On Wednesday April 10th, the Kansas State Center for Risk Management Education and Research (CRMER) had the pleasure to host John Flatley and Alden Haugh from Kansas City based Bartlett & Company. John and Alden led an interesting discussion on how Bartlett defines risk, and the steps they take to mitigate that risk. It is worth noting, the discussion was highly interactive and lasted well over two hours, which is our longest guest visit so far.
Bartlett & Company is a large, privately owned, agribusiness that operates in several different agricultural sectors. The company is separated into three divisions: Bartlett Grain, Bartlett Cattle, and Bartlett Milling. Combined, these companies operate 40 different facilities in 11 states with additional offices in Mexico, and have roughly 700 employees. Bartlett is recognized in the Forbes 400 as being one of the largest privately owned companies in the U.S.
For a company as large as Bartlett, with segments operating independent of one another, staying aware of your risks becomes even more of a priority. However, each division of the company begins risk management with the same basic rule: know your customer! If you don’t exactly know who you are doing business with, then you cannot properly evaluate the risk of doing business with that individual. This type of risk is defined as counterparty risk, the risk that the counterparty of a contract will not live up their contractual obligations. In order to reduce these risks Bartlett requires an extensive evaluation of their customers to self-assure that transactions with the customer are not needlessly risky. Other steps Bartlett takes to reduce counterparty risk is to explicitly identify shipment periods, design contracts with specific payment terms, establish quantity limitations for less established customers, and maintain communication with customers under contract.
In addition to risk from customer transactions, Bartlett & Company handles numerous agricultural assets that bring with them a great amount of exposure to price volatility. In order to reduce these risks, Bartlett uses the futures markets to remove their risk from the highly volatile cash markets and into a more manageable basis position. This is accomplished through hedging, or the practice of buying and selling futures contracts to offset positions in the cash market. The basis is simply the difference between the futures price and the cash price at a given time, and is much less volatile than the individual markets. This position is not riskless, but is comparatively less risky than an unhedged cash position. Through hedging it is possible to establish a much better idea of your company’s future performance because you are reducing the likelihood of an adverse outcome.
John and Alden provided many examples of Bartlett & Company’s risk management practices by showing us specific issues Bartlett has been presented with and how they have since dealt with those issues and further developed their company’s risk management model. Learning the generic concepts of risk management does not carry as much meaning until you see these sorts of application in a real-world scenario. This guest visit was beneficial because it helped us students understand that these risk management issues are not hypotheticals and the skills we are establishing now can be directly applied for a company post-graduation. We will be able to generate real worth for our future employers, which we feel is the primary reason this center exists. We hope our guests from Bartlett and Company feel they received as much value from our meeting as the CRMER students and faculty feel we received from them, and we hope to have them visit again in the future!
-Marcus Brix & Josh Sudbeck