Average Price Performance

The second pricing performance indicator takes into account both direction and magnitude. Here, the average net price received from an advisory service is compared to the market benchmark. Performance is measured by net price received minus the benchmark for each service. A positive difference indicates that an advisory service received a price above the benchmark. Next, these differences are averaged across each quarter for a program and then within each quarter across all advisory programs.

Unlike grains that may only have tests conducted yearly, the average differences for live cattle and margin hedging may be computed on a quarterly basis in conjunction with the

quarterly marketing windows. In comparison to grains, this results in a larger sample size with 40 marketing quarters available for observation in live cattle and 22 marketing quarters in margin hedging.

A matched sample t-test of zero difference is used to assess statistical significance. The t-statistic is,

(11)

where is the average difference across n marketing quarters. is the estimated standard

deviation of the differences across n marketing quarters in the sample. This t-statistic follows a t-distribution with n-1 degrees of freedom. The two-tail p-value represents the probability of

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observing the absolute value of the t-statistic or higher across many random samples. With a p- value of 0.05 or smaller one may conclude that the average differences are not equal to zero.

Table 27 presents results on the average price performance for each quarter averaged across all programs for live cattle, feeder cattle, feed and margin hedging. For live cattle, average price performance ranged from $3.52/cwt below the benchmark (2003 Q4) to $1.91/cwt above the benchmark in 2004 Q1. Over 1995-2004, the average price performance was

$0.29/cwt below the benchmark. During this same time frame, standard deviation was

$0.91/cwt, resulting in a p-value of 0.05, signifying that this pricing performance is statistically different from than the market benchmark.

The price performance decreased to $0.58/cwt below the benchmark over 1999 Q3-2004, and the standard deviation increased to $1.21/cwt, resulting in a p-value of 0.04. Similarly to 1995-2004, these results are significantly different from the market benchmark.

For feeder cattle, pricing performance ranged from $0.26 below the benchmark (2004 Q2) to $0.04 above the benchmark (2000 Q4), and the average price paid was $0.06/cwt below the market benchmark. The p-value for feeder cattle prices was 0.00, signifying feeder cattle prices paid were significantly better than the benchmark.

Converse to the positive performance of feeder cattle recommendations, the net price received for feed was significantly worse than the benchmark. Prices ranged from $0.60/cwt above the benchmark (2002 Q1) to $0.21/cwt below the benchmark (2004 Q3), or $0.12/cwt above the benchmark. The standard deviation of this data was $0.17/cwt which resulted in a p- value of 0.00.

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Pricing performance for margin recommendations was also significantly worse than the benchmark. Prices received for the margin ranged from $4.87/cwt below the benchmark (2003 Q3) to $1.49/cwt above the benchmark and averaged $0.76/cwt below the benchmark, across all services and all quarters. The standard deviation of these prices was $1.32/cwt which resulted in a p-value of 0.01.

Because results are statistically significant, it is useful to more closely examine the financial impact to a feedlot. Suppose a large Kansas feedlot markets 12,000 head per quarter at 1,250 pounds or 150,000 cwt marketed per quarter. If this feedlot was under the market by $0.76/cwt on average over the quarter, the feedlot has lost $114,000 for one quarter. Over the course of a year, the feedlot would lose $456,000. This difference is both statistically significant and may play an important role in the financial viability of the feedlot.

Table 28 presents the average price performance for individual programs for live cattle, feeder cattle, feed and margin hedging by advisory service. Two advisory services, AgLine and AgResource produced average net advisory prices that outperformed the market benchmark in live cattle recommendations from 1995-2004. AgResource was the only advisory service that produced an average net price received that was statistically significant above the benchmark at the 90% confidence level. Seven advisory services produced an average price that

underperformed than the market benchmark. Three advisory services, Ag Review, Stewart- Peterson and Top Farmer had average prices that were statistically lower than the benchmark at the 90% confidence level.

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In feeder cattle, six advisory services outperformed the benchmark but only one service, Utterback, produced results that were statistically significant. No advisory services

underperformed when compared to the benchmark.

Two advisory services had average net advisory prices that outperformed the benchmark in feed hedging recommendations. However, neither AgResource‟s nor Agrivisor‟s results were statistically different from the benchmark. Five advisory services produced a net price paid that was higher than the benchmark, and four of these services, Ag Review, Brock, Pro Farmer, and Top Farmer, had a net price paid that exhibited statistically significant underperformance compared to the benchmark at the 90% confidence level.

Similar to live cattle hedging AgLine and AgResource both produced a net price received that was better than the benchmark for margin hedging. However, neither of these differences were statistically significant. The remaining seven advisory services produced results that were inferior to the benchmark. Four services, Brock, Pro Farmer, Stewart-Peterson and Top Farmer had net priced received on the margin that was statistically worse than the benchmark at the 90% confidence level.

Overall in margin hedging, two services produced results better than the benchmark, three services produced results that were not statistically different from the benchmark and four services produced results worse than the benchmark.