Hormuz Isn't an Oil Story Anymore

In 1877, the water in the middle of the Pacific got hotter than anyone alive had ever measured.

The monsoon didn't come to India.

Northern China dried up.

So did northeastern Brazil.

Crops failed across five continents in the same growing season, and a team of climate scientists who went back to count the dead put the number above 50 million people.

Roughly three in every hundred human beings on earth at the time.

The weather didn't do all that on its own.

While Indians were starving, the colonial government kept loading grain onto ships headed out of the famine zone, and the viceroy signed off on 320,000 tons of wheat going to England.

The ocean created the shortage. People, specifically government officials, decided who ate.

Both halves of that are about to matter again, because the same pattern is building in the Pacific right now.

The Pacific Has Never Been This Hot This Early

Most of the market is busy arguing about AI multiples and what the Fed does in September.

Meanwhile, the tropical Pacific is warmer right now than at this point in any year of the 45-year satellite record.

On July 13, a climate scientist at Berkeley Earth named Zeke Hausfather published the July model runs. Fourteen forecast systems, 667 individual runs, all pointing the same direction.

The middle of that pack has this El Niño peaking at 3.6 degrees Celsius above normal in the stretch of ocean forecasters watch.

The record over 149 years of data is 2.75 degrees above, set in 2015-16, and about 91 percent of those models break it.

NOAA is more careful with its language and still puts the odds of a very strong event this October through December at 81%.

For scale, the distance between the strongest El Niño of the last century and a half and the fifth strongest is only about half a degree above normal.

This forecast clears the record by 0.8. Hausfather's own read was that the models are forecasting something outside the bounds of anything we've ever observed.

On this date in 1997, right before the El Niño that flooded California and became the textbook case, that patch of ocean was 1.6 degrees above normal.

In 2015 it was 1.3 degrees above.

This month it's been sitting near 2.0 degrees above, which is the line where forecasters start saying "super El Niño.”

This one is also building faster than 1997 did, and it started the year from conditions closer to La Niña than to a warm ocean. El Niño almost always peaks between November and January, so most of what's coming hasn't happened yet.

One caution, and Hausfather raises it himself.

No model has ever predicted a 3.6-degree El Niño and then been graded against a real one, because there's never been a real one.

Fourteen systems agreeing is reassuring, and it isn't proof.

Though the uncertainty runs both directions, and the ocean itself is already somewhere the record has never been.

The Coupon Book Didn't Get Bigger When Prices Did

Let me tell you a quick story.

I was a young kid the first time I understood what my family was.

My mom would send me to the store with food stamps.

Back then, it was actual coupons, a booklet of them, and you tore them out at the register in front of whoever was standing behind you.

I'd watch the door the whole time I was in that line, waiting for somebody I knew to walk in while I was doing it.

I cupped my hand around the book so the guy behind me couldn't see what I was pulling out.

My mom hid those coupons from my dad. He was too proud to take anything from the government, so she took it without telling him, and she fed us with it.

So I was a kid carrying two secrets into that checkout line… One from the neighborhood and one from my own father.

I'm decades and a whole lifetime away from that store, and my ears still get hot typing this out.

You see, the math happening in our kitchen was simple.

The stamps came in a fixed amount, and that amount didn't move when prices did.

So when milk and rice and ground beef went up, nobody sent us more coupons.

The book just bought less food than it bought the month before. My mother worked that out at the table by herself, and something came off the list.

Nobody in that house stopped eating because food got expensive.

We paid, and something else went.

Multiply that by a few billion people and you understand why a small drop in supply produces a violent move in price.

A climate risk firm called Risilience ran the numbers on what this El Niño could do.

In their worst case, global farm production drops 14.3 percent, about $342 billion of it, with prices up 10 to 50 percent across major crops and 50 to 100 percent or more on the exposed ones: rice, palm oil, sugar cane, coffee.

To their credit, they're clear those are scenarios and not predictions, but…

…we got a live test three years ago.

Weird rain and hard heat hit West Africa, where four countries grow more than 60% of the world's cocoa and Ivory Coast alone grows 38 percent. Cocoa went to a record $10.97 a kilo in April 2024, roughly triple where it started, and a researcher at Oxford tied that spike directly to El Niño.

That El Niño ranked fifth in the modern record. The one forming now is forecast to rank first.

The bear case is real, and parts of it are aimed straight at what I just told you.

Cocoa has come back down since, and the cocoa organization even forecast a surplus for 2024-25, the first in four years.

On coffee, one commodity analyst I read argues this El Niño can't really dent supply, because Brazil's record crop is already coming out of the ground.

Soybeans have historically done better in El Niño years, up 2 to 5 percent on friendlier weather in the US, Argentina and Brazil.

And a food policy professor at Tufts, William Masters, told Newsweek that while this event will be brutal for farmers and poor households in Africa and Asia, its effects in the United States should be limited, because we buy our food from many different places.

Anybody selling you an American grocery apocalypse, I think, is wrong.

However, the bear case is the input side, and that damage is already done.

Fertilizer Up 31 Percent, Hormuz Down to 15 Ships

Weather by itself would be a manageable problem.

Weather is showing up on top of two wars hitting the same system from the other end.

You first have heat with no precedent. Drought in some places, floods in others, because hot air carries more water and then dumps it on whatever made it through the dry stretch.

Then you have Hormuz. The strait has been effectively shut to commercial traffic since the Iran war. July 19 saw 15 ships get through. A normal day is about 88.

Bloomberg put the farm consequence plainly: the shutdown has choked off fertilizer and other critical inputs while heat waves cook crops across Europe.

Then there’s the Black Sea. Russia and Ukraine have started aiming at each other's grain. USDA has Russia at better than 20% of the world's wheat exports next season and Ukraine near 7%, so between them they move close to a third of the wheat that crosses a border.

Ukraine's own agrarian confederation says the country has lost about a third of its Black Sea export capacity, with four of thirteen big grain terminals no longer buying.

Wheat is at a two-year high and corn and rapeseed went with it. Bloomberg's caveat belongs here too: this isn't 2022 yet.

The reason the three are worse together than apart is that they feed each other.

Fuel costs drive fertilizer costs, fertilizer costs drive yields down, and a weak crop walking into extreme weather comes out weaker.

Then governments panic.

Risilience points out that India, Vietnam and Thailand have all cut off rice exports in past shortages to protect their own people, which squeezes everybody else harder.

Fertilizer is where this stops being a projection.

The World Bank has fertilizer prices rising 31% on average this year, the least affordable they've been since 2022.

As for the bill: two Dartmouth researchers published a study in Science in 2023 pinning $4.1 trillion and $5.7 trillion in lost global income on the 1982-83 and 1997-98 El Niños, with US GDP running about 3 percent below trend five years after each, and Peru and Indonesia more than 10 percent below.

I'll be straight that other people measuring different things have gotten much smaller numbers, including a World Bank estimate of $45 billion for 1997-98.

What isn't in dispute is that both of those El Niños were weaker than what's on the forecast now.

Six Companies in Ten Thousand Take Two Dollars in Three

The best setups I've found in 26 years all had the same shape. Everything you needed was already sitting in the data, and nobody had bothered to write it up.

A group called Planet Tracker put the enterprise value of the global food system around $14 trillion, on revenue somewhere between $15 and $19 trillion.

That's 16% to 20% of everything the world produces.

Then they found the number that matters for anyone putting money to work: as much as 70% of that revenue runs through 0.06% of the companies in it.

Six companies out of every ten thousand collect two out of every three dollars.

A shortage in a crowded industry gets competed away.

Somebody undercuts somebody.

A shortage in an industry where few companies handle most of the money turns into pricing power for those companies.

The same concentration shows up in the dirt.

Four crops, wheat, rice, corn and soybeans, feed more than 60 percent of the calories human beings eat.

Four West African countries grow most of the cocoa.

Normally, a bad harvest in one place gets covered by a good one somewhere else, and a global El Niño is the specific event that breaks weather in several places at once, which is what stops the covering from working.

Food also behaves like nothing else in a downturn. Companies defer software. Nobody defers breakfast.

Owning nothing that grows, feeds, moves or processes the world's calories is an active bet that the most concentrated essential industry on the planet stays quiet through the strongest El Niño ever forecast and two shooting wars aimed at fertilizer and grain.

What You Can Do Right Now

I'm not telling you to panic. Panic is what people do when they don't have a plan.

One thing you can do now is go look at whether you own any food security exposure at all. Not to buy anything today, just to find out.

The businesses with real pricing power in a food shortage sit at the chokepoints. Fertilizer and crop nutrients. Farm equipment. Seed and crop science. Grain handling and processing.

Companies whose customers can't substitute and can't wait.

And one warning I'd give my own kids before I gave it to you.

This is a multi-year story, and multi-year stories never require anybody to act before Friday.

Agricultural commodities and the stocks around them have already started moving on this, which means the real question isn't whether the thesis is right. It's what you'd be paying for it this morning.

We're running those numbers now.

The weather is loaded. The wars are running. The only thing still open is the price.

The market hasn't fully priced this. The headlines haven't found it. The ocean doesn't care either way.

I know what a jump in food prices does to a kitchen table.

It looks like my mother doing math she couldn't say out loud, and a kid in a checkout line with his hand cupped over a coupon book.

A lot more families are about to find out.

The time to get ready is before.

What Premium Members Get Next

Everything above is yours to keep.

The forecast, the sources, the two wars, and the reason the handful of companies that feed the world are about to be tested.

You can act on all of it without paying me a dollar.

What you don't have is the work we're doing right now.

We're running the fertilizer, crop-input, equipment and grain-handling universe against three questions, and a name has to clear all three before it goes in front of a member.

Does it actually hold pricing power while its own input costs climb 31 percent, or does it just look like a food play on a screen?

What is it worth on through-cycle earnings rather than peak-cycle earnings? A cheap multiple on top-of-cycle profits is a trap, and food names are about to have a very good-looking couple of quarters.

And where is the entry that makes being wrong survivable, with the position size and the thesis-break level set before anybody buys a share?

That's the work, and it reaches Premium Members when it clears. On something this size, I'd rather be late and right.

Here's the record behind that promise.

Since Premium launched in March 2025 we've taken 31 positions. Thirteen are closed; all thirteen made money, averaging a 78% gain.

Seven of them hit what we call a Moonshot Ride.

The position roughly doubled, we sold half, and that sale pulled the entire original stake back out of the market.

What's left rides on money that is no longer ours to lose. We recovered our capital on those seven at gains between 88% and 140%, and three of the remainders are still up 194%, 125% and 115% on a cost basis of zero.

Nine of our open positions are underwater right now. Every one of them has been sitting in the Premium portfolio in plain view the whole time, because if all you see are the winners, it's a highlight reel, not a real track record.

About 77% of the positions we've taken are winners.

The average winner gains 65%, the average loser is down 22%, so the winners still run roughly three times the size of the losers.

The spread is the whole machine. I don't need to be right every time, and neither do you.

I need the winners several times the size of the losers, and I need a rule that forces capital off the table instead of letting me fall in love with a chart.

If you're already a member, the food security work is coming to you first, and you'll have it before I say another word about it publicly.

— Double D

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