EXECUTIVE SUMMARY: Selective Hedging LLC is pleased to announce the development of marketing decision databases for corn, soybeans, and wheat. The “vision” has been to develop marketing databases parallel to those that are being developed for production. The new databases provide performance history which can assist in selecting the “best” marketing strategies for specific production units. The data includes performance across different commodities, contract months, years, technical indicators, and parameter sets. The performance measures include items such as hedging gains, effective price, number of sell signals, number of false signals, size of losing trades, etc. These performance metrics are the “power” that has been driving the Selective Hedging process for more than 30 years. To schedule a presentation or workshop, send a note to hedging@grics.net.
Many of you are actively involved in development and/or signed up as users of one or more of the new integrated software management packages which are emerging. The concept is to build integrated databases of production technology with data from your farm, from other farmers, and from numerous other sources which can be interrogated or mined to help you make better production decisions and use of resources. The volume of data that is being gathered and stored has come to be known as “big data” and surpasses the capacity of the human mind to digest it effectively. Computers, on the other hand, can slice and dice the data with ease to generate meaningful report summaries. The goal is to optimize the use of all your inputs to maximize the return on production assets. When I have my management hat on, I am very excited about the potential to be able to make better production decisions.
When I have my price risk management and marketing hat on, I see the potential return on investment for selecting the “best” marketing strategies as even greater than most of the production decisions. From time to time, I have mentioned the search engines that I have developed to find optimal price risk management strategies, but I have not really articulated that I was actually developing marketing databases for the major crops and livestock enterprises. And to be honest, I was accumulating information, but was not getting it organized very effectively. Notebooks fill up very quickly; loose pages multiply even faster. Shall we say it was similar to piles of maps, soil tests, yield reports, etc. gathering on the corner of your office desk. For the most part, I have been doing customized strategy searches on an ad hoc basis for producers, and have been less than diligent about building an organized files that could be mined quickly later. Therefore, it has been easy to talk about searching for marketing strategies that match specific producer goals, but it has not been easy to demonstrate the process or its effectiveness.
All of that is on the threshold of change. During the last several months, my goal was to screen as many of the integrated software management packages as I could. There were two main goals. The first was to see if any of the companies already had comparable marketing decision modules in their packages, or alternatively if I could find companies which were interested in partnering to use some of the structure which I have developed. After screening more than 100 packages, I can confirm that none of those companies have marketing decision modules, or that they were not willing to discuss the subject with me if they did. Several companies have modules which they identify as “marketing modules” but they are focused on inventory accounting and various forms of trading or sales execution software. They do not provide historical performance to help make marketing decisions in the same manner as you review historical production data to make production decisions. The bottom line is that many of the integrated packages are devoted to calculating cost-of-production to be used as the basis for marketing decisions. Perhaps, no more than this year, it is obvious that the old traditional approach to marketing based on COP is not an effective price risk management plan.
Facing the reality that it was doubtful that many of the companies even had a vision of how the marketing databases could be constructed, I have pressed forward with building a more formal structure that could be demonstrated and used to help producers select strategies that are consistent with their goals and financial environment. The databases for corn, soybeans, and wheat are functional, but all continue to be work in progress. One of the misconceptions about the Selective Hedging process is that there is “one” magic formula or strategy to make the hedging decisions. That myth should be shattered when I tell you that the number of strategies summarized in the databases numbers in the tens of thousands, and are still growing. Many of the strategies demonstrate what you don’t want to do, but that is very important when you set out to adopt new technology. The dashboards aren’t finished yet, but the databases are fully functional to “mine” the data for “best” strategies for specific goals. This is a very powerful tool to demonstrate how important it is to select the right price risk management strategies, and the significant contribution that those choices can make to increased profits.
Discussions are underway about how to make the databases available on a cloud platform, or through some form of limited distribution. In the meantime, real time searches of the databases make an excellent presentation for clients and customers who are interested in exploring new ways to increase their bottom line. To schedule a presentation or workshop, send a note to hedging@grics.net.
Posted by Keith D. Rogers on 3 August 2015
