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Trying to manage during black swan eventTrying to manage during black swan event

Concentrate on lowering costs of production, locking in profits and protecting the upside.

Bill Biedermann

March 2, 2020

4 Min Read

Last week, Matt Bennett, Jim McCormick, Brian Splitt and myself spent the week at Commodity Classic in San Antonio, Texas.

We did a couple of presentations about risk management. With nearly 1,700 people in attendance, we got a good feel for the issues on the farm. The black swan event of coronavirus is on top the list. A black swan event is an event that no one could’ve seen coming. We are not sure how this will play out, but we still need to feed animals and people every day.

When I was involved with the Reagan administration, I was invited to a meeting with economists and scientists to discuss a potential outbreak of an animal virus into human contagion. The ultimate conclusion of this daylong meeting was that the contagion or even death rate was not the problem. The real problem was if transportation shut down and groceries were not delivered to local stores, shelves would empty in three days. Within 14 days, the home would run out of food. Thus within 20 days social unrest could become an issue for government. We saw this happen in China as the government stepped in with the military delivering food to distribution locations. In those locations, food prices were soaring.

China’s contagion rate has flattened out and people are returning to work. This leaves us with the question of how many more countries will experience what China just went through. The only sure thing that we know is that this is a virus and therefore by June should be completely burned out in warmer climates. We also know that central banks and governments have pledged adequate money to assure liquidity so that the industries can replenish supply lines as fast as possible. We also know the economic implications are that it will pull down first quarter GDP however by second, third and fourth quarter, it is very possible that we will see a strong rebound GDP as well as push inflation targets set by the feds. This could ultimately be supportive to commodities.

We realize the farm industry is in a complex state, trying to manage risk with low prices and now a black swan. The best advice today is to concentrate on lowering costs of production, locking in any profits that you can to minimize exposure on the farm, and protecting the upside with a cheap option so that you experience increasing revenue per acre in an up market.

Remember that we have a long season ahead of us and many scenarios could change direction quickly. We have a Fed policy for inflation and an election year and God only knows the weather. we will be happy to help you think through your strategy for 2020.

Reach Bill Biedermann at 815-404-1917 or [email protected]

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About the Author(s)

Bill Biedermann

Hedging strategist, AgMarket.Net

Bill is a well-known speaker, presenter and commodities advisor. In addition to trading commodities for 40 years he has testified before Congressional hearings, CFTC hearings, served for the U.S. State Department AID and co-founded one of the largest IB Brokerage and Agricultural Economic Research firms in the U.S. Bill graduated from Illinois State University with majors in Agricultural Production, Ag Economics and Ag Education and farmed from 1973-1988.

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