By Drs. William W Wilson and Frayne Olson, North Dakota State University
The job market in agriculture has been particularly robust over the past 5-10 years.¹ This is partly in response to the retrenchment that happened in many companies about 10 years ago along with the evolving demographics of many agricultural firms. There are a multitude of other reasons for this including the escalation in economies of transactions, greater risk, ethanol and energy trading (e.g., oil and electricity) that tends to attract grain traders, and, importantly, a fairly robust view of agriculture by many companies. Indeed, some firms have indicated that their growth is limited only by their inability to hire enough well-qualified individuals.
As a result of these changes, most agriculture programs in the United States have benefited with increased enrollments (although this has increased the challenges in teaching) and placements, particularly for those who are well trained.
The enrollment at North Dakota State University (NDSU) has increased similarly to—if not more than—the national growth rate. From 2001 to 2015, NDSU agriculture enrollment grew by 94%, and agribusiness enrollment increased 144% from 168 to 410. These are substantial growth rates (and it’s important to note that female enrollment has increased substantially).
In agribusiness and agricultural economics, there are a number of common market segments for students including farming, agrifinance, commodity trading and agrisales among others. At NDSU, about one third of the students pursue careers in some respect related to commodity marketing. This includes positions from managing elevators or processing plants to trading, hedging and risk management to logistics management and more. In all of these, students need exposure to markets, market mechanisms, risk management and hedging.
All of the undergrads are getting very good jobs, and many of them are getting a number of offers. Trading offers some of the best positions. (The other major fields are agfinance and crop/input sales.)
Most students in this field will have internships for two years, be in the top 20% of the class and have a deep interest in the topic—and most will have offers by November. In fact, in last year’s trading class, apart from the very small number of students planning to go into farming, 100% of the students had one or more internship offers by November. Of course, the job market is robust in agriculture. However, the competitive and commercial environment is very intense, and as such, those with good credentials are finding lots of opportunity.
NDSU has a long tradition of placing a large number of students in the broadly defined field of commodity marketing. However, the technology, marketing mechanisms and market information have changed drastically in recent years. Certainly those in the industry understand that now we have more readily available information, the ability to trade futures electronically, and, in some cases, the ability to buy and sell commodities using online mechanisms and more complex derivative contracts. This is in addition to larger-scale transactions and the critically important aspect of logistics management.
For these reasons, some of the major employers urged us to explore changing our program to embrace these tools and mechanisms. In response, NDSU created the Center for Risk and Trading. Its purpose is simple: More students, better training and use of modern technology.
Introducing the NDSU Center for Risk and Trading
The NDSU Center for Risk and Trading is the first academic program at any land grant institution that has designed the tools, curriculum and capacity to address the fundamental issue of risk with a primary focus on agriculture.² The scope of the project as currently envisioned is in areas related to agriculture.
Risk management has evolved to virtually all aspects of agriculture. Risk is a dominant issue in all areas of agribusiness including risks related to price, yield, weather, competitors, technology and food safety, to mention a few. The impact of risk is more profit volatility throughout the sector.
Agriculture is 3-4 times more risky than it was in the 1980s, with risk expected to increase in ensuing years. It affects all aspects of agriculture and agribusiness including large and small growers, technology development, input suppliers (production risk), agricultural finance (financial risk), farm programs and crop insurance (farm safety-net risk), logistics, exporting/trading, domestic and off-shore buyers (market, quality and strategic risk), food safety (food and testing risk) and biofuels ( investment analysis, technology development, firm-level risk management and contracting).
The common core of each of these is the importance of risk in the function, the need to measure and analyze factors contributing to risk, and the need to evaluate strategies to mitigate the exposure to risk.
This is a new initiative at NDSU, though we have a long tradition of teaching, research and placement of students in these fields. The Commodity Trading Room (CTR) is very exciting, and we think it will elevate our ability to provide interest and training to students and businesses in areas related to commodity marketing and risk. The importance of commodity trading and risk has escalated in many dimensions (futures, basis, logistics management, buying/selling, etc.), particularly in grains and oilseeds.
This initiative has three important features:
- The Commodity Trading Room.³ The CTR emulates a trading room at a commodity trading company. Each of the 34 lab workstations has dual monitors and professional software installed, including X_TRADER® from Trading Technologies. Through use of these information sources combined with state-of-the-art analytical tools, we are capable of emulating many decisions confronting trading firms, facilities managers, farmers, importers, buyers, etc.
- Risk. In this capacity, we teach state-of-the-art tools for measuring and quantifying risk and emphasize those important to commodity trading (e.g., VAR, D-VAR, MRP, stochastic optimization, etc.). About 160 students per year take courses in the CTR. Classes include commodity trading (Commodity Trading 1 & 2), risk management (Risk AE711) and agribusiness (AgFinance 1 & 2) as well as graduate classes. In addition, the CTR hosts College of Business courses in portfolio analysis and programs where students manage the Bison Fund, which has about $1.4 million of assets.
- An endowed Chair in Risk and Trading. To be announced in 2016, this will provide funds to expand faculty in this area and be sufficient to hire the best available. There will also be a set of prestigious scholarships intended to be higher-valued so as to attract the best students from other departments and/or universities.
The CTR is extensively used beyond traditional classroom teaching to provide expertise and outreach programs targeted at farmers, traders, commodity managers, foreign grain buyers and agfinance, among others. One effort includes programs for foreign grain and oilseed buyers through the Northern Crops Institute (NCI). Since 1982, this program typically brings about 35 buyers from 20-40 countries to NDSU to learn about the mechanics and strategy of buying commodities. Now with the technology of the CTR, we regularly have them trading using Trading Technologies software and live market information. This past year, we gave them an assignment on day one, and in the following five days, they had to create strategies and execute the annual volumes of grains representative of a typical importer.
The CTR is also used in grower outreach programs. In some cases, we use Trading Technologies software for educational programs. In others, we teach programs to larger growers of corn, soybean, wheat and canola. In still others, the extension program works closely with grower marketing clubs to refine the farmers’ existing marketing and risk management skills.
In all cases, the goal is to expose participants to the massive amount of information available in the market, including cash, futures and option prices, as well as to state-of-the art mechanisms for managing risk and executing trades. Thanks to the software provided by Trading Technologiesthrough the efforts of the TT CampusConnect™ program, we are able to excel in achieving this goal.
About the Authors
Drs. Wilson and Olson are in the Department of Agribusiness and Applied Economics at North Dakota State University. Dr. Wilson (William.email@example.com) is a University Distinguished Professor at NDSU and specializes in risk and strategy. Dr. Olson is an Associate Professor and leads the grain marketing extension program.
¹ This article builds on the recent article titled “Student numbers up in higher Ed ag programs,” Iowa Farmer Today (October 12, 2015.)
² Tulane University has had a similar trading room for a number of years and specializes in energy trading, and some other agriculture schools are exploring similar initiatives.
³ The NDSU CTR has been featured in the following videos: NDSU Commodity Trading Room and University Distinguished Professor – Dr. William Wilson.