About AgMAS - Agricultural Market Advisory Services

Relevance of the Project

While producers place a high value on market advisory services as a source of market and price information and risk management advice, they have little time or ability to objectively evaluate the large number of advisory services that are available. An objective, third- party evaluation provides valuable information to producers in selecting an appropriate advisory service. The annual pricing performance of services alone can be very valuable information for producers. However, the AgMAS project goes well beyond that objective to include measures of risk, predictability and, uniquely, a comprehensive performance profile of advisory services. Producers can use this profile to select an advisory service to match their own marketing style.

The results of the AgMAS Project address one of the major price risk management challenges of corn, soybean, wheat and hog producers. The results should be of particular value to small- and medium-sized producers who may lack the resources to develop comprehensive price risk management tools and strategies to remain competitive. In addition, the results are expected to provide the empirical foundation for new innovations in pricing contracts offered to producers. Some evidence of this impact can already be seen in new contracts developed by firms such as Diversified Services, a subsidiary of Consolidated Grain and Barge, Cargill and E-markets, that assure producers of receiving the average price for grain over some pre-specified time period. Further research on market advisory service performance and risk will provide a richer empirical foundation for new pricing contracts. For example, contracts that “bundle” a portfolio of marketing approaches could be offered, where the portfolio includes grain marketed by several advisory services and through average price strategies. Such innovations may be especially valuable to small- and medium-sized producers who are prevented from creating such marketing portfolios on their own due to limitations on contract size and cost.

The AgMAS project is multi-commodity in nature, as price risk management for the three primary crop commodities produced in the United States, corn, soybeans and wheat, is addressed. As a result, the research will be applicable to a wide geographic area. Producers in all major producing regions, including the Great Plains, the Midwest and the Southeast, will be able to apply the research results. Importantly, the project also is multi-disciplinary in nature, incorporating extensive methodology on grain marketing and risk management from the field of agricultural economics, performance evaluation from the field of financial economics, survey methodology from the field of marketing and risk perception measurement from the field of psychometrics. In addition, the project is uniquely multi-functional, with both a rigorous research component and an extensive outreach component. In short, the project addresses one of the most important risk management issues facing US crop producers, makes use of the most appropriate methodology from several disciplinary fields, and includes a plan for widely and efficiently disseminating project results.