Explaining Differences in Prices Received by Farmers: Testing Theory Based on Actual Farmer Transactions

All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. 1 The efficient market theorem states that market prices reflect all available information (Fama). Therefore, in the absence of transaction costs expected returns will be the same no matter when grain is priced. The only theoretical way that farmers can out perform the market is to get information first or to have superior analytical ability. More than likely, farmers will not have either. If the theory does not hold then large producers would be justified in purchasing private information to receive a higher price. Producers have a number of choices of what to do when it comes to marketing their wheat. Producers can either sell before harvest, at harvest, or after harvest. There is little known on how producers make their decisions, because few studies have examined actual producer data (McNew and Musser; and Slusher). Brorsen and Irwin call for researchers to start making use of actual data to understand what producers are doing