LFP128 – Farming Meets Fintech! Hedging Soft Commodities w/Richard Counsell CEO Stable

There is no end to Fintechs reach – this week to the most fundamental industry in the world – Farming – easily forgotten but without which we would all die soon. 90% of the world’s commodities cannot be hedged exposing producers to huge risks. Stable are merging AgriTech with Fintech to enable producers to hedge/insure their risks.

Richard is both a Neolith and a Techolith – being Farmer and Fintech CEO and thus bridges these two worlds.

In our modern overly-financialised world they are something that most denizens of the City have much to do with. However back in the day the City was pretty much London and before shares existed the Royal Exchange which was opened in 1571 was a market for real stuff. Only later – well before the LSE – did it expand into shares.

So the origins of the City are totally in trading real things long before it traded abstract things.

Thus this week we go full circle – connecting not just one of the oldest industries in the world with the newest but also bridging over five centuries of The City’s history.

Topics discussed on the show include:

  • Farming and Brexit – the amazing uncertainty over prices (due to unknown policies post leaving the common agricultural policy)
  • For example Richard’s lambs being born know the price uncertainty is +- 20/30% by the time they go to market
  • Richard’s career journey – swaps trading in the City, being the 8th organic farm in the country, founding Somerset Organics to CEO in Chicago and now Fintech in London
  • the great benefit from having contact with the real (non-abstract) world
  • “it’s incredibly hard to find a real world problem that needs solving these days – that’s the hardest part of the problem”
  • Pig Brother (?!) got 2.8 million people playing
  • the tale of Data Science for mobile phones business
  • in 2015 the milk price dropped by ~30%
  • leading up to this the dairy industry halved in size going from 20,000 to 10,000 farms
  • the City as a collection of niches
  • an overview of commodities – hard, soft
  • where do commodities market peter out?
  • importance of standardised units to create indices and trading
  • the problem of perishable goods
  • the milk market’s huge asymmetry of power and how that has changed over time
  • now milk producers have supply contracts to supply certain quantities but have no control over the price which the other party can change (!!)
  • milk processors
  • in depth research of the marketplace
  • the mentality of risk exchange in the market
  • Stable are a parametric insurance broker – paying out when an index hits a certain level and passing the insurance risk to Lloyd’s underwriters
  • originally designed for farmers but extended to a much bigger market
  • smallest deal is 100 tons (~£1k premium) all the way up to $100m
  • available all the way from individual farmers to large conglomerates
  • marketing approach re route to market
  • Stables interest in niche markets that were historically untradable
  • the importance of price data
  • they work with 100 indices and offer 100 strike prices up to a year in advance
  • Stable run 62 trillion simulations every 14 days (!) to map portfolio risk
  • Levy Boards role in farming data – a huge unused repository
  • “you can only solve problems truthfully if you understand an industry back-to-front”
  • the clash of cultures between farmers and derivatives
  • the need to bring two worlds together
  • “it needs to be instinctive before you can make real headway”
  • Stable’s expansion plans and shoutouts for partners

And much much more 🙂

Share and enjoy!