Will spending more time and/or money on wheat marketing make you a better marketer and increase your income? Will hiring an advisor or subscribing to a marketing newsletter increase your bottom line? The short answer is “Probably not in the way you’d expect.”
When I look back over the last 25 years, I realize I’ve spent hundreds of hours discussing the wheat market with other farmers at bi-weekly marketing meetings and in the coffee shop. I’ve also spent several thousand dollars for my subscription to the White Wheat Report. I’ve regularly sought advice from the coop staff before making sales. I know I’ve enjoyed the social interactions, but has the additional information I learned about conditions in the world wheat markets improved my ability to identify good sales opportunities?
In 1998, the Oregon Wheat Foundation hired Steve Buccola and Yoko Fuji to test WW marketing strategies. After lots of statistical analysis, they concluded we are wasting our time if we spend much effort on marketing. Selling at harvest every year does about as well as more complicated strategies. They recommended we focus on producing wheat.
This is the result that most economists—who believe in the “efficient market” theory—expected. Farmers sell wheat based on the bids of Portland exporters. The exporters’ bids are set by experienced grain traders who have access to much more information than any farmer. If new information becomes available indicating prices are likely to rise or fall, exporters will act quickly to raise or lower their bids. Prices will reflect this new information before farmers become aware of it and no simple strategy should work to forecast prices.
The only way to know the value of time spent studying wheat marketing and/or whether your advisors are providing useful recommendations is to do a test. Compare your actual net returns over the last ten years to the returns you would have received if you had used some simple strategy—say, selling on September 15th each year or selling once a week from harvest through November. One reason I was a fan of Larry Lev’s marketing approach was his willingness to test his strategies against selling the crop at harvest. He was able to show that his “harvest marketing strategy” increases returns by a small amount—about 5% over two decades (see here, here, and here). Unfortunately, the dramatic changes in the wheat market after 2007 have made Larry’s recommendations obsolete.
I doubt the time and money I’ve spent on marketing has improved my ability to forecast wheat prices or to pick the top of the market. However, I believe I have benefited in two other ways. First and most important, attending market meetings often motivated me to stop procrastinating and make sales. Over the years, I’ve sold most of my wheat on Friday mornings right after a marketing meeting at which Chuck, Raleigh or Jeff outlined the reasons why prices could collapse. The most common marketing mistake is holding wheat unsold too long. Being forced to confront the downsides helped overcome my psychological bias toward excess optimism. Raleigh Curtis’s most important teachings were not about predicting prices. His main interest was in psychology and teaching us to act. He wanted us to be better decision makers. If a good price is available any time over the next three years, he wanted us to grab it.
Second, marketing meetings helped me understand hedging and the dramatic way the long-only index funds have changed the wheat market since 2005. During my first thirty years of farming, marketing was simple. We sold the current crop on the cash market and had no good way to price future crops. Base-price contracts greatly expanded our marketing options and attending the meetings helped me understand how to use these new contracts.
Finally, I recommend that you consider giving Kevin Duhling and his marketing service, KD Investors, a try. Kevin grew up on Wapinitia Flats near Maupin and still helps operate his family’s wheat farm. He always had a keen interest in marketing and wrote a marketing newsletter for several years before starting KD Investors. Kevin let me read his newsletter during the last couple of years and I can testify that he is very knowledgeable about futures, hedging, options, and the WW market. He also knows how farmers think and how to spur us into action when the time comes. His service costs 2¢ to 8¢ per bushel (depending on the level of personal attention you want) and might be money well spent. I doubt that Kevin can consistently forecast price movement. If he could, he’d be living very quietly in a mansion in Lake Oswego. However, I know he can help you in both the ways that marketing meetings helped me—by encouraging me to act and by helping me navigate the confusing world of long-only funds and base-price contract.