Pete Nessler, CEO of FCStone Group, was raised in Chicago but earned his stripes in the grain fields of Iowa. Working with elevators and farmers, he helped turn Farmers Commodities Corp. from a group of co-ops into the international brokerage firm INTLFCStone that it is today. Along the way Nessler was a commodity trading advisor, jump started the firm’s move into ethanol and opened and nurtured the firms’ global presence from South America to Europe to Australia. We spoke with him about how the agricultural markets have changed during the past 30 years, and how a small Midwestern firm grew and changed with them.
Futures Magazine: You grew up in Chicago but went into agriculture?
Pete Nessler: I went to the University of Illinois [for engineering] but I was looking for something more, and met some guys in agriculture. I [then] started taking Ag Econ and Ag Industry courses, which were trading, hedging and basic marketing. I had great professors, like Hieronymus…all the old guys who wrote most of the books for futures trading were the professors and the people I got to deal with.
From there I went to Agra Industries and did cash trading. At the time Agra Industries, which was one of the big regionals, owned Farmers Commodities Corp. That’s where I learned hedging; it was at the height of the Falklands crisis so gold and silver were going up and down, soybeans were going up and down and with England and Argentina [at war], we had all the vessels trading prices going up and down. So it was learning by fire. [I had] to make decisions, as small as they were, [quickly], but it did give me a chance to do see how hedging, trading and the markets really worked.
FM: How long were you at FCC before you started the commodity trading advisor?
PN: As the markets started changing, I was trading a little bit personally. I went to our CEO at the time and said, ‘what would you think if we started a commodity fund?’ We did…I was still an employee of FCC...and did that for about seven years.
FM: What was your trading methodology?
PN: I’m a fundamental approach trader, and I look at leveraging options. I learned that optionality in the physical market hedging and within the speculative market gives you more leverage, at least a pre-notion of your risk. I’d trade a lot of long options, three-way options, vertical call spreads, trading maybe shorter dated options [during] crop reports, things like that.
FM: How new were ag options at that point?
PN: They started in the mid-1980s. I really looked at it as I looked at fundamental analysis, for where the market can go and from there, looking at what position can be enhanced by going out longer term. I also traded the spread relationships and the cash market. And that is a big market that you don’t get a lot of big traders in anymore because there isn’t enough volume. High frequency could never trade spreads. That’s more the fundamental trader. There is a cash connection to spreads, in theory,to the underlying commodity.
Then I went back into the elevator hedging world, and the evolution of ethanol started. I went to the CEO and said ‘this is a big business that is going to change how U.S. ag markets look,’ and a colleague and I literally got on the road and started [visiting] the new wave of ethanol plants around 2000, 2001, and grew that business for the company.