PROFITABILITY OF ALFALFA HAY STORAGE USING PROBABILITIES: AN EXTENSION APPROACH

Hay Storage Profitability

Percentage rate of return =

(30 (.97))-(28+.184) _yim._q7ς
(28+.184) ½    ×¹θ°-⁹∙⁷⁵

Percentage rates of return, using the above
formula, between harvest and market
months are calculated for each year. Average
rates of return are given in Table 1.

The third and final step of the analysis
involves determination of probabilities as-
sociated with a given rate of return. Es-
timated percentage rates of return for a given
harvest market period were tested statisti-
cally for normality using a chi-square test for
goodness of fit [Anderson, et al, page 39].
Most distributions could not be rejected as
being normal at the .05 level. Thus, probabil-
ity of receiving less than a specified rate of
return is determined from a table of cumula-
tive normal probabilities. A selected example
of rate of return categories and their as-
sociated probabilities of occurrence for the
harvest month of July is shown in Table 2.
For example, given harvest month July and
market month November, average rate of
return from storage is 12.5 percent (Table 1).
Table 2 indicates that the probability of a
producer∕storer receiving a 12 percent return
or less is .49. The probability of receiving 18
percent return or less is .57.

While long run average rates of return to
dollars invested in storage are of interest to
producers, they also want information on risk
associated with a range of alternative rates of
return. Accepting that there is a wide range
in personal preferences to assume price risk
among producers, the information in Table 2
can be useful in a field extension situation.
That is, the degree of risk associated with
alternative rates of return from storing alfalfa

TABLE 1. Average Rate of Return From Storage of Baled Alfalfa Hay By Harvest and
Marketing Month, June 1950 - May 1977.

⁴Non-Significant price difference at the .05 level of significance.

TABLE 2. Cumulative Probabilities for Various Rates of Return on Storage Investment for
July Harvested Alfalfa Hay Stored Until Market Month.

Market Months

Percentage Rate -------------------------------------------

125

<<   <   1   2   3   4   5   6   >   >>