14. looking to the future for the kansas grain industry ... · elevators, railroads and services...
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2015 Risk and Profit Conference Breakout Session Presenters
14. Looking to the Future for the Kansas Grain Industry: Elevators, Railroads and Services
Dan O’Brien <[email protected]> Daniel O’Brien was raised on a grain and livestock farm in south central Nebraska. He received bachelors and masters degrees in Agricultural Economics from the University of Nebraska-Lincoln. After completing his Ph.D. at Iowa State, he worked as the Extension Agricultural Economist at the Northwest Research and Extension Center in Colby and was Northwest Area Extension Administrative Director starting in 2003 before returning to his Extension Agricultural Economist position in January 2007. His ongoing extension and applied research interests and efforts are in the areas of a) grain market supply-demand analysis, bioenergy impacts and risk management strategies, b) grain industry market structure, conduct and performance – focusing on grain handling and transportation issues, and c) economic analysis of irrigated and dryland cropping systems, and associated cropland leasing arrangements.
Abstract/Summary
Competitive forces within the Kansas grain industry have led to significant changes among grain elevators and railroad shuttle handling facilities in the state since 2007. Continued development of railroad shuttle train grain loading facilities in key grain producing locations in Kansas has heightened the competitiveness of grain markets around the state. This is especially the case in areas of the state where either ethanol plants or livestock feeding industries have already been established. These threats and opportunities faced by local grain elevators and farm marketers in the Kansas grain industry has helped bring about a number of proactive, aggressive, strategic mergers and acquisitions of grain elevator facilities - both on the part of local farmer's cooperatives and independent agribusinesses. The competitive environment in the Kansas grain industry has also forced the formation of a number of joint ventures between cooperatives and independents - particularly in the establishment of new, efficient shuttle train loading facilities in key locations around the state. In this session we will examine the current state of the Kansas grain industry in 2015 in terms of number and storage capacity of grain elevators and where they are located, the cooperative and/or independent business associations that exist in different parts of the state, the locations of high capacity-high speed shuttle train loading facilities in the state as well as ethanol plants and livestock feeding operations, and the status of railroad service for both primary (i.e., BNSF and UP) and other (K&O, SKOL, CKRY, the former KYLE, etc.) rail providers to Kansas grain industry locations. This information will be compared to similar data from 2007, and will also be examined on a crop reporting district basis for different regions across the state. The session will wrap up with observations and discussion on future trends in the competitive structure of the Kansas grain industry, i.e., whether the trends observed from 2007 through 2015 are likely to continue in the same manner over the next 8-10 years.
Looking to the Future for the Kansas Grain Industry:Elevators, Railroads, & Services
DANIEL O’BRIENEXTENSION AGRICULTURAL ECONOMIST
Study Objective & Factors Examined
Objectiveo To examine changes in the structure of the
Kansas grain industry from 2008 though 2014
Kansas Grain Industry Characteristics examinedo Grain elevator numbers, regional location, & storage capacityo Access to rail service (by grain elevators) & by which Railroado Rail car capacity of Elevators, including Shuttle Train facilitieso Numbers of competing elevators (affiliated & non-affiliated)o Elevator proximity to ethanol plants & wheat mills
Factors Affecting Competition in Kansas Grain Markets Feedgrain Demand for Livestock Feeding Consolidation of Local Grain Elevators
o Formation of multi-location cooperativeso “Strategic” entry of national firms into local markets
Grain Ethanol Plant Development Railroad Infrastructure Changes
o Emphasis on Shuttle (75-110 cars) Train facilitieso “Short Line” de-emphasis or abandonment over time
Market Factors Expected to Positively Affect Local Cash Grain Prices…Competitive Environment (↑ # of competitors)
o Issue: Affiliated versus Nonaffiliated Firms
Supply/Demand Conditions in Local Marketo Issue: Equilibrium $ for grain S/D in local markets
Elevator Grain Handling & Storage Capacityo Issue: Local market share (cost structure & market power-leadership)
Form of Business Organizationo Issue: Cooperative dividends reflected in grain $s
Economic Principles @ Work
“Oligopsonistic” Competition likely exists among grain elevators in local-regional grain markets
Competition among a small number of independent grain elevators (i.e., competing grain buyers)o Reflected in competitive local grain basis bids
Barriers to entry into local marketso Cost of facilities for grain handling & storage o Rail car handling facilities access & scale/size issueso “Nothing to buy!”, i.e., tight ownership of existing grain facilities
Economies of Scale & Scope
Scale Economieso Theory: “Average cost falls as firm output increases” Cost efficiency improves as firm – facilities grow larger
Scope Economieso Theory: “Less costly for 1 firm to perform 2 integrated activities
than for 2 specialized firms to perform them separately”
Relevance to the Kansas Grain Industryo Grain handling effectiveness of single/multiple elevator facilitieso Multi-Location grain firms &/or Joint Venture handling facilities
Transmitting Grain Prices$ Through Grain Market Systems Impact of Shuttle Train Facilities on local grain prices?
o Lower rail carrier rates & access during peak demand
“Upstream” vs “Downstream” locations o “Upstream” – Coming from an upstream location through
an elevator to get to another final user located downstreamo “Downstream” – A location closer to a final grain user than an
upstream grain elevatoro “Cross Region Arbitrage” – Often via truck transportation
• Responding to grain bids from outside regular sales region
Study Focus & Data Resources
Focus: Examining Kansas grain market structure in 2015
Data Resourceso Grain Elevator Characteristics
• 2015 & 2009 KS Grain & Feed Assoc. Directories
o Railroad Info: BNSF, Union Pacific, & Other online sources
o Public information (via the Web & personal contacts)• Directories, google satellite images, grain business websites, etc.
o Interviews of Grain Elevator Managers: June-July, 2015 (more in Sept)
All Kansas Grain Elevators Total Grain Elevators (2015): 687 < 698 in 2009
Total Grain Storage Capacity per Elevator (2015)o Average: 1,433,000 bu > 1,304,000 bu (2009)o Median: 840,000 bu > 721,000 bu (2009)o Maximum: 40,100,000 bu < 47,000,000 bu (2009)
Upright Grain Storage Capacity per Elevator (2015)o Average: 1,179,000 bu > 1,128,000 bu (2009)o Median: 734,000 bu > 657,000 bu (2009)
Rail Access & Handling Capacity
Category2015
# Elevators2015
% of Total2008
# Elevators2008
% of TotalNo Rail Service 398 57.8% 287 40.6%1 to 15 cars 179 26.0% 277 39.2%16 to 30 cars 60 8.7% 92 13.0%31 to 45 cars 7 1.0% 10 1.4%46 to 60 cars 3 0.4% 5 0.7%61 to 75 cars 7 1.0% 6 0.8%76 to 90 cars 3 0.4% 4 0.6%91 to 105 cars 7 1.0% 10 1.4%106 to 120 cars 24 3.4% 16 2.3%
Storage Capacity by Business Type 2008 vs 2015
894 1,107
2,267 2,1122,602
7,190
720 829 764 844
2,254 2,254
01,0002,0003,0004,0005,0006,0007,0008,000
COOP2008
COOP2015
Indep2008
Indep2015
Jnt Vntr2008
Jnt Vntr2015
1,00
0 Bu
shel
s
Business Type & Year
Average Storage CapacityMedian Storage Capacity
Kansas Elevator Rail Capacity - 2008# Rail Cars Handled by Business Type (per Location)
185
225
66
5 7
100
5235
10 162 0 1 0 30
50
100
150
200
250
0 Cars 1-15 Cars 16-45 Cars 46-90 Cars 91+ CarsNum
ber o
f Gra
in B
usin
esse
s
Cooperatives Independents Joint Ventures
Kansas Elevator Rail Capacity - 2015# Rail Cars Handled by Business Type (per Location)
273
153
453 10
124
26 24 10 171 0 0 0 40
50
100
150
200
250
300
0 Cars 1-15 Cars 16-45 Cars 46-90 Cars 91+ CarsNum
ber o
f Gra
in B
usin
esse
s
Cooperatives Independents Joint Ventures
Changes in grain elevators with 0-45 rail car capacity since 2009
Grain Elevator Capacity vs 2010-14 Average Crop Production by Kansas CRD*
39 3852 45
5988
4 1126
92
56
153
97
57
93112
49 53
8668
219
82
137
213
9453
32
0
50
100
150
200
250
300
NW WC SW NC Central SC NE EC SE
Mill
ion
Bush
els
Kansas Crop Reporting Districts
Wheat Corn-Milo-Soy Elevator Capacity 2015
# of Kansas Grain Elevators Served by Alternative Railroads - 2008 vs 2015
156 151
6248
14 18 2510
23
155
124
72
46
8 9 180
19
0
40
80
120
160
200
UnionPacific
BNSF K&O KYLE* SSW SKOL CKRY NCKR* CVR
# G
rain
Ele
vato
rs Year 2008 Year 2015
62 58 5476
59 61
131
54
10098
7960
9770 81
211
171 173141 149
128 13097
130
255
213181
0
50
100
150
200
250
300
350
NW WC SW NC Central SC NE** EC SE
Mile
s to
KS
Etha
nol P
lant
Kansas Crop Reporting Districts
Closest Ethanol Plant 2nd Closest 3rd Closest
Minimum Distances to Ethanol Plants by Kansas CRD
114
61
98 92
60 68
119 119
69
204191
139
104
6076
141122
92
212198 197 197
74 79
171
133
99
0
50
100
150
200
250
300
NW WC SW NC Central SC NE EC SE
Mile
s to
KS
Whe
at M
ill
Kansas Crop Reporting Districts
Closest Wheat Mill 2nd Closest 3rd Closest
Minimum Distances to Wheat Millsby Kansas CRD
4 3 4 46 6 7
3 33 2 3 3 4 5 52 2
17
11
18 19
24
30
23
11 10
0
5
10
15
20
25
30
35
40
NW WC SW NC Central SC NE EC SE
# of
Gra
in F
irms
Kansas Crop Reporting Districts
All Firms 15 mi Non-Affiliated 15 mi. Non-Affiliated 35 mi
Grain Elevators within 15 & 35 milesby Kansas CRD (Affiliated & non-affiliated)
Focus on Rail Transportation by Location & Region in Kansas
Kansas Railroad Lines & Grain Elevator Map - 2013
BNSF Shuttle Loader Locations in Kansas
BNSF Shuttle Loadersin NE, KS, OK, IA
UP Shuttle Loader Locations in Kansas
UP Shuttle Loadersin NE, KS, OK, IA
Focus on Grain Truck Transportation by Location & Region in Kansas
Concluding ObservationsDifferences Among Grain Elevators
o Grain Handling & Storage Capacityo Rail Car Handling Capacityo Ownership Structureo Terminals vs. Other Grain Elevators
Future roles if direction of grain flows change?
Variation by Crop Reporting Districto Crop Production o Grain Handling, Storage, Rail Car Capacity
Questions?Daniel O’Brien – Extension Agricultural Economist
Kansas State university
KSUGrains on Twitter & Facebook
www.AgManager.info