@sdelsad/commodity-desk-daily 1.0.18 → 1.13.2

package/ep01.script.txt

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+Plus seventy over Z. Fifty thousand tonnes. Firm for ten minutes. ||| 0.5
+Eleven words. Roughly ten million dollars of corn. And if you're new to this business, not one of them means anything yet. ||| 0.5
+This is Commodity Desk Daily, episode one: the units, and the language of the desk. Not a lecture — a decoder. By the end of this episode, that offer reads itself. ||| 0.7
+First, the pulse. Today's markets — quoted, deliberately, in the units you're about to learn. ||| 0.5
+The softs lead. Certified arabica coffee stocks at the exchange have fallen to two hundred forty-four thousand bags, a two and a half year low. ||| 0.3
+A bag is sixty kilos — it's how the coffee trade counts, from farm gate to warehouse. ||| 0.4
+Brazil shipped less than expected after June rains, and arabica jumped over four percent on Friday. Monday, December eased but held the range. ||| 0.5
+Robusta is the mirror image: exchange stocks at a four and a half month high. One coffee market draining, the other refilling. Hold that thought for week three. ||| 0.6
+Sugar: October raws printed new highs for this move. Brazil's Center South crushed sharply less cane in June, and the new season runs behind last year. ||| 0.5
+Cotton: December extended its rally to levels last seen in mid May. The U S cotton belt is hot and dry, and a softer dollar helps U S exports. ||| 0.5
+Grains are quieter, waiting on Wednesday's WASDE — the U S D A's monthly supply and demand report, the one release that stops every grain desk. It gets its own episode next week. ||| 0.4
+China booked two hundred thirty-eight thousand tonnes of U S soybeans, and unknown buyers took a hundred and five thousand tonnes of corn. Demand, quietly ticking over. ||| 0.7
+Now, the units. Start with the strangest one: the bushel. ||| 0.4
+A bushel is a volume measure, not a weight. A basket, roughly thirty-five liters. ||| 0.4
+The number that matters: for soybeans and wheat, a bushel weighs sixty pounds. For corn, fifty-six. ||| 0.4
+Why? The English grain trade measured grain by the basket before anyone weighed it. America kept the bushel. The rest of the world moved to tonnes. ||| 0.5
+Which means a trader converts between the two all day. The magic numbers: thirty-six point seven bushels of beans or wheat per metric tonne. Thirty-nine point four for corn. ||| 0.6
+Chicago quotes grain in cents per bushel. One futures contract — one lot — is five thousand bushels. Call it a hundred and thirty-six tonnes of wheat, or a hundred and twenty-seven of corn. ||| 0.5
+So when a desk says it bought fifty lots of corn, that's a quarter of a million bushels — about sixty-three hundred tonnes. Counted in lots, moved in tonnes, quoted in cents. Three languages for one pile of grain. ||| 0.7
+Practice the conversion once, because you will do it forever. Chicago wheat at six dollars forty a bushel. Times thirty-six point seven: about two hundred thirty-five dollars a tonne. ||| 0.4
+Now a Russian export offer at two hundred twenty-three dollars a tonne means something to your eye. Different wheat, different port — that comparison is a later episode — but the numbers now live on the same axis. ||| 0.6
+Two more ton traps. The world trades the metric tonne — two thousand two hundred four pounds. American domestic markets often use the short ton — two thousand pounds flat. Ten percent apart. Confuse them on a contract and you have given away one tonne in ten. ||| 0.6
+And rice quotes in dollars per hundredweight — cwt, a hundred pounds. Coffee, sugar and cotton: cents per pound. ||| 0.6
+Last piece of arithmetic: the tick, the minimum price move. In Chicago grains, a quarter of a cent per bushel. On a five thousand bushel lot, that's twelve dollars fifty. ||| 0.4
+Softs desks talk in points instead — one point is a hundredth of a cent. Coffee up one twenty on the day means a hundred and twenty points. One point two cents. ||| 0.5
+Do the tick math on our fifty lot corn buyer. A ten cent move is forty ticks — five hundred dollars a lot, twenty-five thousand dollars across the position. From four words on a squawk box, you now know the money. ||| 0.8
+Here's how those units sound at work. A trader and a broker, eight seconds of business. ||| 0.5
+TRADER: Where's Dec corn? ||| 0.25
+BROKER: Four sixty-two bid, at four sixty-two and a half. ||| 0.25
+TRADER: Buy me fifty at the half. ||| 0.25
+BROKER: Done. Fifty lots at four sixty-two and a half. ||| 0.5
+Unpack it. Dec is the December contract. Bid is where buyers are paying. At — that one small word introduces the offer. Four sixty-two bid, offered at four sixty-two and a half. ||| 0.4
+And done is not filler. Done means the trade exists. On a desk, done is a contract — the paperwork comes later. ||| 0.7
+That was futures. Physical grain — real tonnes in a real port — speaks a second dialect. ||| 0.4
+Physical almost never trades at a full price. It trades as a distance from the futures board: plus eighty. Minus twenty. Always against a named month. ||| 0.5
+That distance is called the differential — or the basis. Say a corn exporter offers plus seventy over December: the price is December futures, whatever it is right now, plus seventy cents. ||| 0.5
+The months carry one letter codes, and desks say them out loud. H is March. K is May. N is July. U is September. Z is December. And X is November, the soybean harvest month. So Gulf corn plus seventy Z. Beans plus eighty X. ||| 0.6
+Two more words of grammar. Prompt means nearby — shipment now, or close to it. Deferred means further down the curve. The same corn can be plus seventy prompt and plus fifty deferred, and that gap is information. ||| 0.7
+Now listen to a physical trade. A buyer and an exporter, Gulf corn. ||| 0.5
+BUYER: Gulf corn, first half September, where are you? ||| 0.25
+SELLER: I can offer plus seventy-two over Z. ||| 0.25
+BUYER: I'm a buyer at plus sixty-eight. ||| 0.25
+SELLER: Can't get there. Plus seventy, fifty thousand tonnes, firm for ten minutes. ||| 0.25
+BUYER: Done. Seventy over Z, first half September. ||| 0.6
+That seller's line is the sentence we opened the show with. Notice what never got said: a price. Both of them carry the board in their heads, and the only number they argued about was the plus. ||| 0.5
+And notice firm for ten minutes — an offer with a fuse. A firm offer is tradable: say done, and it binds. Which is exactly why sellers put a clock on it. ||| 0.7
+Third dialect: the verbs. There are about seven you need, and they are precise. ||| 0.4
+You are never "interested in buying". You are bid. You never "consider selling". You offer. Bid and offer are commitments, not moods. ||| 0.5
+To work an order is to leave it resting with a broker — working sixty-eight means your bid sits in the market while you do something else. ||| 0.4
+When a buyer takes an offer, the offer was lifted. When a seller sells into a bid, the bid was hit. Direction is baked into the verb: lifted means the buyer moved. Hit means the seller did. ||| 0.5
+And when two offsetting physical contracts between the same two parties get cancelled against each other — settled for the money difference instead of shipping grain both ways — the trade was washed out. ||| 0.7
+One more exchange. A broker giving a desk its morning picture. ||| 0.5
+BROKER: Your plus eighty offer — I've got a buyer indicating seventy-five. ||| 0.25
+DESK: Work seventy-eight. Firm. ||| 0.25
+BROKER: He lifts it. Done at seventy-eight for twenty-five thousand tonnes. ||| 0.25
+DESK: Confirmed. What's on the bid side? ||| 0.25
+BROKER: Someone hit a seventy-two bid this morning. I'd call your market seventy-two, seventy-eight. ||| 0.6
+Two trades, and the desk knows where its market lives: seventy-two bid, seventy-eight offered. Nobody published that. It lives only in the traffic — which is why desks pay brokers, and why the language matters. ||| 0.8
+Now the question underneath the whole episode. Why does physical grain quote differentials at all? Why plus seventy, instead of just saying five dollars thirty-two? ||| 0.5
+Because the price of grain is really two risks glued together — and only one of them is yours. ||| 0.4
+The futures leg is world risk: weather, funds, a WASDE print. It's public, it's violent, and anyone can shed it on the screen in one click. So the conversation doesn't waste breath on it. ||| 0.5
+The plus is the local part: this port, this shipment window, this quality. No screen will take that off your hands. So that is the part professionals negotiate. ||| 0.5
+The grammar mirrors the risk. Listen to any quote and you can hear where the risk sits: the board carries the world. The plus carries your problem. ||| 0.5
+It's also what lets a physical offer survive. Plus seventy can stay firm for ten minutes while the board moves a nickel. A flat price offer would be stale in seconds. The convention is what makes trading real grain around a live screen possible at all. ||| 0.8
+If half of today felt foreign — good. Nobody learns a language from a dictionary. You learn it by hearing it used, daily. That's what this show is. ||| 0.5
+And nothing is lost: the notes carry a full glossary — every unit, every conversion, every verb — growing with the series. When an episode outruns you, it catches you. ||| 0.7
+What to remember. A bushel is volume, not weight: sixty pounds for beans and wheat, fifty-six for corn — thirty-six point seven and thirty-nine point four to the tonne. ||| 0.5
+A quote has two parts, and only one gets negotiated. The board is the world. The plus is the local truth. ||| 0.5
+And the verbs are contracts. Bid, offer, lifted, hit — and done means done. ||| 0.7
+Next episode: what a desk actually does with that plus. Flat price versus basis — why the number on the screen is not your price, and why the gap between them is where a physical merchant lives. ||| 0.4
+The quiz for today is in the notes — three questions, all application, solutions below the fold. Same time tomorrow. ||| 0.5

package/ep02.md

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+# Commodity Desk Daily — Ep 2
+## What a Merchant Does, and Why Basis Is the Whole Game
+
+---
+
+### Key takeaways
+
+- Merchants are paid for **transformation — space, time, form** — not for predicting prices. Thin margins, enormous volumes.
+- **Physical vs paper**: a physical desk uses futures constantly, but as a hedge, never as a bet. Buy a cargo, sell the equivalent futures within minutes, and the flat-price exposure is gone on purpose.
+- What remains is the **basis**: the difference between your specific cargo and the futures price.
+- Worked example: Santos beans at futures −20¢, sold to a Chinese crusher at +80¢ delivered, freight 60¢, costs 10¢ → **30¢/bu ≈ $11/t ≈ $660k** on a 60,000 t Panamax.
+- A **$1.00 board move nets to zero**. A **10¢ basis move is $220,000** on that same cargo — a third of the trade. That asymmetry *is* the job.
+- Basis is not financial abstraction: it is vessel line-ups, river levels, protein content and who needs cargo this week.
+- A merchant does **not** get rich in a bull market — the hedge means the flat-price gain belongs to whoever owned it (farmer, fund). Volatility and dislocation pay; high prices merely cost more to finance.
+- **Assets map onto the three transformations**: storage → time, terminal → space, crush plant → form. The large houses run a hybrid of owned and rented capacity.
+- Three risks survive a "perfect" hedge: **unfixed freight, origin basis while accumulating, and execution** (demurrage, quality claims, counterparty failure).
+
+### Vocabulary of the day
+
+| Term | Meaning |
+|---|---|
+| Space / time / form | The three transformations a merchant is paid for |
+| Physical (cash) | Real cargoes under contract, with specs and load windows |
+| Paper | Exchange futures and options — used to hedge, not to speculate |
+| Flat price exposure | Outright price risk, removed deliberately by hedging |
+| FOB Santos | Cargo priced free on board at the Brazilian port |
+| Arb (arbitrage) | The full economics of moving a cargo: buy, freight, costs, sell |
+| Line-up | The queue of vessels waiting to load at a port |
+| Asset-light / asset-heavy | Renting the chain vs owning elevators, terminals, plants |
+| ABCD | ADM, Bunge, Cargill, Louis Dreyfus |
+| Demurrage | Penalty owed when a vessel is held beyond agreed laytime |
+| Stocks-to-use | Ending stocks ÷ total use — the market's tension gauge |
+
+### Market pulse
+
+WASDE and Crop Production land today at noon Washington time. Yesterday the trade was looking for corn yield near 182.4 bu/acre against a current 183. The episode goes one level deeper than yesterday's mention: yield × harvested acres → production; + carry-in → supply; − feed, exports, ethanol and food → **ending stocks**; ÷ total use → **stocks-to-use**. Half a bushel of yield ≈ 45 million bushels — trivial against a 2.1-billion-bushel crop, decisive against the stocks number. That multiplier is why desks argue over a decimal place.
+
+---
+
+## Quiz — Day 2
+
+**J-0 — Episode 2: What a merchant does, and why basis is the whole game**
+
+**Q1.** You buy the Santos cargo at futures −20 and immediately sell futures. Overnight, Chicago falls 80¢/bu **and** the Santos differential widens from −20 to −35. Your boss says "flat price fell, we're hedged, so we're flat." Is he right? Quantify what actually happened on 2.2 million bushels, and say who bears it.
+
+**Q2.** A competitor owns the export terminal at a chronically congested port; you rent capacity there. In a year when trading margins are terrible, whose business suffers more, and why? Frame your answer using space / time / form.
+
+**Q3.** Wheat rallies 60% over six months. Rank these three by how much they benefit, and explain the mechanism for each: (a) the farmer who has not yet sold, (b) a macro fund that went long futures at the start, (c) a merchant with an active book of hedged cargoes. Then name one specific way the merchant could actually make *more* money in that environment — without taking a flat-price view.
+
+*Answer in the conversation to get detailed feedback.*
+
+---
+
+<br><br>
+
+## ▼ SOLUTIONS BELOW — scroll only after answering ▼
+
+<br><br>
+
+**A1.** He is wrong, and expensively so. The 80¢ fall on the futures is genuinely neutral: the cargo lost 80¢, the short futures gained 80¢. But the **basis moved against you by 15¢** (−20 → −35): the cargo you own is now worth 15¢/bu less *relative to futures*, and the hedge does nothing for that. On 2.2 million bushels that is **$330,000 of loss** — half the trade's entire expected margin. Nobody else bears it: basis risk is exactly the risk the merchant is paid to take, and the reason the flat-price hedge exists is to make this line visible rather than hidden inside a bigger number. The trap is the word "flat": hedged means *flat-price* flat, not risk-free.
+
+**A2.** You suffer more. The terminal is a **space** asset: in a congested port, the bottleneck is physical access to the vessel, and whoever owns it collects an elevation margin from every tonne that passes — including yours. When trading margins compress, that asset income is stable while your trading income is not; worse, your competitor can bid more aggressively for cargo because he recaptures part of his own cost internally. The general principle: assets convert a volatile trading margin into a steadier toll, which matters most precisely in bad years. The counter-argument, which is real: in a year of weak volumes, that terminal sits half-empty and its fixed costs still have to be paid — asset-heavy raises the floor and lowers the ceiling.
+
+**A3.** (a) The **farmer** benefits most: he is long the physical crop with no hedge, so the entire 60% accrues to him. (b) The **fund** captures the futures move on its notional, magnified by leverage but with margin calls along the way and no physical to fall back on. (c) The **merchant** benefits least — he is hedged, so the 60% passes straight through him; worse, the same tonnage now ties up 60% more working capital and costs more to finance, and margin calls on the short futures leg consume cash before the physical is sold. As for making more money without a price view: a bull market usually comes with **dislocation**, and dislocation widens basis and spreads. Concretely, the merchant can lean into carry when the curve pays storage, capture wider origin-destination differentials as buyers scramble, or supply prompt cargo to a squeezed market at a premium — all basis and spread plays, none of which require an opinion on flat price.
+
+---
+
+## The episode, in writing
+
+### Market pulse — going one level deeper on WASDE
+
+WASDE and Crop Production land today at noon Washington time. Yesterday the number to watch was corn yield near 182.4 bu/acre against a current estimate of 183. What matters is not the yield itself but the chain it sits in.
+
+Yield × harvested acres gives production. Production + carry-in gives total supply. Subtract feed, exports, ethanol and food use, and what remains is **ending stocks**. Divide ending stocks by total use and you have **stocks-to-use** — the market's tension gauge.
+
+Half a bushel of yield is roughly 45 million bushels. Against a 2.1-billion-bushel crop, that is small. Against the stocks number, it is not. The yield moves the stocks figure by a multiple — which is why a desk argues over a decimal place.
+
+### The merchant is not a speculator
+
+Ask most people what a commodity trader does and they will say: buys wheat, waits for it to go up, sells it. That is almost exactly wrong.
+
+A merchant is paid for **transformation**, in three forms. **Space** is geography: buy soybeans in Mato Grosso where they are abundant, deliver them to a crusher in Shandong where they are needed. **Time** is storage: buy wheat at harvest when every farmer sells at once, hold it, sell it in spring. **Form** is processing: crush soybeans into meal and oil, mill wheat, refine sugar.
+
+Each transformation costs something — freight, storage, financing, processing — and the job is to lock a selling price that exceeds the buying price plus all of it. The margin is thin, a few dollars a tonne. The volumes are enormous. That is the model.
+
+### Physical vs paper
+
+Physical means real cargoes: actual beans, on an actual vessel, against a contract with a real counterparty, a quality spec and a load window. Paper means exchange futures and options.
+
+A physical desk uses paper constantly — but almost never to speculate. Buy 60,000 t of beans and you are instantly long 60,000 t of price risk; within minutes the desk sells the equivalent in futures. If the market collapses tomorrow, the loss on the cargo is offset by the gain on the short. The flat-price exposure is gone, deliberately.
+
+What remains is the difference between your specific beans and the futures price: the **basis**.
+
+### The numbers that make the point
+
+Brazilian beans FOB Santos at futures **−20¢**/bu. A Chinese crusher pays futures **+80¢** delivered. Gross spread $1.00. Freight 60¢. Financing, insurance and port costs 10¢. Margin: **30¢/bu ≈ $11/t**, or about **$660,000** on a 60,000 t Panamax.
+
+Now move the market. Chicago beans rally $1.00 overnight: the cargo gains a dollar, the short futures loses a dollar, **net zero**.
+
+Now move the basis instead. You bought at −20; that same cargo now trades at −10. Ten cents on 2.2 million bushels is **$220,000** — a third of the trade — and the board never moved.
+
+A dollar of flat price was worth nothing. Ten cents of basis was worth a third of the trade.
+
+> **TRADER:** Where are you on Santos November?
+> **BROKER:** Sellers are plus five, buyers are around minus two.
+> **TRADER:** I paid minus twenty three weeks ago.
+> **BROKER:** Different market. Line-up's full and the river's low. Nobody's offering cheap.
+
+Nothing there was about soybean prices. It was vessel queues and river levels. **Basis is the price of logistics, quality and urgency** — physical facts, not market opinions.
+
+### Why a bull market is not a merchant's friend
+
+If wheat rallies 50%, the merchant is hedged: the gain belongs to whoever owned the flat price — the farmer, the fund, the speculator. The merchant earns the same few dollars a tonne, on more expensive inventory that costs more to finance and generates margin calls on the short leg.
+
+Higher prices are not obviously good for a trading house. **Volatility and dislocation** are.
+
+### Assets, through the same lens
+
+Some merchants own the chain — elevators, ports, crush plants, terminals; others rent. Map it onto the three transformations and the logic is immediate: own storage and you can play time; own a terminal in a congested port and you own space; own a crush plant and you own form.
+
+The cost is capital, and in bad years those assets sit half empty. The large houses run a hybrid: strategic assets where control matters, rented capacity everywhere else.
+
+The landscape is **ABCD** — ADM, Bunge, Cargill, Louis Dreyfus — with COFCO, Olam, Viterra and Glencore's agricultural arm around them. Louis Dreyfus has been doing this since 1851, which says something about the durability of the model when it is run properly.
+
+### What survives a perfect hedge
+
+That $660,000 is not risk-free. Three things can still take it.
+
+**Freight.** You priced the arb at 60¢. If the vessel is not fixed and freight rallies $20/t, the margin is gone.
+
+**Origin basis.** You still have to buy the beans. If Santos moves from −20 to +5 while you accumulate, you are buying at a loss against a sale already made.
+
+**Execution.** Demurrage on a delayed vessel, a quality claim at discharge, a counterparty who does not perform.
+
+The hedge removed the risk you could not control. Everything left is the risk you are paid to manage.
+
+### Takeaway
+
+Merchants are paid for transformation across space, time and form — not for prediction. Flat price is hedged away on purpose so the desk can concentrate on basis, freight and execution. And basis is not an abstraction: it is vessel queues, river levels, protein content and who needs cargo this week.
+
+**Tomorrow:** the futures side properly — how a hedge is actually placed, what a margin call does to a solvent trade, and what the shape of the forward curve is telling you.

package/ep02.script.txt

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+Commodity Desk Daily, episode two. ||| 0.35
+Yesterday we learned the words. Today we use them, on the question that defines the whole job. ||| 0.5
+What does a commodity merchant actually get paid for? ||| 0.7
+Market pulse first. ||| 0.35
+Today is the day. At noon Washington time the U S D A publishes Crop Production and WASDE. ||| 0.4
+Yesterday I said the trade was looking for corn yield near one hundred eighty-two point four bushels an acre, against a current estimate of one hundred eighty-three. ||| 0.4
+Here is what actually matters about that number, and it is not the yield itself. ||| 0.45
+Yield times harvested acres gives you production. Production plus carry-in gives you total supply. Subtract feed, exports, ethanol and food use, and what is left is ending stocks. ||| 0.45
+Divide ending stocks by total use and you get stocks-to-use — the market's tension gauge. ||| 0.5
+Half a bushel of yield is roughly forty-five million bushels of supply. On a two point one billion bushel crop that is small. On the stocks number, it is not. ||| 0.45
+That is why the desk cares about a decimal place. The yield moves the stocks number by a multiple. ||| 0.6
+Now, the merchant. ||| 0.4
+Ask most people what a commodity trader does and they will say: buys wheat, waits for it to go up, sells it. ||| 0.45
+That is almost exactly wrong. ||| 0.5
+A merchant is paid for transformation. Three kinds. ||| 0.4
+Space. Time. Form. ||| 0.7
+Space is geography. Buy soybeans in Mato Grosso where they are abundant, deliver them to a crusher in Shandong where they are needed. ||| 0.4
+Time is storage. Buy wheat at harvest when every farmer is selling at once, hold it, sell it in spring. ||| 0.4
+Form is processing. Crush soybeans into meal and oil. Mill wheat. Refine sugar. ||| 0.5
+Each transformation has a cost — freight, storage, financing, processing. The merchant's job is to lock a selling price that exceeds the buying price plus all of it. ||| 0.45
+The margin is thin. A few dollars a tonne. The volumes are enormous. That is the business model. ||| 0.6
+Which brings us to the distinction that organises everything: physical versus paper. ||| 0.45
+Physical means real cargoes. Actual beans, on an actual vessel, against a contract with a real counterparty, a quality spec and a load window. ||| 0.4
+Paper means futures and options on an exchange. ||| 0.4
+And here is the key. A physical desk uses paper constantly, but almost never to speculate. ||| 0.5
+Buy sixty thousand tonnes of beans, and you are instantly long sixty thousand tonnes of price risk. Within minutes, the desk sells the equivalent in futures. ||| 0.45
+Now if the market collapses tomorrow, the loss on the cargo is offset by the gain on the short futures. ||| 0.4
+The flat price exposure is gone. Deliberately. ||| 0.5
+What is left is the difference between the price of your specific beans and the futures price. ||| 0.4
+And you already know what that is called. ||| 0.35
+That is the basis. The differential you heard being argued over yesterday. ||| 0.6
+Let's put numbers on it, because this is where it becomes real. ||| 0.4
+Brazilian beans, F O B Santos, at futures minus twenty cents a bushel. A Chinese crusher pays futures plus eighty, delivered. ||| 0.45
+Gross spread, one dollar a bushel. Freight, sixty cents. Financing, insurance and port costs, ten. ||| 0.4
+Thirty cents of margin. About eleven dollars a tonne. On a sixty thousand tonne Panamax, six hundred sixty thousand dollars. ||| 0.55
+Now watch what happens when the market moves. ||| 0.4
+Chicago beans rally a dollar a bushel overnight. The cargo you own is worth a dollar more. Your short futures lost a dollar. Net effect on your profit: zero. ||| 0.5
+But suppose instead the Santos differential moves. You bought at minus twenty; the market for that same cargo is now minus ten. ||| 0.45
+Ten cents a bushel, on two point two million bushels, is two hundred twenty thousand dollars. ||| 0.4
+The board did not move at all. ||| 0.4
+A dollar of flat price was worth nothing to you. Ten cents of basis was worth a third of the trade. ||| 0.6
+Listen to how that gets negotiated. ||| 0.35
+TRADER: Where are you on Santos November? ||| 0.25
+BROKER: Sellers are plus five, buyers are around minus two. ||| 0.25
+TRADER: I paid minus twenty three weeks ago. ||| 0.25
+BROKER: Different market. Line-up's full and the river's low. Nobody's offering cheap. ||| 0.6
+Nothing in that exchange was about soybean prices. ||| 0.4
+It was about vessel queues and river levels. Basis is the price of logistics, quality and urgency — and those are physical facts, not market opinions. ||| 0.55
+Which is also why a merchant does not get rich from a bull market. ||| 0.45
+If wheat rallies fifty percent, the merchant is hedged. The gain sits with whoever owned the flat price — the farmer, the fund, the speculator. ||| 0.45
+The merchant earns the same few dollars a tonne, on more expensive inventory that costs more to finance. ||| 0.5
+This is the part people find counter-intuitive. Higher prices are not obviously good for a trading house. Volatility and dislocation are. ||| 0.6
+Now, the assets. ||| 0.35
+Some merchants own the chain: elevators, ports, crush plants, terminals. Others rent everything. ||| 0.4
+Look at it through the three transformations and it becomes obvious. Own storage and you can play time. Own a terminal in a congested port and you own space. Own a crush plant and you own form. ||| 0.5
+The cost is capital, and in bad years those assets sit half empty. The large houses run a hybrid — strategic assets where control matters, rented capacity everywhere else. ||| 0.55
+And the landscape: A B C D — Archer Daniels Midland, Bunge, Cargill, Louis Dreyfus. Around them COFCO, Olam, Viterra, and Glencore's agricultural arm. ||| 0.4
+Louis Dreyfus has been at it since eighteen fifty-one, which tells you something about how durable this model is when it is run properly. ||| 0.6
+One last thing, and it is the honest part. ||| 0.4
+That six hundred sixty thousand dollars is not risk-free. Three things can still take it from you. ||| 0.45
+One: freight. You priced the arb at sixty cents. If you have not fixed the vessel and the market rallies twenty dollars a tonne, that margin is gone. ||| 0.45
+Two: the basis at origin. You still have to buy the beans. If Santos rallies from minus twenty to plus five while you are accumulating, you are buying at a loss against a sale you already made. ||| 0.45
+Three: execution. Demurrage on a delayed vessel, a quality claim at discharge, a counterparty who does not perform. ||| 0.5
+The hedge removed the risk you could not control. Everything left is the risk you are paid to manage. ||| 0.6
+Takeaway. ||| 0.35
+Merchants are paid for transformation across space, time and form — not for prediction. ||| 0.4
+Flat price is hedged away on purpose, so the desk can concentrate on basis, freight and execution. ||| 0.4
+And basis is not a financial abstraction. It is vessel queues, river levels, protein content and who needs cargo this week. ||| 0.55
+Tomorrow: the futures side properly — how a hedge is actually placed, what a margin call does to a solvent trade, and what the shape of the forward curve is telling you. ||| 0.4
+Quiz is in your notes. See you then. ||| 0.3

package/ep03.md

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+# Commodity Desk Daily — Ep 3
+## Futures Plumbing and the Shape of the Curve
+
+---
+
+## Market pulse
+
+**WASDE day. The report lands at noon Washington time — the first survey-based, state-by-state look at the 2026 crop.**
+
+| Contract | Close (Tue) | Change |
+|---|---|---|
+| Corn, December | $4.60½ /bu | −1¼¢ |
+| Soybeans, November | $11.68¾ /bu | −10¾¢ (5-week low) |
+| Wheat, Chicago September | $6.30¼ /bu | −10¼¢ |
+| Wheat, Kansas City September | ~$6.99 /bu | −14¼¢ |
+| Wheat, Matif September | — | −€5.25/t |
+
+The average trade guess for corn yield is **182.5 bu/acre** against the USDA's standing 183 — but individual estimates run from about 180 to nearly 185. That range is the story: nobody trades the number, they trade the gap between the number and the guess. Soybean estimates centre on 52.9 bu/acre. Positioning ahead of the print was defensive — technical selling took beans to a five-week low.
+
+**The geopolitical read.** Wheat's drop had little to do with the report. Reports circulated that Russian and Ukrainian officials may meet in Turkey to discuss safe passage for vessels. A market that has spent a month pricing grain *trapped* behind a damaged coast spent Tuesday pricing the chance of it getting *out*: reopened export capacity would push trapped supply onto the world market (world price down), lift collapsed origin prices toward it, and deflate the freight and war-risk premiums that blew out in July. Nothing is signed — but headlines about capacity move price long before any vessel does. Ukraine, meanwhile, cut its own 2026/27 export forecast to roughly 38–40 Mt.
+
+If the noon number surprises, these markets can gap — and a gap on the board is a same-day cash demand for every hedger. That is today's subject.
+
+---
+
+### Key takeaways
+
+- Every contract has a spoken **ticker**: ZW wheat, ZC corn, ZS beans, ZM meal, ZL oil; KC coffee, SB sugar, CT cotton. Ticker plus month code: "ZCZ" is December corn.
+- A contract lists many months, but **liquidity lives in a handful**, and mostly in the nearest one or two. Distant months are thin and wide.
+- Hedges travel between months by **rolling**, executed as a **calendar spread** at one price — "Sep-Dec fifteen, Dec over" — never as two flat prices.
+- **Variation margin** is settled in cash, same day. A hedge converts price risk into **liquidity risk**: in 2022, wheat limit-up days forced hedged European merchants and co-ops into emergency credit lines — some unwound *correct* hedges because the cash ran out.
+- The forward curve is information. **Carry (contango)**: later months over nearer. **Inverse (backwardation)**: front over back.
+- **Full carry** = storage + interest ≈ the ceiling on a carry spread. Worked example: wheat at $6.30, storage 5¢/month, interest ~3¢/month → full carry ~24¢ over three months; a 15¢ Sep-Dec spread pays ~60% of full carry.
+- The same spread says "don't store" to whoever pays commercial storage (15¢ − 24¢ = −9¢) and "store" to the elevator that owns its bin (15¢ − 9¢ interest = +6¢). **Your own costs decide.**
+- Spreads can't sit far *above* full carry (cash-and-carry arbitrage caps them) but have **no floor below** — an inverse is the market screaming for grain now, and it punishes storage twice: storage cost plus a bleeding roll.
+
+### Vocabulary of the day
+
+| Term | Meaning |
+|---|---|
+| Ticker | Short screen code for a contract: ZW, ZC, ZS, ZM, ZL, KC, SB, CT |
+| Front month | The nearest actively traded contract month, where liquidity is deepest |
+| Roll | Closing a hedge in one month, reopening it further out — traded as a spread |
+| Calendar spread | Price difference between two months of the same contract, traded as one instrument |
+| "Dec over" | Spread-quoting convention naming the expensive leg |
+| Carry market (contango) | Later months above nearer ones — the market pays for storage |
+| Inverse (backwardation) | Front months above later ones — the market pays for immediate delivery |
+| Full carry | Storage plus interest per month — the practical ceiling on a carry spread |
+| Initial margin | The clearing-house deposit taken per lot when a position is opened |
+| Variation margin | Daily cash settlement of the position's mark-to-market, paid same day |
+| Limit (limit move) | Exchange-set maximum daily price change; trading pauses beyond it |
+
+---
+
+## Quiz — Day 3
+
+**J-0 — Episode 3: Futures plumbing and the shape of the curve**
+
+**Q1.** December corn trades at $4.60 and the March contract at $4.72 — "March twelve over." Commercial storage runs 4¢/bu/month and money costs 6% a year. A farmer with his own paid-off bins and a commercial elevator that rents space both ask you the same question: store or sell? Compute full carry, the percentage of full carry the spread is paying, and give each of them their answer with numbers.
+
+**Q2.** An elevator is long 1 million bushels of physical wheat, fully hedged with 200 short lots. WASDE shocks the market and wheat locks limit-up 70¢ two days running. (a) What cash leaves the account, and by when? (b) What happened to the total economic value of the position? (c) The CFO says "close the futures, we can't fund this" — explain precisely what risk the desk would be taking on the day it complies.
+
+**Q3.** On the same screen you see September wheat trading 30¢ *over* December, while the flat price is unchanged on the week. What is the market telling you, why can this happen with no move in flat price, and why is holding hedged inventory into this curve expensive twice over?
+
+**J-1 — Episode 2: What a merchant does, and why basis is the whole game**
+
+**Q4.** You have sold a Panamax of beans CFR Shandong at futures +80¢ for October, and you are still buying the physical at Santos. While you accumulate, the Santos differential moves from −20 to −5. Quantify the damage on 60,000 t (≈2.2 million bu), name which of the three risks that survive a "perfect" hedge this is, and say what the desk could have done differently.
+
+**Q5.** Suppose the Turkey talks produce a real safe-passage corridor next month. Using the three transformations (space, time, form), predict the direction of: (a) world wheat flat price, (b) Ukrainian origin basis, (c) freight and war-risk premiums — and explain why a merchant with silo capacity at Odesa might *lose* income from the deal even as the country's farmers gain.
+
+*(J-3 block: no episode — the show is three days old.)*
+
+---
+
+<br><br>
+
+## ▼ SOLUTIONS (spoilers) — scroll only after answering ▼
+
+<br><br>
+
+**A1.** Full carry Dec→March: storage 4¢ × 3 = 12¢; interest = $4.60 × 6% = 27.6¢/yr ≈ 2.3¢/month × 3 ≈ 7¢. **Full carry ≈ 19¢**; the 12¢ spread pays **~63% of full carry**. The *elevator renting space*: capture 12¢, pay 19¢ → **−7¢/bu: sell now**, don't store at commercial rates. The *farmer with paid-off bins*: his out-of-pocket is mostly interest, ~7¢ → 12 − 7 = **+5¢/bu: store and hedge in March**. Same curve, opposite answers — the spread is a price, not an instruction; your own cost of carry decides. (Trap: forgetting interest and comparing 12¢ only to storage.)
+
+**A2.** (a) 200 lots × 5,000 bu × $0.70 × 2 days = **$1.4 million of variation margin**, wired **same day each day** — plus a likely increase in initial margin, since exchanges raise margins in volatile markets. (b) Nothing: the bin gained what the short lost; the *position* is intact, the *cash* is out the door. A hedge converts price risk into liquidity risk. (c) Closing the shorts makes the elevator **outright long 1 million bushels at the top of a limit-up spike**. If the market retraces even half the move, that is a $350k loss with no offset — the desk would be converting a funding problem into a naked flat-price bet, at the worst entry of the year. The correct tools are credit lines and treasury planning sized *before* the position, not liquidation into strength.
+
+**A3.** A 30¢ inverse is the market **paying a premium for grain now** — demand for prompt delivery exceeds nearby supply, and the market is bidding grain out of storage. It needs no flat-price move because a spread reprices *relative* scarcity: the front can rise while the back falls. Holding hedged inventory into an inverse costs you twice: you **pay storage** on the physical while the curve pays you nothing for time, and every **roll of the short hedge bleeds** — you buy back the expensive front month and re-sell a cheaper deferred month, locking in the inverse as a loss each cycle. An inverse is a signal to move inventory, not sit on it.
+
+**A4.** The differential moved 15¢ against you before you finished buying: 15¢ × 2.2 M bu ≈ **$330,000** — most of a typical Panamax margin. This is **origin basis risk while accumulating**, the second of the three risks that survive a perfect hedge (unfixed freight, origin basis, execution). Alternatives: buy the physical *before* selling the destination leg (carry the opposite basis leg instead), accumulate faster via more counterparties, or pre-buy part of the cargo when quoting the sale — in effect pricing the accumulation risk into the offer.
+
+**A5.** (a) World flat price **down** — trapped supply reaches the export market (Tuesday's tape already showed this on a rumour). (b) Ukrainian origin basis **up** — origin prices collapsed ~30% because grain couldn't leave; a corridor reconnects origin to world price and the discount narrows. (c) Freight and war-risk premiums **compress** — the space transformation gets cheaper. The Odesa silo owner loses because his asset was earning scarcity rent on the *time* transformation: stranded grain had to be stored, at rates set by desperation. A corridor drains the queue, storage demand falls, and his margin normalises — while farmers, long unhedged physical at the origin, capture the basis recovery. One man's dislocation premium is another man's stranded crop.
+
+---
+
+## The episode, in writing
+
+### Being right nearly broke them
+
+In the spring of 2022, grain merchants across Europe faced a strange emergency. They were right about the market — wheat was soaring and they owned wheat — and they were running out of cash so fast that some needed emergency credit lines from their banks.
+
+Understanding how that happens means understanding the plumbing under every hedge: the contracts, the months, the margin flows, and the forward curve they trace out.
+
+### The screen and its language
+
+Every contract has a **ticker**, spoken instead of the full name:
+
+| Market | Ticker |
+|---|---|
+| Chicago wheat / corn / soybeans | ZW / ZC / ZS |
+| Soybean meal / oil | ZM / ZL |
+| Coffee / sugar / cotton (ICE) | KC / SB / CT |
+
+Add the month code and you have the desk's shorthand: **ZCZ** is December corn. Nobody says more than they have to.
+
+A grain contract lists a dozen delivery months, but volume concentrates in a few — for corn: March, May, July, September, December — and on any given day mostly in the nearest one or two. The **front month** is deep and tight; eighteen months out the screen is thin and the bid-ask wide. So a hedge for a distant commitment often starts life nearby and gets **rolled** — closed in one month, reopened further out — as time passes.
+
+Rolls are not executed at two flat prices. They trade as a **calendar spread**, one instrument at one price:
+
+> **DESK:** I'm short fifty September wheat. Need them in December. Where's the spread?
+> **BROKER:** Sep-Dec fifteen, Dec over.
+> **DESK:** Meaning?
+> **BROKER:** December's fifteen cents above September. I can roll you at fifteen.
+> **DESK:** Do it. Fifty times.
+
+"Dec over" names the expensive leg. And that fifteen cents is not noise — it is the market's price for three months of time. Hold that thought.
+
+### Margin: where hedges eat cash
+
+Open a futures position and the clearing house takes a deposit — **initial margin**, a few thousand dollars a lot. Then, every day, the position is marked to the close and the difference settles in cash, same day: **variation margin**.
+
+For a speculator that is just the score. For a hedger it is a trap built into the plumbing:
+
+| | Value | Cash |
+|---|---|---|
+| 500,000 bu wheat in the bin | +$1,000,000 on a $2 rally | arrives when the wheat is sold |
+| 100 short lots (the hedge) | −$1,000,000 | leaves **this week**, in daily wires |
+| **Net** | **zero — the hedge worked** | **−$1,000,000 out the door now** |
+
+That asymmetry is what 2022 did at scale. With Chicago and Matif wheat locked limit-up day after day, hedged merchants and cooperatives faced margin calls in the hundreds of millions. Some secured emergency lines; a few unwound *correct* hedges at the worst possible moment — not because the position was wrong, but because the cash ran out.
+
+**A hedge converts price risk into liquidity risk.** The risk does not vanish; it changes shape.
+
+### The curve talks
+
+Plot every month on one chart and you have the forward curve. When later months trade above nearer ones, the market is in **carry** — desks say a carry market, textbooks say contango. When the front trades over the back, the curve is **inverted** — backwardation.
+
+The carry has a ceiling with a name: **full carry**, the actual cost of holding grain a month — storage plus interest on the money tied up.
+
+| Full carry, wheat at $6.30 | ¢/bu/month |
+|---|---|
+| Commercial storage | ~5 |
+| Interest (5.5% on $6.30) | ~3 |
+| **Full carry** | **~8** → ~24¢ over three months |
+
+The broker's Sep-Dec quote was 15¢ — the spread pays about **60% of full carry**. That number is a message, and it reads differently depending on who you are. Store at commercial rates: earn 15¢, pay 24¢ — lose 9¢, so sell. Own your bins: out-of-pocket is mostly interest, ~9¢ for the quarter — pocket 6¢/bu for waiting. The curve doesn't tell you what to do; it tells you what you get paid. Your own costs decide.
+
+One structural rule: a spread can approach full carry but cannot sit far beyond it — past that point, buying the front, storing, and delivering into the back is nearly free money, and arbitrage drags it back. Downward, there is no floor. That asymmetry is the point: when the spread narrows through zero and **inverts**, the market is screaming for grain *now*. It pays a premium for prompt delivery and punishes storage — hold inventory into an inverse and you pay storage while every roll of the hedge bleeds.
+
+Desks read the spread as a supply gauge: wide carry, comfortable supply; narrowing carry, tightening; inverse, get it here now. Often a more honest signal than flat price itself.
+
+### Takeaway
+
+Liquidity lives in a few months, and hedges travel between them as spreads. Variation margin is cash, today — it can force a solvent desk out of a correct position, so funding is sized before the trade, not after the call. And the curve is information: full carry is the ceiling, the percentage of full carry is the message, an inverse is a scream.
+
+**Tomorrow:** off the screen and onto the water — FOB, CFR, CIF, laytime, demurrage, and how a three-day delay becomes a six-figure invoice.

package/ep03.script.txt

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+In the spring of twenty twenty-two, grain merchants across Europe faced a strange emergency. ||| 0.4
+They were right about the market. Wheat was soaring, and they owned wheat. ||| 0.4
+And they were running out of cash so fast that some had to call their banks for emergency credit lines. ||| 0.5
+Being right nearly broke them. ||| 0.7
+This is Commodity Desk Daily, episode three. Today, the machinery of futures. How a hedge actually gets placed, why it eats cash, and what the shape of the forward curve is quietly telling you. ||| 0.8
+First, the tape. ||| 0.4
+It is WASDE day. The report lands at noon in Washington, and the screens went quiet ahead of it. ||| 0.4
+December corn closed at four sixty and a half, down a cent and a quarter. November soybeans, eleven sixty-eight and three quarters, down ten and three quarters. A five-week low. ||| 0.4
+Chicago September wheat fell ten and a quarter to six thirty and a quarter. Kansas City settled just under seven dollars. Matif September gave up five euros and a quarter in Paris. ||| 0.5
+On corn yield, the average trade guess is one eighty-two and a half bushels an acre, against the U S D A's one eighty-three. But the guesses run from one eighty to nearly one eighty-five. ||| 0.4
+That range is the story. August is the first survey-based report of the season, the first state-by-state look at the crop. Nobody trades the number itself. They trade the gap between the number and the guess. ||| 0.5
+Wheat's drop had a different driver. Reports that Russian and Ukrainian officials may meet in Turkey to discuss safe passage for vessels. ||| 0.4
+For a month, this market has priced grain trapped behind a damaged coast. Yesterday it spent the session pricing the chance of that grain getting out. ||| 0.4
+Follow the mechanism. Reopened export capacity means trapped supply reaches the world market, so the world price falls. Origin prices rise to meet it. And the freight and insurance premiums that blew out in July start to deflate. ||| 0.4
+Nothing is signed. But headlines about capacity move price long before any vessel moves. Ukraine, meanwhile, cut its own export forecast for the season to around thirty-eight to forty million tonnes. ||| 0.5
+And here is why today's tape matters for today's lesson. If the noon number surprises, these markets can gap. And a gap on the board is not an accounting entry. It is a cash demand, same day, for every hedger holding a position. ||| 0.6
+Here is how that machinery works. ||| 0.7
+Start with the screen itself. Every contract has a ticker, a short code the desk speaks instead of the full name. ||| 0.4
+Chicago wheat is Z W. Corn, Z C. Soybeans, Z S. Meal and oil, Z M and Z L. In the softs, coffee is K C, sugar is S B, cotton is C T. ||| 0.4
+Nobody says December corn futures. They say Z C Z. The ticker, then the month code from episode one. Z for December. ||| 0.5
+You know the lot, five thousand bushels, and the tick, a quarter cent, twelve dollars fifty a lot. Now the part nobody teaches. Which months you can actually use. ||| 0.4
+A grain contract lists a dozen delivery months, but the volume lives in a handful. In corn, March, May, July, September, December. And on any given day, most of the trade is in the nearest one or two. ||| 0.4
+The front month is deep and tight. Eighteen months out, the screen goes thin. A few hundred lots a day, and wide markets. ||| 0.4
+So a hedge for next summer often starts life in a nearby month, and gets rolled, closed there, reopened further out, as time passes. ||| 0.5
+Rolling is not done at two separate prices. It is done as a spread. Listen. ||| 0.5
+DESK: I'm short fifty September wheat. Need them in December. Where's the spread? ||| 0.25
+BROKER: Sep Dec fifteen, Dec over. ||| 0.25
+DESK: Meaning? ||| 0.25
+BROKER: December's fifteen cents above September. I can roll you at fifteen. ||| 0.25
+DESK: Do it. Fifty times. ||| 0.6
+Notice nobody quoted a flat price. The roll trades as one instrument, the spread, at one price. Fifteen cents. Dec over means December is the expensive leg. ||| 0.4
+And that fifteen cents is not noise. It is the market's price for three months of time. Hold that thought. It is the second half of this episode. ||| 0.7
+First, the cash. When you open a futures position, the clearing house takes a deposit. Initial margin. Call it a few thousand dollars a lot. ||| 0.4
+Then, every single day, your position is marked to the close. If it moved against you, you wire the difference. That day. Variation margin. If it moved for you, cash arrives. ||| 0.4
+For a speculator, that is just the score. For a hedger, it is a trap built into the plumbing. ||| 0.5
+Here is the trap. Say an elevator holds five hundred thousand bushels of wheat. Physical, in the bin, hedged with a hundred short lots. ||| 0.4
+Wheat rallies two dollars. The wheat in the bin is worth a million dollars more. The short futures have lost a million. Net, nothing. The hedge did its job. ||| 0.4
+But look at the cash. The million on the futures leaves your bank account this week, in daily wires. The million in the bin arrives only when the wheat is sold. Weeks or months away. ||| 0.5
+Same position. Perfectly hedged. And a million dollars of cash out the door. ||| 0.6
+That is twenty twenty-two. When the war took Chicago and Matif wheat up limit, day after day, hedged merchants and cooperatives across Europe faced margin calls in the hundreds of millions. ||| 0.4
+Some called their banks for emergency lines. A few unwound good hedges at the worst possible moment. Not because the position was wrong, but because the cash ran out. ||| 0.5
+Write this down. A hedge converts price risk into liquidity risk. The risk does not vanish. It changes shape. ||| 0.7
+Now the second half. Put every contract month on one chart and you get the forward curve. And the curve talks. ||| 0.5
+When later months trade above nearer ones, the market is in carry. Desks say a carry market. The textbooks say contango. When nearer months trade above later ones, the curve is inverted. Backwardation. ||| 0.5
+The carry has a ceiling, and the ceiling has a name. Full carry. What it actually costs to hold grain from one month to the next. Storage, plus the interest on the money tied up. ||| 0.4
+Work it. Wheat around six thirty. Commercial storage, call it five cents a bushel a month. Interest at five and a half percent on six dollars thirty, about three cents a month. Full carry, roughly eight cents a month. Twenty-four cents for three months. ||| 0.5
+Our broker just quoted Sep Dec at fifteen. Fifteen against twenty-four. The spread is paying about sixty percent of full carry. ||| 0.5
+That number is a message. Store your wheat and hedge it in December, and the market hands you fifteen cents against costs of twenty-four. Storing at commercial rates loses nine cents a bushel. ||| 0.4
+So who stores? The elevator that owns its space. His out-of-pocket cost is mostly the interest. Three cents a month, nine for the quarter. Fifteen minus nine. He pockets six cents a bushel for waiting. ||| 0.5
+Same spread, two different answers. The curve does not tell you what to do. It tells you what you get paid. Your own costs decide. ||| 0.6
+One rule before the inverse. A spread can approach full carry, but it cannot sit far beyond it. Past full carry, buying the near month, storing, and delivering into the far month is nearly free money, and arbitrage drags the spread back in. ||| 0.5
+Downward, though, there is no floor. And that asymmetry is the whole point. ||| 0.5
+When the spread narrows through zero and inverts, the front trading over the back, the market is telling you something loud. ||| 0.4
+An inverse is the market screaming for grain now. It pays a premium for prompt delivery, and it punishes storage. Hold inventory into an inverse and you pay storage while your hedge bleeds on every roll. ||| 0.5
+So desks read the spread as a supply gauge. Wide carry, comfortable supply. The market pays for patience. Narrowing carry, tightening. Inverse, get it here now. It is often a more honest signal than the flat price itself. ||| 0.6
+What to keep from today. ||| 0.4
+Liquidity lives in a few months, and hedges travel between them as spreads. ||| 0.4
+A hedge converts price risk into liquidity risk. Variation margin is cash, today, and it can force a solvent desk out of a correct position. ||| 0.4
+And the curve is information. Full carry is the ceiling. The percentage of full carry is the message. An inverse is a scream. ||| 0.6
+Tomorrow we leave the screen for the water. The physical chain end to end. F O B, C F R, C I F, laytime, demurrage, and how a three-day delay turns into a six-figure invoice. ||| 0.4
+The quiz is in the notes. Three questions on today, two on basis from yesterday. If the curve section clicked, the store-or-sell question will take you ninety seconds. See you tomorrow. ||| 0.5