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Optimal On-Farm Storage

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  • Fackler, Paul L.
  • Livingston, Michael J.

Abstract

When transactions costs prohibit an agricultural producer from replenishing grain stocks during the post-harvest marketing season, sales out of storage may be viewed as irreversible investments. The irreversibility of sales decisions transforms the dynamic marketing problem into one that is analogous to the optimal exercise of a financial option. A procedure is developed to solve the producer's marketing/storage problem and is applied to the cases of North Carolina and Illinois soybeans. Decision rules derived from this procedure are shown to be practically significant relative to simple marketing strategies that ignore the irreversible nature of the sales decision.

Suggested Citation

Handle: RePEc:ags:nc8191:285680
DOI: 10.22004/ag.econ.285680
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