skip to Main Content

1999 Pricing Performance of Market Advisory Services for Wheat

About This Publication

The primary purpose of this research report is to present an evaluation of advisory service pricing performance for the 1999 wheat crop year. In order to evaluate the returns to the marketing advice produced by the services, the Agricultural Market Advisory Services (AgMAS) Project purchases a subscription to each of the services included in the study. Staff members of the AgMAS Project read the information provided by each advisory service on a daily basis. A directory of the advisory services included in the study can be found at the AgMAS Project website (

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 some exceptions, the marketing window for the 1999 crop year is June 1, 1998 through May 31, 2000; ii) cash prices and yields refer to a soft red winter wheat producer in southwest Illinois; iii) all storage is assumed to occur off-farm at commercial sites; and iv) loan deficiency payment (LDP) and marketing loan gain (MLG) recommendations made by advisory programs are followed wherever feasible and applicable.

The average net advisory price across all 23 wheat programs in 1999 is $2.64 per bushel, $0.04 below the market benchmark price. The range of net advisory prices is substantial, with a minimum of $2.18 per bushel and a maximum of $3.38 per bushel. The average revenue achieved by following an advisory service is $163 per acre, $3.00 less than the market benchmark revenue. The spread in advisory revenue also is noteworthy, with the difference between the bottom- and top-performing advisory programs reaching almost $75 per acre.

The average net advisory price achieved by following 17 wheat advisory programs over the 1995-1999 crop years is $3.06 per bushel, $0.21 below the five-year average market benchmark price. The five-year average revenue is $154 per acre, $13 less than the five-year average market benchmark revenue. The advisory prices range from a low of $2.79 to a high of $3.31 per bushel and revenue from a low of $140 per acre to a high of $171 per acre.

An advisory program’s net price or revenue received is an important indicator of performance. The tradeoff between pricing performance and risk also is likely to be of interest to producers. Contrary to the prediction of economic theory, a slight negative tradeoff between average net advisory price and risk is found. That is, producing higher net prices generally required that an advisory program over 1995-1999 take on less risk, and vice versa. Since the estimated correlation between price and risk is only –0.18, this counter-intuitive result is likely due to random variation and is not expected to persist over a longer sample. Only one advisory program in wheat outperforms the market benchmark when both price and risk are considered, while many have a lower price and higher risk. No program outperforms the benchmark based on average revenue and risk. It is important to emphasize that the pricing and risk performance results are based on five observations. This is a relatively small sample for estimating the true risks of market advisory programs. Hence, the return-risk results should be viewed as exploratory rather than definitive.

Back To Top