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

  • 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)

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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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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