Reference Dependence in Commodity Marketing: Understanding Differences in Marketing Outcomes Among Farmers

This paper examines how heterogeneity in reference prices and beliefs shapes farmers' grain marketing behavior and realized prices. Using panel data from the Illinois Farm Business Farm Management (FBFM) program, we extend the reference dependence framework to a cross-sectional context, relaxing the common assumption of homogeneous reference prices across producers. Employing a finite mixture model with fixed effects, we identify distinct behavioral types that respond differently to identical price signals. We further construct a behavioral proxy for belief bias based on farmers' past responsiveness to price changes, enabling us to disentangle belief heterogeneity from reference dependence. Our results show pronounced asymmetric marketing behavior around individualized reference points. Both the per-bushel cost of production and the previous year's price received emerge as a salient benchmark: farmers sell more when prices exceed the reference point and withhold sales when prices fall below. These findings support the presence of reference-dependent preferences and highlight the importance of incorporating individual financial conditions into behavioral models and the design of marketing advisory services.