I was talking about direct party visibility, I was talking more along the lines of parties two or three steps up in the supply chain. They would have no troubles getting their supply from the supplier, this was apparently just an attempt to enlarge earnings. I will create a completely fictional scenario to illustrate what might have happened at Peets.


Say you are a florist. You buy your flowers from a variety of suppliers and have plenty of supply and credit so there are no operational issues. Say now you go to Las Vegas for your annual florist convention or whatever you might call it. While there you meet with people that aren't suppliers, but maybe the shippers or export specialists for roses in New Zealand and Australia. They are at the show to drum up business from others, but in the spirit of a convention they talk to anyone. You have a drink with one of these guys and he tells you that there could be some issues with deliveries in 6 months because a big batch of seedlings were lost in a train-wreck. Now this isn't exactly directly affecting you, but you could see how this all filters out. You go to the markets and buy futures contracts on roses figuring the 10% Australian rose contribution to world supplies is in jeopardy and prices are going to go up. You figure this hasn't really been public news and since its FAR down the supply chain order you got a chance to make some money off of it before the markets hear about this and adjust their prices. Problem is you talked to only one guy and based your scenario on this. He isn't an economist, heck he doesn't even know all the suppliers in the market, just the big exporters! Turns out that this guy doesn't know it, but the domestics have plenty of extra seedlings that they sell for only a slight increase over what the exporters were shipping in. Further the shipping guy doesn't know that Brazil quietly slipped in a tax cut for its rose producers due to the fact that the brother of a key senator is a rose farmer. Since its negligible to the tax revenues, the news pretty much ignores this fact. Only people that know are the rose farmers themselves and they figure these types of laws can be repealed quickly so they go bonkers with production this year. Further compounding the situation is good weather in western Africa which makes for a crop 10% better than the year before. Suddenly what the guy thought was a shortage becomes a glut and he is stuck with a bad bet, all because he had a drink with a guy that really had a small pulse on the market and was speculating with what is to come in a few months. So you went a few steps above your level of the chain for information and it STILL was incorrect. You speculated instead of hedged, but you don't want to tell that to anyone. You tell the market you were afraid of price increases because an increase of 20% would have rendered your business model close to break-even. You don't tell them that you really were speculating because of information you heard that wasn't really reflected by the public. And furthermore it had nothing to do with your interactions with the guys you deal with directly either above or below you. You had no information of a change in demand from your customers or supply from US distributors.