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Farmland's Value-at-Risk Decision Making
Not So Risky with the Use of Crystal Ball
CUSTOMER OF THE MONTH (SEPT. 1998)
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Farmland Industries, Inc. has been chosen as Decisioneering's Customer
of the Month for September. Through their use of Crystal Ball, Farmland
has demonstrated their desire to be on the cutting edge of companies
using risk-analysis technologies.
Farmland is North America's largest farmer-owned food system and
a Fortune 200 company. More than 500,000 independent family farmers
and ranchers own the 1,400-plus local agricultural cooperatives
which, in turn, own and control Farmland Industries.
Paul Twenter is a financial project manager for Farmland and an
avid Crystal Ball user. Paul has implemented Crystal Ball to aid
in many areas of value-at-risk decision making. In particular, Paul
uses Crystal Ball to help determine risk exposure in the various
commodities markets in which Farmland has a significant presence.
Some of the commodities that Farmland trades in on a regular basis
are chemical fertilizers, grains, pork, beef, natural gas, crude
oil, gasoline and heating oil.
The value-at-risk analysis which Paul performs looks not only at
Farmland's current exposure, but also at what they intend to purchase
over the next year. Paul's goal in this analysis is to make Farmland's
exposure as efficient as possible. The process that Paul uses begins
with his analyzing historical commodity prices to determine volatility.
He then calculates the correlation between the historical prices
and using Crystal Ball's Distribution Gallery, applies distributions
to each of the commodities prices in his model. Paul then uses Crystal
Ball to perform Monte-Carlo Simulation on Farmland's portfolio of
commodities. The end result is a distribution of Farmland's price
risk exposure. After analyzing the results of the simulation, Farmland's
management can make a determination on the appropriate exposure
levels in the various commodities.
Another valuable application, which Paul plans to use Crystal Ball
for, is in evaluating the risk of expensive decisions such as whether
or not to purchase new manufacturing equipment or whether to build
versus buy a new plant. Paul has also recently begun experimenting
with Crystal Ball Pro and intends to use CB Pro's OptQuest technology
to determine the most effective way to process pork in Farmland's
meat processing facilities.
Paul has demonstrated the value of Crystal Ball in making important
decisions at Farmland. It is through these types of decisions that
a company such as Farmland can feel confident that they are taking
the steps necessary to make sound decisions within a risk filled
environment.
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