Trading commodities is volatile even for those with decades of experience. And fully understanding the terminology can be overwhelming for the novice.
Josh Buettner shows us one classroom helping train the next generation of commodity brokers.
His report is our Cover Story. @mtmjosh
Turning a profit through Mother Nature can be precarious – a fact of which America’s farmers are acutely aware. Things like soil health and weather intersect with fluctuating input costs, trade disruptions and an array of other variables – creating perpetual uncertainty.
So as agricultural products move from the field to end users, financially offsetting such potential losses, or hedging, has become essential. And the University of Idaho’s Agricultural Commodity Risk Management Program is giving the next generation of traders, managers, and merchandisers a leg-up securing operational viability while learning to maximize profits.
Norm Ruhoff/Clinical Assistant Professor – University of Idaho College of Agriculture: “The program is relatively new. It’s built upon the shoulders of a program in the College of Business…and we compliment that by focusing on agricultural commodities.”
Clinical Assistant Professor Norm Ruhoff says commodities are a fundamental component of the U.S. economy and three sectors – potatoes, grains and dairy – form the core of Idaho’s contribution. And by harnessing basis – the difference between the cash price of a commodity and its board of trade futures price –– farmers can lock in prices and join speculators to make money as markets rise and fall.
Growing up on an Idaho family farm and cutting his teeth at a local grain elevator, Ruhoff later spent years in the Midwest commodity trade before returning home to impart bins full of knowledge.
Ruhoff’s students get their feet wet with supply and demand analysis, form risk management strategies, and dive into real-world experience.
Norm Ruhoff/Clinical Assistant Professor – University of Idaho College of Agriculture: “Students in our case have a chance to actually trade the actual commodity and take on the futures position to hedge that. So from an agribusiness perspective, it’s about margin management – sustainability of the family farm…”
What we try to do is teach them the concept of if you own a bushel of wheat, what kind of risk do you encounter in the marketplace? So from that standpoint, we actually go out and buy that bushel of grain in a hedge-able quantity. So once they buy that bushel of wheat, they can actually sell that back to the cash market, do nothing, be exposed to market risks or hedging. And that’s essentially selling it on the futures market.”
But understanding puts and calls is a process, even for students who grew up around agriculture.
Colt Stowell/Student – Wilder, Idaho: “I remember my very first day in this class and I remember the first question I asked…raised my hand and said, Norm, you’re teaching us how to gamble. Like this…why don’t we just go play blackjack? I was looking at the candlesticks and the way that prices were moving and how you could go long and make money when the price went up or short and make money when the prices go down.”
Colt Stowell had zero knowledge of hedging practices before being immersed in Ruhoff’s curriculum, just like Cole Lickley, a fifth generation cattle rancher from southern Idaho – now one of a handful of students who graduate having earned a Series 3 License with the National Futures Association, a self-regulatory organization designed to safeguard the U.S. derivatives industry.
Cole Lickely/Student – Jerome, Idaho: “It was really a big eye opener and it was incredible and it just captured me from the beginning and ever since learning about it in Norm’s very introductory class, I’ve just put everything I can into it to try to understand the industry more so you can go back and help those ranchers manage their risks and stay sustainable.”
After graduation, Lickley begins work as a cattle broker in Nebraska, while classmate Justin Chapman starts his career trading grain in North Dakota.
Justin Chapman/Student – McCall, Idaho: “I’m tickled pink about the commodity markets and just all the different moving parts of being a merchandiser and also being able to connect to farmers and just kind of learning about their traditions.”
Chapman and Bailey Storms both came to the Commodity Risk Management program without a farming background but have found intense personal and professional value from their education.
Bailey Storms/Student – Idaho Falls, Idaho: “I’m going to be a credit officer trainee and I am going to need to have a knowledge base of markets in order to most effectively help those customers. So that was something that was really important for me.”
The agriculture industry is bullish about the things happening in Moscow, Idaho. The school’s graduates are sought out, nationwide, to trade commodities around the globe. Earlier this year, the Idaho Wheat Commission, an industry advocate dedicated to education, research and market development, announced a $2 million endowment to help the University of Idaho expand its program by establishing a Chair of Risk Management.
Commissioner Bill Flory, who graduated from the school decades before the risk management program came into being, runs a diverse operation in the northern part of the state. He is impressed by the caliber being cultivated at his alma mater today.
Bill Flory/Commissioner, District 2 – Idaho Wheat Commission: “Norm is just an outstanding prof. I mean he’s got the real world experience. He’s really well grounded. He listens, he lets them run, you know. I mean it’s just…classroom is very dynamic and it’s very important. That’s what this program does is interfaces very directly with industry and with producers and provides a great utility as far as an understanding of the complexities of markets and hedging and risk management.”
Similar approaches are scarce across America’s academic landscape and university staff beam with pride over what they’ve helped build.
Norm Ruhoff/Clinical Assistant Professor – University of Idaho College of Agriculture: “Really I look back on my career and this is an opportunity for me to really pay it forward. I’m a third generation grain merchandiser. Followed my father and grandfather into a small country operation. And beyond that, out of a family of eight kids, six of us graduated from the university. So very proud to see what we’re doing with our program and putting recognition out there for the University of Idaho.”
For Market to Market, I’m Josh Buettner.