Determining Returns to Storage: Does Data Aggregation Matter?

Journal of Agricultural and Applied Economics, Dec 2007 by Klumpp, Joni M, Brorsen, B Wade, Anderson, Kim B

The answer to the question "Could data aggregation explain the difference in the findings in Anderson and Brorsen (2005) and Hagedorn et al.?" is clearly no. Data aggregation does not appear to be a problem. The problem could be in the choice of the benchmark. Oklahoma is closer to the Gulf, and therefore producers in Oklahoma have an incentive to sell early in the marketing season. Figure 2 shows that net returns decrease sharply after December, so a 12-month benchmark is a poor choice for Oklahoma. But a 12-month benchmark might work reasonably well for corn produced in Illinois since it is near the center of U.S. corn production.

[Received February 2006; Accepted November 2006.]

1 USDA wheat price data are collected through recall surveys on elevators around the 15th day of each month. The price data are weighted by state-level survey quantity data to create state-level prices. So the averages reported by elevator managers during recall surveys are further aggregated by the USDA to yield state-level price and quantity. Aggregation of spatial data reduces both producer heterogeneity and degrees of freedom.

2 Convenience yields are the implicit benefits that accrue to the owners of physical stocks (processors) but not to the owners of contracts for future delivery (producers) (Yoon and Brorsen).

3 Because of missing transactions at the northern elevator, the 1998 crop year was deleted from all data sets.

4 Errors in the southern elevator data were found and removed; thus, if any erroneous data were missed, the data quality for this elevator may not be as good as for the other two elevators.

5 Farms in south Oklahoma are about three times smaller than farms in north Oklahoma. Wheat is a minor crop, and crop share is common in southern Oklahoma. Many wheat sellers are landowners selling their share.

6 The interest rates are for a one-year period so that the same interest rate can be used throughout the year. There is no minimum storage cost for grain in Oklahoma.

7 It is possible that stocks held reflect producer's cash needs rather than speculation or psychological biasness such as myopic loss aversion. In any case, if aggregation of quantity data does not matter, then the frequency of sales with aggregated data should not differ from the frequency of sales with disaggregate data.

8 This study uses interest rates for borrowers. Since many farmers have little or no debt, their opportunity cost of interest is lower. Thus, storage might provide a greater return than a bank checking or savings account.

9 Because of its earlier harvest, the southern elevator does show increased sales in May.

References

Anderson, K.B., and B.W. Brorsen. "Mechanical Marketing Strategies." Oklahoma State University Cooperative Extension Service, F-592, April 2004.

_____."Marketing Performance of Oklahoma Farmers." American Journal of Agricultural Economics 87(2005): 1265-70.

Benirschka, M., and J.K. Binkley. "Optimal Storage and Marketing over Space and Time." American Journal of Agricultural Economics 77(1995):512-524.