Market Efficiency and Marketing to Enhance Income of Crop Producers

Zulauf, Carl R.; Irwin, Scott H.

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Description

Title

Market Efficiency and Marketing to Enhance Income of Crop Producers

Author(s)

• Zulauf, Carl R.
• Irwin, Scott H.

Issue Date

1997-10

Keyword(s)

crop marketing

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.

Publisher

Office for Futures and Options Research, Department of Agricultural Economics, College of Agricultural, Consumer, and Environmental Sciences at the University of Illinois at Urbana-Champaign

Series/Report Name or Number

OFOR Working Paper Series, no. 97-04

Type of Resource

text

Language

eng

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http://hdl.handle.net/2142/4058

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