December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by $0.0450/bushel (~1.19%) to settle at $3.8150/bushel. Some broad market volatility spilled over into the grain markets with Dec20 corn futures posting an 11.25-cent (~2.98%) range. Continued instability in outside markets will likely further impact the corn market. These impacts can be unpredictable in timing, direction, and size. As always, we recommend careful and disciplined risk management.

Standard risk models take into account probability, exposure, and consequences. Quality risk management should address each of these factors. Ignoring high-consequence events simply because they seem unlikely is a recipe for disaster.

One of the most critical tools for risk management that comes from probability theory is fair value. We can use fair value to better understand, and therefore harness a range of uncertain future outcomes.

When we treat the markets as if they're mostly random, we relieve ourselves of the burden of prediction. It's hard to know what tomorrow will bring. It's less difficult to understand how different versions of tomorrow might affect us. Taking the predictive step out of the equation allows us to focus on managing risk. From there it’s a short leap to adding or subtracting the right tools to make tomorrow more stable. If we understand the risk, and we know how the tools available to manage that risk work, then we can build an effective plan to navigate an uncertain future without being blinded by the past.