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Sunday, March 11, 2012

Why everyone should be a finance major

This Sunday's edition of the New York Times Magazine has a short but well written article on Dairy Farming. In short, farming is not local anymore. Therefore all forces from global markets are at play. A farmer in the US today faces an environment as complicated as that of Pepsi or Kia Motors or Johnson and Johnson.
An increase in the price of grains or other feed makes cost go up. Political Risks in Middle east can trigger oil prices changes higher increasing costs, a high dollar makes exports less likely. A recession in Europe means less demand. A rapid economic development in China and Brazil means good news and higher prices.

Just as industrial players have, dairy farming has improved its efficiency dramatically, yet ROE is not there for most farmers.

Finance is ready to help the farmer. This is good news. The bad news is that the farmer does not understand how hedging works.

Large corporations have risk management departmets scouting the enviroment for every risk.

My guess is that in the very near future every medium sized business will have to become serious about financial derivatives. This will create tremendous job opportunities and make the difference between companies that thrive and those fighting for survival.

In the article, Bob Fulper, the farmer summarizes it perfectly. In the past it was possible to work your way out of trouble, "stay in the cowshed a little longer, work harder" "Now if you don't use your head, your hands are not going to help you"

Isn't this the what is at the center of the current struggle?

It does not matter if you want a career in marketing, HR, or dairy farming... We are not in Kansas anymore. We must understand risk.

Consider Finance.

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