Market clichés are annoying.
Regularly, a particular term will become popular, one that sums sums up a novel concept, and then people begin applying it to everything.
In the last decade we’ve had “the new normal,” “bubble,” and “commodity bull market” go from crucial concepts understood by experts to throwaway terms used by every Tom, Dick or Sally.
Not only does overuse of these terms create clichés, but it also causes a lazy misunderstanding of their original meanings. Too readily applied to too much, the cliché misleads, and can lead us into danger.
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I think that’s what Neil Townsend of FarmLink Marketing was pointing out at Agri Benchmark’s Global Cash Crop Conference when he set his sights on the use of the term “black swan” to describe the Canada-China deep freeze
“I would stop short of calling it a black swan event,” said Townsend.
The term black swan came to mainstream awareness shortly before the 2008-09 financial crisis, with risk- and probabilities-focused philosopher Nassim Nicholas Taleb publishing The Black Swan, in which he described how something unpredictable and not even considered (such as a black swan rattling people who believed all swans are white) could disrupt and badly damage an otherwise robust system. If the system isn’t designed to face sudden shocks from unexpected sources, the system itself could be destroyed or put in grave peril.
Townsend took a shot at how the term black swan sometimes now gets used as an excuse for becoming destabilized and shocked by something unexpected.
With China, Canada and canola, Townsend acknowledged that nobody could have predicted that Huawei’s Meng Wanzhou would be arrested on a United States extradition warrant and that China would respond by blocking all Canadian canola shipments.
But the idea that a geopolitical event somewhere would easily pop up and disrupt Canada’s export markets? Is that a black swan after the last 10 years of crises and political squabbles?
“When you get up and you look at the newspapers in whatever country you’re in, you understand that there is a lot of political unease, geopolitical tensions are elevated…. We’re just going to have to watch this very carefully.”
As a farmer who’s going to have hundreds of thousands of dollars of product dependent upon exports and market prices that are affected by export markets, you’ve always got to be thinking about what would happen if prices suddenly collapsed or physical movement suddenly became impossible. You don’t need to be able to guess why that might happen, but modern Canadian agriculture history is filled with examples of this happening.
Remember the hog price crash of 1998? How about the subsequent ones in the 2000s and early 2010s? Different causes. Similar results for the unhedged.
BSE anyone? That imploded prices and movement and was entirely unpredictable.
The winter of 2013-14, when cash prices tumbled and physical movement was often impossible? Impossible to anticipate that one, but for some, the results were devastating.
China’s sudden blockade of Canada’s canola? Sure, it was hard to be a soothsayer predicting that one, but price weakness and stalled physical movement also became common.
In all these cases something unpredictable happened that shut off export markets, crushed prices and created cash flow problems for many.
But with so many situations like that, having one of these things happen isn’t really a black swan event, is it? No specific situation is predictable, but the fact that enormous disruptions occur quite regularly is almost something that can be banked upon.
The concept of the black swan is still useful. But probably the most useful part of it for farmers is where the concept leads. If black swan events happen, and we’ve seen in farming that they do, then whatever system we’re using better be robust and flexible enough to handle shocks.
Throwing up our hands and yelling “black swan” isn’t good enough when the impact of a black swan can be protected against.
There are all sorts of ways to do that, but the most important one is to avoid using the black swan term as an excuse for not preparing for a disruption. In agriculture, they happen all the time.
