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.