Preharvest Marketing Strategies Increase Net Returns for Corn and Soybean Growers

Abstract

Grain producers price grain prior to harvest to reduce financial risk and to enhance net returns. Because accomplishing the second objective is debatable, altemative com and soybean preharvest options and hedge marketing strategies were designed to test the hypothesis that preharvest pricing could generate statistically higher average net returns than harvest sales without increasing variability. Weekly seasonal futures price patterns from 1975 to 1994 were used to time marketings. The strategies were applied to Iowa and Ohio model farms. The hypothesis was accepted for some strategies that included options but not for futures-only strategies.I 'n the 1960s, Cootner and Samuelson popularized the random walk theory and .the efficient-market hypothesis. These irnply that prices fluctuate randomly about their intrinsic value and, at any point in time, reflect all available market information. The concept was initially applied to stock markets, which unlike grain are not influenced by seasonal factors related to weather. Using this concept, authors have argued that the optimum investment strategy in the stock market is to routinely buy and hold an index of stocks and bonds rather than attempting to time investments to beat the market (Malkiel, Murphy).During the last thirty years, authors have applied this concept to agricultural futures markets and have conducted marketing efficiency tests (Kamara). Results from these investigations have advanced the debate as to whether preharvest marketing strategies employing hedges and/or options can be used by grain producers to increase profits above those earned through a naive, harvest-time cash marketing strategy. This paper adds to the discussion by examining altemative com and soybean preharvest rnarketing strategies and tests the hypothesis that a set of pre-

The Performance of Agricultural Market Advisory Services in Corn and Soybeans

“…There is little evidence that advisory programs as a group outperform market benchmarks, particularly after considering risk. This supports the view that grain markets (cash, futures, and options) are efficient with respect to the types of marketing strategies available to farmers (e.g., Zulauf and Irwin, 1998) over the view that grain markets are inefficient and provide substantial opportunities for farmers to gain additional profits through marketing (e.g., Wisner, Blue, and Baldwin, 1998). Market advisory services (as a group) appear to have limited access to information not available to other market participants and/or mildly superior analytical skills.…”

Do Agricultural Market Advisory Services Beat the Market? Evidence from the Wheat Market Over 1995-1998

“…The results of the analysis also have implications for the ongoing debate about market efficiency and risk management strategies in agriculture. One view is that grain markets (cash, futures and options) are not efficient and, therefore, provide opportunities for farmers to systematically earn additional profits through marketing (e.g., Wisner, Blue and Baldwin, 1998). The other view is that grain markets are at least efficient with respect to the type of strategies available to farmers (e.g., Zulauf and Irwin, 1998).…”

Risk Management in Agricultural Markets: A Review

“…Wisner, Blue, and Baldwin (1998) argued that preharvest marketing strategies can increase farmers' average returns. They attributed this potential return to a yieldrisk premium.…”

“…The answer remains a subject of debate. Research by Wisner et al (1998), discussed above, found that preharvest use of futures and/or options market strategies could increase average returns for corn and soybeans in relation to sales at harvest or thereafter. In a similar vane, preharvest forward contracting has been found to increase returns in relation to harvest-time sales (e.g., Kolajo, Hurst, & Martin, 1988).…”