Masters Theses

Date of Award

12-1982

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Dan L. McLemore

Committee Members

Charles Sappington, Emmit Rawls

Abstract

Minimization of the total cost of procuring and storing grain is an important management consideration for the slaughter hog producer. This research evaluated various corn procurement and storage strategies for a typical Tennessee hog feeder to determine the optimum size grain storage facility and most efficient grain procurement strategy. The various storage facilities and procurement strategies were represented using simulation models which approximated a 1440 head market hog producer's operation during the 1971-1980 period. Storage capacity options were simulated which maintained storage capacity for a week's, month's, quarter's, half-year's, and year's requirement of grain. Procurement strategies which were analyzed included: regular cash grain procurements in amounts equal to storage capacity (cash, buy), grain procurements based upon expected prices (futures strategy), and hedging of future grain requirements. Optimum grain procurement based upon perfect knowledge of all future prices (optimum strategy) was determined to provide a benchmark for comparison purposes. Expected prices were determined based upon corn futures quotations. The patterns of procuring and storing corn for the futures strategy and for the optimum strategy were determined using a linear programming model. Mean cost per bushel was used as the primary criterion for comparing the various procurement and storage strategies.

The primary results of the simulations showed that in general larger storage capacities were associated with lower costs per bushel. The annual storage facility produced lower costs per bushel than the other storage capacity options. A comparison of the procurement alternatives showed that the cash buy and futures strategies came closest to the optimal strategy in cost. The hedging strategies generally produced the highest cost in each circumstance. These results indicate that for situations in which the producer was not constrained to the existing facility, he could lower costs by building storage equivalent to annual requirements and following the cash buy or futures strategy. If the producer was constrained to the existing facility he would utilize the cash buy or futures strategy.

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