15 Minutes With… Erick Rodriguez of Stable USA
Stable, with teams across the U.S., and in London, Singapore, and Bermuda, is on a mission to change the way the world understands and manages volatile commodity prices. They offer advanced technology whereby they deliver price risk management solutions for commodities where no futures markets exist. By employing Stable’s hedging tools, organizations can reimagine risk as more manageable and with less disruption to their business.
Leading the charge in sales and support solutions for non-traded commodities and food ingredients is Erick Rodriguez, senior vice president of sales for Stable, who is based in Palm Desert, California. His professional journey of risk management with Ventura Foods, and being a commodity merchandiser (oilseeds) and account manager (veg oils) for ADM, instilled a passion in him to help revolutionize commodity risk management, which led him to join fintech startup, Stable, earlier this year.
Unconventional Ag News spoke to Rodriguez last week to discuss some of the most volatile situations in the commodities markets, and how the dynamic tools offered by Stable can help to hedge against these disruptions.
1). You’ve worked in commodity merchandising, risk management, and supply chain solutions. You made the switch to sales this year with this new position at Stable. Why sales now, and how will your past experience influence your success in this new role?
I’ve spent close to a decade supporting end users over a variety of different market segments, ranging from farmers, consumer packaged goods firms, restaurant chains, and even retailers on the food side, managing price risk across a variety of products. While traditional exchanges will play a pretty large role in creating a platform for both buyers and sellers to mitigate price risk, the reach of these exchanges is somewhat limited. In fact, our market intelligence team has done some assessments on this, and that reach is only about 10-15 percent of the overall basket of agricultural products.
When I first learned about Stable’s innovative hedging solutions for non-traded products, I quickly realized the gap the business was trying to fill. This opportunity to revolutionize the industry with hedging tools that would give end users the ability to manage risk in products where no other alternatives exist was fascinating to me. The past two years for folks in the financial space, or just commodities in general, have been pretty revealing and have taught us the importance of having effective commodity risk management strategies in place. Having worked closely with end users from many sectors has given me the opportunity to view price risk from a different angle. Being a part of a world-class team here at Stable and being able to leverage these innovative tools that allow people to mitigate risk in products or markets that are somewhat illiquid, or where that liquidity is not there, makes me eager to get to work.
2). Can you speak to the impact on commodities from the war in Ukraine? Particularly with Russia’s recent withdrawal and then rejoining the Black Sea Grain Initiative?
The past 18 to 24 months have been volatile. The disruption to Black Sea commodity flows caused by the Russian invasion of Ukraine has been a significant contributor to this, given the region’s importance in ag, energy, and metals.
When you look at both Russia and Ukraine, we're talking about some of the largest producers and exporters in these product categories, and so their impact is significant. Over one-quarter of global wheat trade comes from the Black Sea, nearly one-fifth of corn, and around three-quarters of sunflower oil.
Our market intelligence team has been analyzing the topic since the news broke, examining how the export flows of these two countries impact global supply chains. They’ve also reported on how a failure of this agreement would increase competition for food inputs from other origins, how it could potentially affect prices globally, and also increase the notion of food insecurity worldwide.
Russia’s recent stance on the Black Sea Grain initiative underscores the need to proactively consider how commodity supply challenges in the region will impact prices globally, affecting our customers' businesses.
The supply of grains and oilseeds faces continued uncertainty because of the precarious nature of this deal, with particular concern for supply of corn, wheat, and sunflower seed/oil. Since the Black Sea grain initiative agreement has been in place (August 2022), almost 10 million metric tons of grains have been exported from Ukraine via the corridor; 70 percent of which has been corn or wheat.
To put this into context, about 50 percent of grain exports from the Black Sea region head to Europe, about one-third goes to the Middle East and North Africa, and about 10 percent goes to China. When you look at these net importers – some of the biggest key players in the industry – they’re anxiously awaiting what's going to happen next.
We’re all learning new things here. The macro environment is volatile, and the reality is that this will continue to drive volatility of prices as well.
3). A commodities shake-up will certainly come from Mexico’s news that they will no longer accept GMO corn. What are the opportunities here, and how can companies hedge against the disruptions?
Regarding what’s been happening in Mexico, it has been pretty fluid. It's likely outside of the other macro environments that we touched on, which could continue to drive volatility not just in the GMO space, but also in the unconventional sector. When you look at the impact of this – of Mexico not accepting GMO corn – I think it creates an opportunity for the organic and non-GMO markets. We have partnered with Mercaris and FastMarkets (their brand the Jacobsen covers organic grains in the U.S.), which allows us to provide price discovery and hedging solutions in organic products and other niche specialty type crops. Over time, if you look at history, these markets have been illiquid and price discovery has been a challenge. Tools and hedging solutions for organic products just haven’t been a thing. I think that's the excitement that we're feeling here at Stable – having the ability to leverage key partnerships and bring those solutions to our customers.
4). Stable’s unique hedging solutions can counter volatility and risk in the marketplace, and it “all starts with lowering basis risk”. Please explain and briefly describe the benefits of your offerings.
Before I get into the concept of basis, I think it's important to understand that these unpredictable and increasingly volatile commodity markets are affecting businesses across the board. So when you look at even the most basic business operations, like budgeting and forecasting, all the way down to cash flow management, it's becoming harder to perform these tasks. Research done by Stable’s market intelligence team shows that roughly 85 percent of global commodities aren't traded on a futures exchange, meaning trillions of dollars of risk cannot be hedged via a liquid futures contract. Again, this goes back to the importance of highlighting that this price risk across agri-food businesses and other markets is something that they're exposed to on a daily basis.
With that said, many agri-food businesses don't have access to the tools they need to hedge their price risk. The tools being offered by futures exchanges, swaps dealers, and even forward price contracts at the supplier level can be expensive, some can be inefficient, and in some cases, they can be ineffective.
The concept of basis risk comes into play when you have sophisticated end users hedge their underlying price risk on non-traded products by cross-hedging with existing solutions. A futures contract that may have a predictable relationship, or what we might call a correlation to their underlying product, would be one example.
To put this into context, consider how restaurant chains currently hedge their chicken. Not all of them do, but some more sophisticated chains hedge their chicken prices through the feed input costs, in that case conventional corn and soybean meal. In the case of organics, the correlation between conventional corn futures and many other oilseeds to actual organic prices, whether it's corn or soybeans, is somewhat inverted.
In simple terms, what this means is that if you are an organic chicken producer who’s looking to hedge that risk on the underlying market, hedging the organic feed via a conventional corn futures contract may not be an effective way of managing that risk. So, when we look at risk, the goal is to hedge as close to the exact business risk that our customers have as possible, so that strategy can be proven effective over time. If you don't have those tools, then over time you're going to see that there are inefficiencies in the “hedging-organics-via-conventional futures” approach.
When you look at the overall mission of Stable, which is to help those agri-food businesses protect their largest and most volatile costs so they can protect their business value, we aim to provide a targeted hedging solution, using an options-based model that protects against that basis risk.
5). A new study has warned that insufficient investment and increasing volatility will drive the deterioration of the global food environment. Stable has done research on food prices, and the future of food. What scenario do you foresee here?
There’s a lot to consider here. When you look across all the factors that are at play – whether you're looking at climate change, inconsistent weather patterns, all the way to supply chain disruptions, and even the geopolitical landscape, coupled with the fact that we have a rising population – it’s hard not to notice that the system is under tremendous pressure. From our standpoint, we focus on what this means for commodity prices, and how swings in prices will impact businesses’ ability to survive and thrive. We can't always predict prices, but we also understand that the forward-looking businesses that we work with want to build in ways to protect their business value, so they can focus on their core competencies. As I mentioned earlier, we're working with a wide array of market players that range from producers and processors, to companies that sell the actual finished goods, but wherever you are in the commodity value chain, there is a massive need for that stability. And we strive to bring that to our end users.
6). You, along with colleague Seth Steinberg, will host a workshop on risk management at the upcoming Unconventional Ag conference (November 29-30 in Minneapolis). Can you please provide an overview of the session and what benefit this has for attendees? (Note: the workshop is an add-on event to the conference, which includes a minimal registration fee.)
Absolutely. First and foremost, we're thrilled to be a part of the event and find ways to bring our solutions to businesses across the unconventional space.
In a nutshell, we will discuss the impact of unmanaged commodity price risk, and what that could mean for agri-food businesses. We’ll explore our unique risk management approach and how our tools can help enable firms to lock in upside and/or downside protection strategies for non-traded products. That's our specialty. We want to fill that void. In doing so, we're going to briefly introduce the audience to Stable’s price protection solutions, where we're taking trailing prices to establish forward coverage that adapts to changing market conditions. That’s something that the organic sector especially, and even other unconventional markets, will be pretty excited to hear about, and we are looking forward to presenting.
ABOUT ERICK RODRIGUEZ
Erick Rodriguez is senior vice president of sales for Stable, based in Southern California. He is responsible for leading sales and supporting end-users across the globe with OTC risk management solutions for non-traded commodities and food ingredients.
Rodriguez began his career with ADM, where he held various roles trading commodities and managing food ingredients sales to CPG companies. In 2018, Rodriguez joined global food manufacturer, Ventura Foods, where he implemented and expanded commodity risk management services to foodservice distributors & food restaurant chains. Most recently, he was commodity risk manager of grains and oilseeds for Yum! Brands (KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill).
Rodriguez holds a B.S in Food Industry Management with a specialization in Agricultural Business Management from Michigan State University and an MBA from the Gies College of Business at the University of Illinois.