Corn storage marketing strategies for Virginia

Abstract

The decision between selling corn at harvest or placing corn in storage is investigated. Six marketing strategies are identified and analyzed based on their ability to capture profits and avoid losses. The strategies are implemented when expected profits are positive. The strategies involve storing with no forward pricing and storing with forward pricing using futures, options and cash contracts. Three regression models are developed to forecast change in cash prices and basis. The regression models are incorporated into the strategies to help producers forecast profits and losses. Cash prices and basis are based on markets in the Northern Neck of Virginia for the 1974 to 1994 time period. The distribution of returns for each strategy are analyzed and compared using mean variance analysis and second degree stochastic dominance. The distribution of returns represent the risk associated with each strategy. The results indicate four of the six strategies are worth considering. The strategy with the highest average returns and the highest variance of returns involved storing com with no forward pricing. The strategy with no forward pricing exhibited some of the best returns, but exposed the producer to the most risk. A producer faced no risk if the strategy using cash contracts was implemented. The strategy that comprised hedging with a futures contract and the strategy that involved buying a put option and writing a call option exhibited similar returns and risk. Producers can implement the strategy that exhibits the level of risk he or she is willing to accept. A computer program is developed to assist the producer in analyzing the four strategies.