A University of Illinois (U of I) study of agricultural marketing services provides insight into how using such services can help growers improve their corn and soybean sales.
U of I Department of Agricultural and Consumer Economics reviewed the some 30 agricultural marketing services (AgMAS) from 1995 through 2005.
Including cash, hedge and other marketing results studied from all of the companies, about 80% of 41 total AgMAS programs had average prices and revenues that were above benchmark levels for Illinois.
The findings were likely close to other regional Corn Belt production areas, says Ed Usset, University of Minnesota grain marketing specialist. He adds that growers could compare the AgMAS study results to the prices they received for their own corn and beans during the period (go to www.farmdoc.uiuc.edu/agmas/index.asp).
Unless you have the time and expertise to be a good marketer, investment in AgMAS could result in stronger profit potential, Usset says.
Darrel Good, U of I agricultural economist and part of the AgMAS research team, agrees. “Producers who consistently under perform in terms of average price received could benefit from the use of the services,” he says.
“AgMAS net advisory prices and benchmarks are designed to reflect ‘real-world’ marketing conditions,” says Good. “Prices are stated on a harvest-equivalent basis and adjusted to include physical storage charges, shrinkage charges and interest opportunity costs.”
To gauge AgMAS results, the study looked at the average price offered by the market over the marketing window of a representative farmer who follows advisory program recommendations. To help account for uncertainties involved in measuring prices received by growers, both a 24-month and a 20-month market benchmark were used.
Reflecting the prices seen in corn markets in 2004, the 24-month benchmark was $2.19/bu., with the 20-month at $2.15. The average AgMAS corn price was $2.30, with the maximum at $2.70 and the minimum at $1.96.
For soybeans, the 24-month benchmark was $5.90/bu., with the 20-month at $5.95. The AgMAS average was $6.07. The maximum was $7.45 and the minimum at $5.53.
The benchmark for acreage revenue returns was $363 for 24 months and $361 for 20 months. The AgMAS average was $377, with the maximum at $448 and minimum at $345.
In the U of I study, revenues from both corn and soybeans were combined to net the acreage returns. AgResource Co. of Chicago had the highest revenue/acre in the AgMAS 2004 results, at $448/acre.
Second in the year's study was Progressive Ag of Fargo, ND, with $431 revenue. Third was Utterback Marketing Services of New Richmond, ID, with a $403 return.
Performance patterns were all over the board from one service to the next on the revenue returns. While the maximum was $448, the minimum was $345. But the leaders in the AgMAS study showed well the previous years. Progressive Ag was first in 2002 and 2003. AgResource was second in 2003.
IN MEASURING HOW AgMAS companies did in corn marketing, Progressive Ag was the leader of the pack with a $2.70/bu. average. AgResource was second at $2.65.
Third was Agri-Visor at $2.65. Those compared to the benchmark prices of a $2.19 and $2.15. AgResources was first in 2003, and Progressive was second.
Compared to the benchmarks for soybeans ($5.90/bu. and $5.95), the study-leading $7.45 average price from AgResource was impressive in the AgMAS study. Progressive Ag followed that at $6.66 and Agri-Visor at $6.24. Progressive was first the previous year, and Utterback was second.
Usset hasn't been surprised that AgMAS companies have sometimes been so widespread on their averages. “To date, no one appears to have unlocked the door to a consistent above-average performance,” he says. “Even the pros have good and bad years.”
Good adds, “It is difficult to beat the market. Past performance in the most recent year is not a good predictor of performance in the succeeding year.”
Brock & Associates has been either first or second in three of the 10 years of the AgMAS study. Brock consultant Jason Moss says that selecting a marketing service should involve its track record as well as how well the grower relates to the service.
“It's often prudent to utilize specialized expertise to most effectively manage a business,” he says. “Marketing risk-management professionals are no different. For example, most producers hire accountants. They don't necessarily make business decisions for them like a fellow business partner, but do recommend specific tax-planning strategies.
“If the IRS tax code rivaled the commodity markets in entertainment value, or if tax law contained as simple a platform to gamble as the grain markets, most farmers would do their own taxes,” says Moss. “But, marketing a crop is one aspect of the business where being correct does not have to come from deciding correctly.”
Usset says that with the current price volatility, growers who have shunned marketing services in the past might reconsider. “Some people don't enjoy marketing, and it's OK to seek the help of a service,” he says.
“I don't do my own taxes, even though I could. I could even fix plumbing leaks in my house, but I prefer to call a plumber,” says Usset.
“When selecting an advisor, decide if you're comfortable with the general approach of an advisory service. Some services are very active and aggressive. Some are not,” he says.
With the major influx of fund investors into the commodity markets and oil prices causing corn and bean prices to be more volatile than ever, “Any seasonal price pattern that has developed is probably no longer valid,” Good says. “The traditional pattern based on the production cycle is now influenced to a greater degree by fluctuating demand conditions.”
Usset says that while some historical trends might be altered, they are not the total reasoning behind price trends.
“We continue to try to make the argument that things have changed,” he says. “I'm not buying it because all patterns derive from the production cycle, which has not changed. History is just one indicator for consideration in grain pricing tendencies, but I will continue to use these indicators.”