Learning to navigate

A conversation with Brian Zachman, President of Global Risk Management Bunge Limited (NYSE: BG)

The views and opinions expressed in this interview are those of Brian Zachman and do not necessarily reflect the official policy or position of Bunge Ltd.

Good morning Brian. My first question is, how did you start in the business?

I am from St. Michael, a small town in Minnesota, just northwest of the Twin Cities. My family was in the dairy farming business, but it was never really my hope to have a career in the family business. My choice of university, Minnesota-Duluth, even came with an added bonus: it was too far from the farm for my dad to call at 3pm and ask for a hand milking the cows at 5 pm!

I was interested in markets and studied Economics and Math in college before applying to Cargill, but for a position in their financial markets department. Cargill likely saw the farming background and instead offered me a merchant trainee job in West Fargo, North Dakota.

What happened to the family farm? Is it still going?

My parents sold the milking cows and the young stock in the early 1990s, when Mom and Dad reached retirement age and when no obvious succession plan emerged for the farm—all of my five siblings also chose professions other than farming. Dad still lives on the farm, although suburban development and the resulting increase in land values means less and less of the land is directed to agricultural uses. It’s a tale as old as time, a pattern likely to continue throughout rural America.

Before joining Bunge you worked briefly for a hedge fund. What was it like?

I really enjoyed the experience. The ‘reason for being’ is very clear in a fund: it’s about delivering results, and that clarity has a way of creating the right kind of focus. Also, maybe contrary to popular perceptions, my experience is that hedge funds are very disciplined organizations. There’s a real recognition that outcomes are uncertain and that one doesn’t know anything with certainty, so a big part of the business revolves around managing risk.

My primary frustration in the managed money space was being limited to the Exchange-traded instruments and not being able to take positions in the underlying physical commodities (the basis) or in any other part of the value chain. The analytical process is the same in both settings—oftentimes at the fund we had very solid opinions about value migration in parts of the chain but with no way to express our opinion in those markets.

Are you optimistic or pessimistic about the future?

I am optimistic. Bunge is a global player with a global asset base. We physically originate 70 million tonnes of grains and oilseeds each year and have an end-to-end presence in the supply chain; that’s an inherently strong structural position, which is not easy to replicate.

From the standpoint of price risk management, our network also provides us with a lot of proprietary information that helps us optimize our value chains. In a way, our asset base is a call option on volatility in the supply chain.

What advice would you give to a young person starting a career in commodities trading?

My first piece of advice would be to remain intellectually curious. It seems to me that some of the most successful people in the business always ask the next question, not in the interest of information overload, but in the interest of drawing connections between cause and effect in the markets: What’s driving this? Why is this happening? Does it have any knock-on effects? What does it mean?

Second, be humble. If you don’t already possess humility, the market will eventually provide it to you—but it’s almost always more expensive that way!

Accept that you give something of yourself when you put on a position; it exposes your vulnerability to failure. In reality, markets can reward you even when your underlying logic was flawed, and a bet can go badly even when your underlying logic was sound.

Some of the best advice I received went something like “be less concerned about defending your logic and ‘being right,’ because you don’t have all the facts; be more concerned about the outcome and managing your capital.” When it’s framed that way you realize a bad bet isn’t an indictment on your intelligence.

Third, “never say never.” You can say that there’s a low probability of something happening, but you shouldn’t say it will “never” happen. We’ve all seen too many things happen that we thought would never happen. The options markets have this pretty well figured out.

Fourth, find what works for you and develop your own style. At the same time, though, seek the counsel of people that you trust, who can ground you in moments of emotion and the extremes, and who can help you put things in perspective.

Finally, appreciate the place that commodities have in the world…we are in a relevant business with great purpose!

Thank you Brian for your time!

© Commodity Conversations ®

This is a brief extract of a conversation from my upcoming book to be published in November.

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