Can STABLE manage risks for the Agri Sector?

Oddup Team
July 4, 2022

Agriculture has served as the backbone of human evolution for as long as one can remember. Even during modern times, nations rely on the agriculture, essentially on farmers to support the economy. But unfortunately, farmers have been struggling with being under-insured for a long time. Insurance policies meant to help farmers have failed them even before the Ukraine-Russia conflict made it even worse.

The world’s most influential nations released statements regarding their plans for boosting future output and helping farmers increase plantings and crop yields. But farmers are still exposed to the fluctuations in commodity prices. According to the World Bank and World Food Program, the insurance gap for farmers worldwide has reached $1 trillion. Hedging commodities is not an option for most farmers and food buyers.

In an interview with FoodMarket, CEO of Stable, Richard Counsell, said, "Our aim is to help agri-food and farming businesses manage their real risks, focused down to the specific basis or index market." For example, egg producers have a risk of falling egg prices. "The Stable allows egg producers to directly protect against prices falling on egg markets, such as the Urner Barry Midwest Large Shell Eggs."

Up to 90% of the world’s commodities can be traded using exchanges, but not the remaining less than 10%. But Richard Counsell, the brains behind Stable, intends to change the situation for good. Counsell grew up on a farm in the UK and ended up managing both commodities and tech businesses in Melbourne, UK, and Chicago. The company is addressing food security through its products that combine agricultural finance and technology.

Businesses are exposed to commodities risk via its index-based platform, where they can find targeted and local contracts. Let us get familiarized with the company stable, the reasons for its existence, and also its future plans.

A Farmer’s Son and His Envisioned Risk Management Venture Dedicated to Commodities

Basis risks that are associated with commodities are nothing new for those who are active in the food industry. But since agricultural commodities are categorized as perishable items, they are particularly difficult to standardize and, hence, trade. For this reason, the founder and CEO of Stable, Richard Counsell, started this venture to allow businesses to have insurance that shields them from potential volatility in commodity prices.

Counsell belongs to a family of farmers, as, growing up, he spent his childhood on his father’s farm. From a young age, he experienced the devastating effects that commodity price volatility has on a farmer’s livelihood. Early on, Counsell was determined to create an effective commodity price insurance program. The CEO says that being a farmer’s son made him naturally interested in agricultural markets. But hedging remained a complex and risky idea.

As a Nuffield scholar, Richard Counsell worked with talented mathematicians from around the world and also developed business development skills. During his time in Chicago, Counsell walked past the CME (Chicago Mercantile Exchange) building every other morning and wondered what was happening inside it. He dived into learning more about the agricultural industry and its influence on global markets. But when he learned about hedging commodity prices, it felt unnerving.

"We do have a real problem." Fewer people in our country today understand agriculture, "the Rt Reverend Dr Alan Smith, Bishop of St Albans, said.

In the face of all challenges, Counsell began his professional life in 1998 as a trader in a London-based establishment called Currency Trader. He gained experience in trading platforms and markets for 3 years at Currency Trader before joining Warbler Inc., a Chicago-based company, as the chief executive officer in 2016. During that time, milk prices experienced an abrupt drop that caused many European farming families like his own to face an uncertain future.

"The result is that only 8% of commodities are available to trade on the likes of the CME (Chicago Mercantile Exchange), which makes purchasing risk management products such as futures or options contracts difficult without enormous basis risk," Counsell said.

Back in the 1840s, when the world’s oldest futures and options exchanges opened in Chicago, their goal was to manage the price risk for sellers and buyers of corn and wheat. But during his time as the director of Stoke Farms, Counsell realized that farmers had no chance to go up against the global market uncertainties. Around this time, Stable's founder made a promise to himself and dedicated his time, knowledge, and effort to reimagining risk management.

"Instead of having to work out the exact loss the company has faced, we use an index as a proxy," Counsell said. "So if you use an index, the more the index is correlated to your actual risk, the better." That’s why we have 5,000+ indexes — so we can create an index-based contract that is super precise and accurately reflects the client’s real risk."

2016 was an eye-opening and rewarding year for Richard Counsell as he was awarded the Nuffield Scholarship. Being awarded the scholarship allowed Counsell to travel the world and meet hundreds of agri-food businesses. Counsell talked with people about what hedging meant to them and how they wanted to change.Counsell felt that a lot of people that he met during these trips didn’t quite understand hedging.

Counsell recalls, "In one meeting with a $750 million dairy company, I was told very clearly that they don’t hedge their input costs and never have." At the end of the meeting, we walked out towards the lift, and I casually asked the CEO why they don’t hedge their input costs. His casual answer changed everything for me at Stable: ‘we don’t hedge because we don’t really understand how it works, so it’s easier to do nothing.'

When he understood the knowledge gap among people from the agri-food industry, he realized that Stable’s mission to ease hedging was more significant than ever. It was clear by this time that stable was going to play a far bigger role in this industry by prioritizing the customers who were both producers and consumers. But to make Stable a home for hedging, the team had to manage the risks of untraded commodities for clients.

"I set about creating a platform that combines modern tools like machine learning (AI), great UX, and a clear and client-focused purpose to get back to our industry’s grassroots and become relevant again for businesses with a real risk to manage," he said. "When trading shares on platforms like Robinhood has never been easier, why should it feel like you need a PhD to hedge your commodity risk?"Richard Counsell, CEO of Stable, said.

Due to his background in farming as well as commodities trading, Counsell turned out to be the best person to lead a venture like Stable. Stable has made it easier to purchase an insurance product by underwriting all contracts with the help of global underwriters and risk capital providers. The result is the client obtaining certainty, becoming credit-worthy, and being able to invest in the future.

Stable’s Services – at a Glance

Stable has a team of capable data scientists who spend hours meticulously analyzing the data of thousands of tested scenarios. Their goal is to calculate the risk of loss probabilities to assist clients in making the right decision. Users can simply price the risk once they encounter a reliable index on the platform. Making claims is simple on Stable as the product works on a set parameter.

"Our payment replaces the client’s lost income and provides the financial stability they are looking for," Counsell said.

Stable's available solutions include:

  • Simple Hedging

As the world’s first commodity price insurer, Stable Can makes hedging extremely simple. Through simple hedging, businesses can efficiently guard themselves from the unexpected rises and falls in the commodity markets.

"We’ve used a pretty sophisticated kind of machine learning to find the price of that risk, or the index rising or falling, and that took us three and a half years to do," Counsell told TechCrunch. "We run like 62 trillion simulations every day to manage this and look for a price that is fair for the clients but also fair for the capital providers."

  • Rolling Hedge Contracts:

In the rolling hedge contracts, the team at Stable explains how they can be used to protect profit in futures. There are different varieties of rolling hedge contracts available at Stable. The platform uses a very sophisticated type of machine learning to look for the price of risks, which took 3 years to complete.

  • Lowering Basis Risk

Since its inception, Stable has worked on expanding their services by including hundreds of indexes into the price risk marketplace. The variety of these indexes that are published by over 60 price reporting agencies allows Stable to minimize basis risk effectively.

Competitors, market growth, investors, and partners

Businesses that use Stable are a part of the $8 trillion dollar food and farming industry. An estimate says that managing purchasing risk for futures and options contracts comes with a considerable basis risk. Stable CEO says that within the agri-food industry, more than $5 trillion in untraded commodities are self-insured as of now. But stability matters now more than ever due to COVID-19’s effects, Russia’s invasion of Ukraine and climate change, causing disruptions around the world and resulting in unfathomable price volatility.

"The disruption in the commodity markets has created an extraordinary opportunity to make a difference to this vital sector, and we’re delighted to support the team and their vision," adds Stephen Chandler, Managing Partner at Notion Capital.

Manufacturers and producers have been woken up to potential risks due to COVID-19. According to Rich Counsell, US organic grain operations are turning to stable more as hedging has always been a challenge for them. The platform’s notable features are its machine learning tools, an easy UX, and a solid purpose. The parametric platform hosts 5,000 third-party indexes from 70 countries, which are used to purchase an insurance policy. Clients receive an automatic payout for their customized contracts.

Stable’s CEO Richard Counsell writes, "The agricultural commodity industry ticks most of those boxes, and yet by any measure, it’s an $8 trillion dollar industry that’s responsible for feeding a growing global population with a smaller environmental footprint."

Last January, Stable chose Bermuda as its domicile to set up a collateralized insurer and issuer of OTC commodity derivatives. The stable was assisted by Appleby Bermuda and Norton Rose Fulbright, while Ascot Group provided insurance management. Experts say that choosing a collateralized insurer was an interesting move by Stable as it allowed the company to bring capital markets into operations.

"Hedging is seen as complex and risky by most business owners, yet the benefits of bringing stability and predictability to an income statement shouldn't be reserved for giant multinationals and sophisticated traders." "Businesses of every size, sector, and location should have the ability to understand and manage their price risk so they can invest in the future with confidence," says Counsell.

As Stable grows, it becomes clear that there are no offerings in the market like it. The CEO gave a statement that emphasizes that currently, there are no substitutes for stable. The stable-owned data science platform is a unique aspect whose algorithm design is inspired by A.G. Street’s famous phrase: "Up Horn, Down Corn." In the US, the most demand comes from protein markets, including beef, poultry, and pork sub-primal cuts.

"It’s not rocket science that both deep tech companies and insurtech companies forge their moats from value created pre-product and pre-launch." In other words, the foundational elements of these companies define the depth of their moats, and their valuations rise exponentially alongside their revenues. I’m thrilled to continue backing Stable as we grow our premium and welcome Greycroft and Notion on the journey." Ruth Foxe Blader of Anthemis said.

The following are a few direct competitors of Stable:

  • FlexTrade

This is a broker-neutral order management and execution trading system that works best with options, FX, and equities. Though it doesn’t share the same circle as Stable, Vijay Kedia’s FlexTrade is as close as we can get to a service that competes with Stable. Their annual revenue estimate is close to $100 million.

  • Northstar Commodity 

Headquartered in Minneapolis, Minnesota, this company shares the same space as that of Counsell’s Stable platform. This private company generates a total of $300,000 annually.

  • Slipka Trading Company

Like Northstar Commodity, this one is also located in Minnesota and operates as a trading platform that deals with commodities, among other financial instruments. Slipka’s estimated annual revenue is up to $25 million.

So far, there are no other companies in the US market that provide agribusinesses with protection against price volatility.

$117.5 million in funding over 3 rounds

From a financial standpoint, Stable is in a better place than before, right after the CEO announced establishing a collateralized insurer in Bermuda twice. As a full-fledged company, Stable is backed by AAA-rated reinsurance partners. Richard Counsell has created a team acquiring talents from CME Group, Cargill, Nasdaq, Rabobank, Nephila, and Charles Schwab, along with data scientists from Oxford.

For all these reasons, the financial services company has been funded thrice since opening up in 2017. All 10 reputed investors who showed interest and participated in the aforementioned funding round made it successful every single time. Stable raised a total of $117.5 million from its funding round. According to Oddup’s research, stable has been given a score of 71.4, which is better than most early-stage ventures.

The higher the Oddup score, the better the chances of investing in a venture due to its potential, market growth, and prospects.

Seed-$6 Million

In 2019, the company announced its seed funding round. Four different and equally significant investors joined this round. Anthemis Group, an international investment platform, led the seed round of Stable. Anthemic Group is known for investing in sustainable and ever-growing businesses. Other participating investors in this round were Syngenta Ventures, Baloise Strategic Ventures, and Ascot Underwriting. Matthew Jones and Ruth Foxe Blader joined Stable as partners after this round.

Rich Counsell says, "With the initial seed investment coming from over 30 farming businesses, we started building what was to become Stable." Throughout all the early R & D, the goal has always been to make hedging simple, targeted, and low risk. To put it another way, could we make hedging as simple as insuring your car (or tractor!) "

Series A - $46.5 Million

The Series A funding round of Stable was organized last year in April. In this round, the early-stage venture raised $46.5 million from 3 investors. Notion Capital, Greycroft, and Continental Grain Company were the participants, of which Greycroft led the investment. Stable was joined by Ian Sigalow, co-founder of Greycroft, a tech-centric VC firm, as a partner by the end of Series A. Some existing backers, like Ascot and Syngenta, also participated in the round.

According to Greycroft Partner Ian Sigalow, Stable is on course to earn $500 million in annual premium in three years, making it "the fastest growing insurtech company in history." Sigalow added, "Counsell has assembled an amazing team of data scientists and subject matter experts, and we felt that this market could be hundreds of billions in premium annually."

Series B-  $65 Million

This has been Stable’s most recent funding round, which closed on May 26th. A total of five investors joined this financing round, of which existing investors were Syngenta, Notion Capital, Greycroft, and Continental Grain Company. The VC firm that led Series B of Stable is Acrew Capital, and Vishal Lugani, its founding partner, joined Stable’s board as a partner. In Series B, Stable raised $60 million as funding for its US expansion.

Any savvy business leader who is affected by commodity price fluctuations should use Stable's cutting-edge offering to manage this volatility."Acrew is glad to be partnering with the team; in leading this investment round, we hope we can support Stable as they build a new category of risk management. "

Future Plans for Stable

Given the situation of the vital industry that the company is active in and the gradual increase in commodity market volatility factor each year, investors have high hopes for Stable. Being both new and innovative works for Stable and allows it to stand on the shoulders of giants. Counsell is currently concentrating on US expansion through Chicago, Los Angeles, and New York.

"We’re really proud to partner with Acrew, Notion, Greycroft, and all of our shareholders as we accelerate our plans to make a real impact in this vital sector and warmly welcome Vishal Lugani to the Board," says Steve Stable, CEO of Stable.

All the funding from investors would be spent as Stable’s data-driven platform further develops. The company already has operations in Singapore, Bermuda, and London with clients from Mexico and Columbia. A few initiatives, such as a news aggregator site dubbed as Stable Media and a Stable Data product suite, are also in the works. The company could begin working in more sectors, such as seafood.

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