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Survey finds more farmers using marketing alternatives

Agriculture.com Staff 07/12/2006 @ 12:51pm

Farmers are savvier about selling grain today than they were a decade ago, according to a Purdue University study.

The survey of about 50 large-scale producers attending Purdue's 2005 Top Farmer Crop Workshop found that farmers not only are utilizing a wider variety of grain marketing practices than a similar survey group in 1994 but also are using those sales techniques for more of their production, according to a Purdue University press release.

Purdue agricultural economists George Patrick and Corinne Alexander conducted the 2005 survey. The pair will present their findings during the 2006 Top Farmer Crop Workshop, which takes place July 16-19 on Purdue's West Lafayette, Ind., campus.

Farmers asked about their marketing preferences in 2005 used a variety of price enhancement and price protection techniques, Patrick said. Price enhancement involves selling grain when market prices are on the high side. Conversely, price protection techniques are attempts to shield a farmer from possible low prices.

"Farmers in general are more concerned about their marketing as time goes on, and they've learned more about these different marketing techniques, so that they feel more comfortable using them," Patrick said.

"What we have found in our survey is that farmers are tending to make quite a bit more use of some of the techniques that are available, regardless of whether they consider them price enhancement or price protection. Farmers can go with cash or spot markets, cash forward contracts, futures hedges, take a position with options, do deferred pricing or look at basis contracts."

More than 95 percent of farmers surveyed in 1994 sold grain on the spot market or through cash forward contracts, by which they enter into an agreement with a buyer on the future delivery and price of their grain.

Those two marketing techniques were still popular in 2005, Patrick said. Less popular in 1994 but gaining acceptance and use by 2005 were other futures-related sales methods.

The percentage of farmers in both surveys who said they used alternative marketing techniques for price enhancement and/or price protection purposes included:

-Futures (price enhancement) - 61.4 percent in '94; 86.4 percent in '05. -Futures hedge (price protection)- 64.6 percent in '94; 86 percent in '05. -Options (price enhancement) - 73.5 percent in '94; 84.1 percent in '05. -Options (price protection) - 69.4 percent in '94; 88.4 percent in '05. -Deferred pricing (price enhancement) - 73.5 percent in '94; 77.3percent in '05. -Deferred pricing (price protection) - 73.5 percent in '94; 78.6 percent in '05. - Basis contract (price enhancement) - 73.5 percent in '94; 93.2 percent in '05. -Basis contract (price protection) - 70.8 percent in '94; 92.9 percent in '05.

Farmers in the 2005 survey not only said they are employing more marketing techniques, but also their understanding of those methods has increased. "Another part of the questionnaire asked farmers whether they wanted additional information about some of the marketing techniques, and there was only a small percentage who felt they needed that additional information," Patrick said.

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