I would have expected a relaxing morning on a no-class Friday, sipping a hot cup of coffee or still lying in bed, wrapped in blankets. That was not to be on the Friday of November 10, 2017. What was there to do on a much-awaited no-class Friday? There was a long list of professional, social, and fun events to choose from: Tuck Tech Conference, career treks, workshops, skiing, hiking, brunching, sleep replenishing, and much more.
I woke up to a few messages in the early morning, when my classmates were already having fun watching the dancing snowflakes marking the first snow in second half of 2017. That snowfall was mild and left little trace when I cut through McCormack Courtyard on my way to Frantz classroom.
I opted for a one-day workshop on commodity trading organized by the Revers Center for Energy, with another 12 participants from Tuck, Thayer School of Engineering and Revers. The mysterious world of commodity trading had always befuddled me when interacting with friends in, or closely related to, the profession. I decided to seize the opportunity and unshackle myself from the obscurity.
The workshop was conducted by James W. Bowen, a veteran in energy consultancy and president of Momentum Development Corporation. In the workshop, we learned the definition and key attributes of a commodity, various types of traded futures and derivatives, different types of trading strategies, and the typical structure of a commodity trading organization.
The two case studies were my favorite parts of the workshop.
All the participants were divided into five groups, each group playing the role of Gas Producer, Trader, Market Maker, Power Plant, or Local Utility Distributor. We did five runs of trading, simulating the deals happening within a month among various parties. It was a very intriguing experience. Many things were happening in each of the five minute trading runs; negotiation, persuasion, speculation, and mental math! I felt so much excitement when we were close to locking in a deal and so much satisfaction when we saw we could lock in a price in an earlier run, which beat the market price.
We were in four groups roleplaying four parties: Wheat Grower, Wheat Grower’s Lending Bank, Grain Buyer, and Grain Buyer’s Lending Bank. We were given some historical information, pricing, and production costs. Each party would formulate an optimal hedging strategy. It was a great opportunity to better understand and visualize hedging jargons. We needed to analyze the situation, identify the risks, make some judgement calls, do some simple math, and then package and propose our hedging strategy.
During our two years at Tuck, we will have opportunities to work on various studies and consulting projects. A few weeks ago, I worked on a shale gas case. Hedging strategy in shale gas midstream was one of the key components. This seminar would have helped me better understand the fundamentals in that case, and others like it.
Commodity trading is such a complex, widespread, and high value space. No matter which industry and career option we will eventually land in, a good understanding of commodity market and trading basics will help us better understand the market dynamics and business risks, and thus allow us to make better business decisions.
It can also spur some cool ideas. For example, when you are enjoying a bacon heavy brunch in Hanover, you can also dream of a new business providing a pork belly hedging service to your favorite brunch place!
Did I miss some non-academic activity which I badly needed for a Friday? The answer is yes. However, during the next no-class day, I will be able to appreciate a hike much more now that commodity trading has been demystified.
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