The Theory Of Storage Essay

This essay has a total of 359 words and 2 pages.

The Theory Of Storage

The Theory of Storage


THE THEORY OF STORAGE. "THE SUPPLY OF STORAGE REFERS NOT TO THE SUPPLY Of
STORAGE SPACE BUT TO THE SUPPLY OF COMMODITIES AS INVENTORIES. IN GENERAL A
SUPPLIER OF STORAGE IS ANYONE WHO HOLDS TITLE TO STOCKS WITH A VIEW TO THEIR
FUTURE SALE, EITHER IN THEIR PRESENT OR IN A MODIFIED FORM. SINCE PRODUCTION IS
NOT STABLE FOR ALL COMMODITIES ESPECIALLY ARGICULTURAL CONSUMERS DEMAND THAT THE
STORAGE FUNCTION BE SO PERFORMED THAT THE FLOW OF COMMODITIES FOR SALE WILL BE
MADE RELATIVELY STABLE." (BRENNAN P. 51)

"the theory purports to provide an explanation of the holding of all stocks,
including those for which there is not an active future market. it will be
shown that, on the supply side, in addition to the marginal expenditure on
physical storage and the marginal convenience yield another variable, a risk
premium, is required to explain the holding of stocks as functions of price
spreads. in the empirical part of the study the theory will be applied to
stocks of several agricultural commodities. the risk premium for each commodity
will be measured residually under specified conditions by deducting form the
price spread between two periods the other two components of the marginal cost
of storage." (brennan p.50)
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