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Dynamically Optimal After-Tax Grain Storage, Cash Grain Sale, and Hedging Strategies

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  • Russell Tronstad
  • C. Robert Taylor

Abstract

This article utilizes a stochastic dynamic programming (SDP) model that considers the state variables of (a) before-tax income, (b) grain storage, (c) quantity of futures position, (d) value of futures position, (e) wheat price, and (f) basis level. Decision variables are monthly cash grain sales and futures market transactions. In comparing the post-sample performance of SDP to other marketing strategies over a four-year period, SDP resulted in $5,961 to $25,021 more wealth than the other strategies considered. Also, these other strategies yielded a standard deviation of after-tax income that was 30% to 621% greater than that from the SDP framework.

Suggested Citation

  • Russell Tronstad & C. Robert Taylor, 1991. "Dynamically Optimal After-Tax Grain Storage, Cash Grain Sale, and Hedging Strategies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(1), pages 75-88.
    • Handle: RePEc:oup:ajagec:v:73:y:1991:i:1:p:75-88.
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    File URL: http://hdl.handle.net/10.2307/1242885
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    Cited by:

    1. Elisabeth Vollmer & Daniel Hermann & Oliver Musshoff, 2019. "The disposition effect in farmers’ selling behavior: an experimental investigation," Agricultural Economics, International Association of Agricultural Economists, vol. 50(2), pages 177-189, March.
    2. Mallory, Mindy L. & Zhao, Wenjiao & Irwin, Scott H., 2012. "Farmer’s Income Shifting Option in Post-harvest Forward Contracting," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124692, Agricultural and Applied Economics Association.
    3. Lai, Jing-Yi & Myers, Robert J. & Hanson, Steven D., 2001. "Optimal Post-Harvest Grains Storage By Risk Averse Farmers," Staff Paper Series 11739, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    4. Tronstad, Russell, 1991. "The Effects of Firm Size and Production Cost Levels on Dynamically Optimal After-Tax Cotton Storage and Hedging Decisions," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 23(1), pages 165-179, July.

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