Competitive pricing and storage under uncertainty with an application to the U.S. soybean market

Relative to a no-storage regime, competitive storage of soybeans greatly reduces the variance of both annual prices and annual consumption. Variance of production is increased. Expected values of price, consumption, and production are not affected. The government could reduce price variance by about 70 percent of its competitive level through subsidizing storage activity. The research procedure is based on a model of competitive storage under conditions of uncertainty and assuming rational expectations. Farm-level demand and supply functions are estimated. Simulation is used to generate large random samples of values for soybean prices, consumption, production, and year-end stocks.