Optimal Storage by Crop Producers

Paul Fackler () and Michael Livingston

American Journal of Agricultural Economics, 2002, vol. 84, issue 3, 645-659

Abstract: When post-harvest marketing strategies are restricted by disallowing speculative purchases, sales out of storage becomes an irreversible decision and the dynamic marketing problem becomes analogous to the optimal exercise of a financial option. The optimal marketing strategy is to hold at low prices and to sell at high prices with a cutoff price function marking the boundary between low and high prices. A method for estimating the cut-off price function is developed and applied to Illinois soybean prices. The decision rule is demonstrated to result in substantial gains from storage. Copyright 2002, Oxford University Press.

Date: 2002
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