Does Cargill Use Derivatives To Help Small Business Or To Gamble On The Market?

In testimony before Congress, Jon Hixson of Cargill portrayed his company’s use of derivative as an aid to small business. (I provide a link to the full testimony below.)

Testimony Before the House Committee on Financial Services On Reform of the Over-the-Counter Derivative Market: Limiting Risk and Ensuring Fairness

“We offer customized hedges to help bakeries manage price volatility of their flour so that their retail prices for baked goods can be as stable as possible for consumers and grocery stores,” he told the committee’s wagging heads. “We offer customized hedges to help a restaurant chain maintain stable prices on their chicken so that the company can offer consistent prices and value for their retail customers when selling chicken sandwiches.”

Cargill earned 525 million dollars in the first quarter of this year. The total company is valued at 6 billion dollars according to its SEC filing.

Thus, we have clear evidence that derivatives are beneficial to Cargill. But when you read the testimony there is an absence of any numbers pointing to benefit for any of these small businesses. In fact, we are essentially asked to simply believe Cargill’s point of view.

I prefer numbers and verifiable evidence.

Derivatives are controversial because the use of derivatives during the 2007 economic crisis has been catastrophic destroying many financial institutions and were instrumental in creating the continuing economic difficulties.

It might be wiser to forego the use of derivatives for safer financial instruments. While derivatives may aid small business, they are also risky instruments. Do these different rationales conflict? Yes. Are there other choices? I am sure that in the multitude of financial instruments being sold today, there are other options.

I do have one question not addressed in the testimony, “In these transactions, who bears the risk of loss, Cargill or the small businesses?” I have seen that Goldman Sachs when using derivatives charged the investors with purchasing insurance to make sure the company suffered no loss. Is this the case here?

James Pilant

Too Many Business Ethical Failures

When I was eighteen I remember watching an interview with Art Buchwald, the great political humorist. He was asked if he had difficulty finding material to write about each week. He laughed and said that during the Watergate scandal his columns wrote themselves. He said writing under the Ford administration was much tougher. There wasn’t a scandal a day.

When I want to write about a business failing what I believe are its duties, it takes about a minute of internet searching. A particularly juicy one takes about five minutes. There is far more than I can write about. This ought to please me in some small way but it doesnt. This is a tidal wave of misconduct.

I teach Business Ethics. Have I got a chance against a tidal wave of misconduct. When confronted by a stubborn business culture that refuses to follow the dictates of conscience, religion or the public interest, do I just drown? What’s my answer?

You fight. What’s right is right and that you may very well not prevail is not the first consideration. The first consideration is whether or not you are doing what is right in the eyes of God and man. So, I fight.

Islam’s Business Teachings

There are many negative stereotypes about Islam in the United States. Many foolishly belief that Islam is the same everywhere. Like Christianity, Islam has many branches.

I want to call your attention, gentle reader, to the ethical teachings of Islam in regard to business practices. Islam has particular teachings about the ethics of business. It provides guidance to its members in the business community.

Quoting from a Washington Post article:

But Islam has its own detailed system of business ethics, including a ban on interest-bearing loans and stocks and aversions to debt, hording and overvaluing. And it is becoming more of an issue as Muslims’ affluence and interest in business grows — something visible in classes such as the Fairfax Institute’s and in the appearance of Islam-friendly mutual funds and establishment of Islamic finance programs at universities such as Rice in Houston and James Madison in Harrisonburg, Va.

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/06/AR2006050600747.html