Episode 41: How a Risk Manager Might Be Your Next Best Step for Success

While it might seem like the dirty work on a grain operation is running the tractor out in the field, Ashland, Ohio producer, Evan Kamenik deduces the real dirty work of farming is the financial, accounting, and marketing aspects of running an agricultural operation, or what he refers to as, “the back office stuff that most people don’t see.”

Grain marketing, in particular, can feel like a full-time job. Not to mention the risk management that’s involved.

Enter James Schroeder – a former options market-maker and proprietary trader with experience on the trading floors of Chicago. He’s made a career out of his understanding of grain hedging, founding Quartzite Risk Management in 2019 to bring risk management strategies to corn and soybean producers just like Evan.

By working with James, Evan attributes some of the success and growth of his family farming operation to aligning themselves “with good people who have the same interests in our success.”

In this way, James is an extension of Evan’s operation, helping him market his grain, while also measuring and managing his risk in doing so.

“Whether producers like it or not, the minute they plant their crop and put crop insurance on it, they have a complex option position that needs to be managed actively to be done right,” explains James. “When we find ourselves in that place, we’ve got to figure out how to do it right and what works best.”

Figuring out how to do it right and what works best is where James steps in, but establishing a successful risk management partnership is crucial. Being open to shifting from a prediction-based mindset to an adaptable seeker of new solutions is an essential first step for any producer.

“Things need to be done on the regular as the market is moving, and in order to accomplish that, you need to have a plan ahead of time,” says James.

Successful risk management partnerships are not merely about having access to the latest market predictions or trying to outsmart the market’s fluctuations, it’s about embracing a proactive risk management approach that encompasses various tools and strategies.

“Once you have a tool to measure the risk, you’ve got a way to manage it,” explains James. “But until you’ve even begun to measure it, you can’t really manage it if you don’t know what you’re trying to fix.”

Even amidst the complexity of grain marketing, the partnership between Evan Kamenik and James Schroeder serves as an example of how embracing innovation and strategic management can transform your farming operation.

Aligning with the right people who share a vested interest in your success can amplify your growth and open doors to new possibilities, offering producers like you the tools and insight they need to sustain a future of success.

 

Here’s a glance at this episode:

• [03:55] Evan introduces himself and his farming operation.
• [06:28] Evan explains how their farm has grown over the years and what he attributes to its success.
• [12:32] James introduces himself and his agricultural background and career working as a market-maker and trader at the Chicago Board of Trade and Mercantile Exchange.
• [16:34] Evan shares how he first got into grain marketing, from cash contracts to hedge-to-arrives, to eventually working with James at Quartzite Risk Management.
• [21:07] Evan discusses the difference between working with a broker and a risk manager.
• [25:46] James explains his approach to risk management in the market, which largely involves planning ahead and a reframing of mindset.
• [37:40] Evan gives an example of how their operation is ready in the event of whichever way the market may flip.
• [40:45] Evan shares more about TEPAP (The Executive Program for Agricultural Producers).
• [42:19] James explains the qualities that are crucial for establishing a successful working relationship in his field.  
• [45:47] James demonstrates what a properly-done risk management strategy should look like.
• [49:14] James and Evan leave with some parting advice about grain marketing and how listeners can connect with them.

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Connect with James Schroeder
https://twitter.com/QuartziteRMLLC
https://www.quartziteriskmanagement.com

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Email podcast@agcredit.net

Transcription

Voiceover (00:08):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must-have information on all things from farming to finances and everything in between.

 

Disclaimer (00:28):Opinions expressed in this presentation are intended solely as a general market commentary and do not constitute investment advice or guarantee of returns. All expressions of opinions are subject to change without notice. Hedging strategies in general are usually intended to limit or reduce risk, but can also be expected to limit or reduce the potential for profit.

 

(00:46):No assurance can be given that hedging will always be done when needed or appropriate or will not result in net losses. It is highly likely that a risk management strategy will lose money in rising markets. Hedging strategies also include the basis risk, which is the risk that the future's price might not move in normal steady correlation with the cash price of crops, and that this fluctuation in the basis may negate the effectiveness of a hedging strategy.

 

(01:11):Past performance is not necessarily indicative of future results. There is always a risk of loss in futures and options trading. Read and examine Quartzite's disclosure document before seeking Quartzite's services.

 

Matt Adams (01:24):Hey guys and welcome back to another exciting episode of AgCredit Said It. Matt here again with Brenna. It's been a while. We've got Brenna Finnegan sitting down with us today.

 

Brenna Finnegan (01:34):Yep. It has been a while.

 

Matt Adams (01:35):So Brenna, how's your summer been treating you so well?

 

Brenna Finnegan (01:38):Long.

 

Matt Adams (01:39):Long?

 

Brenna Finnegan (01:40):Yep.

 

Matt Adams (01:41):I know this episode is not dropping till August, but we're recording in June here. Long. What are you going to be saying when it's about August, September time?

 

Brenna Finnegan (01:49):I'm going to be in the thick of fairs at that point.

 

Matt Adams (01:54):That's right.

 

Brenna Finnegan (01:54):Because we have two fairs right in a row.

 

Matt Adams (01:54):Did you get a lot of calves going to the county fairs at Keleman's Farm this year?

 

Brenna Finnegan (02:00):I actually don't. I've got some that are going into some auctions.

 

Matt Adams (02:03):Got you.

 

Brenna Finnegan (02:03):I won't say, but I have some going into some auctions with some people. And then, I have one already sold.

 

Matt Adams (02:09):The way the feeder prices have been here this year, it's probably not a bad thing. Our county fair, Paulding County, the first fair in the state. We've seen tremendous support. Almost 75 to 80 cents above market on the feeder sale, which generally the fair feeder sales always bring a little more for the kids. Great support.

 

Brenna Finnegan (02:30):See, our fair doesn't sell feeders.

 

Matt Adams (02:33):Really?

 

Brenna Finnegan (02:34):We don't sell feeders at all.

 

Matt Adams (02:38):We're talking about prices and talking about livestock. We deal with a lot of grain farmers. We have farmers of our own. One of the big things that I think we always question ourselves on is our marketing strategy. Whether it is livestock or what we're going to be talking about today. Commodities. It's managing that price risk on stuff.

 

Brenna Finnegan (02:59):It's difficult.

 

Matt Adams (03:01):It's one of those I look at as, "You don't know what you don't know." As a farmer, the more you listen, the more questions you seem to have.

 

Brenna Finnegan (03:10):It snowballs into a whole lot more.

 

Matt Adams (03:14):We've got a couple individuals with us today that we're going to dive into this a little bit on managing that price risk and give some pointers. I always say give the guys the upper edge a little bit.

 

Brenna Finnegan (03:27):Just a little bit.

 

Matt Adams (03:29):Especially, in agriculture. Any advantage you can gain. Brenna, why don't you introduce our guests here?

 

Brenna Finnegan (03:38):We have one that's a local farmer in the area. His name is Evan Kamenik with Kamenik Brothers out of Ashland, Ohio. And then, we also have James Schroeder with Quartzite Risk Management. He's out of Fort Collins, Colorado. Thank you, guys. Welcome.

 

Evan Kamenik (03:54):Glad to be here.

 

James Schroeder (03:54):Thanks for having us.

 

Brenna Finnegan (03:55):Yes. Evan, we'll go ahead and start with you. You're the local guy in the area here. At least, for the Northwest Ohio area.

 

Matt Adams (04:04):Well, remember. We're putting this out worldwide. I'm hoping there are people in other countries that do not know my language trying to listen still.

 

Brenna Finnegan (04:11):Okay, Matt. Anyways, Evan. Go ahead and tell us a little bit about yourself, your guys' operation, and how you guys came to be.

 

Evan Kamenik (04:20):Sure. Well, my name's Evan Kamenik. I'm from Ashland, Ohio. I am part of Kamenik Brothers LLC. We're basically a grain farming operation. We grow corn, beans, and wheat. I have seven brothers, fortunately, or unfortunately, not sure which at times, but it's been good growing a small farm.

 

(04:45):We've grown quite a bit over the last several years. We've farmed in several counties now surrounding Ashland, but it's a family farming operation. We have between 10 and 15 employees depending on the time of the year. Generally, everybody's fairly busy. We've got a drainage business. We do contract work.

 

(05:08):I actually have a retail mulch business. Very diversified in what we do. To speak a little bit about myself, I'm married to Hailey and I have two children. Adam, he's five, and Ruby is two. Maybe someday they'll listen to this and think I'm maybe full of myself, but it's documented.

 

Matt Adams (05:26):Or they could be saying, "Dad. Why did you make the decisions you do," when they get the keys to the castle and start running stuff.

 

Evan Kamenik (05:32):At any rate, farming has been a fun experience. My background. In high school, I was never in FFA. My parents, they had farmed in the '80s. They went through the troubles of the '80s. My dad and my mom. They farmed until '88, the drought, and then they were done. My brothers and I, we decided we'd start up and we just grew and grew a bit more.

 

(06:02):Now we are where we are today and it's a real business. I tell people affectionately that farming is... People look at farms as a fun place to visit. You're going to go visit the family farm. But it's kind of a pet peeve of mine because it's a business and it needs to be treated as such.

 

(06:28):Fast-forward to today, as we've grown, I've always looked for different ways of improving what we do. Trying to meet the right people. I'm constantly looking to educate myself or even align myself with the right people to further what we're doing.

 

Brenna Finnegan (06:43):I've had the pleasure of going down there with his account officer, Hugh. Right from the beginning, it was impressive from the get-go. From the grain setup to the mulch business. Everything you guys had going on was like, "Wow. There's a lot going on."

 

Evan Kamenik (06:59):It's a wild place.

 

Brenna Finnegan (07:01):Yes it is. You stay busy.

 

Evan Kamenik (07:02):People try to find me and it's like... I don't know where I'm going to be or what I'm going to be doing, but I know that the more that we have going on, the more important it is for me to do a better job.

 

Matt Adams (07:12):And Evan, the family dynamic is just one thing I think is awesome. Did you say seven brothers?

 

Evan Kamenik (07:17):I have seven brothers.

 

Matt Adams (07:19):Are you guys all in the decision-making process together? Is there one that says, "You guys just listen to me," or is it more of a family decision-making process?

 

Evan Kamenik (07:31):It's a little bit of a combination of both. We are in the growth mode. We want to work towards becoming a professional business.

 

Matt Adams (07:39):Okay.

 

Evan Kamenik (07:39):We've actually worked with some professional business advisors, coaches, and whatnot. And that all started with me going to a program called TEPAP, which is called The Executive Program for Agricultural Producers. And it really opens your eyes to what's outside of Ashland, Ohio.

 

(07:57):Ag is huge. Everything from food processing to people who are the middleman, the grocers, whatever. I got to meet a lot of different operations. A lot of different operations. It just opened my eyes that we need to do things differently. And if we're going to be successful, we need to run what we're doing more like a business.

 

Matt Adams (08:21):It's part of that process with the diversification you guys have on your farm now with some different income sources. Not relying strictly on just row crops. How have you guys grown? You went from the family farm through the farm crisis to basically starting over to where you're at today.

 

(08:39):What do you attest? How have you guys been able to be successful and grow as you have been? Is it that diversification? Is it just the right place, the right time? Or taking them risks?

 

Evan Kamenik (08:52):I think everybody can say they've got a little bit of luck, but I would say a lot of circumstance. When you're forced to do things that you're not comfortable doing, sometimes taking risks that aren't normal, you have to think differently.

 

(09:08):You have to scratch and claw to find the way to an answer or to a solution. I remember in 2003, we were farming a handful of acres. It seemed a lot at the time. Now I look at it and that's something we do in a few hours now.

 

Matt Adams (09:24):How do we stay busy then?

 

Evan Kamenik (09:26):Then, you couldn't afford to pay yourself because there just wasn't any money in it. Right now, I still can't afford to pay myself, but we can afford to have good employees. Really, the heart of our operation is our employees. We have good people and because we try to do a good job, we're able to retain and find good people to come help us. I'd say our success now is the people. It's because of the people.

 

Matt Adams (09:51):That's awesome.

 

Brenna Finnegan (09:53):It's part of building the legacy a little bit.

 

Evan Kamenik (09:57):Just a quick story. We've got an employee. I won't put any names in it, but this guy is a great employee. He's been with us for 10 years now. I felt because of who he was, I wanted to pay him a minimum of 40 hours a week.

 

(10:15):In effect, like a salary. I said, "If you work over 40, I'll pay you over 40. If you work less than 40, I'm going to pay you for 40." A great bonus for him, right? He quit on me.

 

Brenna Finnegan (10:25):You're hiring, huh?

 

Evan Kamenik (10:27):He quits on me, but the long and short was he wanted to earn every hour he was there. So I said, "Employee, I'll tell you what. You work as much as you want, I'll pay you for what you're here." Now, what he doesn't know... Maybe you can find out through this podcast, but he gets the difference in a bonus.

 

Matt Adams (10:46):There you go.

 

Brenna Finnegan (10:46):There you go.

 

Evan Kamenik (10:47):At the end of the day, we're both meeting our goals, but you have to find a way to work with people. Farming is not just, I found out it's not just driving the tractor or being out in the dirt. It's a lot of the, quote, "The dirty work." The back office stuff, the financial, the accounting, the marketing. The stuff that people don't see.

 

Matt Adams (11:06):I was talking to a couple of people. They watch YouTube a lot. All these farmers now, they've got YouTube channels and driving tractors. "Man. That's got to be some hard work." I said, "The operation of the equipment? That's our relaxation time. That's the fun part."

 

(11:23):Like you said, it's all the background. The dirty work. Not good for a YouTube video or a podcast, I guess. Who wants to listen to all the gripes we have as farmers?

 

Brenna Finnegan (11:36):Nobody wants to watch somebody just sitting there doing paperwork.

 

Evan Kamenik (11:39):I'm the guy who turns the light switch off.

 

Brenna Finnegan (11:41):Because you're the last one to leave, but you're also the one that probably turns it on in the morning.

 

Evan Kamenik (11:45):Not necessarily. I might be there before or after, but we've got a lot of good things in place.

 

Brenna Finnegan (11:51):That's good.

 

Matt Adams (11:52):Evan, I want to give a shout-out to our Norwalk team here at AgCredit and to Brenna and Hugh for setting this up. Always got to give a plug for us. I hope AgCredit has somehow helped you guys continue your growth as a farm operation and will continue that growth.

 

Evan Kamenik (12:06):Just one comment on that. One of our successes, and this maybe leads into James with Quartzite, but one of the main reasons for our success is aligning ourselves with good people who have the same interests in our success.

 

Matt Adams (12:22):Yes. I always tell people we want to be an asset to the operation. We want to be just another tool in the toolbox for you.

 

Brenna Finnegan (12:32):Yes. We'll come back and we'll talk more with Evan here in a few minutes, but we'll switch over to James here. We'll repeat it, I guess. James Schroeder with Quartzite Risk Management out of Fort Collins, Colorado. Go ahead and give us a little bit about your background.

 

James Schroeder (12:50):Well, I grew up in Wisconsin. I went to school there and eventually found my way down to the Chicago Board Options Exchange, the Chicago Board of Trade, and the Chicago Mercantile Exchange. I spent about a decade down there doing that. And then, my wife and I had our first little guy and decided we didn't want to raise kids in Chicago.

 

(13:10):We moved back to Wisconsin to a place out in the middle of nowhere. I went to work for a local co-op as a retail futures broker. I didn't love that job, but I learned a lot in that job as to how to have customers because that was the first time in my financial career that I'd ever had a customer or was really responsible to anybody but the trading firm I happened to work for.

 

(13:41):We built some good tools or started working on some good strategies there. And then, my wife got sick of living in the middle of nowhere in Wisconsin. She's an engineer and I said, "Well, find a job somewhere you want to be and I'll go out there and I'll figure it out from there."

 

(13:56):About three or six months later, she found a job working at the city of Fort Collins and we moved out there. I was just going to quit and figure it out when I got out there. A couple of my clients wouldn't let me. Quartzite is the result of that and we've been doing that. This is our fifth season. We'll celebrate our five-year anniversary here coming up next January, I believe.

 

Matt Adams (14:22):Awesome.

 

James Schroeder (14:22):Looking forward to it.

 

Matt Adams (14:24):James, I know we were talking before our podcast started here. I just thought it was a very interesting story. What led you to Chicago and the initial meetings and getting to rub shoulders with some of them guys?

 

James Schroeder (14:38):Well, I was a child of the '80s. I got to watch Family Ties growing up and I was a big fan of Michael J. Fox. We had a lot of things going on in that timeframe that were financially related and somehow that got in my blood. Growing up on the Christmas tree farm, the other family business, the entrepreneurial spirit was in my body as well.

 

(15:03):When I got to college, I didn't really know what I wanted to do. My high school econ teacher had taken us down to the Board of Trade and the Mercantile Exchange on a couple of different field trips in high school. As I was stumbling my way through college, trying to figure out where I was going to go next, it dawned on me that maybe that's what I wanted to do.

 

(15:19):I eventually met someone from Chicago. I was playing poker online in my dorm room and I hounded that guy for about six months with emails every couple of weeks until he finally brought me down for an interview. And then, I went in and interviewed and I started from there.

 

Matt Adams (15:42):That's awesome. When you started down there, I'm just trying to think, that's when we still had the trading pits. I think those are gone now. It's all electronic now.

 

James Schroeder (15:49):It's almost all electronic now. I would say I caught it just past the heyday.

 

Matt Adams (15:56):Got you.

 

James Schroeder (15:57):But I got to ride that wave down until the electronics really took over.

 

Matt Adams (16:00):That always just seemed from what you'd see on TV and everything you learned, it just seemed like a pretty intense, aggressive area to be in during that time.

 

James Schroeder (16:11):It was a physical job. There were people that weren't big, tall, stocky dudes, but they were few and far between. It was mostly people who had some physicality to them, in addition to being able to do the mental part of the job.

 

Matt Adams (16:30):Got you.

 

Brenna Finnegan (16:34):Obviously, we're on the path of grain marketing here with this particular podcast. We'll skip back over to Evan. What types of grain marketing were you doing prior to getting involved with James and his business?

 

Evan Kamenik (16:50):As I got more involved with the farming and marketing became more and more of a need, I started out with cash marketing. Doing things that my dad had done in the past. Calling up the elevator. This price looks good. Selling it. Sounds good, looks good, whatever. Kind of market as you need to market it. But then, it became more of a problem, because now you're doing more and you've got more risk.

 

(17:17):You've got people who you are borrowing money from. You have to have a plan. There's got to be a better mousetrap to this. Working more with some of the elevators, they've got different things they're doing. As I grew, I went from cash contracts to hedge-to-arrives. Starting to understand basis contracts and some of those different things. Fast-forward a little further, doing some more research and whatnot.

 

(17:49):I found out you could do some hedging through the board. Got some different brokerage accounts. Now I think I have two or three different brokerage accounts, but with a different brokerage. It's funny because starting out, it's like, "This is the way to do it." Well, after the fact, you find out that the brokers aren't necessarily... There are good brokers and bad brokers.

 

(18:14):A good broker can help you. A bad broker... I don't know. They can almost set you back. But at any rate, that gave me my first taste of futures trading. Buying futures contracts, options, and whatnot. Fast-forward to today, doing a little bit more research, I found out that there is another way of doing this. There are actually people who aren't brokers, but specialize in some of the dynamics of marketing.

 

(18:44):There are a lot of people with different experiences. I was on the website newagtalk.com and I come across this guy that was doing something different than most people. He's talking about the Greeks and all these different things. Well, actually he wasn't specifically. It was actually somebody who had worked with him.

 

(19:07):It just kind of piqued my interest. So I looked this guy up and Quartzite Risk Management and there's a phone number. I call the guy up. I'm driving the sprayer and spraying along. I said, "Well, I've got time to waste. I'm spraying. I can sit there and talk to somebody with a headset on." I just called him out of blue and he answered the phone. I think we talked for two, three hours. Just a random phone call.

 

(19:31):Just talking about everything from theory to things he did to some of the stories of what he did on the floor. That phone call ended and I didn't really do anything with James at that point. It was probably another year or so after that that I looked into it a little deeper. I said, "Well, maybe it makes sense to try this." What I did was I looked at spreading out what I did. Instead of doing everything 100% myself. I did a third with him, a third myself, and a third with the co-op. I wanted to weigh and measure.

 

Matt Adams (20:08):To see at the end of the year who's the one shining a little bit?

 

Evan Kamenik (20:13):To see who made the most sense in terms of risk management. Just try to sift through all the chaff a little bit and see what makes sense to fit our operation. Long story short, I found out that working with somebody who actually knew what they were doing took a lot of stress out of my life.

 

(20:38):I have a young family. I have a lot of other stresses with growing the business. I found out that maybe instead of doing things kind of... I don't know what the best word is. Not to the best of my abilities. Maybe seek people who really excel in those areas.

 

Matt Adams (21:02):Surround yourself with people that are looking out for the best in your operation.

 

Evan Kamenik (21:07):Yes.

 

Matt Adams (21:07):Evan, one thing I liked that you said. Your first initial contact when you were with the sprayer, two to three hours just talking about your operation. Bouncing different things off with James. I'm just curious. When you were working with a broker, had anybody ever given you that time to really get to know your operation like that in an initial conversation?

 

(21:28):To me, it fits into what we do as relationship lenders. Building that relationship. Not knowing you from Adam, he basically opened the book for you to, "Hey. I'm going to tell you everything that you're going to ask and hopefully, something sticks."

 

Evan Kamenik (21:45):You'll find talking to James, he's not a salesperson. He would never make a sales guy.

 

James Schroeder (21:53):That's true. Terrible at it.

 

Evan Kamenik (21:55):He's just not a sales guy, but he wasn't there trying to pump a position so to speak. With the broker, the broker would be like, "We want to do this."

 

Matt Adams (22:04):Their job is sales. They're there to push a product, which is their service.

 

Evan Kamenik (22:10):The broker, we think doing a three-way option trade is great. I'd say, "Hey, James. What do you think about this three-way option trade?" And he'd say, "Well, why would you do that? It's the equivalent to one short future." Okay. That makes some sense right there.

 

(22:25):The brokers have a bias to churn trades and make money. James is trying to build a relationship by doing good risk management. Not necessarily doing something because he has a personal bias. It opened my eyes that there's a different way of doing this and it sounds like this could be a good way to look at it.

 

Matt Adams (22:48):That is awesome. James, I want to bounce to you now, sir. We heard a success story here. As a farmer, I have just met you. What can you do for me that I can't learn when I open my computer up, I look at my local co-ops page, and I bid off of that. Listen to the radio and the futures' updates every day. I can get all the information I need from there. I don't need anybody else's help. Correct?

 

James Schroeder (23:16):That's one way to do it. Trying to sum this up in an audio format in 30 minutes or 60 minutes or even if we went three hours, I don't think it's possible for me to even get to what we do in that timeframe. But I think if you really distill it down, we charge people a flat fee every year. We have a relationship with a low-cost broker, so we don't pay a lot to trade. We do the job of managing the risk and I like to think we're pretty good at it.

 

(23:49):My old job on the floor was that of an option market maker. Option market makers are risk managers by nature, because that's a big part of what you have to do. When I got onto the customer-facing side of this business, I was very unhappy with what I saw being passed along as useful information. I wanted to start an alternative to show folks, "This is how it gets done in the world of finance."

 

(24:21):When you make that trade with them, when you go in and you make a trade through your broker... Ultimately, the other side of that is probably going to be a market maker somewhere. And that market maker is essentially the house. I wanted to show folks that, "No. No. There are really good tools to measure this risk." Once you have a tool to measure the risk, you've got a way to manage it. But until you've even begun to measure it, you can't really manage it if you don't know what you're trying to fix.

 

(24:50):I really wanted to create a way to show folks like, "Hey. We can quantify this and then we can fix it." And there are a lot of different ways to fix it. A lot of those things are going to be situational based on the markets, based on the individual, based on all manner of things at the time. Trying to fix that problem is really what ultimately led Quartzite to its existence.

 

Matt Adams (25:16):That is very impressive. I just go back to it's just building that relationship. Very interesting. When you moved out to Colorado, your customers, they wanted your services. They basically said, "We're not going with anybody else." Basically, "You're going to continue to work with us whether you like it or not," type of thing.

 

James Schroeder (25:36):There was a little of that. I was kind of pushed into it. Ultimately, I'm glad they did. Because I'm really happy with what it's become four-and-a-half years later.

 

Brenna Finnegan (25:46):You obviously have quite a bit of background. Can you give us several different tools to help manage risk? What could people use or how to go about marketing?

 

James Schroeder (25:58):Well, you guys like to talk about the toolbox here. I think it's important to recognize whenever we're talking about risk management, there are a lot of tools in the toolbox. Generally speaking, it's going to be a combination of tools that are going to get the job done. It's not like there's a silver bullet in options contracts or futures contracts or random OTC stuff like accumulators or cash contracts or even crop insurance.

 

(26:25):All of those are tools for managing risk, but no one of them is going to do the job effectively. The mix that is required is going to depend. Sometimes that's going to change day to day when we start talking about, "What's the most efficient thing to do right now?" Sometimes it might change within a few minutes here or there. The choice needs to be made now. Ultimately, doing a good job of managing risk in the financial markets is effectively a full-time job. And these days, with overnight markets, it's two full-time jobs.

 

Matt Adams (26:59):I was wondering. Have things changed a lot in the last four years? Just with the way technology advances. I always wonder. Especially, with social media, and how we get information almost to the second it happens. Does that affect how you do stuff now that information is hitting the markets in general, spot-on, as soon as something happens?

 

James Schroeder (27:24):We're not sitting there watching the newsfeed to do what we do. What we do effectively takes a very neutral view of the markets. We don't want to be chasing things here and there just because some headline comes across. Because mainly, I don't know who had that headline 10 minutes ago. And I don't know who's going to have it 10 minutes from now. It might change their analysis and all these other things.

 

(27:52):I like to treat the market as a random number generator. And then, I like to work within that randomness itself and figure out a good strategy to solve the problem of a complex risk management problem, which is essentially grain and soybean production.

 

Matt Adams (28:07):And I think that's one thing important to all our listeners out there. Exactly what James just said. He looks at the data in front of the numbers. Don't hinge all your decision-making on what's happening in social media. I think I hear that so much.

 

(28:25):Probably, our younger producers that, "I heard this on Twitter this morning." It's almost to a point... Put your blockers on and just work with your experts.

 

Brenna Finnegan (28:37):It's more about being proactive than reactive.

 

Matt Adams (28:40):Exactly.

 

James Schroeder (28:40):100%.

 

Brenna Finnegan (28:43):Generally, the markets are reactive to whatever's going on around the world. But in your case, it's more so about making a plan for when something goes haywire. Or if it's not, how can we maximize everything?

 

James Schroeder (28:58):In general, we think with a weekly mindset. We'll have up and down orders out in the marketplace to manage the risk. Because the risk picture, when you start dealing about... I'm going to use a word here. Complex non-linear risk. It's not a straight line. There are curves to it. When you start having risks, it looks like that.

 

(29:22):It can't be a one-time-and-done hedge. Things need to be done on the regular as the market is moving. And in order to accomplish that, you need to have a plan ahead of time. The market rallied 25 cents. Corn is up a quarter. What are we going to do? If you're asking yourself the question, "What are we going to do," when it's up 25 cents, you should have asked that question before it moved.

 

(29:49):It should just be a matter of executing at that point. "It's up 25 cents? This is the plan." Boom and done. Or vice versa, "It's down 25 cents. This is the plan." It takes the emotion out of it too when you do that. You don't have to worry about making a decision when it gets there and having that decision influenced by your emotions, because you've already made a decision before it gets there. And then, it just becomes about staying disciplined and working the plan.

 

Matt Adams (30:18):And that's something very true. I remember early on when I started farming. Actually, my account officer, she told me... We were talking grain prices. "I haven't formed a contract or anything. I'm just really hesitant and I've still got old crop in the bin."

 

(30:31):She said, "You need to work with somebody or make a decision and stick with it, because you're emotionally tied to that crop right now." Take the emotion out. Because you sit there, "We're up 25. I'm going to wait for more." And then, it goes. Take that emotion out of it, because it's kind of your baby at that point. You're afraid to make a decision.

 

Brenna Finnegan (30:51):It ends up turning into greed.

 

Matt Adams (30:53):Right.

 

Brenna Finnegan (30:54):It usually turns around and bites you.

 

James Schroeder (30:57):Well, there's a paralysis by analysis that happens. There's this fear of being wrong. I think that when you reframe the question into, "My job is no longer to predict price movement, but my job is to manage the risk in and out as it comes around," you can be right about that. There's a right answer to that question.

 

Matt Adams (31:20):Well, hey, guys. We're going to take a quick break here and we'll be right back on AgCredit Said It.

 

Voiceover (31:29)Harvest is right around the corner. It's time to start thinking about grain inventory loans to allow you to access capital needed to purchase inputs and reduce taxable income without having to sell your grain before year-end. Contact your local AgCredit office for more information.

 

(31:47):All right, guys. We're back. Talking about managing that price risk. Just managing risk in general. James, we were talking about that emotional tie that we have to our crop and taking the emotion out of it. I think that's where you come in. Like you said, having that plan and sticking with that plan. When the market hits a certain point, you already have that plan in place. You said it takes that emotion out of it, where you can stick with that plan and just roll with it.

 

James Schroeder (32:20):Well, and it takes some of the ego out of it. One of the things that's a big killer in any markets or uncertainty is having an ego. Being convinced you're right. We used to say on the floor, "Would you rather be right or would you rather make money?" In the end, the point of that saying was to educate younger traders that you don't need to be right. You need to profit.

 

Matt Adams (32:46):Got you. Okay.

 

James Schroeder (32:47):Those are two different things. Because if you're tied to being right, you're not going to make a good decision. Because you can never be wrong. There are times when it's very obvious you should admit that you're wrong and make a different decision.

 

(33:01):If you can separate those emotions like ego or the hope of it getting back to some point and being able to break even again. I like to joke around and say, "Who's the happiest guy at the blackjack table?" The guy who just lost $1,000 and went down to only $100 in chips and now he's back up to $1,000.

 

(33:25):He just won the last hand. He's at $1,050 now and he thinks he's going to $10,000. That guy's the happiest guy at the table. He's about to lose the rest of his money, but for right now, he's the happiest guy at the table.

 

Matt Adams (33:36):Right now.

 

Brenna Finnegan (33:36):It can change in an instant.

 

James Schroeder (33:39):It can change in an instant.

 

Matt Adams (33:42):Evan, bouncing back to you here. We talk about taking that emotion out. You told me before, turning your farm into more of a business. When you started working with James, were there dynamics in your family operation that you guys had to change the way you look at things?

 

(34:01):Did he bring obviously some tools to the table to make you rethink what you were doing? Did he change things up completely? Or just give you a lot of different ideas to think about?

 

Evan Kamenik (34:14):I think he just emphasized the reality that we need to be disciplined in what we do. We need to have structure, build the foundation internally, and have the right people in the right places. What happens if I walk out of here and I get hit by a car?

 

(34:32):What's that backup plan? Can somebody take over the marketing? Kamenik Brothers as an operation, does it continue to exist beyond me? One of the things I say to myself, my definition of success is if I can walk away from all of this and it'll still operate.

 

Matt Adams (34:58):That's an interesting way to look at that. I like that.

 

Evan Kamenik (35:03):As we've grown, my stresses have only gone up. Sometimes it's not easy. Sometimes you're asking questions that may or may not have answers, but you have to put things in perspective and find out that we all have shortcomings.

 

(35:25):We can either be... What do they say? A jack of all trades, master of none. I want to do well in my area of expertise and do some of the things that I can control and delegate those things to people who can excel in those areas.

 

James Schroeder (35:43):I think that's a really good point. It's easy when you own a small business or even a large business to convince yourself you own a business when what you really own is a job. If you own a business, you can walk away. If you own a job, you can't ever leave the office.

 

Matt Adams (35:58):I've just got to ask. You guys have been working together for a while now. So in that initial conversation of three hours in the sprayer, I've heard through the grapevine that you are the main sprayer operator of the operation still.

 

Evan Kamenik (36:11):I'm probably the only person in the state of Ohio that runs three sprayers.

 

Matt Adams (36:16):When your head just starts beating on the glass and have too many questions… Is there still a three-hour conversation? Do you still call James up and say, "Hey, buddy. I'm in the sprayer now. I need to bounce some stuff off of you."

 

Evan Kamenik (36:28):Sometimes I just call him to really chew the fat. We're pretty much on the same page. With James, every week he sets an hour aside when we have a scheduled phone call. It might go an hour. Sometimes maybe a little bit more. Sometimes a little bit less. Sometimes I don't answer because I'm busy or whatever, but we're pretty much on the same page day in, day out.

 

(37:01):If there's a change in what we're doing... Let's just say there's a weather event and we need to adjust yields up or down. We constantly have our fingers on the pulse of what our risk is for that day or that week. We're trying to project ahead where things may be. And that allows him to manage it.

 

Matt Adams (37:23):Constantly mitigating and adjusting that risk depending. That's interesting. I never thought about when we go through a season where we as the producers know our yields may be going up or down, but then to work with somebody with your risk management side. That's great.

 

Evan Kamenik (37:40):It's interesting. This week, this is June. You have the Plantings Report here at the end of the week. The big report for the year. That's pretty critical. It could be a big up market, a big down market. It's typically a big market reaction. Quite honestly, I don't care one way or the other.

 

(37:58):If it goes up, it goes up. If it goes down, it goes down. We've managed our risk accordingly. Whichever way the market wants to flip, we're ready for it. And it gives you peace of mind. At the end of the day, I can go to sleep and know that our risks are covered. Further, we're working with AgCredit. I want to show them that we're doing a good job on the risk management side of things.

 

Matt Adams (38:23):Brenna, I know we as lenders and account officers... One of the things we always look at when we talk about the five Cs of credit. What is that? Part of it is the management side of things. When we can work with a producer and know that they're taking the steps not only that we can help provide, but on their own to help mitigate risk and give them that competitive edge.

 

(38:43):That speaks a lot for the management of an operation. Depending on the size of your operation, I think there are opportunities out there for this type of information. No matter if you're a small or a large scale farm. At the end of the day, anybody that is producing, whether you be in livestock, Christmas trees, for one, regular row crop, all of us have some type of risk that we need to manage.

 

(39:14):I think in the long run, it gives us that competitive edge. I don't want to say it gives you a competitive edge over the neighbor, but it gives you that competitive edge in our industry, so you can take that next step.

 

Evan Kamenik (39:24):Risk is risk. Another way I look at things is, neighbors, they think they're competing and they out-produce or whatever. The reality is, we probably all statistically produce within a deviation. We're probably all very close in terms of what we do. We do a good job. We have the same intentions.

 

(39:45):It might come down to a weather event. Whatever. But the reality is we all do things very similarly. The marketing side of things is like the holy grail. Everybody wants to hit the top, but the reality is we're all human. We're going to make mistakes and we can only manage the risk that we have on a day-to-day basis.

 

Matt Adams (40:04):It was funny. Back when I was in college, I worked for a local grain elevator. A very small grain elevator in Paulding County. There was this old gentleman. He was about 85 at the time. He would bring in his 200-bushel hopper wagon and his old 1967, pulling in a Chevy pickup. He'd sell one load of grain a month.

 

(40:21):I said, "Why do this every month? Why don't you just start emptying the bail?" He says, "I sell one load a month. That way, I hit the average of the year." He hit the high and low and he thought he was hitting that average of the year. It's interesting.

 

Brenna Finnegan (40:35):He's paying his monthly bills.

 

Matt Adams (40:37):That was his risk management. No matter what the market does, the 15th of the month, I'm selling a load of grain.

 

Brenna Finnegan (40:45):Evan, a little bit ago you talked about the changes. Obviously, there are things in this world that causes changes within the markets and stuff. Was there anything in your operation that you had to shift to have a different marketing-type strategy?

 

Evan Kamenik (41:04):Yes and no. One of the things that I had the opportunity to go to was TEPAP. Have any of you heard of TEPAP?

 

Brenna Finnegan (41:14):I heard about it earlier today from you.

 

Evan Kamenik (41:16):Okay. TEPAP is called The Executive Program For Agricultural Producers. It was described to me as the place to go if you really want to see what people in agriculture are doing, the businesses are doing, the professional businesses are doing. And it was a good place to go meet people, be able to ask questions, and see what the world looks like outside of Ohio.

 

(41:46):Looking at what the operations were doing, they were all running successful businesses that were very disciplined. They excelled in the areas where they could excel and they sought people where they couldn't excel. Today, it just makes it more important that we look for people that can do the things that we can't. James is one of them. I consider myself a good marketer, but James can do some things that I can't do.

 

Brenna Finnegan (42:19):Speaking of that. There are obviously qualities or characteristics of somebody you want to have managed that for you. James, in your situation, what types of characteristics when you have that first meeting with somebody, what is…

 

James Schroeder (42:40):What am I looking for in a client?

 

Brenna Finnegan (42:41):How do you know it's going to jive as a relationship?

 

Matt Adams (42:46):What are you jotting down on your notepad here?

 

Brenna Finnegan (42:47):How do you know it's going to jive as a business relationship between the two of you?

 

James Schroeder (42:50):If someone doesn't cure themselves very quickly of asking me which way the market's going, then I know it's probably not going to work. That's often the first question someone in my line of work gets, so I'm very used to getting it. But when I start telling folks, "I don't know and I'm not going to make up an answer." The sooner someone gets that, generally speaking, the better relationship we're going to have when we work together.

 

(43:16):If we can just accept that it's a random number and we're going to work with a random number, then things tend to work out. Other than that, I have a whole range of folks from North Dakota to here in Ohio. Every region is a little different and people are all a little different, but for the most part, people who are open to doing things a different way than they've always done it.

 

(43:41):I know even as a business, when we see something that we think of as a deficiency in our modeling or the way we're doing things or how we're doing things in operational, we're very quick to adapt and find a solution. Or at least try a new solution. That sort of thing. I want to work with folks that are trying to move forward, trying to constantly improve, just like I am, and are open-minded to different ways of doing things.

 

(44:10):The things we do in our office at Quartzite I don't think are done in a lot of places. To do it, you'd have to have the experience that we have as option market makers to do it. And I think it's completely different than what I have come to see as the generally accepted and traditional way of marketing and managing risk.

 

Matt Adams (44:37):Kind of breaking the mold a little bit. I just go back. You look and so much of the model we have here in the farm credit system is you're building that relationship. I'm sure in your position too, you're not only looking to work with this current management, but you're looking for that next generation too. You want to continue this as a legacy.

 

James Schroeder (45:00):Absolutely. I would love it nothing more if someday one of my sons is sitting here with one of Adam's kids. Adam? The kid is Adam. One of Evan's kids.

 

Matt Adams (45:14):We're already moving above the ladder here. All right.

 

Evan Kamenik (45:16):There we go.

 

James Schroeder (45:18):I'd love to see that if one of my kids was sitting here with one of Evan's kids, doing the same podcast 30 years from now and talking about how they've been working together since their dads were.

 

Brenna Finnegan (45:29):Well, you talked about getting somebody out of that mindset of "Well, I'm going to sell when it's high." But you've got a different type of strategy where you can show, even if markets went lower, there's still an opportunity to make money in that sense.

 

James Schroeder (45:47):We use a lot of options and I don't want to go too far down the rabbit hole. Because as much as I love to talk about it, most people don't like to listen about it. I can overcomplicate things or maybe make them sound overcomplicated. A properly done risk management has very even exposure to the market in both directions.

 

(46:11):Typically speaking, in the kind of environment that we're in, it should slope up from the center in both directions. It's not going to be perfect, but having a generally upward sloping curvature is good. Now there is some expense that comes along with having that picture, but that's another thing that can be managed. And that gets very much into the complex side of what we're actually doing, when we start talking about how options trade and how to manage a complex options position.

 

(46:47):Whether producers like it or not, that's the situation they're in. The minute they plant their crop and put crop insurance on it, they have a complex option position that needs to be managed actively to be done right. At least, in my opinion. When we find ourselves in that place, we've got to figure out how to do it right and what works best.

 

Matt Adams (47:09):I think one thing you look at on your end is those success stories you have and the clients that continue to... I'm going to guess it's probably a lot of word to mouth. Spreading the good vibes that you do for guys and keep growing the business.

 

(47:28):It's just very intriguing to me. Just sitting here talking with you guys, I'm already changing my mindset about how I manage my grain, my risk management at home. You're bringing a lot of different ideas. It's a different way of looking at things.

 

James Schroeder (47:47):Sure. A lot of times someone will stumble upon us somewhere and one of the first questions they'll ask is, "Can I talk to some of your clients?" I'm always happy to send out the email and be like, "Here's our whole list of clients. They've all agreed to be contacted." It's not something that's in our standard paperwork.

 

(48:14):Every time I get that request, I reach out to each of the clients and say, "Hey. Is it okay if I have a potential customer call you and talk about your experience?" Invariably, they all come back to me with yeses. It's been fun growing this business, because we're very involved in each of our producer's operations. We have that weekly scheduled contact point. I try to make a point of, wherever that producer is, at least getting in the same physical location with them once or twice a year.

 

(48:47):We, generally speaking, won't take on customers unless I've met them face to face and stood on the farm. That's a rule I have. I don't want that to be some unknown quantity. I want to see the thing and know the thing. Because I know that behind all these operations, just like behind my operation, are real people doing real things. That's the ultimate point of the job and what we do is trying to make the reality look good.

 

Matt Adams (49:14):James, I'm just curious. How many people do you have in your firm? How big is your group?

 

James Schroeder (49:19):It's pretty small, actually. We have nine accounts. That's it. I think between my coworker and I, we could probably handle 30 before we need to add staff. I don't want the quantity to outgrow the quality. I think at this point, with our future growth, I don't need to turn this into some giant investment bank type operation. I'm happy if I can have 25, 30 good clients.

 

Matt Adams (49:54):Good quality.

 

James Schroeder (49:57):We were talking to a client the other day. He happened to be in town in Fort Collins and he stopped in. My coworker handed me a little paper risk report we had from him, and I immediately saw that we had just had options expiration on Friday.

 

(50:11):I saw that something hadn't been punched into the report. I could do that because I only have the nine clients, so I know all of their positions inside and out and I can keep it straight in my head. If we get to a point where I can't do that anymore, then I'm not necessarily interested in going beyond that.

 

Brenna Finnegan (50:27):Well, I was going to ask you. What sets you apart from your traditional, local cooperative marketing?

 

Matt Adams (50:34):I think you might have just answered it.

 

Brenna Finnegan (50:35):I think you just answered the question though. Well, we want to thank you guys for both joining us. We appreciate you guys coming on telling your stories and whatnot and putting out there another idea for marketing. Just sharing something different than what people are traditionally getting.

 

Matt Adams (50:56):I think that's one thing we always want to keep getting out to anybody that's listening to us. Not necessarily changing your mind, but opening your mind up to what different things are out there. A different way of looking at stuff. Just like you said, how you're doing it right now is not wrong, but there may be some tools or some ideas out there that you can better yourself and your operation.

 

James Schroeder (51:18):You can always get better.

 

Evan Kamenik (51:19):Don't ever be afraid to try something new and meet new people. Somebody has always done something different. A lot of times, they'll let you in on a thing or two.

 

Matt Adams (51:30):I always say, "Never be complacent." Always be looking to better yourself. Don't be afraid to stick your neck out there a little bit. Well, guys, thank you very much.

 

James Schroeder (51:41):Thank you.

 

Matt Adams (51:43):This will wrap it up, Brenna, on this episode of AgCredit Said It. If people want to get more information on your services, James, what is the best contact information we can put out there for you?

 

James Schroeder (51:55):You can go to quartziteriskmanagement.com. We have a fair amount of content on the website that's educational that I've written over some time. Just some things very specific about different types of marketing tools and some things very general about mindset when it comes to managing risk.

 

Matt Adams (52:14):And I will say, I was on your website a couple of times getting ready for our podcast. It laid it out very nicely. Lots of great information on there. Very impressive website.

 

James Schroeder (52:21):Well, thank you.

 

Brenna Finnegan (52:23):Evan.

 

Evan Kamenik (52:24):Yes.

 

Brenna Finnegan (52:24):If anybody has any questions for you, how can we get ahold of you?

 

Evan Kamenik (52:28):They can reach out. I don't know if you guys want to pass my phone number along or whatever, but that'd be fine.

 

Brenna Finnegan (52:33):We will.

 

Matt Adams (52:33):We can put her out there.

 

Evan Kamenik (52:33):Get in contact.

 

Brenna Finnegan (52:37):We will have it on our website with our show notes and everything.

 

Matt Adams (52:40):With the show notes. Like always to our listeners out there, you can always look us up, agcredit.net is our website. Be sure to look up our podcasts on all your favorite listening platforms out there. Give us a review, give us a thumbs up, tell a friend, tell a neighbor. We want everybody to hear our ramblings. I think we do a pretty good job, Brenna.

 

Brenna Finnegan (53:03):We try. That's for sure.

 

Matt Adams (53:05):Again, I want to thank you guys and we'll catch you on our next episode of AgCredit Said It.

 

Voiceover (53:11):Thank you for listening to AgCredit Said It. Be sure to subscribe so you never miss an episode. While you are there, leave us a review to help others find the show. Let's talk ag in between episodes. Follow us on Facebook, Twitter, and Instagram at @agcredit. For more tips and resources, visit agcredit.net.