McKenzie appointed Fryar Endowed Professor in Risk Management

Andrew McKenzie, the newly appointed Fryar Endowed Professor in Risk Management, found career inspiration in a most unusual place: the cinema.

March 10, 2021

By Mary Hightower
U of A System Division of Agriculture

Fast facts

McKenzie specializes in price risk management
Nationally recognized expert in grain basis trading

(652 words)

(Newsrooms: with photo McKenzie at https://flic.kr/p/2kyHu3F)

FAYETTEVILLE, Ark. — Andrew McKenzie, the newly appointed Fryar Endowed Professor in Risk Management, found career inspiration in a most unusual place: the cinema.

Andrew McKenzie.

McKenzie, professor of agricultural economics and agribusiness, for the University of Arkansas System Division of Agriculture and the Dale Bumpers College of Agricultural, Food and Life Sciences, will also serve as associate director of the Fryar Center Price Risk Management Center of Excellence. The center is conducting work as part of the Arkansas Agricultural Experiment Station, the Division of Agriculture’s research arm. (See the story about the center at http://bit.ly/3cHMwpM.)

McKenzie, a native of South Shields in the north of England, earned his bachelor’s degree from the University of Dundee, a master’s in investment analysis from Stirling University and a Ph.D. in economics from North Carolina State University. He joined the Arkansas faculty in 1998.

Staying grounded

Price risk is the chance of experiencing a loss due to an adverse price change. Price risk is inherent to all markets, and agricultural market prices can be particularly volatile. Effectively managing this risk is a difficult yet important challenge. The new center’s work will focus on helping decision makers meet this challenge with industry-leading, research-based information, tools, and strategies.

If the subject of price risk management seems a bit rarified, one of McKenzie’s key objectives is to keep the subject grounded and the research made useful for farmers and others whose livelihoods are commodity based.

In his new role, McKenzie said he will be “trying to bridge the large gap between theory and the real world and make the research useful to people in the real world. We intend to take our research findings and develop software to create online risk management tools,” he said.

Among the tools under development:

A program to help farmers use options to hedge their cash crop sales more effectively, comparing options strategies to futures hedging and unhedged cash sales.
Spreadsheet-based tools to help farmers develop comprehensive risk management plans, taking account of production costs, expected yields, crop insurance and basis risk.
Budget-based tools to assess financial risk in agricultural operations, incorporating effects of marketing risk management strategies.
Tools to assess the effects of input risk management strategies related to key energy inputs to agricultural production.

Art inspires interest

Bridging the gap between theory and real world uses may be related to McKenzie’s introduction to the commodity market through a 1983 movie whose plot turned on the trading of frozen orange juice concentrate. The topic sounds obscure, but the movie was a global hit.

“When I was an undergrad student watching the movie, ‘Trading Places,’ that sort of brought up the whole commodity aspect and stoked my interest,” he said. In grad school, “part of the course, one day we were to watch a video on the Chicago Mercantile and that was my first exposure to that. It was a fascinating area to me. I wanted to learn more about it.”

John Anderson, department head and director of the Fryar Center, said McKenzie has long experience in the field.

“Andy is well known in the agricultural economics profession for his work on commodity prices and risk, particularly on grain merchandising strategies,” he said. “Andy has developed one of the most highly-regarded undergraduate training programs on commodity futures markets and trading strategies in the country.”

“His expertise in identifying, designing, and executing high-level, high-impact research projects is exactly what we need as we seek to establish the Fryar Center as a world leader in risk management scholarship,” Anderson said.

Anderson said McKenzie has developed extensive connections within industry.

“This keeps him constantly apprised of emerging issues related to commodity prices and risk and allows him to engage in research that is relevant to the problems that industry participants are facing,” Anderson said. “This is the kind of work that we want the Fryar Center to be known for, so Dr. McKenzie is ideally suited to help establish and direct our research agenda.”

Where psychology meets economics

Price risk management has tangible functions, McKenzie said.

“What these markets do is in effect make a transparent price for anyone to see at any point,” he said. This enables farmers to get a better handle on the best prices for their grain or other commodities and help offset risk. It also means understanding how weather, trade disputes and other events affect those prices.

A unique area of study for the center will be behavioral economics.

“This is the intersection where psychology and economics come together,” McKenzie said. The field is relatively new compared to traditional economics, being 20-30 years old, and examines traditional paradigms that say “People behave rationally and the markets are efficient.”

Anderson said the center was in the process of hiring an additional faculty member and said that McKenzie’s status within the field and network of connections has allowed “us to recruit a phenomenal pool of international talent for this position.”

“This is a huge opportunity for us,” McKenzie said. “I’m very grateful to Ed and Michelle Fryar.”

To learn about extension and research programs in Arkansas, visit https://uada.edu/

About the Division of Agriculture

The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system.

The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on five system campuses.

Pursuant to 7 CFR § 15.3, the University of Arkansas System Division of Agriculture offers all its Extension and Research programs and services (including employment) without regard to race, color, sex, national origin, religion, age, disability, marital or veteran status, genetic information, sexual preference, pregnancy or any other legally protected status, and is an equal opportunity institution.

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