 THE SOYBEAN PROCESSING DECISION: EXERCISING A REAL OPTION ON PROCESSING MARGINSNo 33567, Technical Bulletins from United States Department of Agriculture, Economic Research Service Abstract: The gross soybean processing margin (the gross return per bushel of soybeans processed) is the main decision variable that processors use in deciding when and if to make binding commitments to process soybeans on future dates. Understanding how processors choose processing margins for future processing dates from among those available on successive days may help to resolve the ongoing concern about the level of competitiveness in processing agricultural commodities. Processing returns are treated as being equivalent to the returns to a call option. This approach provides the opportunity to simulate processor choice of processing margin by evaluating the incentive of waiting for a larger processing margin versus the incentive of locking in the currently available processing margin for a future date. The approach captures the irreversibility of the decision to process soybeans. Once the decision is made to process soybeans it cannot be economically reversed because of the contractual penalties involved. Processing margins selected using evaluations of these incentives explained variation in soybean crush, whereas spot margins for the corresponding processing dates did not. Keywords: Crop Production/Industries; Marketing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ags:uerstb:33567 Access Statistics for this paper More papers in Technical Bulletins from United States Department of Agriculture, Economic Research Service Contact information at EDIRC. |
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