On November 10th, 2006 corn prices had just broke out of their 10 year trading range, and started a period of wild volatility. I was on my way to meet my friends and family for the annual deer hunt. Like many committed deer hunters, we spend as many hours setting around the fire pit as we do hunting the 30-point buck. This year, the fire pit topic was how to help farmers manage risk in a fast-paced and volatile market environment. I was in the consulting business, helping farmers create marketing plans and market their commodities. November had been stressful with corn markets marching higher and clients asking me “how much will it rise?” I had no inclination how high the prices were going, but I did know these were extremely profitable prices and my job was to help clients manage these profits.
The main tool I used to keep the focus on profitability was an excel spreadsheet. While the job got done, it had many limitations. First, I had to manually update the futures, options and value of unsold cash grain. Unfortunately, the prices were often outdated as soon as I clicked the save button. Another nuisance was many clients either had an out-dated version of Excel or did not have Excel on their computer. Finally, many clients struggled to navigate an Excel spread sheet due to the complexity of the sheets I had constructed.
That weekend at deer camp, I discussed my ideas with my deer hunting pals and there was a clear agreement that a better way to manage risk was needed. It was those conversations that drove me to the drawing board when I returned home.
Until next time…