Q: How is GCME
Risk Management Education any different from other market advisors?
A: We don't predict the future - we
teach producers how to manage their business in the face of an uncertain
future. That small difference in our approach makes a large difference in
the results that our customers receive.
Q: How is it that
students of GCME Risk Management Education are able to effectively manage
their risk while most producers don't?
A: The key is education. Through
education, our customers are able to change their beliefs and their focus
about marketing. They become effective risk managers when they learn to
ignore the useless market predictions that dominate the farm news and
focus on the opportunities of the numbers in front of them.
Q: Why is
collecting numbers of prime importance to the effective management of the
price risk on the crops grown?
A: For us, those numbers are our
opportunities. Opportunities to market our crops and limit our risk. GCME
and the producers we serve have learned that the numbers are the only
solid basis to develop an effective risk management program on, with
consistency in mind.
Q: How can you
manage a farm business without taking into consideration the experts'
market outlooks?
A: Actually, pretty well. After years
of frustration and disappointment, we have come to realize that when it
comes to predicting the future, there are no experts. Peter Drucker in The
Unseen Revolution put it well. "No amount of analysis or
"research" does much good, for one cannot analyze or research
something that does not yet exist, something that is still a promise
rather than a performance". Drucker's advice to business managers
also applies to us as risk managers. Our job isn't to predict the future
and then cuss when we're wrong - that's what everyone else does. Our job
is to protect our resources from unforeseen negative events while
maintaining the potential to profit from unforeseen positive events.
Q: Name a belief
that makes a difference?
A: The future is not predictable. That
lesson right there will make a huge change in your marketing results. Only
a handful of producers seem to realize that, in spite of all the expert
opinions, the markets are going to go where they go. When prices go down
into harvest, which is the majority of the time and producer's have no
downside risk protection, they have no one to blame but themselves. The
sooner producers learn of these differences and change their focus, the
sooner they will find the success they have been looking for.
Q: What do
you say to people who say we have no control over price?
A: We don't need to control
price. What we need to control is the decisions that we make. We can
responsibly and effectively maximize the risk of cash sales and define and
control the risk of price when price flexibility is a part of the planning
process. Remember, the "effective risk manager" is the one best
positioned to benefit from an UNFORESEEN future. Producer's have found
that doing the simple math, the worksheets, and the new crop plan
developed and written a year in advance is good business. You can't do
that if you are focused on somebody's outlook or some seasonal that is no
longer relevant in a changing world production environment.
Q: What is
"natural optimism" that you teach about?
A: Natural optimism is inherent
in the human race. A farmer could not be a farmer without natural
optimism. When a farmer plants his crops, natural optimism pictures him
growing ideal yields. Then, when he puts his crops in a bin or an
elevator, natural optimism has him believing prices will go higher...
"if I just wait". The reality is grain prices spend more time
going down than up. But, natural optimism makes producers hold grain when
the numbers and the risk say sell. This is a very strong part of
our human nature and is a hard habit to break.
Q: Why does a
farm producer need to learn about risk management? Isn't the government
taking care of that?
A: The current U.S. policy is designed
to keep market prices low. In theory, the producer is guaranteed the loan
rate price that can include a loan deficiency payment to make up for low
market prices. In practice it doesn't always work that way. Producers have
experienced times when the LDP and the cash bid do not equal loan rate.
The government program has nothing to do with securing a price higher than
loan rate. That is an important reason for a producer to learn to manage
his risk. Also, people who take an early LDP and don't sell cash are at
risk of not receiving loan rate. This almost always proves to be a costly
mistake. There are several advantages that a producer has when he learns
to manage risk effectively.
Q: Doesn't Crop
Revenue Insurance (CRC) protect the downside price risk?
A: For the vast majority of producers,
almost never. CRC insurance is designed heavily in favor of the insurance
industry. A unique set of circumstances is required before the producer
can benefit. In 1996 for instance, new crop December corn collapsed from
$3.89 to $2.60, yet CRC offered no price protection. We have found put
options to be a much more effective way to protect ourselves from falling
prices. From 1996 through today, the record shows that put options
benefited producers when CRC insurance did not.
Q: What are the
characteristics that describe an effective risk manager?
A: A strong desire to be more self
reliant. Good risk managers do not like being totally dependent on the
whims of the political process for their pay check. They accept the
responsibilities of their financial destiny and enjoy the independence
that this education gives them.
NOW
YOU CAN BETTER UNDERSTAND WHY A CHANGE IN YOUR FOCUS IS REQUIRED BEFORE YOU CAN
EFFECTIVELY MANAGE YOUR "RISK"
