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Optimal Post-Harvest Grains 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 post-harvest 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 results show that, contrary to the sell all-or-nothing risk-neutral rule, risk averse farmers will spread sales out over the storage season. The optimal pattern for sales by Michigan corn farmers is to sell approximately 50% of corn at harvest in November (a risk-reduction strategy) and approximately 40% in May (a return-enhancing strategy).

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File URL: http://purl.umn.edu/11739
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Bibliographic Info

Paper provided by Michigan State University, Department of Agricultural, Food, and Resource Economics in its series Staff Papers with number 11739.

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Date of creation: 2001
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Handle: RePEc:ags:midasp:11739

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Postal: Justin S. Morrill Hall of Agriculture, 446 West Circle Dr., Rm 202, East Lansing, MI 48824-1039
Phone: (517) 355-4563
Fax: (517) 432-1800
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Web page: http://www.aec.msu.edu/agecon/
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Keywords: Crop Production/Industries;

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  1. Lence, Sergio H. & Kimle, Kevin & Hayenga, Marvin L., 1993. "A Dynamic Minimum Variance Hedge," Staff General Research Papers 10833, Iowa State University, Department of Economics.
  2. Sartwelle, James D., III & O'Brien, Daniel M. & Tierney, William I., Jr. & Eggers, Tim, 2000. "The Effect Of Personal And Farm Characteristics Upon Grain Marketing Practices," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April.
  3. Steven D. Hanson & Robert J. Myers & J. Roy Black, 1998. "The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 806-820.
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