Poker or Chess?

The grain business deals with a lot of numbers – yields, bin capacities, prices, basis, spreads, moisture, supply, demand, and more. Along with the numbers come various reports, from the government and otherwise, as well as the many people who dissect and analyze it all.

All of this is a natural consequence of what we do. Problems arise when we try to turn these numbers and analysis into something they cannot be.

We’d much prefer the grain business to be chess, but it isn’t. We are playing poker. I’ve borrowed this idea from many others who have already written about it, because it’s such a good analogy to our reality.

Chess is clearly defined. The field of play is limited and fully visible, every piece has clearly defined movement, and there is a clear if/then path for everything that happens. 

NAVIGATING CHANCE

Chance has no place in chess. Poker has some rules, but there is a high degree of chance involved; most of the field of play is unknown until you are already playing, and you must make decisions with limited information.

That isn’t to say that poker is entirely random. Good players know what various starting hands mean, they know when to be aggressive and when to fold, and they know quite a bit about reading other people. These are skills that can be improved.

The grain business isn’t entirely random either. We have seasonal patterns, spread structure, and many other things that point to the general shape of a marketing season.

What we don’t have is a set of formulas that tell us exactly what has to happen. This doesn’t stop us from looking for them, though, and this search can be dangerous.

Basing merchandising decisions on formulas exposes grain margins to significant risk because the formulas aren’t dependable. The numbers change all the time, new information comes into play, and the biggest random factor, human nature, can and does introduce unexpected changes into the picture at any moment.

Avoid this risk by remembering the game – we’re playing poker, not chess. Build skills, understand the shape of a season, be decisive, and don’t wait for a formula to tell you what to do.