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Determining Efficient Seasonal Grain Inventories: An Application of Quadratic Programming

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  • Richard G. Heifner

Abstract

The problem of managing seasonal grain inventories at farms and elevators is viewed here as a special case of the general problem of resource allocation under risk. The similarities between this problem and the stock portfolio problem treated by Markowitz are noted. By employing the concept of E,V efficiency we are able to apply a technique Markowitz developed for portfolio analysis to the seasonal grain inventory problem. The technique involves the use of quadratic programming to select combinations of grain storage activities and futures trading activities that minimize revenue variance for various levels of expected storage revenue. Solutions are presented for combinations of up to 20 activities involving the storage of three different grains in Michigan. The solutions illustrate that unhedged seasonal grain inventories and nondiversified inventories are inefficient relative to fully hedged diversified inventories.

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  • Richard G. Heifner, 1966. "Determining Efficient Seasonal Grain Inventories: An Application of Quadratic Programming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 48(3_Part_I), pages 648-660.
    • Handle: RePEc:oup:ajagec:v:48:y:1966:i:3_part_i:p:648-660.
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    File URL: http://hdl.handle.net/10.2307/1236866
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    Cited by:

    1. Tabesh, Hamid, 1987. "Hedging price risk to soybean producers with futures and options: a case study," ISU General Staff Papers 1987010108000010306, Iowa State University, Department of Economics.
    2. Larsen, Ryan A. & Leatham, David J. & Mjelde, James W. & Wolfley, Jared L., 2008. "Geographical Diversification: An Application of Copula Based CVaR," 2008 Agricultural and Rural Finance Markets in Transition, September 25-26, 2008, Kansas City, Missouri 119533, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    3. Kashanian, Motahareh & Pishvaee, Mir Saman & Sahebi, Hadi, 2020. "Sustainable biomass portfolio sourcing plan using multi-stage stochastic programming," Energy, Elsevier, vol. 204(C).

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