@sdelsad/commodity-desk-daily 1.0.65 → 1.0.67

package/covered.md

@@ -22,3 +22,4 @@ Running log. Read before writing a new episode: avoid repeating material, and on
 - **Ep 18** (Thu) — *EFP, Delivery and the Squeeze*: Ep 18 - EFP, Delivery and the Squeeze: exchange for physical as the ordinary plumbing of a basis trade, with AA and EFS as the softs and swap variants; worked example 25,000 t SRW at Toledo = 918,600 bu = 184 lots, merchant short 184 Dec against a miller long 184 Dec, crossed at 747.00 with the physical at Dec plus 25, so both futures legs extinguish without touching the screen; the three properties - no market impact, simultaneity, and a negotiated futures leg where striking it 7c lower moves 64,400 dollars of P&L between the books while the wheat costs the same; legging risk quantified as a 4c drift on 184 lots = 36,800 against a 35c basis margin of 321,510 = 11.4 percent; delivery as a shipping certificate rather than grain, a load-out obligation carrying a daily storage meter, so convergence is a cost rather than a courtesy; squeeze arithmetic with 1,200 lots open at first notice against 620 lots of registered certificates, 580 shorts with nothing to deliver, three exits priced at deliver 22c, roll 34c, buy back 41c, so the inverse is capped by the cost of making grain deliverable less the days you do not have, and 41c on 580 lots = 1,189,000; Armajaro's 240,100 t cocoa delivery of July 2010 at about 7 percent of a year's world crop and the exit problem that makes a corner half a trade; the opposite failure of 2008 Chicago wheat non-convergence and the 2010 variable storage rate with its 80 percent and 50 percent thresholds, 0.10c/day steps, roughly 5c/month floor and no ceiling; the depth point that full carry contains an exchange-set term, so percent of full carry is a feedback loop rather than a thermometer (ep 16 callback at 46 percent). Pulse: Wed 9 Sep settles Dec corn 527.75 -5.75, Nov beans 1309.50 -6.75, Dec Chi wheat 728.75 -18.25, Oct meal 345.10 +1.80, Oct oil 70.08 -14 pts; spec liquidation out of a reported record corn net long of about 431,000 contracts into Friday's WASDE, with private yield estimates straddling USDA's 180.7 in both directions (Pro Farmer 173.2, Reuters poll 178.2, StoneX production 16.207 bn bu or 194 m above USDA); corn 56 percent good to excellent against 69 a year ago and harvest 5 percent; bean flash sales 340 kt China plus 100 kt unknown; GEO escalation - Latvia's proposed 300 percent tariff on Russian grain aimed squarely at the Baltic rail detour (about 5 Mt of booking requests against roughly 7 Mt/yr of terminal capacity, replacing southern ports that moved 46.3 Mt last season), peace-talk headlines deflating the war premium on the same day drones struck Novorossiysk, Ukraine's Greater Odesa rail arrivals -94.9 percent to 68,500 t against Danube nearly tripling to 248,800 t, Danube freight to Italy and Spain +20-25 USD/t in a week, and Pakistan tendering 750 kt after Saudi Arabia cancelled 535 kt
 - **Ep 19** (Fri) — *Basis Deep Dive and Origination*: Ep 19 - Basis Deep Dive and Origination: the four ingredients of basis - freight, farmer selling, end demand and space - and none of them a view on price; the three-bucket decomposition of a hedged merchant's P&L with flat price structurally zero; worked example 1,000,000 bu of central Illinois corn bought at Dec minus 35 with Dec at 533.75 for 498.75, hedged 200 lots, rolled Dec into Mar at 14c of carry, sold at Mar plus 5, so basis 40 plus calendar 14 equals 54c gross or 540,000 dollars, less 16c storage and 8.31c interest for 29.69c net or 296,900 dollars; the carry covered 14 of an 18.23c three-month cost, about 77 percent of full carry, so the basis must earn the rest (ep 16 callback at 46 percent); the farmer contract menu as a table of risk transfers - cash, forward cash, basis contract, hedge-to-arrive, deferred price, minimum price - and what each leaves on the elevator's book; the 1996 HTA inversion and why an open leg is a position; FARMER/ORIGINATOR basis-contract dialogue with a February pricing deadline; why farm selling clusters on round numbers, cash-flow dates and a full bin, and why that clustering lands entirely on the posted bid rather than the board; basis push as paying for delivery speed; relationships as infrastructure - the unprinted quality spread and credit spread that make two neighbours' bids four cents apart and both correct. Pulse: Thu 10 Sep settles Dec corn 533.75 +6, Nov beans 1332.25 +22.75, Dec Chi wheat 741.25 +12.5, Dec KC 818.75 +12.5, Dec spring 762.50 +14.5, Oct meal 350.60 +5.50, Oct oil 71.41 +133 pts, Matif Dec 245.25 +0.50; the bid came from energy with Oct WTI +6.00 to 102.06 on Persian Gulf fighting, transmission named as the oil share, freight and bunkers, and war-risk premium quoted per voyage; China took 272,000 t beans plus 206,500 t unknown; Gulf CIF basis unchanged at 60-66 over Dec corn and 100-102 over Nov beans while flat price rallied, used as the bridge into the lesson; USDA barge freight index 221.70 to 250.44 in one week with truck, rail and ocean all higher; WASDE Friday 11 Sep with the trade looking for 178.1 corn yield against 180.7, production 15,768 m bu and ending stocks 1,533 m bu, beans 52.5 and 289 m bu; Black Sea read - Russian wheat eased to about 210 USD/t with September loadings about 1 Mt behind the 4.6 Mt of a year ago despite strikes on Novorossiysk, Nika-Tera and Makhachkala inside 24 hours, damaged capacity already in the price and no buyer yet short of tonnes.
 - **Ep 20** (Mon) — *Destination Markets, Tenders and the Winner's Curse*: Ep 20 - Destination Markets, Tenders and the Winner's Curse: how importers buy through tenders and how an export desk prices a bid backwards from the destination as a netback; worked example 60,000 t milling wheat CFR North Africa = 2,204,640 bu = 441 lots, FOB Gulf replacement Dec 725.25 plus 92 = 817.25c = 300.29 USD/t, plus freight 31.50, financing 25 days at 6 percent 1.37, outturn 0.15 percent 0.50, bonds and agent 0.35 for a delivered cost of 334.01, awarded at 334.50 for a margin of 0.49 USD/t or 29,400 dollars or 1.33 c/bu; the winner's curse quantified - ten bidders with 2.00 USD/t estimate dispersion means the winning bid sits 1.54 standard deviations low, 3.08 USD/t or 184,656 dollars below true cost, six times the margin, so the two answers are bid shading and bidding only from facts rather than forecasts; tender validity as a free option handed to the buyer for six hours after bids close; TRADER/AGENT tender dialogue where the trader quotes a bid he expects to lose and prices the optional origin; the destination store-or-sell - November CFR 336.00 against January 342.00 pays 6.00 USD/t to wait while silo at 2.20/t/month for two months is 4.40 and financing at 7.5 percent is 4.20 for a total 8.60, so storing loses 2.60 USD/t or 156,000 dollars and the break-even borrowing rate is about 2.9 percent; the depth that a state importer manages days of cover on a subsidy and FX allocation calendar rather than a P&L, so the 2.60 is an insurance premium, and the two consequences for the seller - clustered tender demand moving basis and freight together in the week the bid already fixed them, and importing markets showing less carry than exporting markets because storage sits where capital is cheapest. Pulse: Friday 11 Sep settles after the September WASDE - Dec corn 530.25 -3.5, Nov beans 1296.50 -35.75, Dec Chi wheat 725.25 -16, Dec KC 798.50 -20.25, Dec MIAX spring 745.00 -17.5, Oct meal 346.80 -3.80, Oct oil 69.19 -222 pts; the WASDE print itself as the escalation of the thread built in eps 18 and 19 - corn yield cut to 178.5 from 180.7 but 0.4 above the trade's 178.1, production 15.800 bn bu, carryout 1.567 bn against 1.533 expected, stocks-to-use 9.7 percent, beans yield 52.8 production 4.535 bn carryout 310 m against 290 expected, US wheat carryout 717 m in line, world wheat stocks 276.29 Mmt against 273.0 expected, so all six headline numbers above the trade guess and a cut smaller than the one you are positioned for is a bearish cut; corn export sales 1.929 Mmt to 3 Sep and Mexico a further 264,000 t, wheat commitments 322 m bu -31 percent y/y; GEO escalation of the Black Sea thread to flow substitution - Russian September loadings 1.6-2.0 Mt against 4.9 Mt a year ago while Asian buyers took at least 500,000 t of Australian and Argentine wheat instead, transmission named as differential repricing rather than flat price, evidenced by world wheat stocks revised 3.3 Mmt higher in the same week, supply not missing but misplaced and moving it costing freight
+- **Ep 21** (Wed) — *The Book and P&L Attribution*: Ep 21 - The book and P&L attribution: the position sheet as a statement of exposure rather than inventory, signed long-positive short-negative with physical and paper in the same row, rows as futures months not shipment months because a futures month is the only thing you can trade to change the number; mark to market on physical too, so P&L moves nightly on grain nobody has agreed to buy; worked position sheet of a soft red book netting to zero on the total while Dec is square, Mar is long 400,000 bu unhedged and May is short 80 lots, an 80-lot Mar/May spread nobody decided to own; cost of that error bounded at full carry - Mar/May full carry 22.25c (16c storage at 8c/bu/month plus 6.25c interest at 5 percent on 7.50) against a 14c spread = 63 percent of carry, 8.25c of room to widen on 400,000 bu = 33,000 dollars, and the mirror-image short-the-near position unbounded because an inversion has no ceiling (ep16 and ep18 callback); the location split, long Toledo against short Gulf both hedged Chicago Dec is square by month and long the Toledo-Gulf basis spread, evidenced by Gulf corn basis unchanged at 60-66 over Dec through a flat-price rally (ep19 callback); RISK/TRADER dialogue where neither party names a price; reconciliation of trader sheet, back office and risk system every morning and the discipline of explaining differences rather than agreeing; attribution as six lines - flat price, basis, calendar spread, freight, currency, financing - of which only one is a market view; worked attribution of 45,000 t corn central Illinois to FOB Gulf = 1,771,560 bu = 354 lots, planned 28.07 c/bu = 497,277 dollars (Dec -40 buy at 508.50, Dec +62 sale, 58c freight, 12c elevation, 2c shrink, 1.93c financing at 6 percent for 25 days), realised 195,587 with the bridge basis -124,009 (sold +55 not +62), freight -177,156 (68c not 58c), unhedged bushels +425, margin financing -950, closing exactly to the 301,690 gap; quantity risk as structural because 354 lots is 1,770,000 bu against a 1,771,560 bu cargo so 1,560 bushels carry the entire flat-price P&L of a 9.5m dollar cargo; margin financing as the line that scales with number of cargoes rather than quality and shows up as a treasury problem before a P&L problem; the depth point that the same 195,587 would have printed had Dec corn fallen 27.25c instead of rising it, so a hedged merchant's P&L carries no information about direction and only information about whether costs and differentials were where you said. Pulse: Tue 15 Sep settles Dec corn 535.75 +2.5, Nov beans 1318.75 +14.5, Dec Chi wheat 728.50 +6.5, Oct meal 360.10 +9.90, Oct oil 69.88 +23 pts, after Dec SRW printed 712.50 -9.5 at 8:30 CDT for a roughly 16c intraday round trip; Monday's US presidential post that Russia and Ukraine had agreed to stop attacks on each other's energy infrastructure knocked wheat about 18c before fresh strikes near Odesa took it back, both sides having attached conditions; crop progress corn 57 percent G/E, 86 dented, 42 mature, 8 harvested, beans 58 percent G/E and 6 harvested, spring wheat harvest 93 percent, winter wheat planting 8 against 12 normal; crude strength spilling into beans and corn Monday; GEO escalation of the Black Sea thread from ep20's flow substitution to SCOPE - an energy-infrastructure truce is not a grain corridor, refineries and oil berths are one target set and grain terminals at Novorossiysk and Odesa another, so the board was repricing the scope of the announcement rather than the probability of disruption, transmission running energy-truce to crude to bunkers to freight and only then to grain, against loading data that did not move at all - Russian seaborne grain exports 2.0 Mt in August -62 percent y/y, Ukraine grain exports since 1 July 4.34 Mt -24 percent with wheat 2.1 Mt -48 percent, and Algeria, Pakistan and Saudi Arabia covering elsewhere

package/ep21.md

@@ -0,0 +1,307 @@
+# Market pulse
+
+**Chicago wheat fell nine and a half cents by mid-morning and settled six and a half cents higher. The round trip was not the market changing its mind about peace — it was the market reading the small print on what had actually been announced.**
+
+| Contract | Last | Change |
+|---|---|---|
+| Dec corn (CBOT) | 535.75 c/bu | +2½ |
+| Nov soybeans (CBOT) | 1,318.75 c/bu | +14½ |
+| Dec Chicago SRW (CBOT) | 728.50 c/bu | +6½ |
+| Oct soybean meal (CBOT) | $360.10/short ton | +9.90 |
+| Oct soybean oil (CBOT) | 69.88 c/lb | +23 pts |
+
+On Monday the US president said Russia and Ukraine had agreed to stop attacks on each other's energy infrastructure. Both sides attached conditions. Wheat dropped roughly eighteen cents on the headline, then recovered most of it when fresh Russian strikes were reported around Odesa. By Tuesday's 8:30 CDT prints December soft red was at 712½, down 9½; it closed at 728½, up 6½ on the day.
+
+Beans and corn had their own bid. Crude oil strength spilled into both on Monday, and the meal market added $9.90 on Tuesday. The crop is arriving on schedule rather than early: corn 57 percent good to excellent, 86 percent dented, 42 percent mature and 8 percent harvested; soybeans 58 percent good to excellent with 6 percent cut. Spring wheat harvest is 93 percent done. Winter wheat planting is the one number behind, at 8 percent against a normal 12.
+
+```chart
+{"type":"line","unit":"c/bu","title":"Chicago wheat's truce round trip",
+ "caption":"December soft red traded 712½ intraday on Tuesday, about eighteen cents below Monday's settle, and closed at 728½. The export loading data behind the move did not change at any point during it.",
+ "source":"CBOT settlements, 4 to 15 September 2026. The 14 September level is Friday's settle less the reported 3¼-cent Monday change.",
+ "x":["4 Sep","9 Sep","10 Sep","11 Sep","14 Sep","15 Sep"],
+ "series":[{"name":"Dec Chicago SRW","values":[734.00,728.75,741.25,725.25,722.00,728.50]}]}
+```
+
+## The geopolitical read
+
+An energy truce is not a grain corridor. Refineries, power stations and oil berths are one target set. Grain terminals at Novorossiysk and the loading infrastructure at Odesa are another, and nothing announced on Monday covered the second one.
+
+That is why the eighteen cents came back. The board was not repricing the probability of disruption; it was discovering the **scope** of the sentence it had just read. The transmission chain runs the other way round from the one the headline implies: an energy-infrastructure truce lowers the risk to Russian refining and to oil loadings, which shows up in crude and in bunker costs, and only reaches grain through freight.
+
+The numbers that actually set the wheat balance did not move. Russia shipped 2.0 Mt of grain by sea in August, down 62 percent year on year. Ukraine's grain exports since 1 July are 4.34 Mt, down 24 percent, with wheat at 2.1 Mt, down 48 percent. Algeria, Pakistan and Saudi Arabia are covering their needs elsewhere. That is loading data, and loading data does not respond to a post.
+
+Sixteen cents, out and back, inside one session. A hedged book should not have noticed. Whether it noticed is a question you answer with a position sheet, not with a profit number — which is today's subject.
+
+# Key takeaways
+
+- A position sheet measures exposure, not inventory. A tonne in a bin and a tonne sold forward are the same row with opposite signs, and the row is a futures month rather than a shipment month.
+- A net position of zero is a claim, not a fact. It only becomes a fact once the book has been split by futures month **and** by location, because either split can hide a spread nobody decided to own.
+- The mistakes that survive are the ones that look like bookkeeping. A hedge added to the wrong month is one keystroke, and it is invisible on every line of the sheet except the one nobody prints.
+- A finished trade decomposes into six lines: flat price, basis, calendar spread, freight, currency and financing. Only one of them is a market view.
+- The bridge from planned margin to realised margin must close to the dollar. A gap that does not reconcile is not a rounding difference — it is a line you have not found.
+- In a hedged book, flat price is supposed to contribute nothing. When it contributes something, that is an unhedged quantity, not skill.
+- A good total can hide a broken process. A freight overrun is a purchasing failure and a basis miss is a trading call; they belong to different people and a single P&L number cannot tell you which one to fix.
+
+# Vocabulary
+
+| Term | What it means |
+|---|---|
+| **Position sheet** | A desk's record of net exposure by futures month and by location, kept in lots, with long positive and short negative, in which physical and paper appear as the same row |
+| **Net position** | Physical long, less physical short, plus futures, for one month and one location — the only number that actually describes exposure |
+| **Square** | Desk shorthand for a net position of zero in a given month or location |
+| **Open position** | A month or location where physical and futures do not offset, whether or not anybody decided to have one |
+| **Mark to market** | Repricing every open line at the day's settlement, physical included, so a book's value moves daily on grain nobody has yet agreed to buy |
+| **Reconciliation** | The morning discipline of making the trader's sheet, the back office's and the risk system's agree — or of explaining why they do not, before the market opens |
+| **Long the spread** | Holding the nearby month against a short in the deferred, which loses as the carry widens and whose loss is bounded by full carry |
+| **Quantity risk** | The exposure left over when a hedge cannot exactly match a cargo, because futures trade in whole lots and a cargo rarely divides by five thousand bushels |
+| **Attribution** | Decomposing a finished trade into flat price, basis, calendar spread, freight, currency and financing, so the result can be explained rather than merely counted |
+| **Attribution bridge** | The line-by-line reconciliation from planned margin to realised margin, which has to close to the dollar |
+| **Margin financing** | The cost of funding variation margin paid out on a losing futures leg while the offsetting gain on the physical is still unrealised |
+
+# Quiz
+
+**Q1.** A desk finishes a soybean trade and wants to know what it was paid for. The cargo is 30,000 t, hedged with 220 November lots. It was bought in Iowa at November minus 75 when November settled at 1,239.50, and sold FOB Gulf at November plus 96 when November settled at 1,318.75. The plan, written when the trade was put on, had the sale going at November plus 105, freight and elevation at 132 c/bu, and inventory financing at 4.79 c/bu. Freight and elevation actually came to 141 c/bu; financing landed on plan. Funding the variation margin on the futures leg cost $1,720, which was not in the plan. Build the attribution bridge from planned margin to realised margin, and state what flat price contributed.
+
+**Q2.** A wheat book is net long 600,000 bu in March and net short 600,000 bu in May, with every other month square. The March/May carry widens from 11 cents to 19 cents. What is the profit or loss on the book?
+
+**Q3.** A destination buyer was offered November shipment at $336.00/t CFR against January at $342.00/t CFR, with silo at $2.20/t per month and money at 7.5 percent, so buying early and storing loses $2.60/t. The importer buys the November anyway. What is the $2.60 buying?
+
+**Q4.** In an exchange for physical, 184 December wheat lots change hands and the two sides agree to strike the futures leg 7 cents lower, raising the differential by 7 cents so that the miller's invoice for the wheat is unchanged. The merchant was short those 184 futures. What does her futures line show?
+
+**Q5.** Conversion drill. Brazil's safrinha corn yield is put at 5.9 t/ha. What is that in bushels per acre?
+
+---
+---
+---
+
+# SOLUTIONS (spoilers)
+
+**A1.** Start with the quantity, because everything scales off it.
+
+30,000 t × 36.744 = **1,102,320 bu**. At 5,000 bu a lot that is 220.46 lots, so the hedge is **220 lots = 1,100,000 bu**, leaving **2,320 bu unhedged**. Hold that number.
+
+*The plan.* Basis captured is the sale differential plus the purchase discount: 105 + 75 = 180 c/bu. Against that, 132 of freight and elevation and 4.79 of financing, for 136.79. Planned margin is **43.21 c/bu**, and 1,102,320 × 0.4321 = **$476,312**.
+
+*What actually happened.* Basis captured was 96 + 75 = 171. Costs were 141 + 4.79 = 145.79. That leaves 25.21 c/bu, or 1,102,320 × 0.2521 = $277,895. Add the unhedged bushels and subtract the margin funding.
+
+| Line | Amount |
+|---|---|
+| Planned margin | $476,312 |
+| Basis: sold at +96 against +105, 9c on 1,102,320 bu | −$99,209 |
+| Freight and elevation: 141c against 132c, 9c | −$99,209 |
+| Quantity: 2,320 bu unhedged into a 79¼c rally | +$1,839 |
+| Margin financing | −$1,720 |
+| **Realised margin** | **$278,013** |
+
+Check it against the direct calculation: $277,895 + $1,839 − $1,720 = $278,013. The bridge closes, which is the only evidence you have that no line is missing.
+
+*What flat price contributed.* November went from 1,239.50 to 1,318.75, a rally of 79¼ cents. The physical earned that on 1,102,320 bu, which is $873,589. The short futures lost it on 1,100,000 bu, which is $871,750. The difference is **$1,839** — the 2,320 unhedged bushels, and nothing else.
+
+The trap is the $871,750. It looks like a disastrous hedge and it is nothing of the kind: it is the exact mirror of the physical gain, and a desk that books it as a trading loss has misunderstood what a hedge is for. The real story is two nine-cent misses, one on the sale differential and one on freight, which between them removed $198,418 — 42 percent of the planned margin — from a trade that still finished comfortably profitable.
+
+**A2.** Long the near month against a short in the deferred is **long the spread**. The spread widening means the deferred month is gaining on the nearby, which is a loss for that position.
+
+11 cents to 19 cents is 8 cents of widening, on 600,000 bu: 600,000 × $0.08 = **a loss of $48,000**.
+
+Two things worth noticing. First, nothing in this requires a view on wheat: the book is square in flat price and the loss comes entirely from a relationship between two contract months. Second, the loss is bounded. A carry spread cannot widen past full carry, because at that point anyone with a bin can buy the nearby, store it and sell the deferred for a risk-free return, and that arbitrage caps the spread. The mirror-image position — short the near, long the deferred — has no such ceiling, because an inversion can go as far as the shortage requires.
+
+**A3.** Days of cover.
+
+The $2.60/t is not a trading loss the importer has failed to notice; it is the price of holding stock in the country rather than on a seller's promise. A state buyer is managing consumption cover against an FX allocation calendar, a subsidy budget and a political risk of running short, not a P&L. Paying $2.60/t to move the grain two months earlier converts a supply risk into a known, small, budgeted cost — which is the definition of an insurance premium.
+
+The consequence for the seller is more useful than the arithmetic. It means an importer's buying is timed by a calendar you cannot see on a price screen, and it explains why importing markets typically show less carry than exporting markets: the destination is not paying for storage, it is paying to have arrived.
+
+**A4.** A gain of **$64,400**.
+
+184 lots is 920,000 bu, so one cent is $9,200 and seven cents is $64,400. The merchant is short those futures; closing a short at a price seven cents lower is a gain of seven cents on every bushel.
+
+The trap is the phrase "the invoice is unchanged". It is — the differential was raised by exactly the amount the futures leg was lowered, so the miller pays the same for the wheat. But the miller is long 184 futures and closes them 7 cents lower, which is a $64,400 loss on his futures line. His *all-in* cost is $64,400 higher, and the merchant's all-in revenue is $64,400 higher. Where the futures leg is struck is real money, moving in opposite directions across two books, which is exactly why exchanges require both parties to an EFP to hold a genuine related physical position and why the futures level has to be commercially defensible rather than merely agreed.
+
+**A5.** About **94 bu/ac**.
+
+The fast method for corn is to multiply tonnes per hectare by 16: 5.9 × 16 = 94.4. The exact factor is 0.0628 t/ha per bu/ac, so 5.9 ÷ 0.0628 = 93.9 bu/ac. Either way, call it 94.
+
+Worth carrying: US corn runs around 178 bu/ac this year, which is about 11.2 t/ha. A safrinha crop at 94 bu/ac is roughly half the US yield — and it is still three quarters of Brazil's corn, because it is planted on an enormous area behind the soybeans.
+
+# The written edition
+
+## The sheet is the only thing that knows
+
+A trading book is not a pile of grain and it is not a list of contracts. It is a statement of **exposure**, and the document that holds it is the position sheet.
+
+The first thing to understand about it is the sign convention, because it is the thing that makes physical and paper commensurable. A tonne sitting in a bin and a tonne sold forward to a miller are the same row on the sheet, with opposite signs. Ownership is positive. An obligation to deliver is negative. Futures sit in the same column as the physical they offset, and the net of the two is the only number that describes what the desk is exposed to.
+
+The second thing is the row. **Rows are futures months, not shipment months.** This trips up almost everybody on their first sheet, because operationally the world runs on shipment dates. But the sheet is not an operations document. It exists so that somebody can look at a number and know what to trade to change it, and the only instrument available is a futures month. A sheet organised by shipment date tells you what you owe. It does not tell you what you are exposed to.
+
+The third is **mark to market**. Every open line is repriced at the day's settlement, physical included, whether or not anything was bought or sold. Unsold corn in a Toledo bin gets a price every night. The consequence is that a merchant's P&L moves daily on grain nobody has yet agreed to buy, which is uncomfortable, and is also the only mechanism by which a problem becomes visible before the trade is over.
+
+## A flat book that is not flat
+
+Here is a small soft red wheat book, as it would print this morning. Quantities in bushels; a Chicago lot is 5,000.
+
+| Futures month | Physical long | Physical short | Net physical | Futures | Net |
+|---|---|---|---|---|---|
+| December | +1,500,000 | −900,000 | +600,000 | −120 lots (−600,000) | 0 |
+| March | +400,000 | 0 | +400,000 | 0 | **+400,000** |
+| May | 0 | 0 | 0 | −80 lots (−400,000) | **−400,000** |
+| **Total** | +1,900,000 | −900,000 | +1,000,000 | −200 lots (−1,000,000) | **0** |
+
+The total line reads zero. On any summary a manager is likely to see, this book is flat.
+
+It is not flat. It is long 400,000 bu of March against short 400,000 bu of May — an eighty-lot March/May spread that nobody decided to own.
+
+```chart
+{"type":"bar","unit":"lots, net position","title":"A flat book, month by month",
+ "caption":"The total line reads zero, so nothing is wrong with it. The month lines are an eighty-lot March/May spread that no one put on deliberately, and it will not appear on any report that nets the book to a single number.",
+ "source":"Worked example, episode 21.",
+ "x":["December","March","May"],
+ "series":[{"name":"Net position","values":[0,80,-80]}]}
+```
+
+How it happened is boring, which is exactly why it happened. Somebody bought 400,000 bu of farmer wheat for March shipment, and the hedge was added to the standing May line — because May is where the book's liquidity already sat, or because a roll had already taken the whole position out to May and the new purchase joined it. One entry. Invisible on the total.
+
+It surfaces in a thirty-second conversation with the risk desk:
+
+> **RISK:** Book's flat on the total. March/May is showing eighty.
+>
+> **TRADER:** That's the Ohio wheat. Ships in March.
+>
+> **RISK:** Hedge is in May.
+>
+> **TRADER:** Roll took the whole line.
+>
+> **RISK:** Then you're long the spread, and nobody bought it.
+
+Five lines, and neither party mentions a price. The conversation is entirely about *where* a position sits, which is what a risk conversation on a physical desk almost always is.
+
+### What the error costs
+
+Put a number on it. Take March/May carry at 14 cents and March wheat at $7.50 for the interest line.
+
+| Component | Calculation | Value |
+|---|---|---|
+| Storage, two months | 8c/bu/month × 2 | 16.00c |
+| Interest, two months | $7.50 × 5% × 2/12 | 6.25c |
+| **Full carry, March/May** | | **22.25c** |
+| Spread as traded | 14.00 ÷ 22.25 | 63% of full carry |
+| Room to widen | 22.25 − 14.00 | 8.25c |
+| Exposure | 8.25c × 400,000 bu | **$33,000** |
+
+Being long the near month, the worst case is the spread going all the way to full carry, and that is $33,000. It is bounded, because a spread wider than full carry is a free trade for anyone with a bin, and the bin owners arbitrage it away. This is the **good** version of the mistake.
+
+Reverse the signs and it is a different animal. A book short the near month and long the deferred loses as the market inverts, and an inversion has no ceiling at all: it goes as far as the people who need grain now are willing to pay. The same clerical slip, made in the other direction, has a bounded loss or an unbounded one depending purely on which month the grain happened to be in.
+
+### The split most people forget
+
+The same book is long wheat at Toledo and short wheat at the Gulf, both hedged in Chicago December. Split by month, it is square. Split by location, it is long the Toledo–Gulf basis spread.
+
+That is a real position. Toledo basis is set by farmer selling, local space and rail; Gulf basis is set by export demand, barge freight and vessel line-ups. The two move for different reasons and frequently in opposite directions. Last week made the point cleanly: the Gulf corn basis sat unchanged at 60 to 66 over December through a rally in flat price, because the flat price move came from energy and the export bid did not follow it.
+
+A position sheet split only by month hides this. Split it both ways, always.
+
+### How errors actually surface
+
+They rarely announce themselves. A position error looks like a number that is slightly different from the number in the other system.
+
+There are normally three versions of the same book: the trader's own sheet, the back office's from the contract records, and the risk system's from the trade capture feed. They are reconciled every morning. The discipline is not that they agree — they routinely do not, for reasons as dull as an unbooked washout or a contract entered with the wrong month. The discipline is that somebody has to *explain* each difference before the market opens. A difference that gets carried forward "to look at later" is how a real position ends up living inside a rounding argument for three weeks.
+
+## Attribution: what were you actually paid for?
+
+The trade is finished, the money is in, and the P&L says a number. That number, on its own, tells you almost nothing.
+
+A finished trade decomposes into six lines, and only one of them is a market view:
+
+| Line | What it is |
+|---|---|
+| Flat price | The board. In a hedged book this should be approximately zero |
+| Basis | The differentials you bought and sold at, against futures |
+| Calendar spread | What the roll gave you or cost you between months |
+| Freight | The physical cost of moving it, budgeted against actual |
+| Currency | Any FX leg, including one the hedge created rather than the trade |
+| Financing | Interest on the inventory, and on margin |
+
+Populating those six honestly is the whole exercise. Here is one done in full.
+
+### The trade
+
+45,000 t of corn, bought in central Illinois, moved to the Gulf, sold FOB. 45,000 t × 39.368 = **1,771,560 bu**, which at 5,000 bu a lot is 354.3 lots, hedged with **354 lots**.
+
+The plan, written down on 21 August with December corn at 508.50:
+
+| Line | Planned |
+|---|---|
+| Purchase basis, central Illinois | Dec −40 |
+| Sale basis, FOB Gulf | Dec +62 |
+| Basis capture | 102.00c |
+| Barge freight | −58.00c |
+| Elevation and handling | −12.00c |
+| Shrink and outturn | −2.00c |
+| Financing, 25 days at 6% on 468.50 | −1.93c |
+| **Planned margin** | **28.07 c/bu** |
+
+28.07c on 1,771,560 bu is **$497,277**.
+
+### What happened
+
+December corn settled at 535.75 on 15 September, up 27¼ cents from where the trade was put on. The cargo sold at December plus 55, not plus 62 — the Gulf bid did not follow the board up. Barge freight came in at 68 cents against 58 budgeted, because the USDA barge index had moved sharply in the intervening weeks. Financing landed on plan. Realised margin: **$195,587**.
+
+That is $301,690 short. The point of attribution is to say where every dollar of it went.
+
+```chart
+{"type":"waterfall","unit":"USD","title":"From planned margin to realised",
+ "caption":"Flat price rose 27¼ cents on a 45,000 t cargo and contributed $425. Two estimates — a sale differential and a freight budget, neither of them a market view — took 61 percent of the planned margin.",
+ "source":"Worked example, episode 21, using CBOT December corn settlements of 21 August and 15 September 2026.",
+ "steps":[{"label":"Planned margin","value":497277,"kind":"base"},
+          {"label":"Basis miss","value":-124009},
+          {"label":"Freight overrun","value":-177156},
+          {"label":"Unhedged bushels","value":425},
+          {"label":"Margin financing","value":-950},
+          {"label":"Realised","kind":"total"}]}
+```
+
+| Line | Calculation | Amount |
+|---|---|---|
+| Planned margin | 28.07c × 1,771,560 bu | $497,277 |
+| Basis | sold Dec +55 against Dec +62, 7c | −$124,009 |
+| Freight | 68c against 58c budgeted, 10c | −$177,156 |
+| Flat price | 1,560 bu unhedged × 27.25c | +$425 |
+| Margin financing | 12 days at 6% on $482,325 | −$950 |
+| **Realised margin** | | **$195,587** |
+
+The four variance lines sum to $301,690, which is exactly the gap. That is the test. **A bridge that does not close means there is a line you have not found**, and the correct response is to go and find it rather than to book the difference as "other".
+
+### Read the flat price line again
+
+27¼ cents of rally, on a cargo of 1,771,560 bushels, contributed **$425**.
+
+The reason is arithmetic, not luck. 354 lots is 1,770,000 bushels against a cargo of 1,771,560, so 1,560 bushels were never hedged. The entire flat price result of a $9.5 million cargo through a two-week rally is the price move on those 1,560 bushels. Everything else cancelled: the physical gained $482,750 and the short futures lost $482,325.
+
+This is **quantity risk**, and it is structural rather than careless. Futures trade in whole lots and cargoes do not divide by 5,000 bushels, so a residual always exists. On this trade it was trivially small. On a book where somebody rounds 354.3 down to 350 because it is a rounder number, the residual is 21,560 bushels and a 27-cent move is $5,875 of P&L nobody authorised.
+
+### The margin financing line
+
+The short futures leg lost $482,325 as corn rallied. That money left the account daily as variation margin. The offsetting gain sat unrealised in the physical until the cargo was sold.
+
+Funding that gap for an average of twelve days at 6 percent cost about **$950**. Trivial on one cargo — and the reason it is in the bridge anyway is that it is the only line here that scales with the *number* of cargoes rather than their quality. A desk running forty positions through a trending market discovers this line as a treasury problem long before it appears as a P&L problem, and a merchant who has not modelled it finds out when the credit line stops rather than when the P&L prints.
+
+## Why a good P&L can hide a broken process
+
+The trade made $195,587. It is a winner. A desk that looks only at the total books it and moves on.
+
+Attribution tells a different story. Sixty-one percent of the planned margin was consumed by two estimates — a sale differential and a freight budget — and **neither of them was a market view**. Those are two separate failures owned by two separate people. A freight number that came in ten cents high is a purchasing and execution problem. A sale differential seven cents below plan is a market call, and one worth arguing about: the Gulf bid had been flat for a week while the board rallied, which was visible at the time.
+
+A single profit number cannot tell you which of those to go and change. It cannot even tell you that either of them happened.
+
+Now run the counterfactual, because it is the part that makes the case. Suppose December corn had *fallen* 27¼ cents instead of rising. The short futures would have made $482,325 and the physical would have lost it straight back. Basis and freight would have behaved exactly as they did. The realised margin would have been **the same $195,587**.
+
+That is the whole argument. The P&L of a hedged merchant carries almost no information about whether the market went your way, because by construction it is not supposed to. What it carries is information about whether your costs and your differentials were where you said they were — and you can only read that information if somebody has written the bridge.
+
+## The thing to carry away
+
+Two documents, and they answer different questions.
+
+The position sheet answers *what do I own right now*, and it only answers it honestly when it is split by futures month and by location. A single net number is a summary, and summaries are where positions hide.
+
+The attribution bridge answers *what was I paid for*, and it only answers it when it closes to the dollar. Six lines, one of which is a market view and five of which are estimates you made and can check.
+
+And the number that ties the two together: in a properly hedged book, flat price contributes nothing. If it contributed something, that is not a good trade. That is a position you did not know you had.

package/ep21.script.txt

@@ -0,0 +1,108 @@
+A book can be perfectly flat and completely wrong. ||| 0.5
+The total line says zero. The risk is in the rows underneath it. ||| 0.6
+This is Soft Commodity Trading, episode twenty-one. Today, the book and P and L attribution. How a desk knows what it owns, and how it finds out what it actually got paid for. ||| 0.8
+Yesterday Chicago wheat fell nine and a half cents by mid-morning and settled six and a half cents higher. ||| 0.5
+December soft red ended at seven twenty-eight and a half. ||| 0.4
+December corn, five thirty-five and three quarters, up two and a half. ||| 0.35
+November beans, thirteen eighteen and three quarters, up fourteen and a half, with October meal at three hundred and sixty dollars ten, up nine ninety. ||| 0.5
+The wheat round trip is the story. ||| 0.4
+On Monday the American president said Russia and Ukraine had agreed to stop attacking each other's energy infrastructure. ||| 0.45
+Wheat dropped about eighteen cents on the headline. ||| 0.4
+Then fresh strikes were reported around Odesa, and most of it came back. ||| 0.6
+Here is what the market was actually repricing, and it was not the probability of peace. ||| 0.45
+An energy truce is not a grain corridor. ||| 0.45
+Refineries and power stations are one target set. Grain berths at Novorossiysk and Odesa are another. ||| 0.5
+Nothing announced on Monday covered the second one. ||| 0.5
+So the board was not pricing a lower chance of disruption. It was discovering the scope of the sentence it had just read. ||| 0.6
+And here is the number that did not move. Russia shipped two million tonnes of grain by sea in August. Down sixty-two percent on the year. ||| 0.5
+Ukraine's wheat exports since July stand at two point one million tonnes, down forty-eight percent. ||| 0.45
+Algeria, Pakistan and Saudi Arabia are buying somewhere else. ||| 0.5
+That is loading data. It did not change on Monday, and it will not change on a headline. ||| 0.7
+Sixteen cents, out and back, inside one session. ||| 0.4
+A hedged book should not have noticed. ||| 0.4
+Whether it noticed is a question you answer with a position sheet, not with a profit number. ||| 0.7
+So. The position sheet. ||| 0.4
+It measures exposure, not inventory. ||| 0.4
+A tonne sitting in a bin and a tonne sold forward are the same row, with opposite signs. ||| 0.5
+The rows are futures months. Not shipment months. ||| 0.4
+The column is lots. Five thousand bushels a lot in Chicago. Long is positive, short is negative. ||| 0.5
+And the reason the rows are futures months is simple. The only thing you can trade to change the number is a futures month. ||| 0.5
+A sheet organised by shipment date tells you what you owe. It does not tell you what you are exposed to. ||| 0.7
+One more convention before the numbers. ||| 0.35
+Every open line is marked to market daily, at the settlement, whether or not anything was sold. ||| 0.5
+Physical included. Unsold corn in a Toledo bin gets a price every night. ||| 0.45
+Which means a merchant's profit and loss moves every day on grain nobody has agreed to buy yet. ||| 0.5
+If that sounds uncomfortable, it should. It is also the only way to see a problem before the trade is over. ||| 0.7
+Take a small soft red wheat book, this morning. ||| 0.4
+In December, one and a half million bushels bought from farmers, nine hundred thousand sold to a miller. Net long six hundred thousand. Short a hundred and twenty December lots against it. December is square. ||| 0.6
+In March, four hundred thousand bushels bought, nothing sold, and no hedge. Long four hundred thousand. ||| 0.5
+In May, no physical at all, and eighty lots short. Short four hundred thousand. ||| 0.6
+Add it up. Net physical, long one million. Futures, short two hundred lots, one million. ||| 0.45
+Total position, zero. The book is flat. ||| 0.5
+It is not flat. It is long March against short May, eighty lots, and nobody decided to own that. ||| 0.8
+How that happens is boring, which is why it happens. ||| 0.4
+Somebody bought farmer wheat for March shipment and the hedge went onto the standing May line, because May is where the book's liquidity already was. Or the roll took the whole position at once. ||| 0.6
+One entry, invisible on the total, and it surfaces in a thirty-second conversation with the risk desk. ||| 0.6
+RISK: Book's flat on the total. March May is showing eighty. ||| 0.25
+TRADER: That's the Ohio wheat. Ships in March. ||| 0.25
+RISK: Hedge is in May. ||| 0.25
+TRADER: Roll took the whole line. ||| 0.25
+RISK: Then you're long the spread, and nobody bought it. ||| 0.6
+Five lines, and neither of them said a price. ||| 0.5
+So what does it cost? ||| 0.35
+March May carry is running around fourteen cents. Full carry, over two months, is about twenty-two and a quarter. Sixteen cents of storage at eight a month, plus six and a quarter of interest on seven fifty wheat. ||| 0.6
+So the spread sits at about sixty-three percent of full carry. ||| 0.5
+Being long the near month, the worst case is the spread going to full carry. Eight and a quarter cents, on four hundred thousand bushels. Thirty-three thousand dollars. ||| 0.6
+Bounded. And that is the good version of this mistake. ||| 0.5
+Reverse the signs. Short the near, long the deferred. An inversion has no ceiling at all. ||| 0.7
+One more split, and most people forget it. ||| 0.4
+The same book is long wheat at Toledo and short wheat at the Gulf. ||| 0.4
+Both hedged in Chicago December. Flat on the board. ||| 0.4
+But Toledo basis and Gulf basis are two different prices that move for different reasons. ||| 0.5
+Last week proved it. The Gulf corn basis sat at sixty to sixty-six over December while flat price rallied. ||| 0.5
+A sheet split by month and not by location hides a basis spread. Split it both ways. ||| 0.7
+Errors on a position sheet almost never look like errors. ||| 0.45
+They look like a number that is slightly different from the one in the other system. ||| 0.5
+The trader's own sheet, the back office's, the risk system's. Three versions of the same book, reconciled every morning. ||| 0.5
+And the discipline is not that they agree. It is that somebody has to explain why they don't, before the market opens. ||| 0.7
+Now the second half. The trade is finished. What did you actually get paid for? ||| 0.5
+A finished trade splits into six lines, and only one of them is a market view. ||| 0.5
+Flat price. Basis. The calendar spread you rolled through. Freight. Currency. Financing. ||| 0.6
+Say those six once and you have the whole framework. The work is populating them honestly. ||| 0.6
+Here is one, in full. Forty-five thousand tonnes of corn, bought in central Illinois, moved to the Gulf, sold F O B. ||| 0.5
+Forty-five thousand tonnes is one million seven hundred and seventy-one thousand five hundred and sixty bushels. Three hundred and fifty-four lots. ||| 0.6
+The plan, written down on the twenty-first of August. Buy at December minus forty, with December at five oh eight and a half. Sell at December plus sixty-two. ||| 0.55
+Freight fifty-eight cents, elevation twelve, shrink two, financing one point nine three. ||| 0.5
+Planned margin, twenty-eight point oh seven cents a bushel. Four hundred and ninety-seven thousand dollars. ||| 0.7
+What happened. December corn went to five thirty-five and three quarters. Up twenty-seven and a quarter. ||| 0.5
+The cargo sold at December plus fifty-five, not plus sixty-two. ||| 0.45
+Barge freight came in at sixty-eight cents, not fifty-eight. ||| 0.5
+Realised margin, one hundred and ninety-five thousand five hundred and eighty-seven dollars. ||| 0.6
+Three hundred and one thousand short of the plan. Now attribute it. ||| 0.7
+Basis. Seven cents of sale differential missed, on one point seven seven million bushels. Minus a hundred and twenty-four thousand. ||| 0.55
+Freight. Ten cents over budget. Minus a hundred and seventy-seven thousand. ||| 0.55
+Financing the margin calls. The short futures bled four hundred and eighty-two thousand dollars of cash, paid daily, and carrying that cost about nine hundred and fifty dollars. Nobody put that in the plan. ||| 0.6
+And flat price. Twenty-seven and a quarter cents of rally. ||| 0.45
+Contribution, four hundred and twenty-five dollars. ||| 0.6
+Four hundred and twenty-five, because three hundred and fifty-four lots is one million seven hundred and seventy thousand bushels, against a cargo of one million seven hundred and seventy-one thousand five hundred and sixty. ||| 0.55
+Fifteen hundred and sixty bushels unhedged. That is the entire flat price result. ||| 0.7
+Those four lines add to three hundred and one thousand six hundred and ninety. Exactly the gap. ||| 0.6
+And that is the test. A bridge that does not close means you have a line you have not found yet. ||| 0.7
+Now the part that matters. ||| 0.4
+That trade made a hundred and ninety-five thousand dollars. It is a winner. ||| 0.5
+A desk that looks only at the total books a win and moves on. ||| 0.5
+Attribution says something else. Sixty-one percent of the planned margin was taken by two estimates, and neither of them was a market view. ||| 0.6
+A freight number is a purchasing failure. A basis number is a trading call. Different people, different fixes. ||| 0.6
+A single profit number cannot tell you which one to go and change. ||| 0.7
+And run it the other way. If December corn had fallen twenty-seven cents instead, the hedge would have made four hundred and eighty-two thousand and the physical would have lost it straight back. ||| 0.6
+Same margin. Same hundred and ninety-five thousand. ||| 0.5
+Which is the point. The profit of a hedged merchant carries almost no information about whether the market went your way. ||| 0.55
+It carries information about whether your costs and your differentials were where you said they were. ||| 0.7
+That is why attribution is how desks actually learn, and why the total is not. ||| 0.7
+Three things to keep. ||| 0.4
+One. A net position of zero is a claim, not a fact, until you have split it by month and by location. ||| 0.6
+Two. Every finished trade gets a bridge from what you planned to what you got, and the bridge has to close to the dollar. ||| 0.6
+Three. In a hedged book, flat price is supposed to contribute nothing. When it contributes something, that is not skill. That is an unhedged bushel you did not know about. ||| 0.8
+Next time, risk management, and every reason a hedge leaks. Basis, quantity, quality, timing, currency, cross-hedge. A fully hedged trade that still loses money, taken apart line by line. ||| 0.6
+Four questions in the written edition, with the solutions worked in full, and a conversion drill at the end. ||| 0.5
+Thanks for listening. ||| 0.7

package/feed.xml

@@ -19,15 +19,15 @@
       <link>https://storage.googleapis.com/podcast-audio-2647223968/index.html</link>
     </image>
     <item>
-      <title>Ep 20 — Destination Markets, Tenders and the Winner's Curse</title>
-      <link>https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep20.html</link>
-      <description><![CDATA[<p>How large importers actually buy, and how an export desk prices a tender bid backwards from the buyer's port. Then why winning the tender is the most reliable way to lose money on it.</p><p><a href="https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep20.html">Read this episode, with the charts, the glossary and the quiz &rarr;</a></p>]]></description>
-      <itunes:summary>How large importers actually buy, and how an export desk prices a tender bid backwards from the buyer's port. Then why winning the tender is the most reliable way to lose money on it.
+      <title>Ep 21 — The Book and P&amp;L Attribution</title>
+      <link>https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep21.html</link>
+      <description><![CDATA[<p>How a physical desk keeps its position: exposure by futures month and by location, why a book that nets to zero can be carrying a spread nobody chose, and what marking to market actually does. Then attribution — the six-line bridge from planned margin to realised margin, and why a profitable trade can still be evidence of a broken process.</p><p><a href="https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep21.html">Read this episode, with the charts, the glossary and the quiz &rarr;</a></p>]]></description>
+      <itunes:summary>How a physical desk keeps its position: exposure by futures month and by location, why a book that nets to zero can be carrying a spread nobody chose, and what marking to market actually does. Then attribution — the six-line bridge from planned margin to realised margin, and why a profitable trade can still be evidence of a broken process.
 
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       <itunes:duration>0</itunes:duration>
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     <item>
@@ -37,10 +37,22 @@ Read this episode: https://storage.googleapis.com/podcast-audio-2647223968/commo
       <itunes:summary>Basis has four ingredients and not one of them is a view on price. Then the other half of a merchant's job: buying grain from the people who grow it, one risk at a time.
 
 Read this episode: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep19.html</itunes:summary>
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       <pubDate>Fri, 11 Sep 2026 05:00:00 GMT</pubDate>
-      <itunes:duration>773</itunes:duration>
+      <itunes:duration>647</itunes:duration>
+    </item>
+    <item>
+      <title>Ep 20 — Destination Markets, Tenders and the Winner's Curse</title>
+      <link>https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep20.html</link>
+      <description><![CDATA[<p>How large importers actually buy, and how an export desk prices a tender bid backwards from the buyer's port. Then why winning the tender is the most reliable way to lose money on it.</p><p><a href="https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep20.html">Read this episode, with the charts, the glossary and the quiz &rarr;</a></p>]]></description>
+      <itunes:summary>How large importers actually buy, and how an export desk prices a tender bid backwards from the buyer's port. Then why winning the tender is the most reliable way to lose money on it.
+
+Read this episode: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep20.html</itunes:summary>
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+      <itunes:duration>0</itunes:duration>
     </item>
     <item>
       <title>Ep 18 — EFP, Delivery and the Squeeze</title>

package/glossary.md

@@ -14,6 +14,8 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **asset-light** — renting elevators, terminals and plants rather than owning them  _(ep 2)_
 - **at** — the small word that introduces the offer side (462 bid, at 462 and a half)  _(ep 1)_
 - **ATR** — Acucar Total Recuperavel or total recoverable sugar, the kilos of sugar recoverable from a tonne of cane, the unit in which Brazilian growers are paid and the unit in which a mill compares sugar against ethanol  _(ep 14)_
+- **attribution** — decomposing a finished trade into flat price, basis, calendar spread, freight, currency and financing, so the result can be explained rather than merely counted  _(ep 21)_
+- **attribution bridge** — the line-by-line reconciliation from planned margin to realised margin, which has to close to the dollar or a line is missing  _(ep 21)_
 - **B50** — a blending mandate requiring 50 percent biodiesel in the diesel pool, the level Indonesia moved to in 2026  _(ep 9)_
 - **bag (coffee)** — 60 kg, how the coffee trade counts volume  _(ep 1)_
 - **balance sheet** — the one-page supply and demand statement for one crop and one marketing year, built so that supply minus use equals ending stocks and the page closes  _(ep 7)_
@@ -164,9 +166,12 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **load-out capacity** — how fast an elevator can ship grain out, the lever that decides whether a full house is a crisis or a rotation  _(ep 11)_
 - **load-out rate** — the minimum tonnage per day the issuer of a shipping certificate is contractually obliged to ship  _(ep 18)_
 - **long the basis** — owning physical hedged with futures, so the position gains when the differential strengthens and is indifferent to the board  _(ep 19)_
+- **long the spread** — holding the nearby month against a short in the deferred, which loses as the carry widens and whose loss is bounded by full carry  _(ep 21)_
 - **long ton** — 2,240 lb, the imperial weight unit the sugar No. 11 contract is still sized in at 50 long tons a lot  _(ep 14)_
 - **lot** — one futures contract, 5,000 bushels for Chicago grains, the unit desks count positions in  _(ep 1)_
 - **managed money** — speculative funds reported as non-commercial in exchange positioning data, which trade direction rather than physical  _(ep 13)_
+- **margin financing** — the cost of funding variation margin paid out on a losing futures leg while the offsetting gain on the physical is still unrealised  _(ep 21)_
+- **mark to market** — repricing every open line at the day's settlement, physical included, so a book's value moves daily on grain nobody has yet agreed to buy  _(ep 21)_
 - **market depth** — the quantity resting on the book near the touch, which is what determines execution cost rather than headline volume  _(ep 15)_
 - **marketing year** — the accounting year a crop is measured in, September to August for US corn and soybeans and June to May for US wheat  _(ep 7)_
 - **Matif milling wheat (EBM)** — the Paris contract, 50 tonnes a lot quoted in euros per tonne and delivered into Rouen and Dunkirk  _(ep 5)_
@@ -178,6 +183,7 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **NASS** — USDA's National Agricultural Statistics Service, the body running the surveys behind the published numbers  _(ep 7)_
 - **natural process** — coffee dried with the fruit still attached, giving a sweeter, heavier and more variable cup  _(ep 12)_
 - **net length** — a fund category's long positions less its short positions, the number that says how much of a rally is positioning  _(ep 13)_
+- **net position** — physical long less physical short plus futures, for one month and one location, the only number that actually describes exposure  _(ep 21)_
 - **netback** — the value of a cargo at an upstream point, obtained by taking a downstream price and subtracting every cost in between, the standard way an export desk turns a destination price into an origin bid  _(ep 20)_
 - **new crop** — the marketing year about to begin, priced by the contract months that follow the coming harvest  _(ep 7)_
 - **No. 11** — the ICE raw cane sugar futures contract, 112,000 lb quoted in US cents per pound FOB at origin, and the world price of raw sugar  _(ep 14)_
@@ -194,6 +200,7 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **olein and stearin** — the liquid and solid fractions palm separates into when refined, sold into cooking oil and into fats respectively  _(ep 9)_
 - **on-call purchase** — cotton bought by a merchant from a grower with the futures leg left for the seller to fix later, which makes it latent futures selling  _(ep 15)_
 - **on-call sale** — cotton sold by a merchant to a mill at an agreed differential with the futures leg left for the buyer to fix later, which makes it latent futures buying  _(ep 15)_
+- **open position** — a month or location where physical and futures do not offset, whether or not anybody decided to have one  _(ep 21)_
 - **optional origin** — a tender term allowing the seller to supply from any of several named origins, worth money to the seller because it is a portfolio of alternatives rather than a single commitment  _(ep 20)_
 - **origination** — the business of buying physical crop from farmers, co-ops and country elevators, together with the network of people and facilities that makes it possible  _(ep 19)_
 - **outright** — a contract agreed at a flat price rather than as a differential, with no fixation to come  _(ep 13)_
@@ -211,6 +218,7 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **point (softs)** — one hundredth of a cent per pound, so up 300 points means up 3 cents  _(ep 1)_
 - **polarisation (pol)** — the sucrose purity of a sugar measured by the rotation of polarised light and expressed in degrees, the basis on which raw sugar is priced and settled  _(ep 14)_
 - **pollination** — the roughly one-week corn window in mid-July in the northern hemisphere after which the ear count is fixed and no forecast can change it  _(ep 6)_
+- **position sheet** — a desk's record of net exposure by futures month and by location, kept in lots with long positive and short negative, in which physical and paper appear as the same row  _(ep 21)_
 - **posted bid** — the price an elevator displays to growers for immediate delivery, quoted as a differential to a named futures month and used to manage the delivery queue as much as to set a price  _(ep 19)_
 - **price assessment** — a published daily price built by surveying brokers and exporters, used where no futures contract exists  _(ep 5)_
 - **price-later deadline** — the date by which an unpriced farmer contract must be fixed, after which the buyer prices it at the market  _(ep 19)_
@@ -219,9 +227,11 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **protein spec** — the contractual protein percentage that turns the word wheat into a price  _(ep 5)_
 - **putting on the crush** — buying bean futures and selling meal and oil futures against them in a 10-11-9 lot ratio, which fixes the processing margin  _(ep 8)_
 - **quality basis** — the spread between the grade you own and the grade the futures contract delivers  _(ep 5)_
+- **quantity risk** — the exposure left over when a hedge cannot exactly match a cargo, because futures trade in whole lots and a cargo rarely divides by five thousand bushels  _(ep 21)_
 - **ration** — the formulated feed mix a mill grinds, in which every ingredient carries an inclusion limit and a substitution price against the others  _(ep 6)_
 - **raws** — raw cane sugar, the crystalline product a cane mill exports before refining, traded at 96 degrees polarisation  _(ep 14)_
 - **receiving capacity** — how fast an elevator can take grain in, in bushels or tonnes per hour, a different constraint from how much it can hold  _(ep 11)_
+- **reconciliation** — the morning discipline of making the trader's sheet, the back office's and the risk system's agree, or of explaining why they do not before the market opens  _(ep 21)_
 - **registered stocks** — the quantity currently certificated and therefore available to settle a futures delivery  _(ep 18)_
 - **regular warehouse** — a facility approved by an exchange to issue deliverable certificates at a named delivery point  _(ep 18)_
 - **relative value** — a position expressing a view on the difference between two prices rather than on the direction of either  _(ep 16)_
@@ -254,6 +264,7 @@ Units, conventions and desk expressions, accumulated as the show introduces them
 - **soluble solids** — the share of the coffee bean that dissolves in water, higher in robusta, which is why robusta dominates instant coffee  _(ep 12)_
 - **space time form** — the three transformations a merchant is paid for, geography, storage and processing  _(ep 2)_
 - **spread margin credit** — the reduction in initial margin an exchange grants a recognised spread, which lowers the cost of a position without lowering its risk per tonne  _(ep 16)_
+- **square** — desk shorthand for a net position of zero in a given month or location  _(ep 21)_
 - **squeeze** — a front month bid far above the cash value of its deliverable because open interest exceeds what can physically be delivered in the time available  _(ep 18)_
 - **standing bid** — demand that is present regardless of price because it is created by legal obligation rather than by choice  _(ep 9)_
 - **state reserve auction** — a government selling cotton or grain from its own stockpile into its domestic market, whose clearing rate is read as a signal of domestic tightness  _(ep 15)_

package/package.json

@@ -1,7 +1,7 @@
 {
   "name": "@sdelsad/commodity-desk-daily",
-  "version": "1.0.65",
-  "description": "Soft Commodity Trading - Ep 20: Destination Markets, Tenders and the Winner's Curse",
+  "version": "1.0.67",
+  "description": "Soft Commodity Trading - Ep 21: The Book and P&L Attribution",
   "license": "CC-BY-4.0",
   "keywords": [
     "podcast",

package/ep20.md

@@ -1,270 +0,0 @@
-# Market pulse
-
-**The USDA cut the corn yield by more than two bushels and the corn market closed lower. Every one of the six headline numbers landed above what the trade had guessed, and a cut smaller than the one you are positioned for is a bearish cut.**
-
-| Contract | Last | Change |
-|---|---|---|
-| Dec corn (CBOT) | 530.25 c/bu | −3½ |
-| Nov soybeans (CBOT) | 1,296.50 c/bu | −35¾ |
-| Dec Chicago SRW (CBOT) | 725.25 c/bu | −16 |
-| Dec Kansas City HRW | 798.50 c/bu | −20¼ |
-| Dec MIAX spring wheat | 745.00 c/bu | −17½ |
-| Oct soybean meal (CBOT) | $346.80/short ton | −3.80 |
-| Oct soybean oil (CBOT) | 69.19 c/lb | −222 pts |
-
-Friday's September supply and demand report put the US corn yield at 178.5 bu/ac, down from 180.7 in August. Production came out at 15.800 bn bu and carryout at 1.567 bn bu, which tightens stocks-to-use to 9.7 percent. That is a real cut. It was also 0.4 bu/ac above the trade's average guess of 178.1, and the carryout was 34 m bu above the 1.533 bn the market had priced. Soybeans went the other way on a friendly-looking print: yield 52.8, production 4.535 bn bu, carryout 310 m bu against estimates near 290. November beans lost 35¾ cents, most of it profit-taking off the top of a long rally rather than anything in the report.
-
-The wheat numbers barely moved at home — 717 m bu of US carryout, in line — but world wheat ending stocks came in at 276.29 Mmt against 273.0 expected, an extra 3.3 Mmt that nobody was looking for. Weekly corn export sales were 1.929 Mmt for the week to 3 September, and Mexico booked a further 264,000 t of new crop. Wheat export commitments stand at 322 m bu, down 31 percent on the year.
-
-```chart
-{"type":"line","mode":"index","unit":"index, 4 September = 100","title":"The friendly print that sold off",
- "caption":"Soybeans gave back Thursday's twenty-two-cent rally and more. The corn yield came down and corn still finished the week lower than it started it, because the cut was smaller than the one the market had already bought.",
- "source":"CBOT settlements. 7 September was Labor Day and 8 September is not shown.",
- "x":["4 Sep","9 Sep","10 Sep","11 Sep"],
- "series":[{"name":"Dec corn","values":[536.75,527.75,533.75,530.25]},
-           {"name":"Nov beans","values":[1309.75,1309.50,1332.25,1296.50]},
-           {"name":"Dec Chi wheat","values":[734.00,728.75,741.25,725.25]}]}
-```
-
-## The geopolitical read
-
-Russian September loadings are running at 1.6 to 2.0 Mt against 4.9 Mt in the same month a year ago. That is a two-thirds reduction in the world's largest wheat exporter, in the middle of its export season, and the board is going down.
-
-The wire that explains it is not price. It is flow substitution. Asian buyers have taken at least 500,000 t of Australian and Argentine wheat in place of Black Sea tonnes they could not get comfortable with. The wheat still moves, it just moves from somewhere else, on a longer voyage, at a different basis. What that does is lift the differential at the substitute origin and leave the futures board more or less where it was.
-
-This is the mechanism that most people under-price, because it is invisible on a screen. A blocked origin does not create a shortage as long as another origin has the tonnes and the vessels. It creates a re-pricing of *differentials* — up at the origin everybody switched to, down at the one they left. The proof arrived in the same report: world wheat ending stocks were revised 3.3 Mmt *higher* than the trade expected, in the week that Russian loadings ran two-thirds below normal. The supply is not missing. It is in the wrong place, and moving it costs freight rather than flat price.
-
-Which is a destination-market decision, taken by a buyer in an import office with a tender document in front of them. That is today's subject.
-
-# Key takeaways
-
-- A tender price is not a price you quote. It is a price you calculate backwards from the buyer's port, subtracting every cost between their discharge berth and your origin, until what is left is either a margin or a reason not to bid.
-- The destination sets the number; the origin only tells you whether you can live with it. Two houses looking at the same tender arrive at different bids because they own different origins, not because they disagree about the wheat.
-- A tender bid is a firm offer for a fixed validity period. During those hours the buyer holds a free option on your price, and you hold the risk of every market that moves inside the window.
-- The winner of a tender is not the most efficient bidder. It is the bidder whose cost estimate was most wrong in the helpful direction. With ten bidders and ordinary estimating error, the winner is systematically below true cost — which is why a disciplined desk expects to lose most of the tenders it enters.
-- An importer's store-or-sell arithmetic is the same arithmetic as a merchant's, with one term added and one term removed. The added term is security of supply. The removed term is the obligation to make money on the trade.
-- Model a state importer as a profit maximiser and you will get their timing wrong. They buy on a calendar set by consumption, foreign exchange allocation and political risk, and they will pay to be early.
-
-# Vocabulary
-
-| Term | What it means |
-|---|---|
-| **Tender** | A formal, published invitation to offer, in which an importer states a quantity, a specification, a delivery period and a set of terms, and invites sellers to submit sealed price offers by a stated deadline |
-| **Tender validity** | The period after the bid deadline during which a submitted offer remains firm and the buyer may accept it, typically a few hours, during which the seller carries the market risk and the buyer holds the choice |
-| **Bid bond** | A bank guarantee lodged with the offer, forfeited if a bidder wins and then refuses to sign, which is what makes a tender bid a commitment rather than an indication |
-| **Performance bond** | A larger guarantee posted by the winner against actually shipping the goods to the contracted terms, usually a low single-digit percentage of the contract value and carrying a real financing cost |
-| **Optional origin** | A tender term allowing the seller to supply from any of several named origins, which is worth money to the seller because it is a portfolio of alternatives rather than a single commitment |
-| **Netback** | The value of a cargo at an upstream point, obtained by taking a downstream price and subtracting every cost in between, the standard way an export desk turns a destination price into an origin bid |
-| **Import premium** | The amount a destination market pays above the exporting market's replacement value, which is what draws cargoes towards that destination rather than another |
-| **Winner's curse** | The result that in a competitive auction for an item of uncertain common value, the winning bid is drawn from the low tail of the bidders' estimates, so the winner systematically overpays unless every bidder shades the bid downward |
-| **Bid shading** | Deliberately bidding away from your own best estimate of value, by roughly the size of the expected winner's curse, in order to make winning informative rather than merely expensive |
-| **Days of cover** | The number of days of domestic consumption an importing country holds in stock, the operational number a state buyer manages rather than a price |
-| **Cash-and-carry** | Buying the physical, selling the deferred contract and storing the goods to collect the spread, which pays only when the carry in the market exceeds storage plus finance |
-
-# Quiz
-
-**Q1.** A North African importer tenders for 60,000 t of milling wheat, CFR, shipment 1 to 15 November, optional origin. You intend to serve it out of the US Gulf. December Chicago wheat settled at 725.25 c/bu and your FOB Gulf replacement cost is December plus 92 cents. A 60,000 t Panamax from the Gulf to the Mediterranean costs $31.50/t. You finance the cargo for 25 days at 6.0 percent on the CFR value, you carry an outturn and weight allowance of 0.15 percent of the CFR value, and the bid bond, performance bond and local agent's fee together cost $0.35/t. The tender is awarded to you at $334.50/t CFR. Work out your margin, in dollars per tonne and on the whole cargo.
-
-**Q2.** The same importer is offered November shipment at $336.00/t CFR and January shipment at $342.00/t CFR. Their own silo costs $2.20/t per month and their working capital costs 7.5 percent a year. On the numbers alone, which shipment should they buy?
-
-**Q3.** An elevator buys 400,000 bu of corn at December minus 28, rolls the hedge from December into March and collects 12 cents of carry on the roll, then sells the corn at March plus 8. How many cents per bushel does the position earn gross, before storage and interest?
-
-**Q4.** A merchant long physical corn has a fence on: long the December 520 put, short the December 560 call, one cent of net premium paid. December settles at 604. What is the effective price realised on the hedged bushels?
-
-**Q5.** Conversion drill. Brazil's soybean area for the coming season is put at 48.5 million hectares. How many million acres is that?
-
----
----
----
-
-# SOLUTIONS (spoilers)
-
-**A1.** Everything in this problem is a subtraction, and the discipline is to do them in one currency and one unit. Convert the origin cost into the destination's units first, then walk backwards.
-
-*Size.* 60,000 t × 36.744 = 2,204,640 bushels. At 5,000 bushels a lot, that is 440.93, so a full hedge is 441 lots. One cent a bushel on this cargo is about $22,000.
-
-*The origin cost, in the destination's units.* Your FOB Gulf replacement is 725.25 + 92 = 817.25 c/bu. A bushel of wheat is 60 lb and a tonne is 36.744 bushels, so multiply: $8.1725 × 36.744 = $300.29/t FOB Gulf.
-
-*The walk backwards from the award.*
-
-| Step | $/t |
-|---|---|
-| CFR award | 334.50 |
-| Less freight, Gulf to Mediterranean | −31.50 |
-| Less financing, 25 days at 6.0% | −1.37 |
-| Less outturn and weight allowance, 0.15% | −0.50 |
-| Less bid bond, performance bond and agent | −0.35 |
-| Less FOB Gulf replacement | −300.29 |
-| **Margin** | **+0.49** |
-
-The financing line is $334.50 × 0.06 × 25 ÷ 365 = $1.37. The outturn line is 0.15 percent of $334.50, which is $0.50.
-
-*The result.* $0.49/t on 60,000 t is $29,400. In the units the origin desk actually speaks, $0.49 ÷ 0.36744 = 1.33 c/bu — about a third of a cent more than the tick the market trades in.
-
-*The trap.* The question asks for a margin and the margin is a real, positive number, so the natural conclusion is that this was a good bid. It was not, and the reason has nothing to do with the arithmetic above.
-
-Suppose ten houses bid this tender. Each estimates the same true delivered cost, and each estimate is honest and unbiased, but each is built on slightly different freight ideas, slightly different views of what the FOB basis will be when they have to cover, and slightly different bond costs. Say those estimates are scattered with a standard deviation of $2.00/t around the truth — which is modest for a November shipment priced in September.
-
-The tender does not go to the average bidder. It goes to the lowest. For ten independent draws, the lowest sits about 1.54 standard deviations below the mean, so the winning bid is on average 1.54 × $2.00 = $3.08/t below the true cost of the business. On 60,000 t that is $184,656.
-
-Set that against the margin: $3.08 of expected estimating error against $0.49 of expected margin. The error is more than six times the reward. Winning this tender at $334.50 is not evidence that you were efficient. It is evidence that your freight number was the most optimistic one in the room.
-
-*What to do about it.* Two things, and only two. Shade the bid — add roughly the expected curse to your own estimate before you submit, accept that you will now lose most tenders, and treat that as the system working rather than failing. Or bid only where your edge is a fact rather than an estimate: tonnes you already own at a known basis, freight you have already fixed, an origin option nobody else can offer. A fact does not have a standard deviation, and it is the only thing that makes a competitive tender worth entering.
-
-**A2.** Buy January.
-
-Waiting is offered to them at $6.00/t: January at $342.00 against November at $336.00, over two months. Doing it themselves costs more.
-
-| Cost of buying November and storing to January | $/t |
-|---|---|
-| Silo, $2.20/t per month for two months | 4.40 |
-| Financing, $336.00 × 7.5% × 2 ÷ 12 | 4.20 |
-| **Total** | **8.60** |
-
-It costs $8.60 to store and the curve pays $6.00 to wait. Buying November and holding loses $2.60/t, which is $156,000 on a 60,000 t cargo.
-
-The break-even is worth knowing: with the silo cost fixed at $4.40, financing would have to fall to $1.60 over two months for storage to pay, which is a borrowing rate of about 2.9 percent. Working capital in most importing countries is nowhere near that, which is why destination buyers are structurally reluctant carriers of stock and why importing markets usually trade with less carry than the exporting market that supplies them.
-
-And yet they will often buy November anyway — see the written edition. The $2.60/t is then not a mistake. It is the price of not running out.
-
-**A3.** 48 cents.
-
-Two components, kept separate.
-
-| Component | c/bu |
-|---|---|
-| Basis, bought at 28 under and sold at 8 over | 36 |
-| Calendar, carry collected on the December to March roll | 12 |
-| **Gross** | **48** |
-
-The basis half is 28 + 8 = 36 cents: buying below the board and selling above it both earn, and the two add. The calendar half is the 12 cents of carry the roll paid a short hedger. Neither number depends on where corn went in the meantime, which is the point of the hedge. On 400,000 bu, 48 cents is $192,000 gross, out of which storage and interest still have to come.
-
-**A4.** 559 c/bu.
-
-The physical is sold into a 604 market, so the cash leg realises 604. The short 560 call is 44 cents in the money and has to be paid: 604 − 560 = 44. The net premium paid for the structure was 1 cent.
-
-604 − 44 − 1 = **559**.
-
-That is the effective ceiling the fence created, and it does not move however far December goes. Settling at 585 or at 700 gives the same 559 on the hedged bushels. Selling the upper wing is what paid for the floor, and this is what it costs when the wing is the one that pays out.
-
-**A5.** About 120 million acres.
-
-One hectare is 2.47 acres. The fast method is to multiply by 2.5 and then shave one percent: 48.5 × 2.5 = 121.25, less 1 percent is 1.21, giving **120.0 million acres**. The exact figure is 48.5 × 2.47 = 119.8 million acres.
-
-# The written edition
-
-## The price is set at the other end
-
-A merchant's instinct is to start from what they own. They know their farm gate, they know their elevation, they know the board, and they build a number upward until it becomes an offer.
-
-A tender does not work that way. The importer publishes a quantity, a specification, a delivery window and a set of terms, and the only question in front of every bidder is what number to write in the box. That number is set at the destination and worked backwards, and the origin only enters at the end, as a test of whether the answer is survivable.
-
-This is the **netback**, and it is the most used piece of arithmetic on an export desk. Take the destination price. Subtract the freight. Subtract the cost of money between paying at load and collecting at discharge. Subtract the weight you will lose between the two ports. Subtract the guarantees. What is left is the value of the cargo at your loading berth, and that is the number you compare against what it actually costs you to put wheat on that berth.
-
-Two houses looking at the same tender will arrive at different bids. Not because they disagree about wheat — they read the same balance sheet and the same freight list. They differ because one of them already owns 40,000 t in a Gulf elevator at last month's basis and the other has to go and buy it on Monday. The destination sets the price. The origin decides who can live with it.
-
-## Building the bid backwards
-
-Take the tender in question one, and build the number the way an export desk builds it, from the outside in.
-
-| Line | $/t | Where it comes from |
-|---|---|---|
-| FOB Gulf replacement | 300.29 | December 725.25 plus 92 basis, times 36.744 |
-| Freight, Panamax to the Med | 31.50 | Owner's indication, November laycan |
-| Financing, 25 days at 6.0% | 1.37 | Payment at load, collection at discharge |
-| Outturn and weight allowance | 0.50 | 0.15% of the CFR value |
-| Bonds and agent | 0.35 | Bid bond, performance bond, local fee |
-| **Cost, CFR** | **334.01** | |
-| Target margin | 2.00 | |
-| **Bid** | **336.01** | |
-
-```chart
-{"type":"waterfall","unit":"USD/t","title":"A tender award, walked backwards",
- "caption":"Winning at 334.50 leaves 49 cents a tonne, or $29,400 on a Panamax. That is less than a quarter of the error in the freight number the bid was built on.",
- "source":"Worked example, episode 20, built on December Chicago wheat at 725.25 c/bu, 11 September 2026",
- "steps":[{"label":"CFR award","value":334.50,"kind":"base"},
-          {"label":"Freight","value":-31.50},
-          {"label":"Financing","value":-1.37},
-          {"label":"Outturn","value":-0.50},
-          {"label":"Bonds, fees","value":-0.35},
-          {"label":"FOB Gulf","value":-300.29},
-          {"label":"Margin","kind":"total"}]}
-```
-
-Three lines in that table deserve more attention than they usually get.
-
-**Freight is the biggest number after the wheat itself, and it is the least certain.** $31.50/t on 60,000 t is $1.89 m. A two-dollar error in the freight idea is $120,000, which is four times the margin the whole trade is being done for. Desks that bid tenders without a firm owner's indication in hand are not trading wheat, they are trading dry bulk with a wheat-shaped position attached.
-
-**The financing line is small and it is not optional.** Twenty-five days between paying for the cargo at the load port and collecting from the buyer at discharge, at six percent, is $1.37/t. It looks like rounding. It is three times the margin in the worked answer.
-
-**The bonds are a cost of entry, not a cost of goods.** A bid bond is lodged with the offer and forfeited if you win and walk away. A performance bond is posted by the winner against delivering. Both tie up credit lines that could be doing something else, and both are paid whether or not the trade ever earns anything.
-
-## Validity, and the option you hand over
-
-A tender bid is firm for a stated period after the deadline. Bids close at eleven, validity runs to five: for those six hours the buyer may accept your offer, and you may not withdraw it.
-
-That is an option, and the buyer did not pay for it. If the board rallies fifteen cents inside the window, the buyer accepts and you are short the market at a price set before the rally. If it breaks fifteen cents, the buyer declines, re-tenders next week, and you have nothing. The value of that option grows with volatility and with the length of the window, and it is one of the quiet reasons that tender business carries a wider margin requirement than negotiated business — which brings us to how it actually sounds when the clock is running.
-
-TRADER: Where are we on the North African?
-
-AGENT: Bids close eleven, validity to five.
-
-TRADER: Put me three thirty-seven eighty, sixty thousand, optional origin.
-
-AGENT: Three thirty-seven eighty is not winning it. Last one went four under that.
-
-TRADER: Then I do not win it.
-
-Two things happened there. The trader quoted a bid he expected to lose, and he was right to. And the optional origin was stated as part of the price, because it is: the right to fill from the Gulf or the Black Sea or France, decided later, is worth real money and the bid reflects it.
-
-## Why winning is the problem
-
-Here is the part that separates a tender desk from a spreadsheet.
-
-Ten houses bid. Each has an honest estimate of what the business costs, and the estimates differ because the inputs differ — freight ideas, a view on where the FOB basis will be in a fortnight, the cost of a bond on a particular balance sheet. Say those estimates scatter with a standard deviation of $2.00/t around the true cost.
-
-The award goes to the lowest bid, not the average one. The expected lowest of ten independent draws lies about 1.54 standard deviations below the mean. So the winner has, on average, bid $3.08/t below the true cost of doing the business — $184,656 on a Panamax, before a single tonne moves.
-
-This is the **winner's curse**, and the uncomfortable part is that it does not require anybody to be careless. Every bidder can be competent, honest and unbiased, and the auction will still hand the cargo to whoever happened to be most optimistic that day. Being cheapest is not the same as being right. It is a statement about the tail of a distribution.
-
-There are exactly two answers.
-
-The first is **bid shading**: add roughly the expected curse to your own estimate before submitting, and accept the consequence, which is that you will lose most of what you bid on. A desk that wins sixty percent of its tenders is not good at tenders. It is the one supplying the curse to everybody else.
-
-The second is to bid only where the edge is a **fact rather than an estimate**. Tonnes already bought at a known basis. Freight already fixed. A silo at the load port that nobody else has. An origin option the specification allows and only you can deliver. Facts have no standard deviation, which is why the houses that do well in tender business are the ones whose advantage sits in the asset base rather than in the forecast.
-
-## The buyer is not maximising P&L
-
-Turn the table around and look at the same cargo from the import office, because the seller who misreads this misprices the tender.
-
-The importer in question two faces a two-month decision. November CFR is $336.00 and January is $342.00. The market is offering them $6.00/t to wait.
-
-```chart
-{"type":"bar","unit":"USD/t over two months","title":"What waiting costs the importer",
- "caption":"Storing a November cargo into January costs $8.60 a tonne and the curve pays $6.00. The $2.60 gap, $156,000 on a Panamax, is the price of not running out.",
- "source":"Worked example, episode 20",
- "x":["Silo tariff","Financing","Total cost","Market carry"],
- "series":[{"name":"Two-month carry","values":[4.40,4.20,8.60,6.00]}]}
-```
-
-Doing it themselves costs $8.60: $4.40 of silo tariff and $4.20 of interest on $336 at seven and a half percent. Buying November and holding it loses $2.60/t against simply buying January, which is $156,000 on the cargo. On the numbers, the answer is obvious.
-
-They buy November anyway, and often they are right to.
-
-A state or para-state importer is not running a trading book. They are running **days of cover** — the number of days of national consumption sitting in silo. Bread is frequently subsidised and the subsidy has a budget line. Hard currency for imports is released on an allocation calendar that is set by a central bank, not by a forward curve. And the cost of being wrong is not symmetric: a cargo bought two months early costs $156,000, and a mill that runs out of wheat costs something that does not appear on any P&L at all.
-
-So the $2.60/t is not a mistake. It is an insurance premium, knowingly paid, on an exposure the seller does not carry and often does not see.
-
-### What that does to the seller
-
-Two consequences, and both are money.
-
-The first is timing. Model the buyer as a profit maximiser and you will predict they wait for January. They will not, and when the tender lands in November you will be covering FOB and fixing freight in the same week as everybody else who made the same mistake. Clustered demand is the reason tender weeks move basis and freight together — the two costs in the netback that the bid already fixed.
-
-The second is the shape of the curve itself. Because destination buyers are expensive, reluctant carriers of stock, importing markets tend to show less carry than the exporting markets that supply them. Storage sits where it is cheapest, which is usually at origin. That is not a market failure. It is the market paying whoever holds capital most cheaply to hold the grain, and it is why the merchant at the loading end and the importer at the discharge end can both look at the same $6.00 of carry and correctly reach opposite conclusions.
-
-## The thing to carry away
-
-A tender is not a place to express a view. It is a place where an arithmetic error becomes a contract, and where the reward for being right is a few tens of thousands of dollars while the penalty for being optimistic is a few hundred thousand.
-
-The desks that make money out of destination business are not the ones with the best view on wheat. They are the ones who bid from facts, who expect to lose, and who understand that the buyer on the other side is solving a different problem entirely.

package/ep20.script.txt

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-The most dangerous thing that can happen to you in a tender is that you win it. ||| 0.6
-That is not a joke about paperwork. It is a statement about statistics. ||| 0.5
-This is Soft Commodity Trading, episode 20. Destination markets, tenders, and why winning is the problem. ||| 0.8
-First, the market. ||| 0.5
-The U S D A cut the American corn yield on Friday, and corn closed lower. ||| 0.45
-The yield came down from one hundred eighty point seven bushels an acre to one hundred seventy eight point five. Carryout, one point five six seven billion bushels, and stocks to use down to nine point seven percent. ||| 0.5
-That is a genuine cut. ||| 0.45
-It was also four tenths of a bushel above what the trade had guessed, and the carryout landed thirty four million bushels above what the market had already bought. ||| 0.5
-A cut smaller than the one you are positioned for is a bearish cut. ||| 0.6
-December corn settled five thirty and a quarter, down three and a half cents. ||| 0.4
-Soybeans took it much harder. November beans lost thirty five and three quarter cents to twelve ninety six and a half, on a report that was, if anything, friendly. That was profit taking off the top of a long rally. ||| 0.5
-Chicago wheat down sixteen cents to seven twenty five and a quarter. Kansas City down twenty and a quarter. ||| 0.6
-Now the Black Sea, because one number in that report does not fit the headlines. ||| 0.45
-Russian loadings this month are running between one point six and two million tonnes. A year ago the same month did four point nine. ||| 0.45
-Two thirds of the world's largest wheat exporter, missing, in the middle of its own season. And world wheat ending stocks were revised three point three million tonnes higher than expected. ||| 0.6
-Those two facts are not in conflict. The wire between them is flow substitution. ||| 0.45
-Asian buyers have taken at least half a million tonnes of Australian and Argentine wheat, in place of Black Sea cargoes they could not get comfortable with. ||| 0.45
-The wheat still moves. It moves from somewhere else, on a longer voyage, at a different differential. ||| 0.45
-A blocked origin does not create a shortage while another origin has the tonnes and the ships. It reprices differentials. Up where everybody switched to, down where they left. ||| 0.5
-The supply is not missing. It is in the wrong place, and moving it costs freight, not flat price. ||| 0.6
-That decision — which origin, which month — gets taken by a buyer sitting in an import office with a tender document in front of them. ||| 0.5
-So. A merchant's instinct is to price upward. You know your farm gate, you know your elevation, you know the board, and you build until it becomes an offer. ||| 0.45
-A tender does not work like that. Every bidder faces one question. What number goes in the box. ||| 0.5
-And that number is calculated backwards, from the buyer's port. ||| 0.6
-Take the destination price. Subtract the freight. Subtract the cost of money between paying at load and collecting at discharge. Subtract the weight you lose between the two ports. Subtract the guarantees. ||| 0.5
-What is left is the value of that cargo sitting on your loading berth. ||| 0.4
-That is the netback, and it is the most used piece of arithmetic on an export desk. ||| 0.7
-Let me put numbers on it. ||| 0.4
-Sixty thousand tonnes of milling wheat, C F R, November shipment, to a North African port. ||| 0.45
-Sixty thousand tonnes of wheat is two million two hundred and four thousand bushels. Four hundred and forty one Chicago lots. One cent a bushel on that cargo is about twenty two thousand dollars. ||| 0.55
-Your wheat. December Chicago at seven twenty five and a quarter, F O B Gulf at ninety two cents over. That is three hundred dollars and twenty nine cents a tonne. ||| 0.55
-Freight, Gulf to the Mediterranean, thirty one dollars fifty. ||| 0.4
-Financing, twenty five days at six percent, one dollar thirty seven. ||| 0.4
-Outturn and weight allowance, fifty cents. ||| 0.4
-Bid bond, performance bond and the local agent, thirty five cents. ||| 0.5
-Add it up. The business costs you three hundred and thirty four dollars and one cent a tonne, delivered. ||| 0.6
-You win the tender at three hundred and thirty four dollars fifty. ||| 0.5
-Margin, forty nine cents a tonne. Twenty nine thousand four hundred dollars on the whole cargo. ||| 0.6
-Positive. Thin, but positive. ||| 0.5
-Now here is the problem with that. ||| 0.6
-Ten houses bid that tender. Every one is competent and honest, and every one has a slightly different number, because they have different freight ideas and different views on where the F O B basis will be when they cover. ||| 0.5
-Say those estimates scatter with a standard deviation of two dollars a tonne around the truth. That is modest for a November cargo priced in September. ||| 0.55
-The award does not go to the average bidder. It goes to the lowest one, and the expected lowest of ten independent draws sits about one and a half standard deviations below the mean. ||| 0.5
-So the winner has, on average, bid three dollars and eight cents a tonne below what the business actually costs. ||| 0.5
-A hundred and eighty four thousand dollars, before a single grain moves. ||| 0.7
-Set that against your margin. Three dollars eight of expected error, against forty nine cents of expected reward. ||| 0.5
-The error is six times the prize. ||| 0.7
-That is the winner's curse, and the uncomfortable part is that it needs nobody to be careless. Everybody can be competent and unbiased, and the auction still hands the cargo to whoever was most optimistic that morning. ||| 0.5
-Being cheapest is not the same as being right. It is a statement about the tail of a distribution. ||| 0.7
-There are two answers to this, and only two. ||| 0.45
-The first is to shade the bid. Add the expected curse to your own estimate before you submit it, and accept that you now lose most of what you bid on. That is the system working, not failing. ||| 0.5
-A desk that wins sixty percent of its tenders is not good at tenders. It is the desk supplying the curse to everybody else. ||| 0.65
-The second answer is to bid only where your edge is a fact rather than a forecast. ||| 0.45
-Tonnes you already own at a known basis. Freight you have already fixed. A silo at the load port that nobody else has. ||| 0.45
-A fact does not have a standard deviation. ||| 0.7
-All of which is why a good tender desk often sounds like a desk that is trying not to trade. ||| 0.5
-TRADER: Where are we on the North African? ||| 0.25
-AGENT: Bids close eleven, validity to five. ||| 0.25
-TRADER: Put me three thirty seven eighty, sixty thousand, optional origin. ||| 0.25
-AGENT: Three thirty seven eighty is not winning it. Last one went four under that. ||| 0.25
-TRADER: Then I do not win it. ||| 0.65
-Two things happened there. He quoted a bid he expected to lose, deliberately. ||| 0.45
-And validity to five means his offer stays firm for six hours after bids close. For those six hours the buyer holds a free option on his price. ||| 0.45
-If the board rallies, they accept. If it breaks, they decline and re-tender next week. Nobody paid him for that option. ||| 0.5
-It is one reason tender margins get quoted wider than negotiated ones. ||| 0.7
-Now turn the table around, because the seller who misreads the buyer misprices the tender. ||| 0.55
-Same importer. November shipment is offered at three hundred and thirty six dollars a tonne, January at three hundred and forty two. The market is paying them six dollars a tonne to wait. ||| 0.55
-What does waiting cost them to do it themselves? ||| 0.4
-Silo, two dollars twenty a tonne a month, for two months. Four dollars forty. ||| 0.4
-Interest on three hundred and thirty six dollars at seven and a half percent, for two months. Four dollars twenty. ||| 0.45
-Eight dollars sixty to store. Six dollars to wait. ||| 0.55
-Buying November and holding it loses two dollars sixty a tonne. A hundred and fifty six thousand dollars on the cargo. ||| 0.6
-On the numbers the answer is obvious. Buy January. ||| 0.55
-They buy November anyway. And they are often right to. ||| 0.7
-A state importer is not running a trading book. They are running days of cover. How many days of national consumption are sitting in silo. ||| 0.5
-Bread is often subsidised, and the subsidy has a budget line. Hard currency gets released on a calendar set by a central bank, not by a forward curve. ||| 0.5
-And the cost of being wrong is not symmetric. ||| 0.5
-Buying two months early costs a hundred and fifty six thousand dollars. A mill that runs out of wheat costs something that never appears on a P and L at all. ||| 0.6
-So that two dollars sixty is not a mistake. It is an insurance premium, knowingly paid, on an exposure the seller does not carry and mostly cannot see. ||| 0.7
-Two consequences for you, and both of them are money. ||| 0.45
-The first is timing. Model that buyer as a profit maximiser and you will predict they wait for January. They will not. ||| 0.45
-When the tender lands in November, you are covering F O B and fixing freight in the same week as everybody else who made the same mistake. ||| 0.5
-Clustered demand is why tender weeks move basis and freight together. Those are the two costs your bid has already fixed. ||| 0.65
-The second is the shape of the curve. Because destination buyers are expensive, reluctant holders of stock, importing markets tend to show less carry than the exporting markets that feed them. ||| 0.5
-Storage sits where it is cheapest, and that is usually at origin. That is the market paying whoever holds capital most cheaply to hold the grain. ||| 0.7
-Three things to keep. ||| 0.45
-A tender price is calculated backwards from the buyer's port, never forwards from your farm gate. Your origin only tells you whether you can live with the answer. ||| 0.55
-The winner of a tender is not the most efficient bidder. It is the one whose estimate was most wrong in the helpful direction. Expect to lose, and bid from facts. ||| 0.55
-And the buyer across the table is not solving your problem. They are buying days of cover on a budget calendar, and they will pay to be early. ||| 0.7
-Next time, the book and P and L attribution. Physical long, paper short, by month and by location, and how errors surface in it. ||| 0.5
-The quiz is in the e-mail and on the page. Question one is the full tender netback, with the winner's curse sitting inside it. ||| 0.6
-This is Soft Commodity Trading. ||| 0.5