By Taylor Hudson
When I was learning about commodities, my professors would talk about a farmer’s “basis book.” It must have been easy to visualize, because the concept has stuck with me for over 20 years. They’d describe visiting with a corn, soybean or hog producer and watching as they opened their “basis book” in order to evaluate an upcoming marketing or hedging decision. The book apparently contained lots of historical treasures — discrete vignettes capable of guiding important decisions, if one paid attention to their story when woven together. I went to school when Excel was a luxury, so we are talking about spiral “basis books” complete with wrinkled pages, coffee stains and pencil smudge marks! Ah, the good old days!
And what was in these hallowed books? Data. Observations taken at regular intervals and recorded for use at some later time. Time series data. But we are not talking about complex calculations or derived data points here. Nope, just prices from up and down the producer’s supply chain each and every day. Dollars per bushel, cents per ton. Prices at the grain elevators, at the livestock auction, of the futures contracts. Separate and distinct products, locations and times. Each and every day. In my mind’s eye, I could see my grandfather writing the weather in his diary after his “basis book” entry for the day. Strongly influenced by their story, I came to learn that successful commodity market participation requires good historical data.
You can imagine my shock when I arrived in the “real world” and met one participant after another without the obligatory “basis book” in their business. Sadly, even today when automation and data service technologies are widespread, I still meet commodity market participants without any access to historical data for their given supply chain. And with the lack of data comes the lack of analysis and decision making power.
Here at Synergy Commodity, we teach people how to improve their performance as commodity market practitioners. Guess what Lesson 2 is? (Read Lesson 1 here.) Get yourself a spiral notebook or an Excel file. Every day write down prices you see above and below in your unique supply chain. The more data the better — there is never enough. Save them. Repeat daily. Guard against coffee stains.