The Role of Market Advisory Services in Crop Marketing and Risk Management:
A Preliminary Report of Survey Results
M.E. Pennings, Darrel L.
Good, Scott H. Irwin
2001 by Joost M.E. Pennings, Darrel Good, Scott H. Irwin and Jennifer
K. Gomez. 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.
producers continue to identify price and income risk as one of their greatest
management challenges. Using a survey of midwestern grain producers,
Patrick and Ullerich (1996) report that price variability is the highest
rated source of risk by crop producers. Coble, Patrick, Knight and Baquet
(1999) survey producers in Indiana, Mississippi, Nebraska and Texas and
find that crop price variability, by a wide margin, is rated as having
the most potential to affect farm income. Norvell and Lattz (1999) survey
a random sample of Illinois producers and show that price and income risk
management rank second (following computer education and training) among
ten business categories in which producers identify needs for additional
consulting services. The desire for greater assistance with price and
income risk management is not limited to large farms, as the proportion
of producers expressing this preference actually is highest for those
operating medium-sized Illinois farms (500-999 acres).
have a variety of price and income risk management tools at their disposal.
These include numerous public and private sources of market information;
futures and options contracts; an increasing number of yield and revenue
insurance instruments and a new generation of cash indexing contracts.
While producers value and use these tools, they place an even higher value
on market advisory services as a source of price risk management information
and advice. In a rating of seventeen risk management information sources,
Patrick and Ullerich (1996) report that the rank of market advisors and
computerized information services is surpassed only by farm records.
Schroeder, Parcell, Kastens and Dhuyvetter (1998), find that a sample
of Kansas producers rank market advisory services as the number one source
of information for developing price expectations. Norvell and Lattz (1999)
find that twenty-one percent of Illinois respondents currently use marketing
consultants, and that such consultants tie for first (with accountants),
in a list of seven, as likely to be most important to their business in
the future. Among mid-sized producers, marketing consultants are ranked
first as likely to be important in the future.
1994, the Agricultural Market Advisory Service (AgMAS) Project was initiated,
with the goal of providing objective and comprehensive evaluations of
market advisory services for crop producers. Since its inception, the
AgMAS project has been collecting real-time pricing recommendations each
crop year for about twenty-five market advisory services. Martines-Filho,
Good and Irwin (2000) report pricing performance results for corn and
soybeans for the 1995 through 1999 crop years. Martines-Filho, Good and
Irwin (2001) report results for wheat over the same crop years. The results
of this research indicate a modest ability for advisory services to outperform
the soybean market, less ability to outperform the corn market, and significant
under-performance in the wheat market. In addition, there is little evidence
that pricing performance is predictable from year-to-year and services
that do outperform the average benchmark over time tend to exhibit more
risk than the benchmark price.
Project research to date has investigated the performance of only one,
admittedly important, service provided by market advisors. In addition
to providing subscribers with specific marketing recommendations, the
services provide other "products" to their subscribers. These
products include market-related data, such as USDA reports; market commentary,
including interpretation of market related data; price analysis and outlook;
and general marketing strategy.
not known how subscribers make use of the various products provided by
market advisory services. It is possible that some subscribers implement
the specific pricing recommendations of the advisory service, paying little
attention to the commentary or analysis. Others may use the pricing recommendations
of the services to help time pricing decisions, but do not implement specific
recommendations. Still others may formulate their own marketing strategies,
but make use of the market data, commentary, and analysis provided by
advisory services to implement those strategies. It is also not known
how subscribers combine price risk management with production risk management.
The purpose of this report is to provide a preliminary summary of the
results of a survey designed to help answer the questions about subscriber
use of market advisory services. Importantly, this research is a cooperative
partnership between the University of Illinois and the Data Transmission
Network. The survey participants are commercial producers of major grain,
oilseed and fiber crops, representing important agricultural areas of
the US. The survey has three broad objectives, including 1) how US producers
perceive the riskiness of various aspects of farming; 2) how US producers
manage farm business risk, and 3) how US producers select and use market
survey was sent to a sample of 3,990 farmers in January 2000. The sample
was drawn from those producers who were current subscribers to Data Transmission
Network (DTN), a satellite information delivery service. Approximately
3,000 of those who received the survey were also current subscribers to
one or more of ten selected DTN “premium services”. The list of ten premium
services represented the agricultural market advisory services most frequently
subscribed to by DTN customers. These premium services included Ag Resource,
Ag Line by Doane, Agri-Visor, Allendale, Brock and Associates, CommStock
Investments, Freese-Notis, Harris-Elliot, Pro Farmer and Stewart Peterson.
Approximately 1,000 survey recipients were not current subscribers to
any of DTN’s premium services although some subscribed to other advisory
services. The survey forms for “subscribers” and “non-subscribers” are
included in Appendices A and B,
respectively, at the end of this report.
was sent to producers in the Midwest, Great Plains and Southeast on January
21, 2000, with postcard reminders sent two weeks later, and a second mailing
of the survey sent to non-respondents two weeks after that. A total of
1,399 completed surveys were returned, for a 35 percent response rate.
The response rate was almost identical for those currently subscribing
to a premium service and for those not subscribing to a premium service.
The response rate was not significantly different by region of the country.
information – size of farm, age of operation, crops grown, and livestock
produced – is available for each of the recipients of the survey. Based
on this information, there is no significant difference between respondents
and non-respondents in terms of the type of crops produced (corn, soybeans,
wheat, grain sorghum, cotton, or rice). There is a significant difference
between respondents and non-respondents in terms of average farm size
and age of the operator. Respondents operate an average of 2,000 acres
and non- respondents operate an average of 1,500 acres. The average age
of respondents is 35, compared to the average of 45 for non-respondents.
tables summarize the responses to the survey. The responses of current
subscribers to a DTN premium service are compared to non-subscribers where
appropriate. Tables 1 through 4 reflect
the use of some risk management tools by the respondents. Tables
5 through 12 summarize responses to questions about risk perception
and business management practices. Tables 13
through 26 summarize responses relative to source of market information
and, for current premium service subscribers, how they value and use market
advisory services. Tables 27 and 28 reflect
attitudes of those not currently subscribing to a DTN premium service
about market advisory services and satellite delivery systems. Tables
29 and 31 report the probabilities of respondents using market advisory
services under various circumstances. Table
30 reports perceptions of respondents about the expense of market
advisory services and Table 32 reflects
the percentage of respondents who currently hire someone to market any
or all of their crops.
presented here are summary in nature and are not accompanied by any detailed
analysis. That analysis is being conducted and will be reported in subsequent
Coble, K.H., G.F.
Patrick, T.O. Knight, and A.E. Baquet. “Crop Producer Risk Management
Survey: A Preliminary Summary of Selected Data.” Information Report
99-001, Department of Agricultural Economics, Mississippi State University,
D.L. Good and S.H. Irwin. “1999 Pricing Performance of Market Advisory
Services for Wheat.” AgMAS Project Research Report 2001-03, April 2001
D.L. Good and S.H. Irwin. “1999 Pricing Performance of Market Advisory
Services for Corn and Soybeans.” AgMAS Project Research Report 2000-04,
Norvell, J. M. and
D. H. Lattz. “Value-Added Crops, GPS Technology and Consultant Survey:
Summary of a 1998 Survey to Illinois Farmers.” Working Paper, College
of Agricultural, Consumer, and Environmental Sciences, University of Illinois,
Patrick, G.F. and
S. Ullerich. "Information Sources and Risk Attitudes of Large-Scale
Farmers, Farm Managers, and Agricultural Bankers." Agribusiness
S.H. Irwin and D.L. Good. “Surveying Farmers: A Case Study.” Review
of Agricultural Economics 23(2001): forthcoming.
Schroeder, T. C.,
J. L. Parcell, T. Kastens, and K. C. Dhuyvetter. “Perceptions of
Marketing Strategies: Producers Versus Extension Economists.” Journal
of Agricultural and Resource Economics 23(1):279-293, 1998.
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