Profitability of identity preserved grains at a central Indiana terminal grain elevator

Angela Martene Krueger Gloy, Purdue University

Abstract

This thesis is comprised of two parts, both of which addressed issues of identity preserved (IP) grains at a large, terminal inland elevator in the Eastern Corn Belt. Presently, elevator managers are uncertain as to whether current IP premiums are sufficient to cover handling expenses. The objective of Part I is to identify how blending operations influences the operational efficiency-IP premium trade-off. The objective of Part II was to identify how market-level feedback data influenced grain flows in a selected market area. The feedback loop allowed for changes neighboring grain handling facilities' bid prices to influence grain flows to the case study elevator. Part I model results suggest the addition of 5 (10) percent each of 2 IP corn varieties yields a net return on corn grains of $6,030 ($20,708). When the case study elevator adjusts their soybean product mix to include 5 (10) percent each of 2 IP soybean varieties, the net return on soybean grains is $51,951 ($85,540). Results suggest that while total net returns increase in both 10 and 20 percent IP grain volumes, the return from IP corn varieties does not appear large enough to entice managers of large inland terminal elevators to start handling IP grains. Managers of facilities such as these will want returns in excess of those demonstrated by corn varieties before changing their product mix strategies. Results from Part II suggest that competitor bid price changes do influence grain flows at the case study elevator. The competitor's location and product mix are found to drive the results. Grain facilities with similar profiles to the case study elevator tend to draw away large volumes of commodity grains. Dedicated IP grain facilities in the selected market area draw the higher value IP grains away from the case study elevator as expected. The variability in grain flow distribution results suggest that there is increased risk associated with IP grains. Elevator managers looking to adjust their product mix to include IP grains, in search of higher net returns, will need to consider market-level competitive response behavior in their decision-making process.

Degree

Ph.D.

Advisors

Dooley, Purdue University.

Subject Area

Agricultural economics

COinS