trucks conversions in the lower end of the range Sacked and specialty flours

# Trucks conversions in the lower end of the range

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trucks) conversions in the lower end of the range. Sacked and specialty flours margins tend to be higher. A \$2 per cwt. conversion translates into a value added of 88 cents per bushel. A rough rule of thumb in the flour industry says that 85% of the f.o.b. flour price is the wheat cost and millfeed value, the balance is the millers "value added," or conversion. The milling formula: BRMC (\$/cwt.) = (2.3W - .019F) where: x BRMC is the bulk raw material cost in \$/cwt x W is the wheat price in \$/bu. x F is the millfeed price in \$/ton assumptions: 138 lbs. of wheat per cwt flour (60 lbs./bu. * 2.3 bu./cwt = 138 lbs. wheat/cwt flour) 0.019 tons feed/cwt flour (38 lbs./cwt flour / 2000 lbs./ton = .019 tons/cwt flour) Let’s put the formula to work. The following table illustrates fully how a miller calculates a BRMC, f.o.b. the mill. An example of Spring Wheat Milling Economics Delivered Flour Costs in the Minneapolis Market Minneapolis Mill nearby wheat futures (\$/bu.) \$5.15 14% protein basis, delivered by truck \$.40 delivered wheat cost \$5.55 * 2.3 bushels per cwt. 2.3 per cwt. wheat cost \$12.77 millfeed value, f.o.b. mill (\$/ton) \$90.00 * tons per cwt. 0.019 per cwt millfeed credit (\$1.71) bulk raw material cost, f.o.b. mill (\$/cwt) \$11.06 Consider the following illustrations, which point to heavy bottom line impact of seemingly small changes in margins, costs and yields. Assume a 10,000 cwt. mill, grinding 23,000 bushels of wheat each day, operating 310 days per year (6 days/week). Wheat cost \$5/bu. and millfeed is valued at \$100/ton. Let’s do the math and calculate the impact of a…
169 Applied Economics 3411/5411, 2018 Lecture Notes Copyright © 2018 Edward Usset. All rights reserved. 10 cent per cwt. change in margin? \$.10/cwt * 10,000 cwt/day * 310 days/year = \$310,000 per year 5 cent/bu. change in wheat costs? \$.05/bu. * 23,000 bu./day * 310 days = \$356,500 per year 2.2 bu./cwt vs. 2.3 bu./cwt yield change (75.8% vs. 72.5% extraction)? In this last example, the calculation gets a little more complicated because as you increase the flour yield from a bushel of wheat, you also decrease the yield of feed. Using the standard milling formula, we calculate the following BRMC. BRMC (\$/cwt.) = (2.3W - .019F) = (2.3 bu./cwt * \$5/bu.) – (.019 tons/cwt * \$100/ton) = \$11.50 – \$1.90 = \$9.60/cwt. Taking into consideration a better extraction rate changes the formula. To assume that it takes 2.2 bushels of wheat/cwt flour, also means we need 132 lbs of wheat to make 100 pounds of flour (2.2 bu./cwt * 60 lbs/bu. = 132 lbs wheat). Less wheat also means less feed – 32 lbs of feed for every cwt flour produced. Instead of producing .019 tons feed/cwt flour, the mill now produces .016 tons feed/cwt flour (32 lbs./cwt flour / 2000 lbs./ton = .016 tons/cwt flour). BRMC (\$/cwt.) = (2.2W - .016F) = (2.2 bu./cwt * \$5/bu.) – (.016 tons/cwt * \$100/ton) = \$11.00 – \$1.60 = \$9.40/cwt. The bulk raw material cost is \$.20/cwt lower. \$.20/cwt * 10,000 cwt/day * 310 days/year = \$620,000 per year
170 Applied Economics 3411/5411, 2018 Lecture Notes Copyright © 2018 Edward Usset. All rights reserved. Investment Profile - Flour Milling What type of investment is needed to enter the flour milling industry? Consider the example of Whitewater Mill, a new soft wheat mill that opened in 2015. Located in West Harrison, Indiana, Whitewater Mill LLC is a joint venture between Siemer Milling Company and Hy. Nagel & Son.

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