Management of price volatility is an important business activity for crop producers. There is considerable evidence that crop producers highly value advisory services as a source of marketing information and advice. Differences in advisory service approaches to marketing should influence a farmer’s choice of a service. However, information on the marketing “style” of different advisory services is exceedingly difficult for producers to obtain on their own, and virtually no previous research on this topic is available.
Marketing styles for the 25 market advisory service programs included in the AgMAS Project were developed in two steps. The first step was the construction of a detailed “menu” of the tools and strategies used by each of the advisory programs. The menu describes the type of pricing tool, frequency of transactions, and magnitude of transactions. The second step was the development of a daily index of the net amount sold by each market advisory program. To construct such an index, the various futures, options, and cash positions recommended for a program on a given day were weighted by the respective position “delta.” When the daily values of the index were plotted for the entire marketing period, the marketing “profile” for a program was generated.
The results of the 1995 marketing style analysis for corn and soybeans suggest the following conclusions,
- Advisory programs made a relatively small number of recommendations.
- Recommendations of the market advisory programs primarily involved cash marketing strategies, not futures and options.
- A short futures position was the non-cash marketing strategy most recommended by this group of advisory programs.
- Cash “re-ownership” strategies, whereby long positions in options and/or futures were taken after a previous cash sale of the commodity, were a relatively popular strategy.
- Option contracts tended to be used in combination with other options or futures.
- Non-cash marketing recommendations were typically held open for a short period of time.
- Despite the attention directed to hedge-to-arrive contracts during the 1995 marketing season, the programs were not heavy users of this tool.
- The pre-harvest amount sold averaged 35 percent for corn and 30 percent for soybeans (end of August for corn and soybeans), an amount much smaller than the typically generated by optimal hedging models.