Marketing Knowledge Is Money in the Bank

Benton County, Indiana is blessed with the flat black prairie soils associated with feeding the world. It's the top soybean producing county in Indiana with production averaging above five million bushels. Those of us in Extension who teach marketing concepts to farmers have always believed we have a positive financial impact. Thus, Benton County seemed the logical place to really test our potential contribution.

We've emphasized marketing education with Benton County farmers for years, but we needed to know more. How much diversity was there in the price they received for their soybean crop over a four-year period? Could we identify some of the farmer characteristics associated with high or low prices? What are the potential returns for Extension in marketing education? What should be our next steps in developing Extension education programs in marketing?

To address these questions, we studied soybean pricing practices of a sample of 128 farmers in Benton and two adjacent counties. The study examined average net prices received over a four-year period after deductions for storage costs. Figure 1 illustrates the wide diversity in the actual pricing performance of farmers. While the overall average was $5.94 per bushel, about 10% of the farmers averaged at or above $6.50 and about 10% priced at or below $5.40. This distribution alone told us enormous diversity exists in the financial impacts of market decisions. For example, on 400 acres of soybeans a year, this $1.10 range would mean about $70,000 of revenue difference between the top and bottom 10% during the four-year period. The $2.70 per bushel range between the absolute highest and lowest net prices would mean over $170,0000 in revenue difference over the four years.

Figure 1. Four-year average prices received by northwest Indiana farmers.

We also collected information about size of farm, education, and knowledge levels. We were then able to match various characteristics with the actual prices received (see Table 1). Younger farmers (under age 40) received higher prices than their older counterparts. Those under age 40 averaged seven cents a bushel more than those over 60, or 1.2% higher. No statistically significant difference exists in the average price received between males and females. However, the level of formal education was directly related to price received. As an example, those with some college received 31 cents a bushel more than those with a grade school education, a 5.4% higher net price.

What about landlords versus tenants? We found no statistical difference in the prices each received. However, as we more closely examined landlords, we found that retired landlords who live on or near their farms received 18 cents more per bushel than absentee landlords. We think this suggests the importance of staying in touch with markets. By simply knowing what's going on in the local farming area, price levels can probably be enhanced.

Larger soybean farmers did receive prices higher than smaller producers. In our sample, those raising over 300 acres of soybeans a year averaged nine cents more than those farmers under that average.

Extension strives to improve the knowledge and skill levels of producers. How are knowledge and personal skills related to price received? One proxy for marketing skill is the individual's knowledge of futures markets. We found that farmers familiar with futures markets received 23 cents more for soybeans than those not familiar with these markets, a price improvement of 3.9%.

Elevator managers who deal with these farmers were asked to give their subjective opinion of the production and marketing knowledge levels of the surveyed farmers. High-production skill farmers received 29 cents or five percent higher prices than the less skilled farmers. Finally, those who were perceived to have high marketing knowledge received 37 cents or 6.5% higher prices than the lower marketing knowledge group.

In general, education or skill level factors were more closely related with price received than other characteristics and had the highest statistical significance.1

This study helps support our belief that we in Extension can have a positive financial impact. While it's interesting to see that years of formal education are related to price received, there's little Extension can do about this characteristic. However, the client's knowledge level, as shown in the last three lines of Table 1, is the "Extension mission."

This research tested the hypothesis that knowledge improves performance. The results show that knowledge is money in the bank when it comes to pricing performance-and Extension education can increase marketing knowledge.

These results suggest that individuals who can enhance their marketing knowledge from the bottom one-third to the top one- third can improve their pricing performance by perhaps five to seven percent. While this seems like a relatively small percentage, it can have positive impacts on the farm financial situation. For example, with soybeans priced at an average of $7.00 per bushel, this would increase returns by 35 to 49 cents per bushel, or up to $20 per acre. The opportunity to raise income by this magnitude for the lowest one-third of farmers in Benton County would mean over $750,000 per year. Now that's an Extension opportunity-and challenge!

Cropping practices in Benton County's corn and soybean fields vary, but are more homogenous than pricing practices. Pricing performance among farmers therefore results in a wide range of outcomes. This suggests to us that we need to improve methods of measuring pricing performance to better identify the specific performance level of individual producers. The large diversity in performance also indicates that we must carefully target our clients' marketing education needs. Farmers with less marketing knowledge need comprehensive programs that begin with basic concepts and extend to more advanced topics.

For the higher marketing skill farmers, we need to target advanced topics. We believe topics such as options education, use of PIK certificates, and outlook updates can be done in a shorter seminar.

We believe a continued need exists for marketing research and disseminating these results to farmers. For example, the diversity of actual pricing performance demonstrated in this study will be impressive to the farmers of Benton County as they mentally evaluate where on the distribution they are. We'll also be able to tell them that the odds of being in the high performance group are about double for those with high marketing knowledge.

Finally, Extension needs to be a cheerleader when teaching marketing. The link between knowledge and performance is less clear in marketing than in many other areas of Extension education. We hope this research excites both Extension educators and our farmer clients as we conclude that marketing knowledge levels do have a positive impact on performance. Extension is in the marketing knowledge business; therefore we can, and are, having a positive impact on pricing performance in Benton County and others across the nation.

1. Levels of statistical significance: futures knowledge, 10%; production knowledge, 34%; and marketing knowledge, two percent. These can be interpreted as the statistical odds that the factor has no relationship to price received. The lower the number, the higher the statistical odds that the factor is related to price. Gender, as an example, had a significance of 93% and education level a significance of 16%. Additional statistical analysis is contained in the complete research.