Producers' Watch

Discipline vs. Diversification and Welcome to Producers' Edge

Discipline defined: Behavior in accord with rules of conduct - maintained by training and control.  Everyone hopes to have enough “discipline” to pull-the-trigger on making sales during profitable rallies and avoid making sales at seasonal lows.

The thing is, few people have the prowess to make those decisions consistently.  That’s why diversification is key.


We are reminded of this difficulty by observing the following chart:  “Quilt charts” as they are called, are often referred to in the financial industry to demonstrate the value of diversification.  “The chart below shows annual returns for eight different asset classes, cash and a diversified portfolio ranked from best to worst” over the last 20 years – source: MFS

allocationMFS

Source: “20 years of the best and worst – a case for asset allocation diversification” MFS

 

One thing is for sure – you can’t just glance at this chart and determine next year’s winner based off any particular pattern.  The only consistent pattern in the chart above, is the Diversified Portfolio, which:

  • Outperformed five of the nine asset classes, when looking at the average performance over the last 20 years.
  • Was never the best performing investment choice (but it was never the worst either)
  • Not immune to losses, as the Diversified Portfolio received negative returns 4 out of 20 years
  • Still achieved a 6.72% return, outpacing inflation and commonly known “safe” asset classes like Cash or Bonds.

 

There are many ways to diversify price risk in marketing grain.  In addition to selecting multiple cash grain contracts within the ag industry, one can also market grain at different times throughout the year, hedge with exchange cleared futures and options through a broker, use financially settled OTC (over-the-counter) derivatives, utilize revenue based crop insurance, or private insurance products relative to grain price risk, and participate in farm programs such as, ARC-CO (Agriculture Loss Coverage-County) or PLC (Price Loss Coverage).

 

Bottom line – it takes discipline to practice diversification.  Diversification does not mean taking a random approach to trying out new things.  Do your due diligence…make sure you understand the risk(s) and seek products or strategies that align with your style.  Use some products or strategies that fit your bias, use one or more that are not perfectly correlated with one another (yet has a strong performance history), and if you find something that works well for you, be consistent with your approach.  Don’t try to jump in or out depending on a particular crop year.  (Quilt Charts remind us not to do that).

 

Welcome to Producers' Edge!

Producers’ Edge is a cash grain contract that helps producers diversify the way they manage price risk in grain marketing, by moving the complexity of marketing and price movement to our professionals.  Handling more than 500 million bushels of grain per year, Gavilon leverages its experience in developing the 2019 Producers’ Edgprogram, designed to help farmers diversify and manage price risk.

The Producers' Edge program helps farmers by:

  • Removing your emotions from pricing decisions
  • Providing complete transparency in performance and pricing
  • Providing a choice of experienced professionals. Meet our professionals.
  • Providing access to a network of local elevators

At the time of this writing, we are finalizing the Hedge Price for Hard Red Winter and Soft Red Winter Wheat, at the close of business today on July 13th, 2018.  We are proud of our results so far, having achieved a final hedge price that is approximately $0.70 cents cents/bu above the market for HRW (Hard Red Winter Wheat) and approximately $0.50 cent/bu above the market for SRW (Soft Red Winter Wheat).

New for this year! We are offering programs for all classes of Wheat and multiple futures reference months, hedged by your choice of either: The Gavilon Professionals or Strategic Trading Advisors.  Just select the Commodity and the Futures Reference Month/Respective Pricing Period and we’ll enroll you in our Producers’ Edge Cash Grain Contract.

We will concentrate on the marketing while you focus on production.

More information online at: www.gavilon.com/get-producers-edge or speak with a Gavilon Merchandiser.

Please register by August 31, 2018 to participate in the 2019 Producers' Edge wheat program.  The registration deadline for Producers' Edge corn and soybeans program is December 31, 2018.

News, commentary, data, charts, research reports, ratings and analyst opinions and other information provided on this page are the opinions of the authors and intended informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell, or a recommendation or endorsement by Gavilon of any product, service or investment strategy. Gavilon makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use.

Topics: Market Commentary

Rob Huston, Vice President

Written by Rob Huston, Vice President

Vice President, Origination at Gavilon Group, LLC. An innovative leader with a successful background in risk management, sales & digital marketing, futures, options and OTC Derivatives. More than 20 years of successful, progressive experience with a demonstrated performance record and diversified management expertise.

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