A conceptual model of storage behavior is developed. Optimal intertemporal
pricing is derived to analyze the effects of transaction costs on storage a
nd arbitrage pricing. It is shown how transaction costs can rationalize the
existence of an inverse carrying charge lot inventory. The model is applie
d to U.S. soybeans stocks for the period 1960-95. The empirical results sug
gest that transaction costs have a significant influence on storage behavio
r and intertemporal arbitrage pricing.