Milling & Baking News - July 8, 2014 - 7

Editorial



Benefit from new electronic age

obert J. Shiller, winner of the Nobel Prize in to U.S. mills. Canadian wheat imports had climbed to
economics, famously declared, "There is no new record totals in recent seasons. The prospect for
way to predict the future." He made that this year outruns those.
statement in cautioning investors in stocks against
There's hardly a better affirmation of Professor
believing that the current business cycle is different Shiller's warning than what two major internationfrom the past, while pointing out that people are al trading companies revealed about their operamuch too eager to believe that the present differs tions in a recent quarter where miscalculations led
from what occurred before. One of the main reasons to large losses. While these were certainly not the
that investors think that it is possible to disregard first losses that major international traders have susprior experience while relying on the superiority of tained, including instances of trading losses forcing
present knowledge has as much to do with grain- companies to exit the grain business, they were sizbased foods and other crop-related businesses as it able enough and unique enough to cause a shock.
affects trading strategies in securities. That suppo- One of these losses did not occur in grain, and was
sition stems from modern communications offering explained as follows: "Earnings were trimmed by a
access to information and data that were difficult, trading loss related to an unprecedented price spike
even impossible, to find in the past.
in U.S. power markets." Also contributing to this
Many recent market-related events have shown company's setback were non-trading developments
that no matter how perfect
focused on grain, such as
The task of forecasting prices, much
information resources may
China's rejection of corn imless any part of governing supplyhave become and regardless
ports and rail service disrupdemand equations, is nigh on to
of how large and efficient
tions. Yet another company
impossible.
data bases are, the task of
said, "Results in the quarter
forecasting prices, much less
were primarily impacted by
any part of governing supply-demand equations, losses in our grain trading." It further noted, "Our
is nigh on to impossible. The devastating impact of commercial and risk management strategies anticidrought on the hard red winter wheat crop in Ameri- pated lower grain prices." Instead, prices rose, presca's southern Plains states comprises an unpredicted suring margins.
occurrence in the same way that no one expected the
No one may say that utilizing of present-day inRussia-Ukraine crisis to be translated into a possible formation resources would have prevented either of
limit on Black Sea wheat exports.
these problems. Yet, it is happenings like these that
While weather and international turmoil lead the have been part of industry history for generations
list of surprises that few observers forecast, it is im- that one might hope would be alleviated or even preportant in this context to note that both futures and vented. Such systems are not only designed to inform
cash grain markets have provided adequate protec- when danger looms but to provide a point for taking
tion for market participants following a cautious action to change both position and strategy commitcourse in hedging. Indeed, some commentators con- ments that accommodate or avoid these risks. In a
sider that futures markets have gotten ahead of the ac- time when companies are putting together systems
tual reality of still large global supplies of wheat and that identify future risks related to weather, crop proscorn. Instead of adhering to the frequently bullish in- pects, national instability and conditions affecting
terpretations of global supply-demand, this question- consumption, these new approaches could help all
ing viewpoint relies in the case of wheat on high U.S. parts of the industry. That these resources and these
prices sharply curtailing foreign demand and shifting systems are available now represents a huge plus
livestock feeders away from wheat. Hardly anything for businesses like grain-based foods. No industry
underscores the surprises in the current situation should benefit more than grain from this new age of
better than the expanded flow of Canadian wheat electronic communication and data sourcing. MBN
MORTON SOSLAND, EDITOR-IN-CHIEF
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Milling & Baking News, 4800 Main Street, Suite 100, Kansas City, Mo, 64112
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Milling & Baking News - July 8, 2014

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