The purpose of this research report is to evaluate the pricing performance of market advisory services for the 1995-2004 wheat crops. Explicit marketing assumptions are applied to the track records in order to produce consistent and comparable results across the different advisory programs. Each of the assumptions are made in order to reflect “real-world” marketing conditions encountered by a representative southwestern Illinois soft red winter wheat producer or a southwest Kansas hard red winter wheat producer. Several key assumptions are: i) with few exceptions, the marketing window for a crop year runs from June 1st before harvest through May 31st following harvest, ii) commercial physical storage costs, as well as interest opportunity costs, are charged to post-harvest sales, iii) brokerage costs are subtracted for futures and options transactions, and iv) Commodity Credit Corporation (CCC) marketing loan recommendations made by advisory programs are followed where possible. Following these and other assumptions, the net price received by a subscriber to a market advisory program is calculated for the 1995-2004 wheat crops.
Market and farmer benchmarks are developed for the performance evaluations. Three market benchmarks are specified in order to test the sensitivity of performance results to changing benchmark assumptions. The 24-month market benchmark averages market prices for the entire 24-month marketing window. The 16-month market benchmark is computed in a similar fashion, except the first eight months of the marketing window are omitted. The average harvest price represents the average price sold if an equal amount of wheat was priced each day of the harvest window. The farmer benchmark using market prices is constructed using actual amounts sold each month throughout the marketing year (as reported by the USDA) as weights and average monthly cash prices from the applicable cash series. The market and farmer benchmarks are computed using the same assumptions applied to advisory program track records.
The results from this study are similar to those obtained by the AgMAS Project in the analysis of market advisory service performance in corn and soybeans. The advisory program prices in corn and soybeans tended to fall in the middle of the price range, over time, similar to the performance in wheat. However, the proportion of programs beating the various benchmarks was lower in wheat than in corn and soybeans. Additionally, in corn and soybeans, advisory program prices, on average, were higher than the benchmarks. In wheat, this is not the case, only average advisory program prices in hard red winter wheat were higher than the 24-month market benchmark. When examining price and risk, none of the benchmarks dominated the “randomly selected program” in corn and soybeans; however, in wheat many of the benchmarks dominated the random program. Predictability tests also yielded better results in corn and soybeans than in wheat, although not by much. Even though the results from the corn and soybean analysis are better than those in wheat for the market advisory programs, in both studies the programs performed rather poorly. From the data presented in both of the studies it appears that market advisory programs have a difficult time outperforming both the market and farmer benchmarks.