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Fort Collins, CO | For the sake of clarification:
Our customers pay us a per-acre management fee for the season. In return for that fee, we develop, execute, and advise on a risk management strategy based on their desired overall market exposure (including production, cash sales, feed needs, crop insurance, listed positions, etc.). We execute futures and options trades on their behalf as an NFA-registered Commodity Trading Advisor (CTA) through a low-cost online brokerage. We receive no part of the small (currently just under $3/contract per side) commissions they pay. In addition, and where applicable, we advise them on cash sales. During the growing season, we schedule a weekly call with each customer to discuss and, if necessary, adjust their production estimates or any concerns they might have. We also typically send them a weekly snapshot of their "risk slides" (estimated gains or losses and other risk metrics over a wide range of prices) based on our proprietary hedging model. Frankly, we don't share much more with them outside of that unless they ask (which they occasionally do, and we are happy to oblige). They hire us to do a job for them and generally give us the latitude to do it as we see fit based on our ongoing analysis of their risk and the markets. We tend to avoid guesses about the market's direction for various reasons.* Instead, we strive to execute an efficient, consistent, disciplined strategy that maintains their exposure to rising and falling prices where they want it. Our default is to minimize that exposure, but we don't stand (much) in the way when customers have a particular bias toward the long or short side. Anecdotally, the fact that I'm in the office writing this while preparing for and watching tonight's open might also indicate the value our customers see in our service.
Regarding the information we give away for free in our Weekly Corn Market Update (WCMU).** A good deal of it is publicly available with some legwork. On the other hand, we also include a fair amount of proprietary information, particularly in the latter part of each week's update. For example, the weekly price levels maligned above are proprietary and derived from our model and its inputs at the end of the week. Theoretically, and all else being equal, the notable levels (both up and down) are our best estimate of how far the market needs to move in a given week for the gains from gamma*** in a portfolio that is long optionality to roughly offset the expected impact of time decay (theta****). This is one reason you will often see us adjusting (dynamic hedging***** and option replication******) our clients' positions near these levels in the section of the WCMU that discusses our weekly trades - another proprietary tidbit. Of course, we don't mindlessly adhere to these levels; they are merely a guide to help us make decisions - many other factors can, and do, impact our decision about where, when, and how to make adjustments. At this point, it should be evident that adequately managing a non-linear portfolio with complex optionality (that is to say, most producers' portfolios), at least in our opinion, is not a simple task, nor one to be attempted without the proper knowledge, tools, training, and experience. Though, I obviously have a dog in that fight, so take that opinion for what it's worth. The other main bit of proprietary information we include in the WCMU is a distribution of expectations for the fall crop insurance price based on our reading of the new crop options market. This tool in itself is something upon which we rarely, if ever, base decisions. However, the information from which it is derived is crucial to our decision-making process - we simply find it more efficient (for us) to look at that data in other forms. So, is the proprietary information we give away each week valuable? I'll leave that answer up to the individuals that read it in any given week to decide. We certainly find some of it essential. We also hope it elevates and diversifies the information available in the public domain away from the more typical, "I think prices are going X direction because of Y analysis or information."
I hope that clarifies things. It should go without saying, though I'll say it anyway, our service, strategy, program, etc. (whatever anyone would like to call it) isn't for everyone. We believe in it, and we think our customers do too. The footnotes below link to various articles on our Tools and Tactics page ( https://www.quartziteriskmanagement.com/tools-and-tactics ) - more free information.
Thanks for reading, and if you have any more questions, I'd be happy to do my best to answer them,
James
*Market Neutrality: https://www.quartziteriskmanagement.com/market-neutrality
** A Guide to Understanding Our Weekly Corn Market Update: https://www.quartziteriskmanagement.com/understanding-2022
*** Gamma: https://www.quartziteriskmanagement.com/gamma
**** Theta: https://www.quartziteriskmanagement.com/theta
***** Dynamic Hedging: https://www.quartziteriskmanagement.com/dynamic-hedging
****** Option Replication: https://www.quartziteriskmanagement.com/option-replication | |
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Weekly Corn Market Update & ask me anything
