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Optimal On-Farm Grain Storage by Risk-Averse Farmers

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  • Lai, Jing-Yi
  • Myers, Robert J.
  • Hanson, Steven D.

Abstract

Most previous research on post-harvest grain storage by farmers has assumed risk-neutral behavior and/or made restrictive assumptions about underlying price probability distributions. In this study, we solve the optimal on-farm storage problem for a risk-averse farmer under more general assumptions about underlying price distributions. The resulting model is applied to Michigan corn farmers and findings show, contrary to the "sell all or nothing" risk-neutral rule, risk-averse farmers will spread sales out over the storage season. As farmers become more risk averse, the optimal strategy is to sell more grain at harvest and spread sales over the storage season, even though this practice reduces expected return. This result is more consistent with observed farmer behavior than the "sell all or nothing" risk-neutral rule.

Suggested Citation

  • Lai, Jing-Yi & Myers, Robert J. & Hanson, Steven D., 2003. "Optimal On-Farm Grain Storage by Risk-Averse Farmers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(3), pages 1-22, December.
    • Handle: RePEc:ags:jlaare:31063
    DOI: 10.22004/ag.econ.31063
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    References listed on IDEAS

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    Cited by:

    1. World Bank, 2005. "Managing Food Price Risks and Instability in an Environment of Market Liberalization," World Bank Publications - Reports 8264, The World Bank Group.
    2. Tokovenko, Oleksiy & Gunter, Lewell F., 2008. "Quarterly Storage Model of U.S. Cotton Market: Estimation of the Basis under Rational Expectations," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6435, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Elisabeth Vollmer & Daniel Hermann & Oliver Musshoff, 2019. "The disposition effect in farmers’ selling behavior: an experimental investigation," Agricultural Economics, International Association of Agricultural Economists, vol. 50(2), pages 177-189, March.
    4. Holzer, Patrick & Loy, Jens-Peter, 2016. "Messung Des Vermarktungserfolges Bei Marktfruchtbaubetrieben: Wie Groß Sind Die Unterschiede?," 56th Annual Conference, Bonn, Germany, September 28-30, 2016 244893, German Association of Agricultural Economists (GEWISOLA).
    5. Vorotnikova, Ekaterina, 2016. "Optimal Storage Capacity Allocation in Grain Merchandizing," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230128, Southern Agricultural Economics Association.
    6. Xiaoyu Sun & Xiaoli Yang & Ruilong Zhang, 2022. "The Determinants of Grape Storage: Evidence from Grape Growers in China," Agriculture, MDPI, vol. 12(12), pages 1-14, December.

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