The primary purpose of this research report is to present an evaluation of advisory service pricing performance for the 1998 corn and soybean crops. In order to evaluate the returns to the marketing advice produced by the services, the AgMAS Project purchases a subscription to each of the programs offered by a service. The information is received electronically via DTN, world wide web sites or e-mail. Staff members of the AgMAS Project read the information provided by each advisory program on a daily basis. A directory of the advisory programs included in the study can be found at the Agricultural Market Advisory Services (AgMAS) Project website (http://www.aces.uiuc.edu/~agmas/).
Certain explicit assumptions are made to produce a consistent and comparable set of results across the different advisory programs. These assumptions are intended to accurately depict “real-world” marketing conditions. Several key assumptions are: i) with a few exceptions, the marketing window for the 1998 crops is September 1, 1997 – August 31, 1999, ii) cash prices and yields refer to a central Illinois producer, iii) all storage is assumed to occur off-farm at commercial sites, and iv) marketing loan recommendations made by advisory programs are followed wherever feasible.
The average net advisory price across all 23 corn programs in 1998 is $2.17 per bushel, seven cents below the market benchmark price. The range of net advisory prices for corn is substantial, with a minimum of $1.93 per bushel and a maximum of $2.51 per bushel. The average net advisory price across all 22 soybean programs in 1998 is $5.82 per bushel, four cents less than the market benchmark. As with corn, the range of net advisory prices for soybeans is substantial, with a minimum of $5.11 per bushel and a maximum of $6.58 per bushel. The average revenue achieved by following both the corn and soybean programs offered by an advisory service is $304 per acre, six dollars less than market benchmark revenue for 1998. The spread in advisory revenue also is noteworthy, with the difference between the bottom- and top-performing advisory programs reaching nearly $60 per acre.
An advisory program’s net price or revenue received is an important indicator of performance. However, it is the tradeoff between pricing performance and risk that is likely to be of greatest interest to producers. Based on the data available for 1995-1998, a positive tradeoff between average net advisory price and risk is found; producing higher net prices generally requires that an advisory program take on more risk, and vice versa. Only one advisory program in corn outperforms the market benchmark when both price and risk are considered. Two do so in soybeans, and none based on revenue. These performance results are somewhat sensitive to the specification of the market benchmark. In addition, it is important to emphasize that the pricing and risk performance results are based on only four observations. This is a small sample for estimating the true risks of market advisory programs. Hence, the return-risk results should be viewed as exploratory rather than definitive.