Optimal specialty crop planning policies with yield learning and forward contract

Heng Chen and Jennifer K. Ryan

Production and Operations Management, 2023, vol. 32, issue 2, 359-378

Abstract: Hops are the flowers of a specialty crop that provide unique flavors to craft beer. We study a multi‐year crop planning problem for a farmer who seeks to add hops production to the current production of a conventional crop. The farmer must dynamically determine the number of acres to allocate to each crop and design the terms of the forward contract under which brewers purchase the hops, considering the uncertainty of weather conditions, hops yield, hops spot market price, and conventional crop price. We formulate a multi‐period stochastic dynamic programming framework that incorporates statistical learning methods that depend on exogenous factors. We also develop an easy‐to‐implement learning‐based marginal total profit heuristic which can potentially be used as a decision support tool. Our numerical analyses suggest that yield learning is particularly important for a farmer who is considering investing in a high margin, but potentially risky, new crop such as hops. We also characterize the conditions under which yield learning is most beneficial for farmers. This paper contributes to the literature on specialty crop planning by introducing a multi‐year planning framework that incorporates unique characteristics of specialty crop production. We fill a gap in the crop planning literature by considering how farmers can learn about crop yields based on realized yields and exogenous factors such as weather conditions. Our paper is also of practical importance for farmers who seek to diversify their crop portfolio to hedge against risks associated with trade tensions and potential price drops for conventional crops.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/poms.13842

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:32:y:2023:i:2:p:359-378

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().