GRAIN MARKETING: ARE FARMERS REALLY THAT BAD? Darrel L. Good, Scott - - PDF document

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GRAIN MARKETING: ARE FARMERS REALLY THAT BAD? Darrel L. Good, Scott - - PDF document

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GRAIN MARKETING: ARE FARMERS REALLY THAT BAD? Darrel L. Good, Scott H. Irwin and Joao Martines-Filho Executive Summary It is commonly asserted that, on average, corn and soybean producers sell 2/3 of their crops in the bottom 1/3 of the

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SLIDE 1

GRAIN MARKETING: ARE FARMERS REALLY THAT BAD?

Darrel L. Good, Scott H. Irwin and Joao Martines-Filho

Executive Summary

  • It is commonly asserted that, on average, corn and soybean producers sell 2/3 of

their crops in the bottom 1/3 of the price range.

  • Average price received for corn and soybeans is “close” to the average price offered

by the market in central Illinois.

  • A new measure of the distribution of pricing opportunities is developed, with time-

weighted price ranges based on pre- and post-harvest prices adjusted for carrying costs.

  • Average price received for corn and soybeans tends to be in the middle third of the

price range over 1990-1999 crop years.

  • Evidence is inconsistent with argument that corn and soybean producers sell 2/3 of

their crops in the bottom 1/3 of the price range.

  • Performance of professional market advisory services provides useful perspective on

the likely success of farmers in grain marketing.

  • Little evidence that net advisory prices exceed market benchmark in corn.
  • Substantial evidence net advisory prices exceed market benchmark in soybeans

(+16 cents/bu.).

  • Modest evidence that services exceed market benchmark for corn and soybean

revenue ($3/acre).

  • Few services have prices in the top 1/3 of price range for corn or soybeans.
  • Better pricing performance tends to come at the cost of more risk.
  • Few services outperform the market when both return and risk are considered.
  • Quite difficult to predict “winners” and “losers” based on past pricing performance.
  • Overall, the evidence suggests farmers will not easily beat the market.
  • A new approach to grain marketing starts with farmers assessing past marketing

performance and their skills in marketing.

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SLIDE 2

Grain Marketing: Are Farmers Really That Bad?

Darrel Good, Scott Irwin, and Joao Martines

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SLIDE 3

Grain Marketing: Are Farmers Really That Bad?

  • Perception versus Reality
  • Realistic Expectations for

Success

  • A New Approach
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SLIDE 4

Grain Marketing: Perception versus Reality

  • Perception: on average, corn and

soybean producers sell 2/ 3 of their crops in the bottom 1/ 3 of price range

  • Reality: ??
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SLIDE 5

Farm Income Meeting Survey Results, December 12, 2000

23 77

On average, corn and soybean producers sell 2/ 3 of their crops in the bottom 1/ 3

  • f the price range

False (% ) True (% ) Question

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SLIDE 6
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SLIDE 7

Grain Marketing: Reality

  • Direct evidence: not available
  • “Rough” evidence
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SLIDE 8

Reality: Available Data

  • Price received by farmers: NASS/ USDA

surveys elevators for bushels purchased and average price paid in IL – monthly basis

  • Overnight bids of country elevators for

# 2 yellow corn and # 1 yellow soybeans for Central IL – daily basis (IL Dept of Ag Market News/ ILDA)

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SLIDE 9

Reality: Data Adjustments for Comparisons (harvest equivalent)

  • Average Price Received: weighted by the

percent of crop marketed for each month (marketing year)

  • Average Price Offered: weighted average of

daily Central IL bids over two-year marketing window (one year before and one year after harvest)

  • All post-harvest sales are adjusted for carrying

costs (interest rate + commercial storage)

  • Average Price Offered are adjusted for yield
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SLIDE 10

Corn Price Offered, 1999 Crop Year

1.40 1.60 1.80 2.00 2.20 2.40 2.60 2.80 9/1/1998 10/4/1998 11/6/1998 12/9/1998 1/11/1999 2/13/1999 3/18/1999 4/20/1999 5/23/1999 6/25/1999 7/28/1999 8/30/1999 10/2/1999 11/4/1999 12/7/1999 1/9/2000 2/11/2000 3/15/2000 4/17/2000 5/20/2000 6/22/2000 7/25/2000 8/27/2000 $/bushel

Pre-Harvest Forward Contract Bid Price + Average Harvest LDP First Day of Harvest Post-Harvest Cash Price + LDP Post-Harvest Cash Price + LDP
  • Carrying Charge
Average Loan Rate
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SLIDE 11

Comparison of Averages: Price Received to Price Offered for Corn Farmers in IL

Average Price Average Price Received Offered Year I llinois Central I llinois 1990- 91 2.09 2.16 1991- 92 2.19 2.23 1992- 93 1.87 2.07 1993- 94 2.34 2.25 1994- 95 2.02 2.17 1995- 96 3.06 2.90 1996- 97 2.50 2.65 1997- 98 2.23 2.33 1998- 99 1.79 2.08 1999- 00 1.66 1.84 Average 2.18 2.27

  • Std. Dev.

0.40 0.30 Source: NASS/ USDA and I L Dep of Ag Market New s

  • - - $/ bushel- - -
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SLIDE 12

Comparison of Averages: Price Received to Price Offered for Soybean Farmers in IL

Average Price Average Price Received Offered Year I llinois Central I llinois 1990- 91 5.49 5.56 1991- 92 5.40 5.56 1992- 93 5.43 5.61 1993- 94 6.22 5.99 1994- 95 5.29 5.59 1995- 96 6.59 6.26 1996- 97 7.17 7.08 1997- 98 6.17 6.30 1998- 99 4.72 5.27 1999- 00 4.48 4.70 Average 5.70 5.79

  • Std. Dev.

0.83 0.65 Source: NASS/ USDA and I L Dep of Ag Market New s

  • - - $/ bushel- - -
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SLIDE 13

Comparison of Price Distribution: Conventional Approach

  • Post-harvest cash prices
  • Range of prices = high - low
  • Divide range into top third, middle

third, and bottom third

  • No adjustment for carrying costs
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SLIDE 14

Conventional Approach: Corn Price in Central IL, 1999 Crop Year

1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 1999 Crop Year, Convetional $/bushel

2.23 1.97 1.71 1.45

Top Third of the Price Range Middle Third of the Price Range Bottom Third of the Price Range High Low

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SLIDE 15

Comparison of Price Distribution: Box Plot Approach

  • Pre- and Post-harvest cash prices

(two-year marketing window)

  • Adjustments for carrying costs

(interest rate + commercial storage)

  • Time weighted distribution
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SLIDE 16

Box Plot Approach: Corn Price in Central IL, 1999 Crop Year

0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 2.60 2.80 1999 Crop Year, Box Plot

2.39 2.11 1.74 0.99 1.84

Average Price Offered

Top Third of the Price Range Middle Third of the Price Range Bottom Third of the Price Range

High Low

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SLIDE 17

Conventional versus Box Plot Approach: Corn Price in Central IL, 1999 Crop Year

0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 2.60 2.80 1999 Crop Year, Convetional 1999 Crop Year, Box Plot $/bushel

2.23 1.97 1.71 1.45 2.39 2.11 1.74 0.99 1.84

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SLIDE 18

Corn Prices: Box Plot

0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 1995 1996 1997 1998 1999 $/bushel 4.73 3.21 2.90 2.45 2.22 3.69 2.84 2.65 2.48 1.79 2.88 2.49 2.33 2.29 1.10 2.80 2.47 2.08 1.82 1.15 2.39 2.11 1.84 1.74 0.99
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SLIDE 19

Corn Prices: Perception

  • 2/ 3 of the crop is marketed in the

bottom third of price range

  • 1/ 3 of the crop is marketed in the

middle and top third of price range

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SLIDE 20

Corn Prices: Perception

0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 1995 1996 1997 1998 1999 $/bushel

Perception

2.69 2.41 1.98 1.79 1.61

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SLIDE 21

Corn Prices: Perception x “Reality”

0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 1995 1996 1997 1998 1999 $/bushel

Perception

2.69 2.41 1.98 1.79

1.61

"Rough Reality" = Price Received

3.06 2.50 2.23 1.79

1.66

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SLIDE 22

Soybean Prices: Box Plot

3.00 4.00 5.00 6.00 7.00 8.00 9.00 1995 1996 1997 1998 1999 $/bushel 7.66 6.72 6.26 5.81 5.52 8.23 7.32 7.08 6.78 6.02 7.26 6.63 6.30 6.14 4.29 6.89 5.99 5.27 4.96 3.24 5.99 4.77 4.70 4.47 3.68
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SLIDE 23

Soybean Prices: Perception

3.00 4.00 5.00 6.00 7.00 8.00 9.00 1995 1996 1997 1998 1999 $/bushel

6.74 6.02 5.70 4.72 4.38

Perception

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SLIDE 24

Soybean Prices: Perception x “Reality”

3.00 4.00 5.00 6.00 7.00 8.00 9.00 1995 1996 1997 1998 1999 $/bushel

6.74 6.02 5.70 4.72

4.38

Perception "Rough Reality" = Price Received

6.59 7.17 6.17 4.72

4.48

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SLIDE 25

Summary of Grain Marketing: Perception versus Reality

  • Average price received for corn and soybeans

in IL is “close” to the average price offered by the market in central Illinois

  • A new measure of the distribution of pricing
  • pportunities is developed, with time-weighted

price ranges based on pre- and post-harvest prices adjusted for carrying costs: box plot approach

  • Evidence is inconsistent with argument that

corn and soybean producers sell 2/ 3 of their crops in the bottom 1/ 3 of the price range

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SLIDE 26

Key Points

  • Does NOT prove that average price received

by farmers equals the average price offered by the market

  • Farmers may under-perform the market, just

not as much as popular perception

  • Likely a wide range of grain marketing

performance across farmers

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SLIDE 27
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SLIDE 28

Grain Marketing: Realistic Expectations for Success

  • Key Question: What are the odds of a

farmer consistently “beating the market?”

  • Would like to have direct evidence on

the pricing performance of farmers, but not available

  • Examine five-year performance record
  • f market advisory services in corn and

soybeans for relevant evidence

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SLIDE 29

Farm Income Meeting Survey Results, December 12, 2000

72 28

In general, professional market advisory services’ recommendations result in average prices in the top 1/ 3

  • f the price range

23 77

On average, corn and soybean producers sell 2/ 3 of their crops in the bottom 1/ 3

  • f the price range

False (% ) True (% ) Question

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SLIDE 30

National Survey of Market Advisory Service Subscribers, Jan/Feb 2000

Is a market advisory service a tool to receive a higher than average price?

6 .8 23.4 15.3 22.3 19.8 9.8 2.3 3.1 1.8 2.1 % Avg. 9 8 7 6 5 4 3 2 1 Certainly Not at all

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SLIDE 31

Agricultural Market Advisory Service Project (AgMAS)

  • Little research on performance of

market advisory services

  • In 1994, the AgMAS Project was

started

– Goal of providing unbiased and rigorous performance evaluation – Evaluate performance in marketing corn, soybeans and wheat

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SLIDE 32

Contacting the AgMAS Project

  • Project Manager: Joao Martines-Filho
  • Office Address: 434a Mumford Hall,

1301 West Gregory Drive, University of Illinois, Urbana, IL 61801

  • Phone:

(217)333-2792

  • Email:

agmas@uiuc.edu

  • Website:

web.aces.uiuc.edu/ farm.doc/ agmas

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SLIDE 33

AgMAS Review Panel

  • External panel reviews all research
  • utput of the AgMAS Project
  • Members:

– Frank Beurskens, E-markets – Jeffrey Brunoehler, Illinios banker – Renny Ehler, Illinois Farmer – Chris Hurt, Purdue University – Terry Kastens, Kansas State University – Robert Wisner, Iowa State University

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SLIDE 34

Two Important Questions

  • Do market advisory services, on

average, outperform an appropriate market benchmark?

  • Is market advisory service

performance predictable from year-to-year?

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SLIDE 35

AgMAS Data Collection

  • Tracking about 25 advisory

services since September 1994

  • Paid subscriptions obtained for

each service

  • Recommendations recorded in

“real-time”

  • Data available for corn and

soybeans for 1995, 1996, 1997, 1998 and 1999 crops

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SLIDE 36

Examples of Advisory Service Recommendations

  • Stewart-Peterson Advisory

Service:

  • May 12, 1995: forward contract 10%
  • f 1995 expected corn production
  • Zwicker Advisory Service
  • February 1, 1996: buy November 96

soybean futures at $7.08 to use as a replacement for 50% of 1995 crop cash sales to date

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SLIDE 37

Simulation of Advisory Service Performance

  • Simulation for central Illinois farm
  • Two-year marketing window
  • Transactions applied to expected or

actual yield per acre

  • Cash sales are discounted for interest

and storage charges

  • Net advisory prices are stated in

harvest equivalent terms

  • LDPs/ MLGs included for 1998 and 1999

crops

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SLIDE 38

Calculation of Net Advisory Prices: 1998 Corn

Unadjusted Carrying Charges Futures & Net Market Advisory Cash Sales Interest Storage Shrink Net Cash Options Brokerage LDP / Advisory Program Price Costs Costs Costs Sales Price Gain Costs MLG Price

  • --$/bushel---

Ag Line (cash-only) 2.20 0.03 0.10 0.03 2.05 0.00 0.00 0.17 2.22 Ag Line (hedge) 2.20 0.03 0.10 0.03 2.05 0.11 0.01 0.17 2.32 Ag Profit 2.13 0.06 0.18 0.04 1.86

  • 0.07

0.01 0.26 2.05

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SLIDE 39

Market Benchmark Price

  • Benchmark needed to evaluate

performance relative to the pricing

  • pportunities provided by the market
  • Use the average cash price over the

two-year marketing window for a crop

– 1 year pre-harvest: daily forward cash prices – 1 year post-harvest: daily spot cash prices

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SLIDE 40

Average Net Advisory Prices, Corn, 1995-1999

2.00 2.25 2.50 2.75 3.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Advisory Program Rank Net Advisory Price ($/bu., hvst. equv.)

Market Benchmark

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SLIDE 41

Average Net Advisory Prices, Soybeans, 1995-1999

5.75 6.00 6.25 6.50 6.75 7.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Advisory Program Rank Net Advisory Price ($/bu., hvst. equv.) Market Benchmark

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SLIDE 42

Average 50/50 Advisory Corn and Soybean Revenue, 1995-1999

300 310 320 330 340 350 360 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Advisory Program Rank 50/50 Advisory Revenue ($/acre, hvst. equv.)

Market Benchmark

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SLIDE 43

Number of Advisory Programs Above Market Benchmark

Corn Soybeans Revenue (% ) (% ) (% ) 1995 72 84 76 1996 38 79 67 1997 43 62 48 1998 30 32 27 1999 54 60 48 1995-99 48 64 54

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SLIDE 44

Average Program Returns Above Market Benchmark

Corn Soybeans Revenue (¢/ bu.) (¢/ bu.) ($/ acre) 1995 + 14 + 33 15 1996

  • 2

+ 19 2 1997

  • 1

+ 10 1 1998

  • 7
  • 5
  • 6

1999

  • 3

+ 17 2 1995-99 + 16 + 3

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SLIDE 45

Pricing Performance Compared to the Distribution of Market Prices, Corn, 1995-1999

13.0 11.5 0.0 39.1 11.5 4.0 Bottom 1/ 3 0.0 0.0 0.0 0.0 0.0 0.0 Below Bottom 1/ 3 100% 100% 100% 100% 100% 100% Total 78.0 84.6 100.0 43.5 80.8 80.0 Middle 1/ 3 8.9 3.8 0.0 17.4 7.7 16.0 Top 1/ 3 0.0 0.0 0.0 0.0 0.0 0.0 Above Top 1/ 3 95-99 1999 1998 1997 1996 1995 Price Range

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SLIDE 46

Pricing Performance Compared to the Distribution of Market Prices, Soybeans, 1995-1999

4.3 0.0 4.5 4.8 8.3 4.0 Bottom 1/ 3 0.9 4.0 0.0 0.0 0.0 0.0 Below Bottom 1/ 3 100% 100% 100% 100% 100% 100% Total 70.1 48.0 90.9 71.4 83.3 60.0 Middle 1/ 3 23.1 44.0 4.5 23.8 8.3 32.0 Top 1/ 3 1.7 4.0 0.0 0.0 0.0 4.0 Above Top 1/ 3 95-99 1999 1998 1997 1996 1995 Price Range

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SLIDE 47

Average Net Advisory Price and Risk, Corn, 1995-1999

Correlation = + 0.55 2.20 2.30 2.40 2.50 2.60 2.70 2.80 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 Standard Deviation of Net Advisory Price ($/bu.) Average Net Advisory Price ($/bu.) Market Benchmark

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SLIDE 48

Pricing Performance and Risk Relative to Benchmark

2.20 2.30 2.40 2.50 2.60 2.70 2.80 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 Standard Deviation of Net Advisory Price ($/bu.) Average Net Advisory Price ($/bu.) Higher Price Less Risk Higher Price More Risk Lower Price More Risk Lower Price Less Risk Market Benchmark

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SLIDE 49

Pricing Performance and Risk Relative to Benchmark, Corn, 1995-1999

2.20 2.30 2.40 2.50 2.60 2.70 2.80 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 Standard Deviation of Net Advisory Price ($/bu.) Average Net Advisory Price ($/bu.) Higher Price Less Risk (1 program) Higher Price More Risk (4 programs) Lower Price More Risk (9 programs) Lower Price Less Risk (4 programs) Market Benchmark

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SLIDE 50

Average Net Advisory Price and Risk, Soybeans, 1995-1999

Correlation = - 0.36 5.90 6.00 6.10 6.20 6.30 6.40 6.50 6.60 6.70 6.80 6.90 0.20 0.40 0.60 0.80 1.00 1.20 Standard Deviation of Net Advisory Price ($/bu.) Average Net Advisory Price ($/bu.) Market Benchmark

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SLIDE 51

Pricing Performance and Risk Relative to Benchmark, Soybeans, 1995-1999

5.90 6.00 6.10 6.20 6.30 6.40 6.50 6.60 6.70 6.80 6.90 0.20 0.40 0.60 0.80 1.00 1.20 Standard Deviation of Net Advisory Price ($/bu.) Average Net Advisory Price ($/bu.) Higher Price Less Risk (4 programs) Higher Price More Risk (10 programs) Lower Price Less Risk (0 programs) Lower Price More Risk (4 programs) Market Benchmark

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SLIDE 52

Average Net Advisory Price and Risk, 50/50 Revenue, 1995-1999

Correlation = + 0.47 300 310 320 330 340 350 360 10 20 30 40 50 Standard Deviation of 50/50 Advisory Revenue ($/acre) Average Advisory 50/50 Revenue ($/acre) Market Benchmark

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SLIDE 53

Pricing Performance and Risk Relative to Benchmark, 50/50 Revenue, 1995-1999

300 310 320 330 340 350 360 10 20 30 40 50 Standard Deviation of 50/50 Advisory Revenue ($/acre) Average 50/50 Advisory Revenue ($/acre) Higher Revenue Less Risk (0 programs) Higher Revenue More Risk (8 programs) Lower Revenue More Risk (7 programs) Lower Revenue Less Risk (3 programs) Market Benchmark

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SLIDE 54

Perfect Predictability of Advisory Service Program Rank

5 1 0 1 5 2 0 2 5 3 0 5 1 0 1 5 2 0 2 5 3 0

1995 R an k 1996 R an k

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SLIDE 55

Advisory Service Program Rank, Corn, 1995 vs. 1996

5 10 15 20 25 5 10 15 20 25 1995 Rank 1996 Rank

Correlation = 0.26

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SLIDE 56

Advisory Service Program Rank, Corn, 1996 vs. 1997

5 10 15 20 25 30 5 10 15 20 25 1996 Rank 1997 Rank

Correlation = -0.04

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SLIDE 57

Advisory Service Program Rank, Corn, 1997 vs. 1998

5 10 15 20 25 30 5 10 15 20 25 1997 Rank 1998 Rank Correlation = 0.51

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SLIDE 58

Advisory Service Program Rank, Corn, 1998 vs. 1999

5 10 15 20 25 30 5 10 15 20 25 1998 Rank 1999 Rank Correlation = 0.41

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SLIDE 59

Advisory Service Program Rank, Soybeans, 1995 vs. 1996

5 10 15 20 25 5 10 15 20 25 1995 Rank 1996 Rank

Correlation = 0.2

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SLIDE 60

Advisory Service Program Rank, Soybeans, 1996 vs. 1997

5 10 15 20 25 30 5 10 15 20 25 1996 Rank 1997 Rank

Correlation = 0.05

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SLIDE 61

Advisory Service Program Rank, Soybeans, 1997 vs. 1998

5 10 15 20 25 30 5 10 15 20 25 1997 Rank 1998 Rank Correlation = 0.16

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SLIDE 62

Advisory Service Program Rank, Soybeans, 1998 vs. 1999

5 10 15 20 25 30 5 10 15 20 25 1998 Rank 1999 Rank Correlation = 0.64

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SLIDE 63

Advisory Service Program Rank, 50/50 Revenue, 1995 vs. 1996

5 10 15 20 25 5 10 15 20 25 1995 Rank 1996 Rank

Correlation = 0.33

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SLIDE 64

Advisory Service Program Rank, 50/50 Revenue, 1996 vs. 1997

5 10 15 20 25 5 10 15 20 25 1996 Rank 1997 Rank

Correlation = -0.05

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SLIDE 65

Advisory Service Program Rank, 50/50 Revenue, 1997 vs. 1998

5 10 15 20 25 5 10 15 20 25 1997 Rank 1998 Rank Correlation = 0.17

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SLIDE 66

Advisory Service Program Rank, 50/50 Revenue, 1998 vs. 1999

5 10 15 20 25 5 10 15 20 25 1998 Rank 1999 Rank Correlation = 0.54

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SLIDE 67

Advisory Service Program Rank, Corn vs. Soybeans, 1995

5 10 15 20 25 30 5 10 15 20 25 30 1995 Corn Rank 1995 Soybean Rank

Correlation = 0.54

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SLIDE 68

Advisory Service Program Rank, Corn vs. Soybeans, 1996

5 10 15 20 25 30 5 10 15 20 25 30 1996 Corn Rank 1996 Soybean Rank

Correlation = 0.05

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SLIDE 69

Advisory Service Program Rank, Corn vs. Soybeans, 1997

5 10 15 20 25 5 10 15 20 25 1997 Corn Rank 1997 Soybean Rank Correlation = 0.33

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SLIDE 70

Advisory Service Program Rank, Corn vs. Soybeans, 1998

5 10 15 20 25 5 10 15 20 25 1998 Corn Rank 1998 Soybean Rank Correlation = 0.15

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SLIDE 71

Advisory Service Program Rank, Corn vs. Soybeans, 1999

5 10 15 20 25 30 5 10 15 20 25 30 1998 Corn Rank 1998 Soybean Rank Correlation = 0.09

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SLIDE 72

Summary of Pricing Performance of Advisory Services

  • Little evidence that net advisory prices exceed

market benchmark in corn

  • Substantial evidence net advisory prices

exceed market benchmark in soybeans (+ 16 cents/ bu.)

  • Modest evidence that services exceed market

benchmark for corn and soybean revenue ($3/ acre)

  • Few services have prices in the top 1/ 3 of

price range for corn or soybeans

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SLIDE 73

Summary of Pricing Performance of Advisory Services

  • Better pricing performance tends to come at

the cost of more risk

  • Few services outperform the market when

both return and risk are considered

  • Quite difficult to predict “winners” and “losers”

based on past pricing performance

Overall: Tough to beat the market

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SLIDE 74
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SLIDE 75

Grain Marketing: A New Approach

slide-76
SLIDE 76

What Is My Grain Marketing Track Record?

  • Good?

______

  • Average?

______

  • Poor?

______

slide-77
SLIDE 77

Average Price Received Compared to a Realistic Benchmark

  • Last Year?

______

  • 3 Year Average?

______

  • 5 Year Average?

______

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SLIDE 78

Yes, I’m Good!

  • Inclined to be an Active Marketer
slide-79
SLIDE 79

Active Marketer Needs:

  • Information
  • Analysis
  • Education
  • Advisor
slide-80
SLIDE 80

Information, Analysis, Education

  • http: / / web.aces.uiuc.edu/ farm.doc
  • University of Illinois Extension
  • Private Sector
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SLIDE 81

Choosing An Advisor

  • Past Performance
  • Marketing Profile
slide-82
SLIDE 82

Click to edit Master title style

  • Click to edit Master text styles

– Second level

  • Third level

– Fourth level » Fifth level

81

1998 Corn Marketing Profile for Pro Farmer Cash Program

0% 20% 40% 60% 80% 100% 120% 9/2/97 1/2/98 5/2/98 9/2/98 1/2/99 5/2/99 9/2/99 Net Amount Sold

slide-83
SLIDE 83

0% 20% 40% 60% 80% 100% 120% 9/2/97 1/2/98 5/2/98 9/2/98 1/2/99 5/2/99 Net Amount Sold

1998 Corn Marketing Profile for Brock Hedge Program

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SLIDE 84
  • 60%
  • 40%
  • 20%

0% 20% 40% 60% 80% 100% 120% 9/1/94 1/1/95 5/1/95 9/1/95 1/1/96 5/1/96 Net Amount Sold

1995 Corn Marketing Profile for Ag Resource Program

slide-85
SLIDE 85

1996 Corn Marketing Profile for Ag Resource Program

0% 20% 40% 60% 80% 100% 120% 140% 9/1/95 1/1/96 5/1/96 9/1/96 1/1/97 5/1/97 Net Amount Sold

slide-86
SLIDE 86

1997 Corn Marketing Profile for Ag Resource Program

  • 80%
  • 60%
  • 40%
  • 20%

0% 20% 40% 60% 80% 100% 120% 5/13/96 9/13/96 1/13/97 5/13/97 9/13/97 1/13/98 5/13/98 Net Amount Sold

slide-87
SLIDE 87
  • 150%
  • 100%
  • 50%

0% 50% 100% 150% 200% 250% 9/2/97 1/2/98 5/2/98 9/2/98 1/2/99 5/2/99 Net Amount Sold

1998 Corn Marketing Profile for Ag Resource Program

slide-88
SLIDE 88

I’m A Poor Marketer

  • Inclined to be a Passive Marketer
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SLIDE 89

Select A Passive Strategy

  • Indexing
  • Mechanical Do-It-Yourself
slide-90
SLIDE 90

Indexing

  • Select an External Source to

Trigger Sales

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SLIDE 91

Comparison of 24-Month Market Benchmark to Mechanical Strategy - Corn

24-Month Average Mechanical Cash Price Strategy 1990-91 2.16 2.12 1991-92 2.23 2.24 1992-93 2.07 2.07 1993-94 2.25 2.29 1994-95 2.17 2.14 1995-96 2.90 2.94 1996-97 2.65 2.70 1997-98 2.33 2.38 1998-99 2.24 2.13 1999-00 2.05 1.90 Average 2.31 2.29

  • Std. Dev.

0.27 0.31

Corn

slide-92
SLIDE 92

Comparison of 24-Month Market Benchmark to Mechanical Strategy - Soybeans

24-Month Av erage Mechanical Cas h P rice S trategy

1 9 9 0 -9 1 5 .5 6 5 .5 3 1 9 9 1 -9 2 5 .5 6 5 .5 8 1 9 9 2 -9 3 5 .6 1 5 .6 6 1 9 9 3 -9 4 5 .9 9 6 .0 9 1 9 9 4 -9 5 5 .5 9 5 .6 5 1 9 9 5 -9 6 6 .2 6 6 .3 0 1 9 9 6 -9 7 7 .0 8 7 .1 9 1 9 9 7 -9 8 6 .3 0 6 .4 3 1 9 9 8 -9 9 5 .8 6 5 .9 0 1 9 9 9 -0 0 5 .5 0 5 .4 9 Average

5.93 5.98

S td. D ev.

0.50 0.54

S oybeans

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SLIDE 93

Mechanical Strategy

  • Price Equal Amounts Every Other

Month for Two Years

  • Will You Do It?
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SLIDE 94

Portfolio of Active and Passive

  • Percent of Crop
  • Corn/ Soybeans
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SLIDE 95

The End

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SLIDE 96
  • An active marketer believes they can beat the market, so they should adopt

strategies that attempt to time pricing decisions during periods of high prices.

  • A passive marketer does not believe they can beat the market, so they should adopt

strategies that simply achieve the average price offered by the market.

  • Farmers should consider marketing in a portfolio context where the two components

are active and passive marketing.

  • A key decision is the weights that a farmer places on the active and passive

marketing components.