Optimal Storage by Crop Producers

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. Copyright 2002, Oxford University Press.