Kapco Futures : Developing a Margin Focused Risk Management Strategy

Jeff Kaprelian, Founder and CEO, Kapco FuturesJeff Kaprelian, Founder and CEO
growing chorus of cattle producers and processors has revealed frustration regarding feeder cattle futures markets. It is becoming increasingly volatile in ways that often appear unrelated to market fundamentals. Erratic futures price movements and increased basis volatility make it impossible for the industry to use feeder futures for its two primary roles of risk management and price discovery. Although producers have historically been quick to blame speculators for unwarranted influence in cattle markets, it has to be kept in mind that without speculators, there would not be enough liquidity for most agriculturally-based futures markets.

As a trusted technology and risk management partner, Kapco Futures works one-on-one with producers and processors to develop a margin focused risk management strategy. In a bid to help customers efficiently assess risks, monitor their profit and loss (P&L), and achieve risk reductions, the company delivers custom technology solutions purpose-built for each individual client. It leverages in-depth analytics, machine learning (ML), and hedging algorithms to develop customer risk models for a wide range of industries, including cattle and beef, grains and oilseeds, and commercial agriculture. “For the livestock industry, we offer the most comprehensive cattle risk management software, Cattle Core. It automates your hedge accounting, margin calculations, recordkeeping, and more,” says Jeff Kaprelian, Founder and CEO of Kapco Futures.

Cattle Core provides dashboards that show customers their hedge accounting as well as risk reductions in the futures markets versus their cash market risk. “Our dynamic hedging model for each user guides us through timely risk additions and reductions, and helps us understand the impact on P&L,” notes Kaprelian.

A Holistic Approach to Livestock Risk Management

Kapco Futures works with two types of end-users—meat producers and buyers.
As rapidly growing businesses often miss the chance to scrutinize their risk management plans, the company introduces a completely foreign risk management solution in the futures market. As part of the initial learning curve, Kapco Futures explains the basics of the futures contract, the risk involved, and more. On the other hand, the company delivers basket portfolios to users who singularly focus on hedging but fail to effectively apply data in a manner that gives them the complete picture of risk management.

Kapco Futures’ risk management program integrates insurance, cash contracts, futures, and options strategies, and over the counter derivatives. The company begins with a discovery process to become aware of clients’ goals as well as the risks involved to offset them by analyzing cash market purchases. Be it making purchases based on seasonality or accomplishing a 100 percent risk offset all the time, it builds models to successfully cross hedge customers’ risk. In the next step, Kapco Futures presents its findings to customers and finalizes the best solution. This is called a second discovery period. It then refines models before turning them over to quantitative analysts (quants) who build ML models and discover data. Following this, Kapco Futures presents ML findings and the right game plan to customers.
  • For the livestock industry, we offer the most comprehensive cattle risk management software, Cattle Core. It automates your hedge accounting, margin calculations, recordkeeping, and more


Finally, the company develops a dashboard and implements the plan. It is through this dashboard that the company manages and offsets risk on an ongoing basis, helping customers find opportunities to capitalize on better prices. “We’ve reinvented the way one can manage risk with our unique, business-minded, and collaborative approach. With a holistic understanding of our customers’ processes, we successfully manage risk by implementing exactly the same tools and methodologies that we recommend,” remarks Kaprelian.

Creating a Better Client Experience

What separates Kapco Futures is that the company relies on data to make decisions rather than gut instincts. They leverage technology to guide customers through the markets based on their own level of risk tolerance. The company is taking cues from established technology and social media companies and relying on technology consultants to stay abreast of the latest and greatest in the field of artificial intelligence (AI) to make better decisions. Further, Kapco Futures’ team of veterans associated with the trading or agricultural industry enables them to follow rule-based approaches to managing risk. Having carved a unique niche, the future for Kapco Futures is going to be headed in the direction of food companies, pizza chains, end-users of beef products, and more. It will address the need for cross-hedging commodities that are undergoing tremendous, uncontrollable price fluctuations due to the pandemic, highlighting the significance of risk management further. From a technology perspective, Kapco Futures is focusing on creating a better client experience through investments in a mobile app. This will give real-time updates on the market, enable secure, direct communication with the broker, and enhance research. “Farmers are often treated as a commission check by brokers who would recommend positions that sell as risk-reducing, though they were nothing more than something to sell. We are established in the industry today to break this status-quo,” concludes Kaprelian.

Company
Kapco Futures

Headquarters
Saint Charles, IL

Management
Jeff Kaprelian, Founder and CEO

Description
As a trusted technology and risk management partner, Kapco Futures works one-on-one with producers and processors to develop a margin focused risk management strategy. In a bid to help customers efficiently assess risks, monitor their profit and loss (P&L), and achieve risk reductions, the company delivers custom technology solutions purpose-built for each individual client. It leverages in-depth analytics, machine learning (ML), and hedging algorithms to develop customer risk models for a wide range of industries, including cattle and beef, grains and oilseeds, and commercial agriculture

Kapco Futures
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