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Efficiency Analysis of Agricultural Market Advisory Services: A Nonlinear Mixed-Integer Programming Approach

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Author Info

  • Silvina M. Cabrini

    ()
    (Department of ACE, University of Illinois at Urbana-Champaign, 305 Mumford Hall, Urbana, Illinois 61822)

  • Brian G. Stark

    ()
    (Department of ACE, University of Illinois at Urbana-Champaign, 305 Mumford Hall, Urbana, Illinois 61822)

  • Hayri Önal

    ()
    (Department of ACE, University of Illinois at Urbana-Champaign, 305 Mumford Hall, Urbana, Illinois 61822)

  • Scott H. Irwin

    ()
    (Department of ACE, University of Illinois at Urbana-Champaign, 305 Mumford Hall, Urbana, Illinois 61822)

  • Darrel L. Good

    ()
    (Department of ACE, University of Illinois at Urbana-Champaign, 305 Mumford Hall, Urbana, Illinois 61822)

  • João Martines-Filho

    ()
    (Department of ACE, University of Illinois at Urbana-Champaign, 305 Mumford Hall, Urbana, Illinois 61822)

Abstract

Professional market advisory services provide specific advice (advisory programs) to grain producers on how to market their commodities, and assist them in their efforts to manage price risk. Previous studies analyzed the effectiveness of individual services and could find only weak evidence that these services help farmers improve their returns beyond market prices. The present study applies portfolio theory to determine an efficient combination of advisory programs using a nonlinear integer programming framework. The optimization results provide some evidence that an efficient portfolio provides significantly greater risk and return benefits compared to individual programs and external benchmarks. In a holdout period analysis, efficient portfolios have superior average return performance, but they fail to dominate the relevant benchmarks in terms of mean and variance. However, these out-of-sample results should be considered cautiously, given the small number of observations available.

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File URL: http://dx.doi.org/10.1287/msom.1040.0043
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Bibliographic Info

Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

Volume (Year): 6 (2004)
Issue (Month): 3 (December)
Pages: 237-252

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Handle: RePEc:inm:ormsom:v:6:y:2004:i:3:p:237-252

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Related research

Keywords: agricultural market advisory services; corn; soybeans; efficient portfolios; nonlinear integer programming;

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Cited by:
  1. Cabrini, Silvina M. & Irwin, Scott H. & Good, Darrel L., 2005. "Efficient Portfolios of Market Advisory Services: An Application of Shrinkage Estimators," 2005 Annual meeting, July 24-27, Providence, RI 19469, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Good, Darrel L. & Irwin, Scott H. & Martines-Filho, Joao & Hagedorn, Lewis A., 2005. "The Pricing Performance of Market Advisory Services in Corn and Soybeans over 1995-2003," AgMAS Project Research Reports 14775, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
  3. Irwin, Scott H. & Good, Darrel L. & Martines-Filho, Joao & Batts, Ryan M., 2006. "The Pricing Performance of Market Advisory Services in Corn and Soybeans Over 1995-2004," AgMAS Project Research Reports 37513, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.

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