Volatility breeds opportunity

In Agribusiness, Agricultural Entrepreneurship, Innovation on March 19, 2009 at 10:52 pm

When I worked in and around the commodity futures markets, I learned that volatile markets were good. They were usually more liquid and the ups and downs created more opportunities to profit by getting in and out of the market.

It may not seem like it, but the same is true in most any market. Risk is good because without risk there is nothing to manage, and better risk management is how one business outperforms another.

Now don’t confuse risk with uncertainty. Uncertainty is most certainly not a good thing. Risk can be managed, but uncertainty means there is no way of knowing what’s going to happen. You can’t plan for uncertainty, but risk is about probabilities and likelihoods, which can be planned for.

When launching a new business, or expanding or reconfiguring an existing business, you can anticipate risk by creating a model that simulates what might happen. You can even simulate various scenarios and test the sensitivity of your major performance indicators to changes in input costs, prices and demand.

If you’re not sure how to do this kind of modeling, we can help.

But whatever you do, keep this in mind: the current state of the economy and the situation in our agricultural markets makes it imperative that we see opportunity in what may seem like a risky proposition. When we have a trade deficit in part because we export commodities and import value-added products, it is incumbent on us to look for profit potential in the volatility.


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