Kim’s web site
• agecon.okstate.edu/anderson
KCBT July “08
$5,000 per $1 move
June 2008 wheat delivery prices
• KCBT July wheat contract price
• Elevator forward contract basis
• Forward contract offer
$8.34
-$0.45
$7.89
• Buy KCBT July 840 call
• FC/Call minimum price
-$0.70
$7.19
• Buy KCBT July 830 Put (830¢ - 70¢) $7.60
• Expected June 2008 basis
-$0.40
• Expected minimum price
$7.20
KCBT July “08
$5,000 per $1 move
Worrying about
Marketing is waste
of time!
Kim Anderson
Crop Marketing Specialist
“Economics is not an exact science.
It consists merely of laws of probability.
The most prudent investor is one who
pursues a course of action which is
‘normally’ right and who avoids acts
and policies which are ‘normally’
wrong.”
L.L.B. Angus
MARKET EFFICIENCY & PRICING
An efficient market is a market
which uses all available
information to determine price.
MARKET EFFICIENCY & PRICING
Profit is earned by acquiring
information relevant to the
market before anyone else in
the market.
MARKET EFFICIENCY & PRICING
Profit is earned by analyzing existing
information better than the collective
analytical ability of the market.
MARKET EFFICIENCY & PRICING
Few people/companies consistently
earn large profits from pricing
decisions and these people earn
their profits from information and
analysis.
MARKET EFFICIENCY & PRICING
Make decisions based on probabilities.
Decisions based on what is normally
right and avoid what is normally
wrong.
http://www.agecon.ksu.edu/
The Performance of Market Advisory
Services in Wheat
Ryan M. Batts, Scott H. Irwin, and
Darrel L. Good
What is Your Greatest Source of
Satisfaction as a Farmer?
Planning and Growing Crops
45%
Operating or Repairing Machinery 20%
Working with Livestock
13%
Other
10%
Management and Finance
8%
Marketing and Buying
4%
Source: Online Poll, agriculture.com, July 14, 2005
Many Farmers Turn to Market Advisory
Services for Help
• Numerous surveys highlight
the popularity of market
advisory services among
farmers
• Research shows that
advisory services have
substantial influence on the
use of forward pricing by
farmers
A typical advisory service
performance claim:
“Marketing has always
been a difficult task;
however, we believe
our time tested
program of cash sales,
along with option
strategies, can help
you consistently
approach the
reasonable goal of
marketing your crop
and livestock in the
TOP THIRD of prices
that are available to
you in any year.”
Market Advisory Services
• Central focus is to provide
farmers with market
information, analysis and
specific marketing
recommendations
• Recommendations may
involve:
– Cash market transactions
– Forward market
transactions
– Futures contract positions
– Options contract positions
Types of Advisory Service Programs
• Basic program: provides
subscribers with market
analysis, information and
generic marketing
recommendations
• Customized program:
provides marketing
recommendations that are
tailored to individual client
needs, direct access to
market analysts, in
addition to basic services
Cost:
$150$1,500/year
Cost:
3-5¢/bushel
HRW Net Advisory Prices, 1995-2004
Crop Years
Net Advisory Price ($/bu.)
6.00
5.00
4.00
3.00
2.00
1.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Crop Year
Average Pricing Performance of Advisory
Programs in HRW, 1995-2004 Crop Years
3.25
3.20
3.20
HRW Price ($/bu.)
3.15
3.11
3.10
3.07
3.05
3.05
3.02
3.00
2.95
2.90
Advisors
24-mo.
16-mo.
Harvest
Benchmarks
Farmer
HRW Winner-Loser Results for all Pairs
of Non-Overlapping Crop Years,
1995-2004
Winner Year 2 Loser Year 2
Winner Year 1
56%
44%
Loser Year 1
46%
54%
100%
100%
Based on Fisher’s Exact Test, cell counts
are insignificantly different from a
random distribution
“Longer-Term” Predictability by Groups
Performance Group
in 1995-1998
Top Third
Middle Third
Bottom Third
Top Third minus Bottom Third
Top Fourth
Second Fourth
Third Fourth
Bottom Fourth
Top Fourth minus Bottom Fourth
Top Two Programs
Bottom Two Programs
Top Two minus Bottom Two
Average Average
Price
Price
1995-1999 2001-2004
---$/bu.--3.35
2.97
3.13
2.99
2.84
3.10
Average Average
Revenue Revenue
1995-1999 2001-2004
---$/ac.--119
101
111
100
102
104
0.51
-0.13
17
-2
3.40
3.21
3.01
2.77
3.01
2.96
3.05
3.07
121
113
106
101
101
100
103
103
0.63
-0.06
20
-2
3.49
2.75
2.98
3.02
125
100
101
102
0.74
-0.05
25
-1
Conclusions
• No evidence that advisory services
consistently perform in the top-third
of the price range in wheat
• No evidence that advisory services
consistently beat market or farmer
benchmarks in wheat
• No evidence that pricing
performance of advisory services in
wheat can be predicted across crop
years
Why is the performance of advisory
programs so poor in wheat?
Mechanical Marketing
Strategies
Kim B. Anderson
Oklahoma State University
H:/anderso/compserv/mechmktg.ppt
Pre-harvest Marketing Strategies
Wheat
Crop Year
Sell
20-Jun
1-Apr FC
+
20-Jun Ave
1-Apr
Hedge
Offset 20-Jun
1-Apr Buy @$
Put/Offset &
Sell 20-Jun
1-Apr FC +
Buy @$ Call
Offset 20-Jun
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
3.58
3.84
2.91
2.52
3.26
2.47
2.98
3.74
5.47
3.09
2.61
2.28
2.53
2.79
2.72
2.72
3.40
3.17
4.45
5.41
3.11
3.75
2.99
2.58
3.27
2.60
2.95
3.42
5.18
3.38
2.79
2.42
2.57
2.88
2.87
2.70
3.61
3.05
4.10
4.70
2.72
3.81
3.08
2.68
3.28
2.64
2.90
3.05
4.77
3.58
2.87
2.57
2.42
2.84
3.02
2.73
3.60
3.10
4.16
4.70
3.29
3.64
3.01
2.56
3.12
2.59
2.95
3.59
5.19
3.36
2.73
2.43
2.38
2.74
2.73
2.67
3.49
3.07
4.33
5.28
3.29
3.51
2.98
2.52
3.12
2.64
2.98
3.64
5.31
3.44
2.87
2.39
2.53
2.85
2.80
2.65
3.49
3.02
4.26
5.30
H:/anderso/compserv/mechmktg.ppt
Pre-harvest Marketing Strategies
Wheat
Crop Year
98-07
Avg
Sell
20-Jun
3.24
1-Apr FC
+
20-Jun Ave
3.19
88-07
3.22 3.20
Avg
1-Apr
Hedge
Offset 20-Jun
1-Apr Buy @$
Put/Offset &
Sell 20-Jun
1-Apr FC +
Buy @$ Call
Offset 20-Jun
3.23
3.22
3.24
3.18
3.22
3.23
H:/anderso/compserv/mechmktg.ppt
Post-harvest Marketing Strategies
Wheat
Crop Year
Sell
20-Jun
Net
15-Oct
Sell 1/3
20-Jun;15-Oct
& 15-Dec
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
3.58
3.84
2.91
2.52
3.26
2.47
2.98
3.74
5.47
3.09
2.61
2.28
2.53
2.79
3.00
2.72
3.40
3.17
4.45
5.41
3.52
3.52
2.19
3.06
3.01
2.80
3.64
4.59
3.98
3.23
2.47
1.97
2.60
2.42
4.35
2.97
3.10
3.34
5.00
7.57
3.52
3.61
2.37
2.98
3.12
2.87
3.33
4.30
4.35
3.04
2.47
2.00
2.51
2.53
3.64
3.04
3.17
3.23
4.61
7.33
Sell 20-Jun
Buy @$ Call
Offset 15-Nov
Net
Storage
& Hedge
3.11
3.64
2.77
3.00
3.04
3.00
3.22
4.41
5.12
2.87
2.43
2.05
2.32
2.61
3.80
3.18
3.12
2.93
4.43
7.67
3.59
3.78
2.93
2.44
3.21
2.43
2.89
3.58
4.96
3.07
2.64
1.98
2.68
2.91
2.99
2.82
3.61
3.09
4.34
5.23
H:/anderso/compserv/mechmktg.ppt
Post-harvest Marketing Strategies
Wheat
Crop Year
98-07
Avg
Sell
20-Jun
3.24
Net
15-Oct
3.58
88-07
Avg 3.22 3.35
Sell 1/3
20-Jun;15-Oct
& 15-Dec
Sell 20-Jun
Buy @$ Call
Offset 15-Nov
Net
Storage
& Hedge
3.44
3.45
3.21
3.30
3.32
2.14
H:/anderso/compserv/mechmktg.ppt
Conclusions
• Mechanical strategies will produce a relatively good
net price for a minimum amount of effort.
• The differences between one marketing strategy and
another are small but slightly favor selling at harvest.
• The good news for producers that enjoy marketing
and that enjoy keeping up with price trends, cycles
and patterns is that efforts to “beat the market” will,
on average, only cost a few cents a bushel.
H:/anderso/compserv/mechmktg.ppt
Conclusions
• How sell wheat (crops).
• Mechanical marketing strategies.
• Merchandise
H:/anderso/compserv/mechmktg.ppt
Oklahoma Monthly Avg. Price:
June 1998 – May 2007
$3.60
$3.40
Actual Price
$3.20
$3.00
Price - Carry
$2.80
$2.60
$2.40
$2.20
$2.00
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
H:/anderso/compserv/mechmktg.ppt
Oklahoma Monthly Avg. Price:
June 1985 – May 2005
$3.50
$3.40
Actual Price
$3.30
$3.20
$3.10
Price - Carry
$3.00
$2.90
$2.80
$2.70
$2.60
$2.50
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
H:/anderso/compserv/mechmktg.ppt
Go Pokes
H:/anderso/compserv/mechmktg.ppt
Proof that Oklahoma Wheat Producers
Do A Good Job of Marketing
Dr. Kim Anderson & Dr. Wade Brorsen
Department of Agricultural Economics
Oklahoma State University
Stillwater, Oklahoma
“Most producers
sell in the bottom
one - third of the
market”
All prices were adjusted for storage and
interest.
Storage: $0.00085/Day
Interest: Prime + 2%.
Average Price Received
1992-2001
Oklahoma
Producer
Elevator 1
$3.03
$3.39
Elevator 2
$2.96
$3.05
Elevator 3
$3.02
$3.13
Percent of sales in bottom 1/3
1/3
Elevator 1
Elevator 2
Elevator 3
24%
20%
20%
Percent of sells in top 2/3, 1/2
or 1/3 of market.
Elevator 1
Elevator 2
Elevator 3
2/3
76%
80%
80%
1/2
63%
67%
66%
1/3
53%
49%
49%
Conclusions
1. Only 20-25% of sales in bottom third
of market.
2. Nearly 50% of sales in top third of
market.
3. Producers doing relatively good job of
marketing wheat.
Worrying about
marketing is a waste of
time!
• Does not mean that you should ignore
marketing.
• You can possibility increase profit from
other management decisions.
Worrying about
marketing is a waste of
time!
• Means that it is extremely difficult to
increase profit from marketing.
• You may decrease profit by marketing.
Kim’s marketing
philosophy
Develop a simple marketing plan
Write the marketing plan down
Follow the plan
Do not listen to outlook economist
Kim Anderson
405.744.9817
kim.anderson@okstate.edu
agecon.okstate.edu/anderson