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Market Efficiency and Marketing to Enhance Income of Crop Producers

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Author Info
Carl R. Zulauf (The Ohio State University)
Scott H. Irwin (The University of Illinois at Urbana-Champaign)

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Abstract

Recent changes in farm policy have renewed interest in using marketing strategies based on futures and options markets to enhance the income of field crop producers. This article reviews the literature surrounding the dominant academic theory of the behavior of futures and options markets, the efficient market hypothesis. The following conclusion is reached: while individuals can beat the market, few can consistently do so. This conclusion is consistent with Grossman and Stiglitz's model of market efficiency in which individuals who consistently earn trading returns have superior access to information or superior analytical ability. One implication is that, with few exceptions, the crop producers who survive will be those with the lowest cost of production since efforts to improve revenue through better marketing will have limited success. There do appear to be some successful marketing strategies. One is to base storage decisions on when a producer harvests the crop relative to the national harvest of the crop. Another is to base storage decisions on whether the current basis exceeds the cost of storage, and then to use hedging to assure an expected positive return.

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Publisher Info
Paper provided by EconWPA in its series Finance with number 9711004.

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Length: 47 pages
Date of creation: 19 Nov 1997
Date of revision:
Handle: RePEc:wpa:wuwpfi:9711004

Note: Type of Document - pdf; prepared on PC; to print on HP Laserjet; pages: 47; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 97-04. For a complete list of OFOR working papers see
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Related research
Keywords: Market Efficiency; marketing strategies; futures; options;

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Leuthold, Raymond M & Garcia, Philip & Lu, Richard, 1994. "The Returns and Forecasting Ability of Large Traders in the Frozen Pork Bellies Futures Market," Journal of Business, University of Chicago Press, vol. 67(3), pages 459-73, July. [Downloadable!] (restricted)
  2. Lukac, Louis P & Brorsen, B Wade & Irwin, Scott H, 1988. "A Test of Futures Market Disequilibrium Using Twelve Different Technical Trading Systems," Applied Economics, Taylor and Francis Journals, vol. 20(5), pages 623-39, May.
  3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May. [Downloadable!] (restricted)
  4. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December. [Downloadable!] (restricted)
  5. Leroy, S.F., 1989. "Efficient Capital Markets And Martingales," University of California at Santa Barbara, Economics Working Paper Series 13-89, Department of Economics, UC Santa Barbara.
  6. Bessembinder, Hendrik & Chan, Kalok, 1992. "Time-varying risk premia and forecastable returns in futures markets," Journal of Financial Economics, Elsevier, vol. 32(2), pages 169-193, October. [Downloadable!] (restricted)
  7. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  8. Patel, Jayendu & Zeckhauser, Richard & Hendricks, Darryll, 1991. "The Rationality Struggle: Illustrations from Financial Markets," American Economic Review, American Economic Association, vol. 81(2), pages 232-36, May. [Downloadable!] (restricted)
  9. Hartzmark, Michael L, 1987. "Returns to Individual Traders of Futures: Aggregate Results," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1292-1306, December. [Downloadable!] (restricted)
  10. Lukac, Louis P & Brorsen, B Wade, 1990. "A Comprehensive Test of Futures Market Disequilibrium," The Financial Review, Eastern Finance Association, vol. 25(4), pages 593-622, November.
  11. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101. [Downloadable!] (restricted)
  12. Garcia, Philip & Hudson, Michael A. & Waller, Mark L., 1988. "The Pricing Efficiency Of Agricultural Futures Markets: An Analysis Of Previous Research Results," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 20(01), July. [Downloadable!]
  13. Phillips, Gordon M & Weiner, Robert J, 1994. "Information and Normal Backwardation as Determinants of Trading Performance: Evidence from the North Sea Oil Forward Market," Economic Journal, Royal Economic Society, vol. 104(422), pages 76-95, January. [Downloadable!] (restricted)
  14. Bessler, David A. & Brandt, Jon A., 1992. "An analysis of forecasts of livestock prices," Journal of Economic Behavior & Organization, Elsevier, vol. 18(2), pages 249-263, July. [Downloadable!] (restricted)
  15. Allen, P. Geoffrey, 1994. "Economic forecasting in agriculture," International Journal of Forecasting, Elsevier, vol. 10(1), pages 81-135, June. [Downloadable!] (restricted)
  16. Brorsen, B. Wade & Irwin, Scott H., 1996. "Improving The Relevance Of Research On Price Forecasting And Marketing Strategies," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 25(1), April. [Downloadable!]
  17. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December. [Downloadable!] (restricted)
  18. Bessembinder, Hendrik, 1992. "Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(4), pages 637-67. [Downloadable!] (restricted)
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  1. Jirik, Mark A. & Irwin, Scott H. & Good, Darrel L. & Martines-Filho, Joao & Jackson, Thomas E., 2001. "Do Agricultural Market Advisory Services Beat The Market? Evidence From The Wheat Market Over 1995-1998," AgMAS Project Research Reports 14778, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics. [Downloadable!]
  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. [Downloadable!]
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