The Behavior of Forward-Looking Firms in the Very Short Run

The study develops a theory of very-short-run forward-looking behavior allowing for forward trading and storage of final good and material input. Production and storage are separable from hedging decisions and depend only upon current forward and cash prices. Comparative statics are derived regarding production, purchases, and sales. The hypotheses advanced are tested with monthly data pertaining to the U.S. soybean-processing industry. Results suggest that in short-run equilibrium futures prices of the soybean complex have had little influence on crushings or production, but they have been important determinants of inventory levels.