wheat, marketing, overconfidence, Agribusiness, Institutional and Behavioral Economics, Marketing,

Fryza, Stefanie A.

Mattos, Fabio

English

Research Papers in Economics

Are Canadian Farmers O erconfident? Are Canadian Farmers Overconfident?
Stefanie Fryza and Fabio Mattos Stefanie Fryza and Fabio Mattos
Department of Agribusiness and Agricultural Economics, University of Manitoba
Poster prepared for presentation at the Agricultural & Applied Economics Association 2011 AAEA,CAES, & WAEA Joint 
Annual Meeting, Pittsburgh, Pennsylvania, July 24-26, 2011
Copyright 2011 by Fryza and Mattos. All rights reserved. Readers may make verbatim copies of this document for non-
commercial purposes by any means, provided that this  copyright notice appears on all such copies.Stefanie Fryza and Fabio Mattos
Are Canadian Farmers Overconfident?
Introduction
Grain marketing studies have traditionally relied on standard
economic theory in which producers make decisions that are
logical and otof self interest Ho e er Brorsen and
Research Method
•Panel data model with fixed effects and robust estimators
•Performance with respect to a benchmark is the dependent
variable
Stefanie Fryza and Fabio Mattos
Department of Agribusiness and Agricultural Economics, University of Manitoba
Results
•Three regression models are estimated, using different benchmarks to calculateperfi,t
•four equations are estimated in each model, one for the whole sample and then one
for each province
Conclusions
•There is a negative relationship between marketing
activeness and performance, suggesting farmers are
overconfident in their ability to market grain logical and out of self-interest. However, Brorsen and
Anderson (2001) discuss implications of behavioural finance
for agricultural marketing and indicate psychological biases
which can affect marketing decisions. Further, despite the
importance of marketing in farm management, it is alarming
to realize that prevalent ideas about marketing decisions and
performance still do not rely on a large body of evidence
(Hagedorn et al. 2005).
Objective
The objective of this research is to explore:
variable
•it measures “gain” or “loss” relative to benchmark
•pricei,t = price received by farmer i in year t
•benchmark = historical average of futures prices
•three benchmarks are used (12-, 20-, and 24-month
historical average)
•Explanatory variables:
•%EPOi,t,% D P C i,t, %FPCi,t,% B P C i,t = percentage of
crop priced by farmer i in year t using each type of
for each province
•All estimated coefficientsare statistically distinguishable from zero
•Percentage of grain delivered against each marketing contract (%EPO, %DPC, %FPC,
%BPC) are all negatively related to performance, except for Saskatchewan when
considering the 24-month benchmark.
•farmers who use new marketing contracts tend to perform worse than benchmark.
•Negative relationship between Month and performance
•farmers who price earlier (later) tend to perform better (worse)
•Activeness has negative coefficients when performance is measured against 12-month
benchmark
•greater marketing activeness leads to worse performance
•Activeness has positive coefficients when performance is measured against 20- and 24-
t t i t i benchmark price perf − = , ,
overconfident in their ability to market grain
•This result only holds when performance is measured
against the 12-month historical futures price
•Findings on overconfidence are sensitive to the benchmark
adopted to measure performance
•Opposite results are found when 20- and 24-month
historical futures price are used as benchmarks
•farmers seem to have superior skills to market their
grain when they measure performance relative to other
benchmarks
•There is a negative relationship between usage of new
marketing contracts and performance suggesting farmers The objective of this research is to explore:
•whether Canadian wheat producers have better information
or analytical skills to outperform the market
•if they are overconfident in their ability to market their
wheat.
Wheat Marketing in Canada
crop priced by farmer i in year t using each type of
marketing contract
•Monthi,t = time of year t when farmer i signed a
marketing contract (variable value increases through
marketing window)
•Activei,t = measure of marketing activeness, indicating
how much producer i varies his/her marketing strategy
(Cabrini et al., 2007; Cunningham et al., 2007)
Further Research
•Results vary depending on the benchmark adopted to
calculate performance. Therefore it is important to explore
what benchmarks are relevant and perhaps consider other
benchmarks (such as final CWB pool price).
•Results might beh i ghly influenced by 2007/08, when wheat
Activeness has positive coefficients when performance is measured against 20 and 24
month benchmarks
•greater activeness leads to better performance
t t i A t i M t i B
t i F t i D t i E t i
Active Month BPC
FPC DPC EPO perf
ε θ γ β
β β β α
+ + + +
+ + + = , , , ,
) (%
) (% ) (% ) (%
marketing contracts and performance, suggesting farmers
are not able to detect and take advantage of profit
opportunities using the new marketing contracts
All farmers Alberta Saskatchewan Manitoba
Constant 72.97*** 82.04*** 74.25*** 57.31***
%EPO -0.46*** -0.52*** -0.55*** -0.22***
%DPC -1.17*** -1.07*** -1.10*** -1.25***
%FPC -1.16*** -1.23*** -1.01*** -1.28***
Table 2. Model with Performance based on 12-Month Benchmark ($/ton)
•All wheat produced and sold for human consumption and
Data
•Data provided by the CWB for crop years 2003/04 through 
2008/09 for all farmers growing Canada Western Red Spring 
(CWRS) wheat.
•Sample size of 93,339 producers that marketed their wheat 
using any combination of marketing contracts.
•Alberta: 26,379 farmers; Saskatchewan: 43,455 farmers;
and Manitoba: 23,505 farmers
•Final wheat price is calculated by weighted averages based 
g gy y ,
prices reached all time record highs and there was large
variability in performance depending whether farmers priced
wheat early in marketing window or waited to price it
towards the end of marketing window.
References
Brorsen, B.W. and K.B. Anderson (2001). Implications of
Behavioral Finance for Farmer Marketing Strategy
Recommendation. Paper presented at the NCR-134
Conference on Applied Commodity Price Analysis,
Forecasting and Market Risk Management St Louis
t t i A t i M t i B Active Month BPC ε θ γ β + + + + , , , ) (%
All farmers Alberta Saskatchewan Manitoba
Constant 99.07*** 108.41*** 89.24*** 107.66***
%EPO -0.45*** -0.50*** -0.40*** -0.48***
%DPC 0 68*** 0 79*** 0 54*** 0 82***
%BPC -0.52*** -0.50*** -0.63*** -0.37***
Month -2.77*** -3.25*** -2.83*** -1.94***
Activeness -11.29*** -11.21*** -12.32*** -10.04***
Table 3. Model with Performance based on  20-Month Benchmark ($/ton)
•All wheat produced and sold for human consumption and
export in Western Canada must be marketed through
CanadianWheat Board (CWB).
•Until 2000 CWB offered only one marketing alternative to
farmers−pool pricing−
•guarantees all farmers same final price by pooling
together wheat sales during crop year.
•After 2000 other pricing alternatives were developed to
accommodate producers’ demand for more flexibility to
manage risk and cash flow
•EPO ElPt Ot i
on tonnes allocated to PPO contracts and pool accounts.
Forecasting, and Market Risk Management, St. Louis,
Missouri,April 23-24, 2001.
Cabrini, S.M., S.H. Irwin, and D.L. Good (2007). Style and
Performance of Agricultural Market Advisory Services.
American Journal of Agricultural Economics 89:607-
623.
Cunningham, L.T., W.B. Brorsen, and K.B. Anderson
(2007). Cash Marketing Styles and Performance
Persistence. American Journal of Agricultural Economics
89:624-636.
Hagedorn, L.A., S.H. Irwin, D.L. Good, and E.V. Colino
(2005) Does the Performance of Illinois Corn and
All 
farmers
Alberta Saskatchewan Manitoba
Performancet($/ton)
(12-mo. benchmark)
(20-mo. benchmark)
(24-mo. benchmark)
8.789
12.27
16.37
8.67
11.77
16.25
9.82
13.78
17.68
6.99
10.03
14.07
%EPOt 10.93 8.97 11.96 11.22
%DPC -0.68*** -0.79*** -0.54*** -0.82***
%FPC -0.62*** -0.66*** -0.52*** -0.74***
%BPC -0.49*** -0.56*** -0.46*** -0.50***
Month -4.64*** -5.11*** -4.09*** -5.20***
Activeness 4.17*** 3.51*** 4.30*** 4.14***
All farmers Alberta Saskatchewan Manitoba
Constant 46.08*** 55.53*** 34.64*** 57.13***
%EPO 0 05*** 0 11*** 0 05*** 0 14***
Table 4. Model with Performance based on  24-Month Benchmark ($/ton)
Table 1. Average Values
•EPO: Early Payment Option
•DPC: Daily Price Contract
•BPC: Basis Price Contract
•FPC: Fixed Price Contract
•These new contracts have distinct features but essentially
allow farmers to use futures markets to price wheat.
. 
(2005). Does the Performance of Illinois Corn and
Soybean Farmers Lag the Market? American Journal of
Agricultural Economics 87:1271-1279.
For further information
Please contact Fabio Mattos (fabio_mattos@umanitoba.ca).
%EPOt 10.93 8.97 11.96 11.22
%DPCt 1.50 1.46 1.27 1.98
%FPCt 10.58 12.47 9.11 11.17
%BPCt 3.07 2.32 2.52 4.92
Montht 15.69 15.91 15.77 15.32
Activenesst -0.001 -0.09 0.08 -0.05
%EPO -0.05*** -0.11*** 0.05*** -0.14***
%DPC -0.04** -0.20*** 0.11*** -0.16***
%FPC -0.09*** -0.13*** 0.01 -0.23***
%BPC -0.12*** -0.18*** -0.07*** -0.15***
Month -1.77*** -2.23*** -1.16*** -2.46***
Activeness 6.96*** 5.20*** 8.47*** 6.07***

Implications of Behavioral Finance for Farmer Marketing Strategy Recommendation. Paper presented at the NCR-134 Conference on Applied Commodity Price Analysis, Forecasting and Market Risk Management St Louis t t i A t i M t i B Active Month BPC ε θ γ β

Are Canadian Farmers Overconfident?

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