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: | Fackler P.L., Livingston M.J. |
Keywords: | storage |
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.