Raisin growers receive a lower price for raisins sold from the reserve pool than from the free market, in part because storing raisins in reserve generates a storage cost. The monthly allocation of raisins from reserves is determined by the Raisin Advisory Committee. When it is possible to sell raisins for use in ethanol production, the committee might increase its net revenue by selling a portion of the reserve pool in that market. The net returns obtained from selling raisins in both the food and ethanol markets can be described as follows:

m

Net returns = X [Pf — cm’jQF + PEQE (1)

in which PF is the price of raisins in the food market ($/t), PE is the price of raisins in the ethanol market ($/t), c is the per-unit cost of storage ($/t, per month), m is the month in storage, m is the month in which net price in the food market equals the price in the ethanol market, QFm is the quantity of raisins sold in the food market (t/mo), and QE is the quantity of raisins sold in the ethanol market (t/mo).

By construction of the model,

In this model, the reserve quantity, R, is determined by the marketing order. We assume that the monthly allocation, QFm, is determined by the Raisin Advisory Committee. Hence, neither the reserve pool nor the monthly reserve allocation to food markets is a choice variable. The per — unit cost of storage, c, also is determined outside of the model.

The Raisin Advisory Committee can maximize net revenue by storing raisins for the food market only while net price in the food market (PF — cm) is greater than the price in the ethanol market (PE). The net price in the food market declines as the number of months in storage increases. We use m to represent the month in which the net price in the food market becomes equal to the price in the ethanol market (i. e., PF — cm = PE). The empirical value of m is determined by the relationship of the fixed parameters PF, PE, and c. In particular,

The number of months, m, will be larger in years when PF is relatively high, and smaller in years when PE is relatively high.