1976.
The futures market began selling contracts to buy May 1976 potatoes in 1975. That’s when J.R. “Jack” Simplot, a self-made billionaire, entered the picture.
If you’ve eaten at McDonald’s, you’ve probably eaten Simplot’s French fries. At one point, the Idahoan supplied half the chain’s fries, and he sometimes bought as much as half of Maine’s potato crop.
His company had invented a method for freezing French fries, and his entrepreneurial drive pushed him to the top of the food chain. In 1975 Simplot didn’t like the prices some of the Idaho farmers charged for their produce. They were simply too high, he thought.
And as he examined Maine potato prices, he thought they were too high, as well. Simplot decided to trust his gut and invest accordingly. He got Washington state potato man Peter J. Tagares and others to join in his investment group. The men began selling Maine potatoes short.
In commodities futures, you can buy or sell actual commodities. But you can also buy and sell commodities you don’t own. For example, if a contract for 100 pounds of Maine potatoes, deliverable in May of 1976, was selling in January for $10, you could sell that contract to someone without actually having any potatoes.
By May, if the price dropped to $8, you could buy the potatoes for $8. Then you could deliver them to the person to whom you sold the first contract and pocket the $2 difference. It’s buying low and selling high, only in reverse. You sell high first and then buy low later to cover your obligations.
The downside, of course, is that if the price of that 100 pounds of potatoes went up to $12, you’d have to buy the potatoes for $12 and deliver them to your customer at $10.
Simplot, a potato man through and through, took the risk. His license plate read: MR SPUD. He knew how the market worked, especially since he controlled so much of it, and he was pretty sure of his guess on prices.
Back in New York, some produce wholesalers well schooled in how the NYMEX worked weren’t so sure. Casper Mayrsohn and Harold Collins, two old hands in the wholesale markets, got wind of Simplot’s scheme. And they saw some easy money.
Together with a group of additional investors they decided to take on Simplot. As the Simplot group sold short to drive the price down, the Mayrsohn group bought long to drive it up. They bought all the potatoes Simplot would promise to deliver.
In April, devastating news came out for Simplot when the U.S. Department of Agriculture issued its regular crop report. The report projected the Maine potato harvest would be about 11 percent smaller than expected. To help offset the report’s effects on potato prices, the Simplot group began dipping into their potato supplies. They shipped the tubers east in so-called ‘roller cars.’
Roller cars were simply train cars filled with produce that had no customer. A roller car would arrive in a city and the produce sold to whoever wanted it. It was a risky way to sell produce under normal conditions, because the supplier had to pay for the shipping. He had no guarantee what he would get in return, and he might not sell the produce at all.
A steady flow of roller cars tended to depress prices of a commodity. Traders viewed them as an indicator of too much produce and too few customers. That’s exactly the impression Simplot wanted to create.
The Maine Potato War Begins
Both sides in the Maine potato war had over-invested and neither could afford to lose the standoff.
The contracts had to be closed on May 17. On that day, the potatoes were to be delivered and the cash handed over. As the day drew nearer, either side could have cut its losses and sold out. But neither side would do it.
The Simplot group tried to use the roller cars to bring prices – and losses – down. The Meyrsohn group brought out another weapon to break Simplot. The group hired up all the available cars on the Bangor-Aroostook Railway and ordered them sidelined.
On the final day of trading, the Meyrsohn group, and others who learned of the standoff, plunged in to buy more potato contracts. Simplot kept right on selling, pushing the prices even higher. Simplot knew his opponents had cornered him. Plenty of Maine potatoes were available, but he couldn’t get at them.
By this point he had promised to sell almost 100 million pounds of Maine potatoes. Only half as many potatoes actually existed. So he put out feelers to buy from the farmers in the Maine cash market. Some told Simplot they had standing orders to top whatever price he offered.
Others declined to sell in anticipation of a huge order expected soon – a rumor designed to further tighten the supply.
The Simplot group faced a simple dilemma. They could begin buying back their contracts, and push the price through the roof, or default. The standoff dragged on.
Though NYMEX has processes in place for settling defaults, in the case of the Maine potato war it ignored its own rules.
Finally, a week after the contracts were supposed to be settled, they were declared in default. The few Maine potatoes that could get to market settled some of the contracts. Idaho potatoes settled some of the others.
But contracts for 50 million pounds of potatoes simply collapsed. The damage splashed everyone. The NYMEX set an arbitrary price to settle the contracts, at $10.60, which clobbered investors.
The lawsuits started flying in earnest.
The NYMEX price was far below what investors expected to make, and below what some had paid. The farmers found themselves sitting on potatoes that few people wanted. The rumored large order never materialized.
And meanwhile, the wholesalers who tried to buy potatoes honestly found themselves shut out of the rail cars they needed. As a result of the Maine potato war, millions of pounds of potatoes rotted in warehouses, unable to get to market.
In the end, the NYMEX barred Simplot from commodities trading for several years, and fined him. Almost 10 years later he had to repay some of the investors’ losses. The NYMEX market for potatoes, meanwhile, closed.
The decision to close the NYMEX potato market forced its leadership to look for other ways to make money. NYMEX expanded its market for oil and petroleum, which became the major focus of the exchange.
And we all know how that worked out.
Image for the Maine potato war By Aaron Zhu, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=59698297. This story about the Maine potato war was updated in 2019.