THE PRICING PERFORMANCE OF MARKET ADVISORY SERVICES IN CORN AND SOYBEANS OVER 1995-2001

The purpose of this research report is to evaluate the pricing performance of market advisory services for the 1995-2001 corn and soybean crops. The results for 1995-2000 were released in earlier AgMAS research reports, while results for the 2001 crop year are new. 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 facing a representative central Illinois corn and soybean farmer. Several key assumptions are: i) with a few exceptions, the marketing window for a crop year runs from September before harvest through August after harvest, ii) on-farm or commercial physical storage costs, as well as interest opportunity costs, are charged to post-harvest sales, iii) brokerage costs are subtracted for all futures and options transactions and iv) Commodity Credit Corporation (CCC) marketing loan recommendations made by advisory programs are followed wherever feasible. Based on these and other assumptions, the net price received by a subscriber to market advisory programs is calculated for the 1995-2001 corn and soybean crops. Market and farmer benchmarks are developed for the performance evaluations. Two market benchmarks are specified in order to test the fragility of performance results to changing benchmark assumptions. The 24-month market benchmark averages market prices for the entire 24-month marketing window. The 20-month market benchmark is computed in a similar fashion, except the first four months of the marketing window are omitted. The farmer benchmark is based upon the USDA average price received series for corn and soybeans in Illinois. The same assumptions applied to advisory program track records are used when computing the market and farmer benchmarks. Four basic indicators of performance are applied to advisory program prices and revenues over 1995-2001. The results provide limited evidence that advisory programs as a group outperform market benchmarks, particularly after considering risk. In contrast, more evidence exists that advisory programs as a group outperform the farmer benchmark, even after taking risk into account. Little evidence is found that advisory programs with superior performance can be usefully selected based on past performance. The results raise the intriguing possibility that even though advisory services do not appear to "beat the market," they nonetheless provide an opportunity for farmers to improve marketing performance because farmers under-perform the market. Mirroring debates about stock investing, the relevant issue is whether farmers can most effectively improve marketing performance by pursuing "active" strategies, like those recommended by advisory services, or "passive" strategies, which involve routinely spreading sales across the marketing window