sizing up your marketing advisory program scott h. irwin and darrel l. good december 2004
TRANSCRIPT
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Sizing Up Your Marketing Advisory Program
Scott H. Irwin and Darrel L. Good
December 2004
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Why is Crop Marketing so Frustrating to Farmers?
• Crop prices are extremely volatile– Within year– Year-to-year
• Crop prices are hard to anticipate or forecast– Numerous price making forces that interact in a
highly complex fashion– Acreage, yield, trade, livestock numbers, Asian
RUST, policy,…
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Daily Soybean Prices for the 2003 Crop Year, Central Illinois
4.50
5.50
6.50
7.50
8.50
9.50
10.50
3-S
ep
-02
27
-Se
p-0
2
23
-Oc
t-0
2
18
-No
v-0
2
13
-De
c-0
2
13
-Ja
n-0
3
7-F
eb
-03
6-M
ar-
03
1-A
pr-
03
28
-Ap
r-0
3
22
-Ma
y-0
3
18
-Ju
n-0
3
15
-Ju
l-0
3
8-A
ug
-03
4-S
ep
-03
30
-Se
p-0
3
24
-Oc
t-0
3
19
-No
v-0
3
17
-De
c-0
3
15
-Ja
n-0
4
11
-Fe
b-0
4
9-M
ar-
04
2-A
pr-
04
29
-Ap
r-0
4
25
-Ma
y-0
4
22
-Ju
n-0
4
19
-Ju
l-0
4
12
-Au
g-0
4
Pri
ce (
$/b
u.)
Pre-Harvest Forward Contract Bid Price
First Day of Harvest
Post-Harvest Cash Price
Average Loan Rate
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Daily Soybean Prices for the 1998 Crop Year, Central Illinois
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.502
-Se
p-1
99
7
29
-Se
p-1
99
7
24
-Oc
t-1
99
7
20
-No
v-1
99
7
18
-De
c-1
99
7
16
-Ja
n-1
99
8
13
-Fe
b-1
99
8
13
-Ma
r-1
99
8
9-A
pr-
19
98
7-M
ay
-19
98
4-J
un
-19
98
1-J
ul-
19
98
29
-Ju
l-1
99
8
25
-Au
g-1
99
8
22
-Se
p-1
99
8
19
-Oc
t-1
99
8
13
-No
v-1
99
8
11
-De
c-1
99
8
12
-Ja
n-1
99
9
9-F
eb
-19
99
9-M
ar-
19
99
6-A
pr-
19
99
3-M
ay
-19
99
28
-Ma
y-1
99
9
25
-Ju
n-1
99
9
23
-Ju
l-1
99
9
19
-Au
g-1
99
9
Pri
ce (
$/b
u.)
Pre-Harvest Forward Contract Bid Price
Average Loan Rate
First Day of Harvest
Post-Harvest Cash Price
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Many Farmers Turn to Market Advisory Services for Help
• Services are thought to process market information more rapidly and efficiently than farmers to determine the most appropriate marketing decisions
• Surveys document advisory service popularity among farmers over the last 25 years
• Advisory services have substantial influence on the use of forward pricing by farmers
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Do I Really Need an Advisory Program?
• To answer this question you first need the facts on your own marketing performance
• Next you need a framework for evaluating your marketing performance
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Evaluation of Crop Marketing Performance
• Bottom Line: Compare your price received for a crop to the price offered by the market
• Two important comparisons – Top third of price range– Average price
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Quick Approach to Benchmarking
1. Assemble data to compute marketing weights each month over the 24-month pricing window for a crop year– Account for forward, futures and options sales
2. Multiply weights by monthly average prices– Prices should be adjusted for storage costs– Prices should be for a comparable area, e.g., central
Illinois3. Add speculative futures/options gains or
losses4. Include your weighted-average LDP/MLG
gains??5. Compare to the 24-month average cash price
– Adjusted for storage costs– Include LDP/MLGs??
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Complete Approach to Benchmarking1. Assemble records for a given crop: bushels sold,
cash and forward sales, futures and options transactions
2. Adjust each sale for moisture and quality discounts; sale prices should be stated on a No.2 basis for corn and No. 1 basis for soybeans
3. Compute the weighted-average cash price received4. Subtract physical storage charges on all bushels
stored post-harvest5. Subtract interest opportunity cost on all bushels
stored post-harvest6. Compute profit/loss on all futures and options
transactions7. Add LDP and/or marketing loan benefits??
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Compare Your Average Price Received to a Realistic Benchmark
Last Year? ______3 Year Average? ______5 Year Average? ______
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Conventional Approach to Comparison of Crop Year Price
Ranges
• Post-harvest cash prices only• Range of prices = high - low• Divide range into top third, middle
third, and bottom third• No adjustment for carrying costs
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Conventional Measurement of Price Range for Soybeans, 2003 Crop Year, Central
Illinois
3.00
5.00
7.00
9.00
11.00
0 1 2
So
ybea
n P
ric
e ($
/bu
.)
Top Third
Bottom Third
Middle Third
Conventional
Low (12 mo. unadjusted)
High (12 mo. unadjusted)
$5.64/bu.
$8.82/bu.
$10.41/bu.
$7.23/bu.
Note: LDP/MLG benefits not included.
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Conventional Measurement of Price Range for Corn, 1995-2003 Crop Years, Central
Illinois
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Note: LDP/MLG benefits not included.
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Conventional Measurement of Price Range for Corn, 1995-2003 Crop Years, Central
Illinois
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
NASS Average Farm Price Received
Note: LDP/MLG benefits not included.
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Conventional Measurement of Price Range for Soybeans, 1995-2003 Crop Years,
Central Illinois
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
Note: LDP/MLG benefits not included.
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Conventional Measurement of Price Range for Soybeans, 1995-2003 Crop Years,
Central Illinois
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
NASS Average Farm Price Received
Note: LDP/MLG benefits not included.
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Better Approach to Comparison of Crop Year Price Ranges
• Pre- and post-harvest cash prices included (two-year marketing window)
• Adjustments for carrying costs (interest rate + commercial storage)
• Thirds based on equal number of days in each price range (time-weighted)
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24-Month Marketing Window for Corn and Soybeans
Pre-Harves t Forward Bid Post-Harves t Cash Price (Less Carrying Charge)
Firs t Day of Harves t( year t)
Septem ber 1 ( year t - 1)
August 31 ( year t + 1)
12 Months 12 Months
24 Month Window
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Conventional and Better Measurements of Price Range for Soybeans, 2003 Crop Year,
Central Illinois
3.00
5.00
7.00
9.00
11.00
0 1 2 3
So
ybea
n P
ric
e ($
/bu
.)
Top Third
Bottom Third
Middle Third
Conventional Better
Top Third
Middle Third
Bottom Third Third
Low (12 mo. unadjusted)
High (12 mo. unadjusted) High (24 mo. adjusted for carrying costs)
Low (24 mo. adjusted for carrying costs)
$5.64/bu.
$4.74/bu.
$5.10/bu.
$7.23/bu.$7.30/bu.
$8.82/bu.
$10.05/bu.$10.41/bu.
Note: LDP/MLG benefits not included.
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Price Range for Corn, 1995-2003 Crop Years, Central Illinois
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Note: LDP/MLG benefits not included.
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Price Range for Corn, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Top Third: 0/9 Crop YearsMiddle Third: 6/9 Crop YearsBottom Third: 3/9 Crop Years
NASS Average Farm Price Received
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Price Range for Corn, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
# Yrs. Farm > Mkt. Price: 2/9 Avg. Dif. Farm - Mkt. Price: -9 cents/bu.
NASS Average Farm Price Received
24 Month Average Cash Price
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Price Range for Soybeans, 1995-2003 Crop Years, Central Illinois
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
Note: LDP/MLG benefits not included.
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Price Range for Soybeans, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
Top Third: 1/9 Crop YearsMiddle Third: 6/9 Crop YearsBottom Third: 2/9 Crop Years
NASS Average Farm Price Received
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Price Range for Soybeans, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
# Yrs. Farm > Mkt. Price: 4/9 Avg. Dif. Farm - Mkt. Price: +10 cents/bu.
NASS Average Farm Price Received
24 Month Average Cash Price
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Key Factors in Selecting a Marketing Advisor Program
• Pricing performance– Goal: high price, low risk
• Consistency of performance– Goal: consistently superior pricing
performance
• Marketing philosophy/style– Goal: Match your approach to marketing
• Communication– Goal: Well-written, concise, accurate
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Types of Advisory Service Programs
• Basic program: provides subscribers with market analysis, information and “generic” marketing recommendations
• Customized program: provides marketing recommendations that are tailored to individual client needs, direct access to market analysts, in addition to basic services
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Cost of Advisory Service Programs
• Basic programs:– Fixed annual subscription fee– Generally ranges from
$150-$600/year
• Customized programs:– Subscription fee based on volume of
production– Generally ranges from 3-5¢/bushel
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Agricultural Market Advisory Service Project (AgMAS)
• In 1994, the AgMAS Project was started at the University of Illinois
• Goal of providing unbiased and rigorous performance evaluation
• Evaluate performance in marketing corn, soybeans, wheat, and hogs
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AgMAS Data Collection
• Tracking about 25-35 “basic” advisory programs per year since September 1994
• Paid subscriptions obtained for each service
• Recommendations recorded in “real-time”
• No survivorship or hindsight bias• Data available for corn and soybeans for
1995-2003 crops
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Simulation of Advisory Service Performance
• Simulation for central Illinois farm• Two-year marketing window • Transactions applied to expected or
actual yield per acre• Cash sales are discounted for interest
and storage charges (commercial)• Net advisory prices are stated in
harvest equivalent terms
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Computation of Net Advisory Price
2.25
-0.40
0.46
-0.02
0.19
2.48
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Cash SalesPrice
StorageCosts
Futures andOptions
Gain
BrokerageCosts
LDP/MLG NetAdvisory
Price
Cor
n ($
per
bus
hel)
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Performance of Advisory Programs in Corn, 1995-2003 Crop Years, Central Illinois
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Advisory Program
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Performance of Advisory Programs in Corn, 1995-2003 Crop Years, Central Illinois
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Top Third or Better: 17%Middle Third: 60%Bottom Third or Worse: 23%
Advisory Program
Note: LDP/MLG benefits not included.
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Performance of Advisory Programs in Corn, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Advisors FarmersTop Third or Better: 17% 0%Middle Third: 60% 67%Bottom Third or Worse: 23% 33%
Advisory Program
NASS Average Farm Price Received
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Performance of Advisory Programs in Corn, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
# Yrs. Avg. MAS > Farm Price: 8/9 Avg. Dif. Avg. MAS - Farm Price: +8 cents/bu.
Advisory Program
NASS Average Farm Price Received
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Performance of Advisory Programs in Corn, 1995-2003 Crop Years, Central Illinois
Note: LDP/MLG benefits not included.
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
# Yrs. Avg. MAS > Mkt. Price: 3/9 Avg. Dif. Avg. MAS - Mkt. Price: -1 cent/bu.
Advisory Program
24 Month Average Cash Price
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Performance of Advisory Programs in Soybeans, 1995-2003 Crop Years, Central
Illinois
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
Advisory Program
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Performance of Advisory Programs in Soybeans, 1995-2003 Crop Years, Central
Illinois
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
rice
($
/bu
.)
Top Third or Better: 18%Middle Third: 65%Bottom Third or Worse: 17%
Advisory Program
Note: LDP/MLG benefits not included.
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Performance of Advisory Programs in Soybeans, 1995-2003 Crop Years, Central
Illinois
Note: LDP/MLG benefits not included.
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
Advisors FarmersTop Third or Better: 18% 11%Middle Third: 65% 67%Bottom Third or Worse: 17% 22%
Advisory Program
NASS Average Farm Price Received
![Page 46: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/46.jpg)
Performance of Advisory Programs in Soybeans, 1995-2003 Crop Years, Central
Illinois
Note: LDP/MLG benefits not included.
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
# Yrs. Avg. MAS > Farm Price: 6/9 Avg. Dif. Avg. MAS - Farm Price: -1 cent/bu.
Advisory Program
NASS Average Farm Price Received
![Page 47: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/47.jpg)
Performance of Advisory Programs in Soybeans, 1995-2003 Crop Years, Central
Illinois
Note: LDP/MLG benefits not included.
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
ric
e ($
/bu
.)
# Yrs. Avg. MAS > Mkt. Price: 7/9 Avg. Dif. Avg. MAS - Mkt. Price: +9 cent/bu.
Advisory Program
24 Month Average Cash Price
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Five-Year Average Performance of 22 Advisory Programs in Corn, 1999-2003 Crop
Years, Central Illinois
1.80
2.00
2.20
2.40
2.60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Rank
Ave
rag
e N
et A
dvi
sory
Pri
ce
($/b
u.) 24 Month Average Cash Price
NASS Average Farm Price Received
Note: LDP/MLG benefits included.
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Seven-Year Average Performance of 19 Advisory Programs in Corn, 1997-2003 Crop
Years, Central Illinois
1.80
2.00
2.20
2.40
2.60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Rank
Ave
rag
e N
et A
dvi
sory
Pri
ce (
$/b
u.) 24 Month Average Cash Price
NASS Average Farm Price Received
Note: LDP/MLG benefits included.
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Nine-Year Average Performance of 15 Advisory Programs in Corn, 1995-2003 Crop
Years, Central Illinois
1.80
2.00
2.20
2.40
2.60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Rank
Ave
rag
e N
et A
dvi
sory
Pri
ce
($/b
u.) 24 Month Average Cash Price
NASS Average Farm Price Received
Note: LDP/MLG benefits included.
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Five-Year Average Performance of 21 Advisory Programs in Soybeans, 1999-2003
Crop Years, Central Illinois
4.50
5.00
5.50
6.00
6.50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Rank
Ave
rag
e N
et A
dvi
sory
Pri
ce
($/b
u.) 24 Month Average Cash Price
NASS Average Farm Price Received
Note: LDP/MLG benefits included.
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Seven-Year Average Performance of 17 Advisory Programs in Soybeans, 1997-2003
Crop Years, Central Illinois
4.50
5.00
5.50
6.00
6.50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Rank
Ave
rag
e N
et A
dvi
sory
Pri
ce
($/b
u.) 24 Month Average Cash Price
NASS Average Farm Price Received
Note: LDP/MLG benefits included.
![Page 53: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/53.jpg)
Nine-Year Average Performance of 15 Advisory Programs in Soybeans, 1995-2003
Crop Years, Central Illinois
4.50
5.00
5.50
6.00
6.50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Rank
Net
Ad
viso
ry P
rice
($
/bu
.)
24 Month Average Cash Price NASS Average Farm Price Received
Note: LDP/MLG benefits included.
![Page 54: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/54.jpg)
Lessons Learned About Pricing
Performance • Better for soybeans than corn when
compared to market • Better for corn than soybeans when
compared to farmers• Overall, modest ability to beat the
market or farmers• Large range in performance across
programs • A few programs beat the market and
farmers based on average prices
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Consistency of Advisory Service Performance
• Consistency evaluated two ways• Absolute consistency
– How consistently do programs land in the top third of the price range over time?
• Relative consistency– How consistently are programs
ranked in the top and bottom five of all advisory programs?
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Performance of Advisory Programs in Corn, 1995-2003 Crop Years, Central Illinois
1.00
2.00
3.00
4.00
5.00
6.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
Co
rn P
rice
($
/bu
.)
Top Third or Better: 17%Middle Third: 60%Bottom Third or Worse: 23%
Advisory Program
Note: LDP/MLG benefits not included.
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Distribution of Appearances in the Top Third of the Price Range for Corn, 1995-2003 Crop
Years
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9
Number of Crop Years in Top Third of Price Range
Nu
mb
er o
f P
rog
ram
s
13
6
3
1
Note: LDP/MLG benefits not included.
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Performance of Advisory Programs in Soybeans, 1995-2003 Crop Years, Central
Illinois
3.00
5.00
7.00
9.00
11.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Crop Year
So
ybea
n P
rice
($
/bu
.)
Top Third or Better: 18%Middle Third: 65%Bottom Third or Worse: 17%
Advisory Program
Note: LDP/MLG benefits not included.
![Page 59: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/59.jpg)
Distribution of Appearances in the Top Third of the Price Range for Soybeans, 1995-2003
Crop Years
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9
Number of Crop Years in Top Third of Price Range
Nu
mb
er o
f P
rog
ram
s 12
6
4
1
Note: LDP/MLG benefits not included.
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Distribution of Appearances in the Top 5 Ranked Advisory Programs for Corn, 1995-
2003 Crop Years
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9
Number of Crop Years in Top Five
Nu
mb
er o
f P
rog
ram
s
10
2 1
4
2
Note: LDP/MLG benefits not included.
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Distribution of Appearances in the Bottom 5 Ranked Advisory Programs for Corn, 1995-
2003 Crop Years
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9
Number of Crop Years in Bottom Five
Nu
mb
er o
f P
rog
ram
s
8 8
4
1 1
Note: LDP/MLG benefits not included.
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Distribution of Appearances in the Top 5 Ranked Advisory Programs for Soybeans,
1995-2003 Crop Years
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9
Number of Crop Years in Top Five
Nu
mb
er o
f P
rog
ram
s
15
21
3
1 1
Note: LDP/MLG benefits not included.
![Page 63: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/63.jpg)
Distribution of Appearances in the Bottom 5 Ranked Advisory Programs for Soybeans,
1995-2003 Crop Years
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9
Number of Crop Years in Bottom Five
Nu
mb
er o
f P
rog
ram
s
13
6
4
2
Note: LDP/MLG benefits not included.
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Lessons Learned About Consistency
• Available evidence suggests past price performance does not predict future price performance
• Similar to findings for stock mutual funds
• Implication: Choosing an advisory service based on past “hot” performance is not likely to be successful
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Marketing Philosophy/Style
• Every individual farmer has a marketing philosophy, or style, that is unique
• Types of styles range from:– Conservative and risk-minimizing– Active and risk-seeking
• Our research shows that match between farmer and advisory service style is second in importance only to pricing performance in selecting a service
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Market Advisory Program Styles
• It is well-understood that marketing style differs substantially across advisors– Websites and promotional literature for
advisors discuss approach to marketing• A Top Producer article described styles
of well-known advisors as: – Banker, Race Car Driver, Astronaut,
Sprinter, and Insurance Agent• Difficult to know how accurate these
labels are or what they mean!
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Example of the Construction of an AgMAS Marketing Profile
-25
0
25
50
75
100
125
1-Sep-98
1-Dec-98
1-Mar-99
1-Jun-99
1-Sep-99
1-Dec-99
1-Mar-00
1-Jun-00
Net
Am
ou
nt
Pri
ced
(%
, cu
mu
lati
ve)
First Day of Harvest
Sell all unsold grain (54%) in the cash market
Sell Dec futures for 30% of expected production
Buy Dec puts for 50 % of expected production
Buy Dec futures for 30 % of expected production (close futures position)
Sell Dec puts for 50 % of expected production (close options position) and sell 50% of expected production in the cash market
![Page 68: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/68.jpg)
Average Marketing Profile for All Advisory Programs in Corn, 1995-2001 Crop Years
0
25
50
75
100
9-Sep
9-Dec
9-Mar
9-Jun
9-Sep
9-Dec
9-Mar
9-Jun
Net
Am
ou
nt
Pri
ced
(%
, cu
mu
lati
ve)
All Advisors Average
24-Month Market Benchmark Average
First Day of Harvest (1995-2001 average)
![Page 69: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/69.jpg)
Average Marketing Profile for All Advisory Programs in Soybeans, 1995-2001 Crop
Years
0
25
50
75
100
9-Sep
9-Dec
9-Mar
9-Jun
9-Sep
9-Dec
9-Mar
9-Jun
Net
Am
ou
nt
Pri
ced
(%
, cu
mu
lati
ve)
All Advisors Average
24-Month Market Benchmark Average
First Day of Harvest (1995-2001 average)
![Page 70: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/70.jpg)
Marketing Profile for a Conservative Advisory Program in Corn, 1999 Crop Year
-25
0
25
50
75
100
125Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Net
am
ou
nt
pri
ced
(%
, cu
mu
lati
ve) First day of harvest
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Marketing Profile for a Conservative Advisory Program in Corn, 2000 Crop Year
-25
0
25
50
75
100
125Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Net
am
ou
nt
pri
ced
(%
, cu
mu
lati
ve) First day of harvest
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Marketing Profile for a Conservative Advisory Program in Corn, 2001 Crop Year
-25
0
25
50
75
100
125Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Net
am
ou
nt
pri
ced
(%
, cu
mu
lati
ve) First day of harvest
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Marketing Profile for an Active Advisory Program in Corn, 1999 Crop Year
-50
0
50
100
150
200
250
300Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Net
am
ou
nt
pri
ced
(%
, cu
mu
lati
ve) First day of harvest
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Marketing Profile for an Active Advisory Program in Corn, 2000 Crop Year
-50
-25
0
25
50
75
100
125
150
175
200Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Net
am
ou
nt
pri
ced
(%
, cu
mu
lati
ve) First day of harvest
![Page 75: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/75.jpg)
Marketing Profile for an Active Advisory Program in Corn, 2001 Crop Year
-25
0
25
50
75
100
125
150Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Se
p
No
v
Jan
Mar
May Ju
l
Net
am
ou
nt
pri
ced
(%
, cu
mu
lati
ve) First day of harvest
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Advisory Program Groups in Corn Based on Degree of Activeness, 1997-2001 Crop Years
Group I:Conservative
Group II:Active
Group III:Very Active
Share of Programs
74% 16% 11%
AveragePrice
$2.12/bu. $2.14/bu. $2.30/bu.
StandardDeviation
$0.19/bu. $0.18/bu. $0.36/bu.
Note: LDP/MLG benefits included.
![Page 77: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/77.jpg)
Advisory Program Groups in Soybeans Based on Degree of Activeness, 1997-2001
Crop Years
Group I:Conservative
Group II:Active
Group III:Very Active
Share of Programs
59% 18% 24%
AveragePrice
$5.64/bu. $5.91/bu. $6.06/bu.
StandardDeviation
$0.40/bu. $0.56/bu. $0.54/bu.
Note: LDP/MLG benefits included.
![Page 78: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/78.jpg)
Lessons Learned About Marketing Styles
• Marketing styles vary dramatically across advisors
• Some evidence that more active programs generate higher prices– Tends to come at the cost of higher risk
• Implications:– Do not focus solely on a program’s net price– Match your risk tolerance to marketing style
of the advisor
![Page 79: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/79.jpg)
Key Factors in Selecting a Marketing Advisor Program
• Pricing performance– Goal: high price, low risk
• Consistency of performance– Goal: consistently superior pricing
performance
• Marketing philosophy/style– Goal: Match your approach to marketing
• Communication– Goal: Well-written, concise, accurate
![Page 80: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/80.jpg)
AgMAS Performance Profile Tool
Coming soon at: http://www.farmdoc.uiuc.edu/agmas!
![Page 81: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/81.jpg)
New Generation Grain Marketing Contracts
• Contracts follow prescribed rules for generating sales
• Goal is to achieve a price near or above the average price offered by the market over a given time
• Interest in new generation contracts has increased in recent years
![Page 82: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/82.jpg)
Three Basic Types of New Generation Contracts
1. Automated pricing rules
2. Managed hedging
3. Combination of the first two
![Page 83: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/83.jpg)
Contacting the AgMAS Project
• Office Address: 406 Mumford Hall 1301 West Gregory Drive University of Illinois Urbana, IL 61801
• Phone: (217)333-2792• Email: [email protected]• Website: http://
www.farmdoc.uiuc.edu/agmas
![Page 84: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/84.jpg)
DISCLAIMERThe advisory service marketing recommendations used in this research represent the best efforts of the AgMAS Project staff to accurately and fairly interpret the information made available by each advisory service. In cases where a recommendation is vague or unclear, some judgment is exercised as to whether or not to include that particular recommendation or how to implement the recommendation. Given that some recommendations are subject to interpretation, the possibility is acknowledged that the AgMAS track record of recommendations for a given program may differ from that stated by the advisory service, or from that recorded by another subscriber. In addition, the net advisory prices presented in this report may differ substantially from those computed by an advisory service or another subscriber due to differences in simulation assumptions, particularly with respect to the geographic location of production, cash and forward contract prices, expected and actual yields, storage charges and government programs.
![Page 85: Sizing Up Your Marketing Advisory Program Scott H. Irwin and Darrel L. Good December 2004](https://reader035.vdocuments.us/reader035/viewer/2022062720/56649f165503460f94c2cfa4/html5/thumbnails/85.jpg)
Thank You!