Optimal storage by crop producers

Optimal storage by crop producers

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Article ID: iaor2004200
Country: United States
Volume: 84
Issue: 3
Start Page Number: 645
End Page Number: 659
Publication Date: Aug 2002
Journal: American Journal of Agricultural Economics
Authors: ,
Keywords: storage
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.

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