Evaluating Use of Outlook Information in Grain Sorghum Storage Decisions

information and historical data to evaluate mar- keting strategies. The nature of information and This study examines grain sorghum storage the form in which it has been provided, how- decisions in the Texas Coastal Bend region. ever, have not adequately accommodated the Decisions involving use and non-use of outlook differences in cash flow requirements, equity information are compared using stochastic dom- positions, and risk preferences of producers. inance criteria. Results indicate outlook infor- This study extends previous approaches by us- mation is of value to most classes of ing stochastic dominance techniques to evalu- decisionmakers. The value of outlook infor- ate alternative marketing strategies. Stochastic mation, however, is contingent upon producers' dominance techniques extend beyond the de- risk preferences. The methodology presented cision analysis framework (Chernoff and Moses; could be used to evaluate a more extensive set Raiffa) in that decisions for risk averse or risk of marketing strategies for grain sorghum as preferring decisionmakers can be evaluated. well as for other crops. The generalization of the framework to in- order choices and the development of a new interval approach for eliciting decisionmakers' Substantial commodity price volatility, both preferences (King and Robison, 1981a) reduce within and between years, complicates mar- previous difficulties in such analyses and open keting decisions for most agricultural produc- new opportunities for investigation of applied ers. Grain sorghum producers in southern Texas problems. Although this study does not use may be more vulnerable to this volatility than explicitly developed risk aversion coefficients, producers of other major commodities and in bounds are assumed for different types of de- other regions of the United States. The influence cisionmakers and marketing strategies are eval- of the corn crop in the Midwest and the export uated within these bounds. market are major reasons for this market risk This study investigates the value of using exposure. Sorghum harvest occurs in the Texas outlook information in the post-harvest storage Coastal Bend region when the Midwest corn decision. Stochastic dominance decision criteria crop is in its early stages, and most of the are utilized to rank market strategies involving southern Texas grain sorghum crop is marketed use and no-use of outlook information. In ad- through export channels. dition, the evaluation methodology is used in Pricing strategies can be implemented prior an iterative manner to estimate the dollar value to planting and through several months past of available market outlook information. harvest. These strategies can be made with or without outlook information. Producers must COMPONENTS OF THE OBJECTIVE decide whether to use outlook information and, FUNCTION: RETURNS if so, the maximum they can afford to pay for TO STORAGE information that may be available from private services. Previous studies (Ferris; Cornelius; A producer deciding whether to sell his crop Purcell; Shane and Meyer) have used market at harvest or during the post-harvest period is M. Edward Rister is an Assistant Professor at Texas A&M University, Jerry R. Skees is an Assistant Professor at the University of Kentucky, and J. Roy Black is a Professor at Michigan State University, all in the respective Departments of Agricultural Economics. Senior authorship is shared by Rister and Skees. This research was jointly funded by the Texas Agricultural Experiment Station (Project 6507), Texas A&M University (a Faculty-Staff Mini Grant funded part of the computer expenditures), and the Michigan State University Agricultural Experiment Station.