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Rafique Jiwani '14 present the risk management tool a group of Kellogg students developed to Land O' Lakes executives and producers on Dec. 9.

Photo by Russell Walker
Risk Lab students present to Land O' Lakes

Field work

Students create risk management tool for Land O’ Lakes

By Paul Dailing

12/26/2013 - Imagine presenting to top executives and experts in an industry you knew nothing about just 12 weeks earlier.

That was the situation four Kellogg Risk Lab students faced when they presented a risk management tool they developed to top Land O’ Lakes executives and a group of dairy farmers on Dec. 9.

“Our students are not farmers, they are not dairymen, so they quickly learned the nuances of the industry,” said Professor Russell Walker, who teaches the course.

Using the tool the students created, a farmer or Land O’ Lakes executive would input their target margin and the costs of four of the most volatile types of cattle feed. The tool would then run a simulation 5,000 times before advising on how – or whether – the farm should hedge or insure its crops.

Land O’ Lakes market strategist Nelson Neale said the students – Rafique Jiwani, Sahand Sepehrnia, Kevin Kellert and Tarcisio Diniz de Almeida, all ’14 – impressed the seasoned dairymen, who flew in from as far as California and Pennsylvania.

“Not only the work product, but the presentation and the interaction with our producers was fantastic. I couldn’t be happier,” Neale said.

On the farm

Risk Lab coursework is based on real problems faced by companies – the seven projects in that class included problems for the CME Group, Microsoft and Menus of Change.

Kellogg’s close relationship with Land O’ Lakes gave the students not only the chance to present to the company, but also to tour Chairman Peter Kappelman’s 500-head dairy farm outside of Green Bay, Wisc.

“It was eye-opening,” said Jiwani, whose background is in the tech sector. “It really put into perspective farming as a business, what these farmers go through to determine they can be as profitable as possible given the challenges they are facing.”

Sepehrnia, whose background is in finance, said he was impressed by the sophisticated financial and risk-management knowledge handed down not through B-school, but from parent to child.

“These are family businesses that spread across three to six generations,” he said.

Changing rules

Complicating matters, the students had to create a tool where crop insurance is an option, even though the system could change.

Kellert, who came to the dairy project from investment banking, said the students had to explore the academic literature to predict what effects the Dairy Security Act will have if Congress passes it.

“There’s a great deal of risk management and sophisticated practices to navigate very uncertain dairy farm economics,” Kellert said.

Further reading:

Read one of the students' personal experience on the project
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