The Marketing Performance of Illinois and Kansas Wheat Farmers

The purpose of this paper is to analyze the marketing performance of wheat farmers in Illinois and Kansas over 1982–2004. The results show that farmer benchmark prices for wheat in Illinois and Kansas fall in the middle third of the price range about half to three-quarters of the time. Consistent with previous studies, this refutes the contention that Illinois and Kansas wheat farmers routinely market the bulk of their wheat crop in the bottom portion of the price range. Tests of the average difference between farmer and market benchmark prices are sensitive to the market benchmark considered. The marketing performance of wheat farmers in Illinois and Kansas is about equal to the market if a 24- or 20-month market benchmark is used, slightly above the market if a 12-month price benchmark is used, and significantly less than the market if the harvest benchmark is used. The sensitivity of marketing performance to the market benchmark considered is explained by the seasonal pattern of prices. While Illinois producers performed slightly better than their counterparts in Kansas, notable differences in performance across these two geographic areas is not observed.benchmarks, Illinois, Kansas, marketing, performance, price, wheat, Agribusiness, Crop Production/Industries, Marketing, Production Economics, Productivity Analysis, Q11, Q13,

Janey\u27s Decision

JANEY dashed in from the kitchen to stop the insistent telephone. In her hand she was still gripping the wooden spoon. Darn that phone! she muttered..

Advisory Service Marketing Profiles for Soybeans over 2002-2004

This report presents marketing profiles and loan deficiency payment/marketing loan gain profiles for the advisory services followed by the AgMAS Project for the 2002, 2003 and 2004 soybean crops. Marketing profiles are constructed by plotting the cumulative net amount priced under each program’s set of recommendations throughout the crop year. Loan deficiency payment/marketing loan gain (LDP/MLG) profiles are constructed by plotting the cumulative percentage of the crop on which the LDP/MLG was claimed during the crop year. Marketing profiles provide information to evaluate the style of advisory services in several ways. The percentage of crop priced is a measure of within-crop year price risk. The higher the proportion of a crop priced, the lower the sensitivity of the farmer’s position value to crop price changes. For example, when 100% of the crop is priced there is no price sensitivity, which means that changes in price do not affect the value of the farmer’s position. On the other hand, when the amount priced is 0%, the value of the farmer’s position will vary in the same proportion as the change in price. Marketing profiles, therefore, allow investigating the evolution of price sensitivity under each service’s set of recommendations along the marketing window. Marketing profiles also provide other useful information. The number of steps in the profile lines and the location of these steps in the marketing window provide information about timing, frequency and size of recommended transactions. It is also possible to determine from the marketing profile figures how intensely a program uses options markets, since when options positions are open the profile line is irregular. In the same way, LDP/MLG profiles provide information about the size and timing of LDP/MLG claims.Agricultural Finance,

Three Essays On Agricultural Futures Traders

This is a comprehensive study of the growth and impact of agricultural futures market traders. The growth of financial investment in commodities has introduced participants and raised both new questions and warranted revisiting old questions; these include the impact on commodity prices, the profitability of traders, and the existence of trading skill. To address these questions twelve commodity markets are chosen to capture the majority of agricultural trading on organized futures markets and encompass the agricultural commodity index trading activity. The data used are from the proprietary large trader database of the Commodity Futures Trading Commission (CFTC) that details individual trader end of day positions and covers the years 2000 to 2009. The growth of index fund investment from $12 billion in 2002 to over$200 billion by 2008 initiated a debate on whether index funds are ???too big??? for the current size of commodity futures markets. Concerns emerged regarding their adverse effects on prices and volatility. The impact of the financial investment of index traders is analyzed using Granger Causality tests. The analysis investigates three different scenarios: (i) aggregated commodity index trader positions impacts on returns or volatility, (ii) changes in returns or volatility effects on aggregate commodity index trader positions, and (iii) disaggregated commodity index trader positions effects on contract returns or volatility during the roll period. Results show index traders do not have a widespread impact on returns or volatility and in some cases actually decrease volatility bringing stability to the marketplace. The futures markets have adjusted to the presence of the new financial participants and continue to provide price discovery and risk management. The results have important implications for the ongoing policy debate surrounding index investment; in particular, the results do not support limiting participation of index fund investors. The returns to traders are analyzed to determine if a risk premium in agricultural futures markets exists, where hedgers pay speculators for protection against adverse price movements. The existence of a risk premium is often touted as a motivation factor for speculative trading. The long, passive index traders that emerged as major participants in 2004 and 2005 provide a natural experiment to determine if na??vely holding positions opposite of hedgers results in positive profits and thereby evidence of a risk premium. Even in the presence of increased prices and volatility that encourage the transfer of risk, no risk premium is found. CITs do not display evidence of receiving a risk premium by earning consistent positive returns but rather experience large losses in aggregate whereas noncommercial traders experience positive profits. The absence of a risk premium may occur because an infinitely elastic supply of speculative services results in the risk premium being bid to zero or the risk absorbing role is usurped by liquidity demands of index traders. Finally, speculative, noncommercial traders are analyzed to determine if they persist in making profits or if profits are randomly generated. The study focuses on three important and representative commodities; corn for field crops, live cattle for livestock, and coffee for soft commodities. Two methods are used to analyze the persistent ability of traders to generate positive outcomes: (i) the first is the Fisher Exact test, a nonparametric two-way winner and loser rank contingency table analysis, and (ii) the second is the testing of trader by magnitude of profits using the rank of trader profits in the first period to identify top and bottom deciles. The results indicate that the top 10% of traders have substantial ability to persistently perform; this is about 5-8% more traders than identified in other studies of agricultural futures traders. The rigorous out-of-sample procedures used in this essay provide compelling evidence of the importance of skill in trader returns, and may help explain their continued presence in futures markets in the absence of a risk premium

Advisory Service Marketing Profiles for Corn over 2002-2004

This report presents marketing profiles and loan deficiency payment/marketing loan gain profiles for the advisory services followed by the AgMAS Project for the 2002, 2003 and 2004 corn crops. Marketing profiles are constructed by plotting the cumulative net amount priced under each program’s set of recommendations throughout the crop year. Loan deficiency payment/marketing loan gain (LDP/MLG) profiles are constructed by plotting the cumulative percentage of the crop on which the LDP/MLG was claimed during the crop year. Marketing profiles provide information to evaluate the style of advisory services in several ways. The percentage of crop priced is a measure of within-crop year price risk. The higher the proportion of a crop priced, the lower the sensitivity of the farmer’s position value to crop price changes. For example, when 100% of the crop is priced there is no price sensitivity, which means that changes in price do not affect the value of the farmer’s position. On the other hand, when the amount priced is 0%, the value of the farmer’s position will vary in the same proportion as the change in price. Marketing profiles, therefore, allow investigating the evolution of price sensitivity under each service’s set of recommendations along the marketing window. Marketing profiles also provide other useful information. The number of steps in the profile lines and the location of these steps in the marketing window provide information about timing, frequency and size of recommended transactions. It is also possible to determine from the marketing profile figures how intensely a program uses options markets, since when options positions are open the profile line is irregular. In the same way, LDP/MLG profiles provide information about the size and timing of LDP/MLG claims.Agricultural Finance,

Long-Term Capital Gains Tax Strategies: Correlated Protective Put Strategy

A reduction in the long-term capital gains tax rate provides investors with new strategies to minimize taxes and protect investment gains.  One such opportunity exists when an investor decides to sell a profitable stock with a holding period of less than one-year, resulting in short-term ordinary taxes.  The investor would find it more beneficial to sell the stock after one-year lapses, resulting in lower long-term capital gain taxes, although the longer holding period exposes the investor to the uncertainty of stock price movement.  A strategy to extend the holding period without excess risk would be to use the protective put option strategy, sometimes referred to as “investment insurance”.  The strategy involves the purchase of a put option to protect against the possible decline in the stock price, to take advantage of the lower long-term capital gains tax rate, and to preserve the upside potential of the stock.  Pursuant to IRS Publication 550, the IRS does not allow the use of a protective put to extend the holding period on the same security considered for sale.  Since the IRS does not allow a direct protective put hedge, this study will explore an alternative strategy involving the purchase of a put on a highly correlated investment to extend the holding period to recognize lower capital gains tax rates.  The paper presents example situations when an investor benefits from utilizing the correlated protective put option strategy