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Is Storage at a Loss Merely an Illusion of Spatial Aggregation?

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  • Franken, Jason R.V.
  • Garcia, Philip
  • Irwin, Scott H.

Abstract

The storage-at-a-loss paradox—stocks despite inadequate price growth to cover storage costs—is an unresolved issue of long-standing interest to economists. Alternative explanations include risk premiums for futures market speculators, convenience yields from holding stocks, and mismeasurement/aggregation of data. Statistical analyses of regional and elevator corn and soybean price growth in Illinois suggest limited aggregation effects and reveal a pattern of regional- and elevator-level backwardations in the presence of Illinois corn stocks that is inconsistent with aggregation explanations for storage at a loss. Interviews with elevator managers support the existence of convenience yields.

Suggested Citation

  • Franken, Jason R.V. & Garcia, Philip & Irwin, Scott H., 2009. "Is Storage at a Loss Merely an Illusion of Spatial Aggregation?," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 27(1-2), pages 1-20.
    • Handle: RePEc:ags:jloagb:90658
    DOI: 10.22004/ag.econ.90658
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    References listed on IDEAS

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    1. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    2. Irwin, Scott H. & Good, Darrel L. & Martines-Filho, Joao Gomes & Batts, Ryan M., 2006. "The Pricing Performance of Market Advisory Services in Corn and Soybeans Over 1995-2004: A Non-Technical Summary," AgMAS Project Research Reports 37456, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    3. Irwin, Scott H. & Good, Darrel L. & Martines-Filho, Joao Gomes & Batts, Ryan M., 2006. "The Pricing Performance of Market Advisory Services in Corn and Soybeans Over 1995-2004," AgMAS Project Research Reports 37513, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    4. Williams, Jeffrey C., 2001. "Commodity futures and options," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 13, pages 745-816, Elsevier.
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    Cited by:

    1. Seok, Juheon & Brorsen, B. Wade & Li, Weiping, 2013. "Calendar Spread Options for Storable Commodities," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150294, Agricultural and Applied Economics Association.
    2. Colin A. Carter & Gordon C. Rausser & Aaron Smith, 2011. "Commodity Booms and Busts," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 87-118, October.

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