An Analysis of Efficient Purchasing Strategies for a Soybean Meal User in France
Cordier, Jean E.
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https://hdl.handle.net/2142/69849
Description
Title
An Analysis of Efficient Purchasing Strategies for a Soybean Meal User in France
Author(s)
Cordier, Jean E.
Issue Date
1982
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Abstract
This study is an attempt to improve the purchasing technique of a current product, soybean meal for a French feedmill. The basic idea is to separate the pricing function which has to be done in a very liquid market and the procurement function which concerns the organization of the physical flow of the goods into the processing plants. In intensive regions of production, gains may be expected from better forward price opportunities in the liquid market and also from improved bargaining power of users in negotiations with sellers.
The study analyzes the possibility for a French firm to forward price soybean meal at the Chicago Board of Trade. The firm is assumed to be short in cash positions and long in the futures market. Futures contracts are purchased to cover an anticipated need for raw materials. The methodology used to look at price relationship is not a price decomposition into different marketing costs but a time series analysis of different price quotations in the U.S. and in France (cash, cash forward and futures).
The study, in a second part, describes a decision model for determining an efficient purchasing strategy under uncertainty. The building of the model involves two steps. The purpose of the first step is to find the strategies, called dominant strategies in the study, which show the minimum risk for a certain level of cost. Five dominant strategies are selected on the basis of information from the market and ARIMA forecasts. They are the best individual options the purchaser might consider, subject to his own willingness to bear market risks. The second step introduces consideration of the purchaser's constraints (storage capacity constraint, credit constraint and safety constraint in nearby futures), and the covariance relationship among the costs of procurement from the alternate purchasing strategies. The results of the model are optimal portfolio of short and long term contracts. These portfolios represent the optimal speculative decision of forward pricing soybean meal with respect to market uncertainty, the firm's constraints and the risk aversion of the manager.
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