Storage and Commodity Markets

Abstract

Storage and Commodity Markets is primarily a work of economic theory, concerned with how the capability to store a surplus affects the prices and production of commodities. Its focus on the behaviour, over time, of aggregate stockpiles provides insights into such questions as how much a country should store out of its current supply of food considering the uncertainty in future harvests. Related topics covered include whether storage or international trade is a more effective buffer and whether stockpiles are more useful in raw or processed form. Several chapters are devoted to analysing such government programmes as price bands, buffer stocks, and strategic reserves. This material is in the domain of applied welfare analysis with public finance. Because the theory presented is sufficiently general, it should be of interest to macroeconomists studying aggregate inventories or savings and to those in operations research studying inventory and pricing policies of large firms.

Commodity Storage and the Market Effects of Biofuel Policies

“…The staple of the inventory literature is the competitive rational storage model, which originated with Williams (1936). Gustafson (1958) first solved for the optimal storage rule in this model, and Williams and Wright (1991), Deaton and Laroque (1996), Routledge, Seppi, and Spatt (2000), and Pirrong (2012) made further important contributions.…”

“…In equilibrium, outgoing inventory can be expressed as a function of the state variables (e.g., Williams and Wright (1991), Routledge, Seppi, and Spatt (2000)):…”

A Staggered Pricing Approach to Modeling Speculative Storage: Implications for Commodity Price Dynamics

“…The presence of storage is instrumental in ensuring that the price variance in one period directly affects inventory variance which in turn is transmitted to next period's price variation. Williams and Wright (1991) provide a comprehensive 1 discussion of the basic storage model and its extensions, and summarize the time series properties of storable commodities. Williams and Wright (1991) put an emphasis on the complex non-linear storage behavior resulting from the fact that aggregate storage cannot be negative.…”

“…Williams and Wright (1991) provide a comprehensive 1 discussion of the basic storage model and its extensions, and summarize the time series properties of storable commodities. Williams and Wright (1991) put an emphasis on the complex non-linear storage behavior resulting from the fact that aggregate storage cannot be negative. Deaton and Laroque (1992, 1995, 1996 develop a partial equilibrium structural model of commodity price determination and apply numerical methods to test and estimate the model parameters, confronting for the first time the storage model with the documented behavior of actual prices.…”

“…In an attempt to depart from the assumption of perfect competition at both the production and storage activity, Newbery (1984), Williams andWright (1991), andMcLaren (1999) The focus of this paper is on the improved ability of the storage model with staggered prices to account for the empirical features of commodity prices. The main impact of staggered prices in our model is to dampen the movements in prices as well as the market power of intermediate speculators to affect prices.…”