Jul 29, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin

Perspective: Black Swans, the Newest Livestock Trend

November 16, 2011
By: John Phipps, Farm Journal Columnist
 
 

John PhippsForget meat goats. While they have quietly become the fastest-growing livestock specialty, a new competitor for the title has emerged: black swans.

Only metaphorically, of course. But first, some back story to help you insert this buzzword strategically into your conversations.

The phrase was coined by the Roman poet Juvenal. From his writing, "rare as a black swan" became a popular way to infer that a thing was impossible or nonexistent. All swans were white, of course. But in 1770, Capt. James Cook bumped into Australia, where, among other oddities, black swans were discovered.

The event electrified Europe. I suppose it was like someone of my father’s generation discovering a hen with teeth. Or, in contemporary terms, a politician announcing as a liberal Republican.

Recently, financial wizard Nassim Taleb adopted the phrase to describe unpredictable, highly improbable events, such as 9/11 and the collapse of Lehman Brothers, that have disproportionate consequences. Our increasingly interlinked and automated global financial system might be prone to such happenings, since likely occurrences are instantly offset by computerized trading.

As we get better at writing algorithms to capture profit from even trivial market actions, we build pressure for extreme market swings. We can point to black swan events in sufficient number to make us wonder whether we are getting worse at predicting or if they are becoming more likely.
I would suggest that one of the more unsung black swan events is the one we farmers are living. Black swans need not be disasters, remember. Cooked right, they can make for fine eating, to carry the metaphor a little too far. If $7 corn and $14 soybeans are not a prime example, land prices certainly are.

Imagine sitting with your banker way back in 2006. You show her a five-year plan that ramps up corn prices from $2.50 to today’s levels. Then you offer a balance sheet anticipating ground you just overpaid for at $3,500 rising to, say, $10,000. After a good laugh, she asks for your real game plan. The fact is, we never even heard the rush of ebony wings.

Agriculture is demonstrating how the human brain deals with black swans—on the whole, not very efficiently. Because these events are unpredictable, we have been playing this hand extemporaneously. Thanks to the disproportionate results, our businesses and lives have been transformed in mere months.

Why Plan? Despite the serendipitous fortune falling on many of us, black swan events still take a toll. We become more captivated by insurance, for example. In fact, demand for price insurance has pushed option prices to stratospheric levels. At the same time, we farmers are increasingly strident in our calls for tax-payer-supported crop insurance.

Black swan events often induce a hunger for prophecy, even though such events are by definition unforeseeable. We seek out experts who claim to be able, by some method, to tell what is coming, even as prediction records of all kinds inspire less and less confidence.

Worst of all, black swan events strip us of our illusion of control, paralyzing us into becoming passive speculators. If unthinkable events happen routinely, we wonder, why bother to plan anything?

Thus it is the efforts to encourage longer-term thinking and planning that will face tough resistance this year, though the potential payoff is enormous. It is also the case that this environment tends to push advisers toward extremely conservative guidelines, while the greater risks are being taken by those who gamble on a positive outcome. Remember those "idiots" who locked up $300 rents or paid $5,000 per acre not long ago?

The key could be to accept that our brains do not cope well with "long-tail" possibilities (another semi-helpful buzzword). Our plans need wider scope, greater error tolerance and careful measurement of the cost of trying to avoid black swan risks.

These skills could be decisive because it seems the black swans are traveling in flocks now.
 

John Phipps is a farmer from Chrisman, Ill. He is the TV host of "U.S. Farm Report." Contact him at johnwphipps@gmail.com. For local station listings, log on to www.USFarmReport.com.

See Comments

FEATURED IN: Top Producer - Mid-November 2011

 
Log In or Sign Up to comment

COMMENTS

No comments have been posted



Name:

Comments:

Legacy Newsletter

Hot Links & Cool Tools

    •  
    •  
    •  
    •  
    •  
    •  
    •  

facebook twitter youtube View More>>
 
 

Follow Us

Facebook Twitter You Tube
 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions