## Seasonal inventory control and the price of storage

##### Abstract

"The theory of supply and demand is designed to explain the equilibrium relationship between the price per unit of some homogeneous product and the quantity of it that is produced and consumed during some period of time. This explanation proceeds by postulating the existence of two independent functions of price, a supply function and a demand function, which specify the separate relationships between price per unit and the equilibrium rate of production on the one hand, and between price and the equilibrium rate of consumption on the other. The static equilibrium solution then, is the joint solution of these two functions, that is, the price at which the equilibrium rates of production and consumption are equal. The fact that the theory is concerned with equal and constant flow rates places practical constraints on the time intervals over which it may be applied. Specifically, it means that the time interval must be long enough so that the average flow rates over the period are not significantly different from the long term average rates which the theory seeks to explain. For seasonally produced commodities, then, this means that the proper scope of the empirical application of the theory is to the analysis of the long-run, or more precisely, the inter-seasonal relationship between the average annual rates of production and consumption and the average price per unit. Though such an analysis yields useful and important information, there are other aspects of such markets that may be of interest as well. In particular, we might wish to examine the intra- seasonal allocation of inventory and the instantaneous rate of consumption during the time between harvests when the instantaneous production rate is zero. The fact that a "solution" to a supply and demand model requires that both production and consumption rates are simultaneously equal to each other and unchanging with respect to time means that the static equilibrium theory as an analytical tool, is rather poorly suited to the purpose of providing a dynamic representation of the changing flows of information and physical products which occur in present-day commodity marketing systems. The aim of this research is to examine some of the general requirements of a more appropriate model and to take some preliminary steps toward applying such a model to the study of price spread relationships in futures markets and their role in promoting the efficient intra-seasonal allocation of existing inventory based on current forecasts of future production and consumption."--Introduction.

##### Degree

M.S.

##### Rights

OpenAccess.

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