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Education
that does not empower is simply not Effective Education.
GCME EFFECTIVE RISK MANAGEMENT EDUCATION
FEBRUARY 2007
WHAT'S IN YOUR TOOL BOX?
In farm circles, it is little wonder how many people still don't
get a key concept: Trying to predict the future is impossible! Every
time a producer clicks on the Bunge Web site at Crete, the first thing
they see is, "Predictive Markets Contest from Bunge".
"Click Here to Play and You May Win Prizes!". Clearly, the
business plan of all of the big grain giants has nothing to do with
"predicting". And, clearly Bunge is suggesting that
"predicting" is
a part of the farm business. Imposing middle man commercial discounts
on quality, basis discounts along with other in and out charges, of
their choosing, along with volume have all been a major part of the
grain merchants’ business plan. Due to convenience and the cost of
logistics the grain giants operate with a largely captive customer
base.
Outside of subjective opinionated conversations, have you ever seen
a grain merchant offer to share his prediction
how to kit with their farm customer base?
Sorry to burst the illusionary bubble, but, they don't have such a kit
and neither does anyone else.
We all know that crowds of producers have traveled many a mile to
attend meetings where predicting
and outlook
was the topic. Come to think of it, hasn't many an elevator and
country bank sponsored and promoted such meetings? Could it be that
all Bunge is doing is entertaining the question most asked by their
customers and then making a game of guessing out of it? For this their
customers are awarded prizes? At best "predicting" comes
under entertainment. At worst "predicting" is thought of as
farm business.
Wow! "Predicting"
is falsely seen as the kind of intellectual thinking that will
maximize producer profits and propel effective risk management
forward. How about awarding a prize for all the producers who sold
cash at a narrow basis, reducing their risk, taking sure thing profits
away from Bunge and all the other grain firms? No prizes for doing
that? Come on. No prizes for doing a futures first contract when the
basis is wide? Are you serious? Oh, and no prizes for incorporating
price flexibility in their price protection plan? Gee whiz, give me a
break! No prize for actually taking personal responsibility and
practical control of their financial risk? Silly me. But, just so I've
got this straight, there will be prizes for predicting (guessing)
where prices are going. That reminds me of trying to put a square peg
in a round hole.
Is there a motive involved? Could they be trying to keep producer's
minds on the "silly stuff" so they won't be so apt to notice
all those discounts and charges being levied against them. How many
years has the "prediction attitude" been going on now? Forever.
In spite of what Bunge suggests, we in farm country ought to be
smart enough to know that we don't know where prices are going. If
you must have a reason why we don't know, try this one: The complexity
of the sum of all the parts that affect price overwhelms the
forecaster's ability to know the future. Through the ages, man has
relied on his reasoning power to explain how things happen. But the
fact is, reasoning doesn't work when applied in a marketing system
where there are tons of complex variables that effect price. Not with
standing is the fact that some of the variables aren't known for days,
weeks and even months, after the fact. Producers can either accept
these truths or swim up-stream for life. Predicting markets is like
owning a horse barn. There is plenty of manure to spread around.
It isn't just the Bunge's in the world perpetuating the wrong
message . The
following is printed on a popular market based Web site: Quote,
"the big question is what's going to happen in the markets?
Here's my prediction for 2007 and a new video for you. In 2007 we are
going to see moves that no one can predict with any certainty right
now." End of quote.
If the English language means anything one could easily take that
to mean the markets are predictable, but just not right now. How
absurd is that? Markets are either predictable or not predictable.
Since the writer says, "they aren't predictable right now"
he is off the hook whenever he claims they are not predictable right
now. Where does that leave his prediction minded customers? Up a creek
without a paddle, comes to mind. In who's self interest is it to carry
on this charade? Why not speak the truth, trying
to predict the markets is impossible, now
and any other time. Why not admit the truth and propel effective risk
management forward.
The latest opinionated outlook information along with the latest
price prediction advice, connected by an emotional biased attachment
has been a proven recipe for disaster. The wisest thing one can do is
lock that "box", throw away the key, and put those ideas out
of temptations way. If our
attitude is so engrained with false beliefs that we can't learn from
our mistakes, progress becomes hopeless. Besides
that, you have no insight and you have no edge when your information
is identical to everyone else's.
It is more than just unfortunate, for business minded producers,
that the above described "tool box" is thought to be the
only one available. The common "tool kit", full of common
tools doesn't require any independent thought. It requires almost no
effort, almost no investment, no education and everyone qualifies. Knowledge
and change, on the other hand, leads to better decision making,
self-improvement and personal responsibility for the business risk
involved.
Once you embrace the idea of not wasting time on predicting
prices, you will notice a reduction in the
stress that is a guaranteed side effect of never knowing if you are right
or wrong. Effective risk management is not
about being right or wrong, it is about how you manage the effect of
risk on your balance sheet. There is a world of difference in trying
to prove that you are "right",
when you're not, and knowing that you have "effective"
reasonable control of your risk, regardless
of the future. We make progress when we learn to acknowledge the
difference.
The following is a list of what I don't
want in my "risk management tool box":
(1) Predictions.
(2) Opinions & outlook.
(3) Subjective planning.
(4) A biased attitude.
(5) No price flexibility.
(6) No risk control.
(7) No sense of value.
(8) Stress.
(9) Stubborn mind-set.
(10) Silly Games.
The following is a list of what I do
want in my "risk management tool box":
(1) Change.
(2) Continuing Education.
(3) Risk Control.
(4) Objective Planning.
(5) Numbers.
(6) Basis Graphs and History.
(7) Cash Sales.
(8) Futures First Sales.
(9) PUT & CALL Options.
(10) Price Flexibility.
(11) A Good Sense of Value.
(12) Personal Responsibility.
(13) Efficient Execution.
(14) Self Examination.
(15) A Record of Progress.
Progress is a very good thing!
Gary Cram
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