Nov 14, 2019
Most crop marketing programs measure success against a pricing benchmark, like beating the average price or getting in the top third of the market. At FBN, we believe that performance should be measured in terms of your farm operation’s overall profitability.
Here are four primary reasons to focus your crop marketing efforts on overall profitability:
Other performance metrics—your average price per bushel, yield or cost containment—are only parts of the overall return on investment equation.
In general, every marketing decision trades upside potential (in terms of profitability per acre) for downside risk. For example, when you decide to make a sale at a price just above your breakeven cost, you lock in a profit on those bushels. That sale decreases your risk of failing to breakeven this year—but you are also giving up the potential to market those bushels at a higher price if the market rallies. A good marketing program helps you evaluate those trade-offs.
Most of our members value consistent profitability, so timing is important. Take the example in the table below. Across the two years average performance is 15 cents over the market average, but the underperformance in the bad year could have much more dire consequences compared to the benefit of over-performing in the good year.
You can still incorporate a market view and respond to price changes—that view is just modeled in relation to expected profitability and not a price benchmark.
Focusing on overall profitability makes sense, but how does this work in the real world? And why don’t other crop marketing firms take this approach?
Until the development of the FBN HedgeCommand system, most farmers haven't had an easy way to comprehensively model risk and make decisions in terms of expected profitability and risk of loss.
FBN HedgeCommand is the only marketing system that uses data science to generate truly personalized pricing recommendations. With this tool in your marketing dashboard, you can achieve the following objectives:
We believe farmers should take an integrated approach to risk management. Your risk management tools include crop insurance, forward contracts, futures and options, and structured contracts. HedgeCommand compiles everything you do that matters for your profitability and risk into a single number—your “percent hedged”.
HedgeCommand then analyzes the probability of different prices and yields. This way, you can see how an additional sale will change your expected (most likely) profitability, your upside potential and your risk of loss.
We also believe farmers should benchmark their marketing decisions against a systematic plan. The data show that in the long run, a systematic marketing plan is generally more effective than only trying to time the market highs. You might be bullish or bearish about the market, but when you benchmark against a “neutral” systematic approach, you can better manage the amount of risk you are willing to bet on your market view.
For FBN, this systematic approach starts with our neutral HedgeTrak, a tool driven by an algorithm that slowly and methodically recommends getting more hedged as you approach harvest. It tells you how hedged you should be at any given time in order to balance risk and reward assuming you have no view on where the markets are headed. When prices go up and your profitability starts to look better, the algorithm automatically adjusts and HedgeTrak will recommend getting more hedged.
Once you know where HedgeCommand recommends you “should” be if you had no opinion about the markets, you can measure your bullishness or bearishness in relation to the HedgeTrak. If you are slightly bearish, you may want to be a little more hedged than HedgeTrak. If you are very bullish, you may want to be a lot less hedged than HedgeTrak.
FBN also provides Market Advisory clients with a market view based on our fundamental research. You can use HedgeCommand to add FBN’s market view into your plan or you can enter your own view.
Lastly, HedgeCommand looks at where you are today and how hedged you want to be, and generates personalized trade recommendations to get you there.
HedgeCommand is launching soon in Profit Center inside the FBN app and is only available to members of the FBN Market Advisory program.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
FBN Market Advisory services are offered by FBN BR LLC, dba FBN Brokerage and FBN Advisory NFA ID: 0508695
The risk of trading futures and options can be substantial and may not be suitable for all investors. All information, publications, and reports, including this specific material, used and distributed by FBN BR LLC shall be construed as a solicitation. FBN BR LLC does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71. This website contains information obtained from sources believed to be reliable, but its accuracy is not guaranteed by FBN BR LLC. Past performance is not necessarily indicative of future results. For the purposes of quality assurance and compliance, phone calls to and from FBN BR LLC may be recorded.
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Nov 14, 2019