I am pretty new to a lot of you. I have written regularly in other newspapers in the Midwest but not this one. You don’t know that I come from a commodity trading family that also owns a dairy farm. I think in another one of my columns I detailed my travels through the Midwest following my father along his commodity career — first with Cargill and then on his own. We are largely from Iowa with a little Kentucky thrown in.
I grew up in a trading family, standing in a pit at the Chicago Board of Trade. From there I was sent to trade in London, standing in a different pit on the London Financial Futures Exchange. It is like riding a bike. The bike is basically the same, but the track changes every now and again. It was a lot of fun. I made a lot of friends and ultimately stayed long enough that I was able to secure a British passport. Why would I do that you ask? I am not sure, but it was offered, and I accepted. I am about as American as you can get, true blue to the core but I guess it doesn’t hurt to have another outlet — especially for the almost zero cost of health care. Maybe that happens here but it is nice to know I have at in my back pocket.
In my 34-year career in this job, I have spent 18 in Chicago and 16 in London. I have traded stocks, bonds and commodities in both locales. I absolutely love it. I have seen a lot and met a lot of different types of traders. However, the best traders I have ever met seem to come from an agricultural background. All types of trading is stressful and risky but there is a certain extra element to trading commodities. When you are trading stocks (equities), company reports and economic announcements can move your stock around a lot but most of those announcements happen at predetermined times of the month, every month. There are earnings meetings where you get to see the inside of the company, hear about prospects and learn how much money the company made or didn’t make — but these are all on a schedule. They are announced ahead of time and printed out on a calendar and given to every young trader. There really isn’t any room for surprises on these announcements. Yes, earnings can disappoint but the announcements are predetermined. You may have a surprise buyout, or the CEO might resign but these are generally manageable and telegraphed, to some degree, before they happen. There are not too many surprises — they do happen but not very often.
The same can be said about bond traders.
As I mentioned above there are only 3 basic products that we can trade in this world. Everything else is some sort of derivative off them. The 3 categories are broadly referred to as commodities, equities and fixed income. Commodities are self-explanatory. We will also put metals and energy in this category. Then there is fixed income. This is the group of bonds and currencies. Basically, this group is primarily made up of interest rate sensitive products. Bonds would be a great example; the British Pound would be another. Everything in this group also trades off an economic indicator calendar. What the Federal Reserve may say or do is on this calendar. What the federal government may say or do is largely on this calendar as well. It is well telegraphed because those that oversee our governments, and our corporations know that the markets and investors don’t like surprises.
Which brings me to commodities.
I believe that commodities are the hardest of the 3 to trade. Yes, there are certain reports, generated by the government (USDA) that come out at the same time every month. Commodities traders also have a calendar. Their calendar will show when the crop reports come out and when government releases crop condition and harvest reports. We generally harvest at the same time every year so there is no ‘market surprise’ there. But the one thing that farmers and commodity traders must deal with that the other two disciplines do not — Mother Nature. Commodities traders and farmers must deal with something that is totally out of their control. They must be able to adapt better than anyone else. They must be able to pivot to ‘Plan B’ better than anyone else. In general, they must be more flexible than everyone else. They must deal with an outside influence that the others can ignore. That is why I give commodity traders and to some degree farmers, a lot of respect. And in my 34 years I can tell that they are a special breed — a breed that needs to be noticed and respected. The agricultural community is made up of the fabric of America. They couldn’t quit over COVID — the animals still needed feeding. The crops still needed to be planted. It was business as usual. Everything that they do is mission critical — totally essential.
Then on top of it, you look at what great strides technology has done in getting these crops out of the ground and to the market and it is almost mind-blowing how complicated these combines can be nowadays — not to mention the great expense. And you want to mention inflation? Think about his for the moment. In the 1930’s we averaged around 30 bushels of corn per acre. Now, we are approaching 200 — that is the same piece of ground — but the price hasn’t shown that at all. Technology has almost made us the deflation story of the century.
Agriculture and commodities are what America is about. I am very proud to be associated with it as closely as I am. The traders are second to none and our producers feed the world. Mother Nature cannot be beaten but she can be tamed. We tame her with our technology in the hybrids and the great advances in the machinery. There are still risks. We can lose all our money trading commodities even with the best laid plans — but you can do that in fixed income and equities.
The one thing that everyone in this business shares is the respect and gratitude we give to Mother Nature and her earth. It is not to be squandered.
Scott Shellady is markets anchor for RFD-TV in Nashville, reporting on agricultural markets pricing.