Production Costs, Price Expectations and Reference Dependence in Commodity Marketing

Aayush Dhakal and Joseph Janzen

No 360829, 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO from Agricultural and Applied Economics Association

Abstract: This study examines how heterogeneity in cost structures and belief formation shapes reference-dependent grain marketing behavior among farmers. Using panel data from the Illinois Farm Business Farm Management (FBFM) program, we extend the reference dependence framework to a cross-sectional context, relaxing the common assumption of homogeneous reference prices across producers. Employing a finite mixture model with fixed effects, we identify two distinct behavioral groups: one highly responsive to price changes, and another more passive. We further test whether production costs function as farmer-specific reference prices—a widely discussed but rarely empirically tested concept. Results show asymmetric marketing responses around the reference point: farmers sell more when prices exceed their cost-based reference and less when prices fall below. These findings support the presence of reference-dependent preferences and highlight the importance of incorporating individual financial conditions into behavioral models and the design of marketing advisory services.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 30
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea25:360829

DOI: 10.22004/ag.econ.360829

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