Limited evidence is found that advisory programs, as a group, outperform market benchmarks, particularly after considering risk, according to a new study from University of Illinois Extension.
The report, "The Pricing Performance of Market Advisory Services in Corn and Soybeans Over 1994-2004," includes information from 1995 through 2004 for both corn and soybeans and compares market advisory service performance against market and farmer benchmark prices.
The study addresses two basis questions: Do market advisory services, on average, outperform appropriate benchmarks, and do market advisory services exhibit persistence in their performance from year to year?
Darrel Good, U of I Extension marketing specialist and co-author, says, "This study shows that the frequency of advisory programs pricing in the top third of the season price range over 1995-2004 is modest, between 17 and 25% for corn and 17 and 19% for soybeans.
"The evidence is more positive with respect to farmer benchmarks, even after taking risk into account. For example, the average advisory return relative to farmer benchmarks is $8 to $12 per acre with only a marginal increase in risk," Good explains. "This raises the possibility that even though advisory services do not 'beat the market,' they nonetheless provide the opportunity for some farmers to improve performance relative to the market."
Good says research shows that it is difficult to predict the year-to-year pricing performance of advisory programs based on past pricing performance. However, there is some evidence that performance is more predictable over longer time horizons, particularly at the extremes of performance rankings.
"Two important issues need to be emphasized relative to the findings of the study," he notes. "First, the performance results are presented for market advisory programs as a group. This is a different issue than the pricing performance of a particular advisory program.
"Second, farmers subscribe to market advisory programs for a variety of reasons. It is possible that advisory programs provide valuable information and analysis to farmer-subscribers, yet fail to exhibit superior pricing performance" he adds.