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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