
b96d7748ec888b340888bc7788a7577d.ppt
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Spatial Grain Market Economics: Handling & Transportation Daniel O’Brien Extension Agricultural Economist K-State Research and Extension
Grain Handling, Transportation and Spatial Grain Markets n Principles of Spatial Grain Price Relationships n Costs of Grain Storage & Handling n Grain Hauling-Transportation Costs q n Semi-tractor & trailer example Spatial Grain Market Examples q q Corn to Southwest Kansas Destinations Wheat to South Central Kansas Destinations
Economic Principles of Grain Price Relationships in Spatially-Related Grain Markets
Principles of Spatial Grain Price Differences Between Markets n Spatial grain price relationships are determined by transfer costs among regions in competitive grain markets n Transfer Costs = Arbitrage Costs q q Arbitrage (Dictionary): “Buying grain in one market and selling them at a profit in another market. ” Arbitrage in Grain Markets (for Farmers): Transferring & selling grain to the most profitable buyer/location relative to other selling opportunities
Transfer Costs = Arbitrage Costs n Transportation expense n Loading / Unloading (in-out) charges n Risks from moving grain over distance & owning grain over time q n Risk of negative buy-sell price margin changes Other transfer costs: q q q Entrepreneurial expertise & time Contracting, insurance, fees; Testing, grading, phyto-sanitary test risks
Inter-Regional Price Differences “Competitive Arbitrage Across Space” 1) Price differences between any 2 regions that do trade with each other will just equal transfer costs • Price differences between regions cannot exceed transfer costs 2) Price differences between any 2 regions that do not trade with each other will be less than or equal to transfer costs
Grain Market Price Structure n Structure of grain prices is a function of: q q n Pattern of trade (producers from which areas ship to what other areas) Transfer costs between regions that engage in trade Example of Grain Market Structure q q q Two (2) Markets – A, B Two (2) Production Areas – X, Y Transfer Costs
Market Structure Principles 1) The lowest-cost source determines the prevailing $Price in each deficit market Ø Producers sell in markets providing the highest net return 2) Prevailing $Price in each surplusproducing area equals…. Ø Deficit market $Price less transfer cost to that market
Grain Market Structure Example Area X Market A / Area Y Market B Transfer Cost: $0. 30/bu Market A $3. 00 Surplus Production Area Y $3. 10 Market to Market Transfer Cost: $0. 50/bu Transfer $: $0. 10/bu Surplus Production Area X $2. 90 Transfer Cost: $0. 40/bu Transfer $: $0. 20/bu Market B $3. 30
Defining Market Boundaries n Boundaries: Points where Net Price (net of transfer costs) from shipping to different markets are equal q n Producers are indifferent between markets Assume…. q Opportunity to ship grain to alternative markets q No physical barriers (rivers, mountains, state lines, etc. ) q Transfer costs decline continuously with distance
Grain Market Boundary Example Market A Market B Market A Net Price = $4. 00/bu $6 /bu – (400 mi x $0. 005/mi/bu) = Market B Net Price = $4. 00/bu $5 /bu – (200 mi x $0. 005/mi/bu) $6 $6 Market A Net Price Line $4 $4 Market B Net Price Line $2 Mkt. A mi. 100 600 500 200 400 300 Market Boundary 400 200 Distance from Market $2 500 600 100 Mkt. B mi.
Shifting Market Boundary Market B: $6. 00/bu, $0. 004/mi/bu Transfer $ Market A Market B Market A Net Price = $4. 67/bu $6 /bu – (267 mi x $0. 005/mi/bu) = Market B Net Price = $4. 67/bu $6 /bu – (333 mi x $0. 004/mi/bu) $6 $6 $4 $4 New Market Boundary $2 Mkt. A mi. 100 600 500 200 400 Boundary Shift 267 300 333 300 400 200 Distance from Market $2 500 600 100 Mkt. B mi.
The Economic Costs of Grain Storage and Handling
On-Farm vs Commercial Storage n If have EXISTING On-Farm Storage Consider Variable Costs Only in grain storage decisions n If building NEW On-Farm Storage ALL costs are Variable: Fixed costs are considered Variable before grain storage facilities are built / “sunk” thereafter n Commercial Storage Variable Cost Elevator storage costs, handling requirements to be considered
Initial Grain Bin Investment Costs Dhuyvetter, Harner, Tajchman, & Kastens - 2007
Annual Fixed Costs for Grain Bins Dhuyvetter, et. al. (2007)
Variable Costs of Grain Storage Scenario: Storing Wheat 6 months, $3. 41/bu Harvest Price
Fixed + Variable Grain Storage Costs Scenario: Storing Wheat 6 months, $3. 41/bu Harvest Price
Commercial vs On-Farm Storage #1 Commercial Cost: 3. 13¢/bu/mo. ; $3. 41/bu Corn @ Harvest On-Farm TC Commercial vs. On-Farm VC Breakeven @ 5 1/3 months Commercial Cost On-Farm VC
Commercial vs On-Farm Storage #2 Commercial Cost: 3. 13¢/bu/mo. ; $5. 91/bu Wheat @ Harvest On-Farm TC Commercial vs. On-Farm VC Breakeven @ 7 months Commercial Cost On-Farm VC
The Economic Cost of Transporting Grain via Semi-Tractor/Trailer
Grain Transportation Cost Example Semi-Truck Expense & Use Estimates n Purchase Price (Used) q n $2, 000 Tire Expense (10 tires) q $400/tire, 200 K miles/tire q n 7, 500 miles 200, 000 bushels Fuel q $12, 500 ($10 K - $15 K) Repairs/Year q n 10 years Annual Use q Salvage Value q n $25, 000 ($20 K - $30 K) Useful Life q n n $3. 00/gallon, 5. 5 mpg 45 mph average hauling speed Other q License-insurance: $2, 850 q Labor $10/hr, 9% Interest
Grain Transportation Cost (more) Semi-Trailer Expense Estimates n Purchase Price (Used) q n Useful Life q n n $14, 000 ($13 K - $15 K) Repairs/Year q $500 ($400 -$500) Tire Expense (8 tires) q Software Analysis Tool q 10 years Salvage Value q n $25, 000 ($20 K - $30 K) n $262/tire, 100 K miles/tire q Grain Truck Transportation Cost Calculator Iowa State University Extension (Edwards)
Example: Semi-Truck/Trailer Costs
Grain Trucking Example: $Cost/bu. Semi-Tractor/Trailer (7, 500 miles/yr) $2. 472 /Mile All 3 Scenarios
Grain Trucking Example: $Cost/bu. Semi-Tractor/Trailer (200, 000 bushels/yr)
Corn Destination: Southwest Kansas Origins: Colby. NW, Hutchinson. SC & Concordia. NC n Operating Costs: Total Cost: n Colby – Garden City: 106 miles n q n Operating Cost = $133 / Total Cost = $262 Hutchinson – Dodge City: 121 miles q n $1. 25/mile or $0. 047/bu. $2. 47/mile or $0. 093/bu. Operating Cost = $151 / Total Cost = $299 Concordia – Cimarron: 228 miles q Operating Cost = $285 / Total Cost = $564
Wheat Destination: South Central KS Origins: Colby. NW, Garden City. SW & Chanute. SE n Operating Costs: Total Cost: n Colby – Salina: 200 miles n q n Operating Cost = $250 / Total Cost = $494 Garden City – Hutchinson: 173 miles q n $1. 25/mile or $0. 047/bu. $2. 47/mile or $0. 093/bu. Operating Cost = $217 / Total Cost = $428 Chanute – Wichita: 106 miles q Operating Cost = $133 / Total Cost = $262
Grain Price Differences from Origins to Destinations for Kansas Grain Markets
Grain Origins & Destinations n Grain Market Origins q Locations from which grain is transported to other destinations n n n HRW Wheat originates from Western & Central KS Corn originates from Corn Belt, Milo from High Plains Grain Market Destinations q Locations to which grain is transported from other points of origin n n Kansas HRW Wheat destined for eastern Mills or Export Feedgrains destined for SW Kansas livestock feeders, Midwestern Ethanol Plants or Export
U. S. Spatial Grain Markets USDA Ag Market Service, September 20, 2007
HRW Wheat Origins & Destinations
Kansas Wheat Origins & Destinations Exports Mills. Exports
Kansas Wheat Price Differentials Origin: Northwest Kansas, September 25, 2007 Location $Price /bu. Vs Colby. NW $7. 98 --- Garden City. SW $7. 98 Same Hutchinson. SC $8. 43 +$0. 45 Salina. SC $8. 38 +$0. 40 Superior, NE (SC) $8. 13 +$0. 15 Cheyenne Wells, CO (EC) $7. 98 Same Keyes OK (Panhandle) $7. 97 ($0. 01)
Wheat $ Differences Less Transportation Origin: Colby (NW KS); No In-Out $; 9/25/07 Location Colby. NW Hutchinson. SC (233 miles) $/bu. $7. 98 $8. 43 VC: [233 x $1. 252/mi] ÷ 1000 bu = $0. 29/bu Salina. SC (200 miles) +$0. 16/bu $8. 38 VC: [200 x $1. 252/mi] ÷ 1000 bu = $0. 25/bu Superior, NE (SC NE) (189 miles) VC: [189 x $1. 252/mi] ÷ 1000 bu = $0. 24/bu Vs Colby --+$0. 45 +$0. 40 +$0. 15/bu $8. 13 +$0. 15 ($0. 09)/bu
Feedgrain Origins & Destinations
Kansas Feedgrain Origins-Destinations Livestock & Bioenergy Livestock Exports
Kansas Corn Price Differentials Destination: Sublette (SW KS), September 25, 2007 Location $Price /bu. Vs Sublette. SW $3. 74 --- Dodge City. SW $3. 66 ($0. 08) Colby. NW $3. 38 ($0. 36) Salina. Central $3. 62 ($0. 12) Superior, NE (SC NE) $3. 37 ($0. 37) Cheyenne Wells, CO (EC) $3. 39 ($0. 35) Keyes OK (Panhandle) $3. 74 Same
Corn $ Differences Less Transportation Destination: Sublette (SW KS); No In-Out $; 9/25/07 Location Sublette. SW Dodge City. SC (52 miles) $/bu. Vs Sublette $3. 74 --$3. 66 ($0. 08) VC: [52 x $1. 252/mi] ÷ 1000 bu = $0. 07/bu Colby. NW (141 miles) +$0. 01/bu $3. 38 VC: [141 x $1. 252/mi] ÷ 1000 bu = $0. 18/bu Superior, NE (SC NE) (276 miles) VC: [276 x $1. 252/mi] ÷ 1000 bu = $0. 35/bu ($0. 36) +$0. 18/bu $3. 37 ($0. 37) +$0. 02/bu
Kansas Milo Price Differentials Destination: Sublette (SW KS), September 25, 2007 Location $Price /bu. Vs Sublette. SW $3. 43 --- Dodge City. SW $3. 33 ($0. 10) Colby. NW $3. 32 ($0. 11) Salina. SC $3. 86 +$0. 43 Superior, NE (SC NE) $3. 69 +$0. 26 Southeast, CO (SE) $3. 42 ($0. 01) Keyes OK (Panhandle) $3. 47 +$0. 03
Milo $ Differences Less Transportation Destination: Sublette (SW KS); No In-Out $; 9/25/07 Location Sublette. SW Dodge City. SC (52 miles) $/bu. Vs Sublette $3. 43 --$3. 33 ($0. 10) VC: [52 x $1. 252/mi] ÷ 1000 bu = $0. 07/bu Salina. Central (215 miles) ($0. 17)/bu $3. 86 VC: [215 x $1. 252/mi] ÷ 1000 bu = $0. 27/bu Superior, NE (SC NE) (276 miles) VC: [276 x $1. 252/mi] ÷ 1000 bu = $0. 35/bu +$0. 43 +$0. 16/bu $3. 69 +$0. 26 ($0. 09)/bu
Kansas Soybean Price Differentials Origin: Concordia (NC KS), September 25, 2007 Location $Price /bu. Vs Colby Concordia. NC $8. 61 --- Glen Elder. NC $8. 61 Same Superior, NE (SC NE) $8. 53 ($0. 08) Stockton. NC $8. 59 ($0. 02) Salina. Central $8. 93 +$0. 40 Hutchinson. SC $9. 13 +$0. 60 Wichita. SC $9. 17 +$0. 64
Soybean$ Difference Less Transportation Origin: Concordia (NC KS); No In-Out $; 9/25 Location Concordia. NC Salina. Central (52 miles) $/bu. Vs Sublette $8. 61 --$8. 93 +$0. 40 VC: [52 x $1. 252/mi] ÷ 1000 bu = $0. 07/bu Hutchinson. SC (115 miles) +$0. 33/bu $9. 13 VC: [115 x $1. 252/mi] ÷ 1000 bu = $0. 14/bu Wichita. SC (140 miles) VC: [140 x $1. 252/mi] ÷ 1000 bu = $0. 18/bu +$0. 60 +$0. 46/bu $9. 17 +$0. 64 +$0. 46/bu
Grain Handling, Transportation and Spatial Grain Markets n Principles of Spatial Grain Price Relationships n Costs of Grain Storage & Handling n Grain Hauling-Transportation Costs q n Semi-tractor & trailer example Spatial Grain Market Examples q q Corn to Southwest Kansas Destinations Wheat to South Central Kansas Destinations