Even the Marketing Pros Don’t Always Hit the Bullseye

Still of Value to Producers, However

By Tracy Sayler

There’s no question that when it comes time to pulling the sales trigger, your aim will be better with the help of a professional grain market advisory service. Bear in mind, however, that even the pros don’t always hit the bullseye.

A study of 23 soft red winter wheat marketing advisory services for the 1999 wheat crop year found the average price earned by following such advice was four cents per bushel below the market benchmark price.

The analysis conducted by the Agricultural Market Advisory Services Project (AgMAS) at the University of Illinois found that the average net advisory price across all 23 wheat programs in 1999 was $2.64 per bushel, four cents below the market benchmark price. The range of net advisory prices was substantial, with a minimum of $2.18 per bushel and a maximum of $3.38 per bushel. The market benchmark price is what a producer would have received if he or she had sold equal amounts of the crop each day during the crop year, which spanned one year before and after harvest. The average revenue achieved by following an advisory service was $163 per acre, $3 less than the market benchmark revenue. Storage, interest, and LDPs were factored into the analysis.

Darrel Good, U of Ill. extension marketing specialist and one of the investigators of the study, is hard pressed to explain the evaluation results. He speculates that one reason may be that wheat doesn’t receive the amount of marketing attention and resources as corn and beans in this area of the Cornbelt. “The other thing is that wheat can be a tough bugger to figure out,” he says.  “There are so many things that influence wheat prices.  On corn and beans, folks can do a reasonable job of keeping track of what’s going on. Not so much the case with wheat, which has so many players and so many factors that can influence the price.  It’s the hardest of the three to market, in my opinion.”

Don’t throw the proverbial baby out with the bath water, however.  Good points out that some advisory services did very well in their wheat marketing, and the analysis timeframe was limited to only one year.  Further, AgMAS evaluations of market advisory services going back to 1995 point out that the pros in the analysis have done “quite well on soybeans, and respectable on corn,” says Good. No Northern Plains market advisory services were included in the wheat analysis.  Several firms in the Northern Plains are analyzed for their corn and bean advice, however.

Is it worthwhile for a producer to work with a market advisory service?  “I definitely think so,” says Good. “We did a survey of folks this past year who subscribe to advisory services, and what you learn is that they value those services for a lot more than just their specific advice. Many of the subscribers really don’t implement exactly what the services advise, but use them as a source of information and analysis to help them develop a marketing plan.  The subscribers all indicated that they value their advisory services highly for all of the different services that the firms provided.”

Average price received is obviously a key factor for producers to consider in analyzing the performance of a marketing advisory service.  So too is the marketing style and philosophy of the service. Producers need to ask whether it fits their marketing style and philosophy.  “Some are aggressive, selling and buying back and taking speculative positions, and there are those who are just cash sellers. So the question the farmer needs to ask is, not only what’s the bottom line performance of the service, but how do they get there and can I or will I follow that particular advice.”

AgMAS researchers are conducting a study to profile the marketing styles of the various marketing firms that AgMAS evaluates. They are analyzing daily trades made by firms.  “Looking at that on a graph over a two-year period, you get a feel for what kind of approach that firm took in the market,” says Good.  The results of this analysis should be released this fall, and Good believes it will be useful for producers, who want to match their marketing personalities with those of market advisory services. 

“If I’m not willing to trade futures and the service is generating a high price by doing that, then I’m pushing a rope up hill if I subscribe to that service, but am not able or willing to implement their strategies.”

More information about AgMAS and the marketing firms evaluated under the project can be found online at http://www.farmdoc.uiuc.edu/agmas/. A list of market advisory services available to producers in the Northern Plains can be found online at
www.smallgrains.org/springwh/mguide99/pro/pro.htm.

Big Sunflower Price Gains Justify Harvest Sales
Tighter supplies for high oil crops such as sunflower has improved the price outlook of late. However, the stronger prices could bid more oilseed acres next year, and a favorable loan rate for oilseeds may also keep U.S. oilseed acreage healthy in 2002. Thus, producers should consider selling sunflower off the combine this year, because the return from storing sunflower until next spring may not justify storage costs, according to NDSU extension crops economist George Flaskerud.