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Speculating Students Learn with their Money on the Line

December 21, 2011
 
 

Thanks to some good commodity speculating decisions, members of the South Dakota State University Ag Econ 484 class finished the fall semester with nearly one-fourth of their money back plus three class credits.

"This class is exclusively for people interested to really dig down into how the market operates and get some real-world experience," says associate professor Bashir Qasmi, who has taught the class for more than a decade.
 
"It was probably one of the best classes I took at SDSU," says Jeremy Hebrink, who applies what he learned in the class six year ago on the family crop and swine operation near Renville, Minn. "If I could go back, I'd take it every semester that I could."
 
Qasmi says that 20 years ago, many state extension services were sending marketing people to provide one-or two-day seminars in hedging.
 
"Many people came again and again but did nothing after the exercise," he says. "I concluded this is because they have the paper knowledge but they don't have practical experience. They never had wet feet."
 
So he started teaching a class small enough to provide each student hands-on experience with trading. About 15tudents, most of whom are majoring in ag business or a related field, take the class each fall with Qasmi's approval.
 
The class meets Monday and Wednesday evenings. During its first two or three weeks, the students focus on studying fundamental and technical analysis and details of trading. Each class member is assigned two commodities to track, and the students are divided into teams or two or three members.
 
After those first weeks of study, each class member produces a one-page paper and pulls charts for each class session. In presentations to the class, students describe their market and where they think it is headed. After the presentations, class members vote on whether to place an order or keep an existing position.
 
"If they want to understand the market, they have to pay attention to the market," he says. "The second lesson is that no matter how good you think you are, you are never going to predict which way the market is going to go. … It's in the best interest of a business or a farm to avoid taking risks and to hedge as much as possible."
 
The message comes through because 80 percent of the time the students lose money, he says.

This year, the 14 participants in the class—including Qasmi—pooled $400 each in a $5,600 starting fund. By mid-semester, they were up to $7,000, but the gains didn't last.
 
"They got over-confident," says Qasmi. Each student will get back $99.76 of the $400 invested.
 
Jake Obermeier, a broker at the Commodity Services Inc., office in Sioux Falls, has handled the account for seven or eight years.
 
"There's so much, in nuts and bolts of putting in an order, we have to specify," says Obermeier. "We spend a lot of time talking on things like that before they get to decisions."
 
The class tends to to use a system that follows trends.
 
In corn trading this year, the class started well but the market shifted from trending to sideways. "They ended up getting whipsawed a little bit," says Obermeier.
 
Still, he says, "They get that feeling of actually having their money on the line. You learn about yourself when you do things like that."
 
Hebrink, who now does much of the marketing for the family farm's 4,000 acres of crops and 100,000 pigs per year, puts it in this perspective: "When you're going to college, $200 or $300 seems like a lot of money. But when you go and you're running say 1,000 acres of land and even 5,000 head of pigs, that's really cheap."
 
James Vande Weerd had already worked with Obermeier to hedge hogs before he took the class in 2006. He's on the family farm that milks about 100 cows and feeds 500 to 600 head of beef cattle each year north of Brookings.
 
"The class helped make me more cautious as far as speculating on the farm," he says. "Just be careful with speculating and make sure you know what you're doing."


 

 

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