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Most people believe that early agriculture enabled humans to build settlements, and that subsequent agricultural improvements have made humankind better off.

In his thought provoking book, Against the Grain – How agriculture has hijacked civilisation, Richard Manning disagrees on both issues. In particular, he questions the traditional view that the shift from hunting and gathering to agriculture led to “the surplus of food that allowed the leisure and specialisation that made civilisation.”

He also argues that it was only when hunter-gatherers, particularly fisher folk, started to live in settlements that agriculture could take form. He writes, “the archaeological evidence suggests that…sedentism—the radical human experiment with staying put, made agriculture possible, and not vice versa. Agriculture did not arise from need as it did from relative abundance. People stayed put, (and) had the leisure to experiment with plants.”

He is also an early exponent of the argument that agriculture has turned mankind into slaves. He writes, “We tamed the plants and animals so they could serve us, a sort of biological slavery, but if coevolution is true, the converse is also true. In biological terms, wheat is successful; its success is built on the fact that it tamed humans. Wheat altered us, altered our genome, to use us…. To a hog in a pen it must appear that he has enslaved the farmer. Why else would the guy show up twice a day with a buck full of feed? The hog believes this until the day he dies.”

Finally, he argues that somewhere along the line we have stopped eating food and begun eating commodities.

“Consider the range of plants humans consume, the hundreds of species. That’s food. Consider that two thirds of our calories come from wheat, rice and maize. Add sugar and you have a nearly complete picture of commodities. It is an oversimplification, but a useful one, to assert that these commodities have a fundamental and key distinction from the rest of food; they are storable and interchangeable and close to currency in their liquidity; in fact they are traded in markets just as currency is. They form the basis of wealth, and have done so for ten thousand years.”

Rice, he argues, is different, because “well over half of rice consumed is eaten by the same people who grew it.” He continues, “True, rice is storable, tradable, a dense package of carbohydrates that meets the definition of a commodity, but because it is the most important foodstuff of the world’s poorest people, it has many of the hallmarks of food.”

Yuval Noah Harari took up many of the same themes in Sapiens – A Brief History of Humankind. He writes,

“We did not domesticate wheat. It domesticated us. The word domesticate comes from the Latin ‘domus’, which means ‘house.’ Who’s the one living in a house? Not the wheat. It’s the sapiens….What then did wheat offer agriculturists..? It offered nothing for people as individuals. Yet it did bestow something on Homo Sapiens as a species. Cultivating wheat provided much more food per unit of territory, and therefore enabled Homo Sapiens to multiply exponentially….This is the essence of the Agricultural Revolution: the ability to keep more people alive under worse conditions.”

But is that really true? It would be true if we all lived in farming villages, wracked by disease and the occasional famine. But we don’t. Most of us live in comfortable cities. In the U.S. only one percent of the population is still engaged in farming. In Europe the figure is 4 percent; the global average is 28 percent.

Agriculture has enabled 99 percent of the U.S. population—and 72 percent of the world population—to escape the drudgery and hard labour of farming. Meanwhile, technology has lightened, at least a little, the workload on the farm. Agriculture has enabled all of us to live better lives.

At the same time agriculture has, along with improvements in health care, been one of the main enablers of our growing population. This is now putting a strain on the earth’s ecosystem. Agriculture has also contributed to environmental degradation through deforestation, reduced biodiversity, and climate change (through GHG emissions). To some extent, therefore, agriculture has become a victim of its own success.

The solution, however, is not to go back to some mythical golden era. The solution is in developing new technologies to improve the way in which our hard working farmers grow food, in order to reduce agriculture’s negative impacts on the environment.

This is already work in progress, and unlike Richard Manning, I am sure that it will succeed.

© Commodity Conversations ®

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.

A conversation with Ivo Sarjanovic

Could you please tell me a little about career?

I joined Cargill in July 1989, and after working in Buenos Aires and Sao Paulo, I was transferred to Geneva in 1993 as a wheat trader. In late 1994 Cargill asked me to join the soybean desk. I started as a junior trader and worked my way up to become head of the desk, a position I kept from 2001 to 2011.

I was in charge of Cargill’s worldwide activities in soybeans, including the coordination of crushing activities. It was a role that combined international trading with the strategic side of the business, so it was super interesting. I loved it!

So you were head of the bean desk through the whole of the super cycle?

I first visited China in 1997 at a time when they were buying almost no beans at all. Twenty years later they are importing 85 to 90 million tonnes each year, which is roughly 60 percent of the world total.

This created tremendous opportunities for the desk. I was lucky to be there at that time—and to have had the right experience and the right team to be able to enjoy it. For me it was like playing football for Barcelona in La Liga.

What was Cargill’s share of the world soybean trade at that time?

We had maybe 15 percent. The business was extremely competitive, but not only among the big trading houses. Chinese companies soon started to buy soybeans directly from the origins and trade them to destination.

In 2011 you moved within Cargill from beans to sugar. What prompted that move?

I had been in soybeans for almost 20 years, and I wanted a change. I also wanted to have a position that was more managerial, more asset-based and less trading-orientated. Becoming head of Cargill’s Sugar Division was a perfect opportunity for me. I jumped at the chance.

What are the main differences between the sugar and the soybean markets?

The biggest difference is the delivery mechanism. Sugar trading revolves around the delivery process against the futures market, especially the optionality that you have between the different origins.

What was a surprise was that physical margins were even worse in sugar than they were in beans. Traders are even more willing to discount physical prices to put on a short sales book to end destination.

After a few years of running Cargill’s Sugar Division you merged it into Alvean, a joint venture with Copersucar.

Alvean was probably the best idea I have ever had professionally, combining what at that time were the two biggest traders in a market that was desperate for consolidation. Cargill had the global trading expertise while Copersucar had the origination infrastructure in Brazil. The combination was very strong.

Moving on to your current position, you now act as an advisor to trading companies on risk management.

Risk management is a journey. We can only try for continual incremental improvements. Also, I don’t think there is a definitive way to manage risk; different companies have different methods.

Thirty years ago we managed risk in terms of the size of the position measured in tonnes. We then moved on to looking at the risk in monetary terms, the value. We then began to incorporate tools that were developed by the financial industry such as ‘Daily Value at Risk or DVAR”, “Drawdowns” and ‘Stress’. We combine all these tools into what we call a ‘Dashboard’ and then we try to find a balance, a way to combine each of the various legs such as flat price, spreads, premiums and freight positions within limits.

It was challenging at the beginning, but most people now realise that you can’t trade if you don’t use those tools. Without them you may overtrade relative to your equity and run the risk of ‘blowing up’.

In addition to my advisory work I give courses on agricultural commodities at the Masters level at the University of Geneva, as well as at the Universities of Buenos Aires and Rosario in Argentina. I love teaching young people about our business, and sharing my enthusiasm for the business with them.

Thank you Ivo for your time and input!

© Commodity Conversations ®

This is a short extract of a conversation that will be published in full in my new book due out in November.