12. the changing competitive structure of the kansas grain ...€¦ · purpose & focus of this...

2016 Risk and Profit Conference Breakout Session Presenters

12. The Changing Competitive Structure of the Kansas Grain

Handling and Transportation Industry 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

Changes in the competitive structure of the Kansas grain storage, handling, and transportation industry at the local level between the 2007-2008 and 2014-2015 are examined – along with changes in factors that are hypothesized to have influenced these adjustments in Kansas grain industry structure. The analysis focuses on changes in Kansas rail capacity access, trends in business location consolidation and ownership-type by region of the state, the locational proximity of grain elevator storage capacity and numbers of competitors to intensity of grain production and livestock feeding, ethanol plants, and wheat mills. A complementary focus of this paper is on how trends in Kansas production of corn, sorghum, wheat and soybeans compare to the evolution of both off-farm (commercial) and on-farm storage of these same crops over the 1969-2015 period. Of particular interest will be how Kansas production and quarterly stocks data over time coincide with the more comprehensive Kansas grain industry data during the 2007-2008 and 2014-2015 periods.

The Changing Competitive Structure of the Kansas Grain Handling & Transportation Industry

DANIEL O’BRIEN BRIAN BRIGGEMAN

The Situation –Changes in the Kansas Grain IndustryChanges have occurred in…

o Physical grain storage & handling capacity of elevators

o Competitive organization & consolidation of Agribusinesses

o Access to railroad transportation

Other factors…

o Periods of both short & large crops grain storage issues

o Ethanol plants, Cattle Feeding, Dairy Industry growth

Purpose & Focus of this Study

To examine changes in the competitive structure of the Kansas grain storage, handling & transportation industry during the 2008 – 2015 period & their causes

Analysis of trends in Kansas grain production relative to changes in on-farm & off-farm grain storage (1969-2015)

• Compared to 2008 & 2015 Kansas grain storage

Data – Grain Industry Structure

1) Grain elevator location, business type & storage capacity

2) Access to rail service (by grain elevators) & by which Railroad

3) Rail car capacity of Elevators, including Shuttle Train facilities

4) Proximity & #s of competing elevators (affiliated & non-affiliated)

5) Ethanol plant & wheat mill proximity to grain elevators

6) Intensity of grain-livestock production by county & region to each grain elevator

Data Resources

o Grain Elevator Characteristics

• 2007-2008 & 2014-2015 Kansas 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 USDA NASS Quick Stats (National Agricultural Statistics Service)

o Interviews with Managers Kansas Grain Elevators – 2015/2016

More Data – USDA Grain Production & Storage info

On-Farm & Off-Farm Grain Storage & Production #s

• Corn, Grain Sorghum, Wheat & Soybeans

• Both Kansas & United States data

• Time Period: 1969-2016

Kansas Grain Elevators & ProcessorsAll Grain Elevators (#): 695 (2008) > 687 (2015)

Grain Elevators by Business Typeo Cooperative 484 (2008) = 484 (2015) (no change)

o Independents 205 (2008) > 198 (2015) (-3.4%)

o Joint Ventures 6 (2008) > 5 (2015) (-17%)

Kansas Agricultural Crop Processorso Wheat/Grain Processors 12 (2008) = 12 (2015) (no change)

o Soybean Processors 2 (2008) = 2 (2015) (no change)

o Ethanol Plants 8 (2008) = 8 (2015) (no change)

Kansas Off-Farm Grain Storage Capacity

Total Kansas Grain Elevator Storage Capacity

o Upright Storage 774 mln bu(2008) < 809 mln bu(2015) (+4.5%)

o Flat Storage 135 mln bu(2008) < 176 mln bu(2015) (+30%)

o Total Storage 907 mln bu(2008) < 985 mln bu(2015) (+8.6%)

o Warehouse #s 77.4 k-tons(2008) < 93.7 k-tons(2015) (+21%)

Kansas Grain Storage Capacity by Elevator Total Grain Storage Capacity per Elevator

o Average: 1,304,075 bu(2008) < 1,433,357 bu(2015) (+10%)

o Median: 725,500 bu(2008) < 840,000 bu(2015) (+16%)

o Maximum: 47,000,000 bu(2009) < 40,100,000 bu(2015) (-15%)

“Upright” Grain Storage Capacity per Elevatoro Average: 1,127,758 bu(2008) < 1,179,347 bu(2015) (+4.6%)

o Median: 656,500 bu(2008) < 733,500 bu(2015) (+12%)

“Flat” Grain Storage Capacity per Elevatoro Average: 199,490 bu(2008) < 256,099 bu(2015) (+28%)

o Median: 0 bu(2008) = 0 bu(2015)

Grain Storage Capacity by Business Type2008 vs 2015

894 1,107

2,267 2,112 1,735

7,190

720 829 764 8441,340

8,070

01,0002,0003,0004,0005,0006,0007,0008,0009,000

COOP2008

COOP2015

Indep2008

Indep2015

Jnt Vntr2008

Jnt Vntr2015

1,00

0 Bu

she

ls

Business Type & Year

Average Storage Capacity

Median Storage Capacity

Factors Affecting Elevator Competition in Kansas Grain Markets

Feedgrain Demand for Livestock Feeding

Consolidation of Local Grain Elevatorso Formation of multi-location cooperativeso “Strategic” entry of national firms into local markets

Grain Ethanol Plant Development

Railroad Infrastructure Changeso Emphasis on Shuttle (75-110 cars) Train facilities

o “Short Line” de-emphasis &/or abandonment over time

Market Factors Expected to Affect Local Basis & 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 Organization & Multi-Site Area Coverageo Issue: Cooperative dividends reflected in grain $s (????)

Economic Principles @ Work

“Oligopsonistic” Competition likely exists among grain elevators in local-regional grain markets

Regional competition among a small # of non-affiliated 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 issues

o Affiliated elevators seek to secure procurement areas for grain

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: “It is 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 procurement ability of multiple elevator companies

o Efficiencies of large scale grain 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 a grain

elevator to get to another final grain user located downstream

o “Downstream” – A location closer to a final grain user than an upstream grain elevator

o “Cross Region Arbitrage” – Often via truck transportation

• Responding to grain bids from outside regular sales region

Focus on Rail Transportation by Location & Region in Kansas

Kansas Railroad Lines & Grain Elevator Map - 2013

# of Kansas Grain Elevators Served by Railroad Companies - 2008 vs 2015

156 151

6248

14 18 2510

26

155

124

72

46

8 918

0

31

0

40

80

120

160

200

UnionPacific

BNSF K&O KYLE* SSW SKOL CKRY NCKR* Other

# G

rain

Ele

vato

rs Year 2008 Year 2015

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

Kansas Rail Access & Handling Capacity

Category2008

# Elevators2008

% of Total2015

# Elevators2015

% of TotalNo Rail Service 233 33.5% 280 40.8%

Rail Access 457 66.5% 407 59.2%

Category2008

# Elevators2015

# Elevators% Change

2008 to 2015 0 to 49 rail cars 416 364 Down 13%50 to 99 railcars 16 12 Down 25%100+ railcars 25 31 Up 24%

All KS Railcars 8,875 7,717 Down 13%

Kansas Rail Access & Handling Capacity

Category2008

# Elevators2008

% of Total2015

# Elevators2015

% of TotalNo Rail Service 233 33.5% 280 40.8%

Rail Access 457 66.5% 407 59.2%

Category2008

# Elevators2015

# Elevators% Change

2008 to 2015 0 to 49 rail cars 416 364 Down 13%50 to 99 railcars 16 12 Down 25%100+ railcars 25 31 Up 24%

All KS Railcars 8,875 7,717 Down 13%

Kansas Elevator Rail Capacity - 2008# Rail Cars Handled by Business Type (per Location)

168

302

5 7

65

113

11 152 1 0 30

50

100

150

200

250

300

350

0 Cars 0-49 Cars 50-99 Cars 100+ Cars

Num

be

r of G

rain

Ele

vato

rs

Cooperatives 2008 Independents 2008 Joint Ventures 2008

Kansas Elevator Rail Capacity – 2015# Rail Cars Handled by Business Type (per Location)

193

279

2 10

87 85

10 171 0 0 40

50

100

150

200

250

300

350

0 Cars 0-49 Cars 50-99 Cars 100+ Cars

Num

be

r of G

rain

Ele

vato

rs

Cooperatives 2015 Independents 2015 Joint Ventures 2015

Major changes in grain elevator rail car capacity have occurred

over the 2008-2015 period in Kansas

Versus 2008168 – 65 – 2

Versus 2008302 – 113 – 1

Versus 20085 – 11 – 0

Versus 20087 – 15 – 3

KS Elevator Railcar # Changes: 2008-2015# Rail Cars Handled by Business Type (per Location)

4,622

3,7283,9183,557

335 432

0

1,000

2,000

3,000

4,000

5,000

2008 Railcar Capacity 2015 Railcar Capacity

Num

be

r of R

ailc

ars

Cooperatives Independents Joint Ventures

Crop Production 2005-2008 vs Elevator Capacity 2008

by Kansas CRD*

10789

220

136112

165

108

63 6857 61

180

59

126

197

126

6933

187%145% 123%

232%

89% 84% 86% 91%

203%

-500.0%

-400.0%

-300.0%

-200.0%

-100.0%

0.0%

100.0%

200.0%

300.0%

0

50

100

150

200

250

300

350

NW WC SW NC Central SC NE EC SE

Mill

ion

Bush

els

Kansas Crop Reporting Districts

Wheat/Corn/Sorghum/Soybeans Off-Farm Storage % Grain Prodn / Off-Farm Storage

Crop Production 2012-2015 vs Elevator Capacity 2015

by Kansas CRD*

11994

212

156

115

166

127

61 6289

68

219

82

137

214

94

5332

134% 139%97%

191%

83% 78%136% 114%

192%

-500.0%

-400.0%

-300.0%

-200.0%

-100.0%

0.0%

100.0%

200.0%

0

50

100

150

200

250

300

350


Mill

ion

Bush

els


Wheat/Corn/Sorghum/Soybeans Off-Farm Storage % Grain Prodn / Off-Farm Storage

Changes in Crop Production ÷ Elevator Capacity by Kansas CRD from 2008 to 2015

187%

145%123%

232%

89% 84% 86% 91%

203%

134% 139%

97%

191%

83% 78%

136%114%

192%

0%

50%

100%

150%

200%

250%

300%


% P

rod

n/

Off-

Farm

Sto

rge


2008 % Grain Prodn / Off-Farm Storage 2015 % Grain Prodn / Off-Farm Storage

Focus on Grain Truck Transportation by Location & Region in Kansas

30

0

72

31

57 55

1

21 1827

36

71

31

7264

0

25

7

0

20

40

60

80

100

120

NW WC SW NC Central SC NE** EC SE

Mile

s to

KS

Etha

nol P

lant


July 2008 August 2015

Elevators Within 55 Miles of an Ethanol Plant by Kansas CRD in 2008 & 2015

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


Mile

s to

KS

Whe

at M

ill


Closest Wheat Mill 2nd Closest 3rd Closest

Minimum Distances to Wheat Millsby Kansas CRD in 2015

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


# o

f Gra

in F

irms


ALL Firms within 15 mi Non-Affiliated within 15 mi Non-Affiliated within 35 mi

Competitive Elevators within 15 & 35 milesby Kansas CRD in 2015 (Affiliated & Non-affiliated)

Comparing Grain Production to Grain Stocks

Analysis of trends in Kansas & U.S. grain production relative to changes in on-farm & off-farm grain storage

• 1969/70 - 2015/16 marketing years

• Combined Corn, Grain Sorghum, Soybeans & Wheat production

& grain stocks

• Kansas - compared to 2008 & 2015 commercial grain storage

Hypothesis: The Kansas & U.S. grain industry will construct enough storage capacity to meet its needs over time

Kansas Grain Production & Grain Stocks Trends for the 1969/70 – 2015/16 Marketing Years

0

200

400

600

800

1,000

1,200

1,400

1,600

Mill

ion

Bush

els

12/1 Cn-GS-Sb-Wht Stocks 12/1 Off-Farm Stks Production Cn-GS-Sb-Wht

Off-Farm 3-YrAvg Off Farm 7-YrAvg

1980’s Farm Crisis &Freedom to Farm

Ethanol & Soy Exports

Kansas Grain Production & Off-Farm Stocks Trends for MY 1969/70 – 2015/16

0

200

400

600

800

1,000

1,200

1,400

1,600

Mill

ion

Bush

els

12/1 Off-Farm Stks Production Cn-GS-Sb-WhtOff-Farm 3-YrAvg Off Farm 7-YrAvg



Kansas Grain Production & Off-Farm Stocks Trends Since MY 2006/07 Plus Kansas Storage (2008 & 2015)

832

1,065

645

861

774 809

907985

0

200

400

600

800

1,000

1,200

1,400

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Mill

ion

Bush

els

12/1 Cn-GS-Sb-Wht Stocks 12/1 Off-Farm Stks KS Upright Off-Farm Storage

KS All Off-Farm Storage Production Cn-GS-Sb-Wht

Kansas Grain Production & On-Farm Stocks Trends for MY 1969/70 – 2015/16

0

200

400

600

800

1,000

1,200

1,400

1,600

Mill

ion

Bush

els

12/1 Off-Farm Stks Production Cn-GS-Sb-Wht




U.S. Grain Production & Grain Stocks Trends for the 1969/70 – 2015/16 Marketing Years

0

5,000

10,000

15,000

20,000

25,000

Mill

ion

Bush

els

12/1 Cn-GS-Sb-Wht Stocks 12/1 Off-Farm Stks Production Cn-GS-Sb-Wht




U.S. Grain Production & Off-Farm Stocks Trends for the 1969/70 – 2015/16 Marketing Years

0

5,000

10,000

15,000

20,000

25,000

Mill

ion

Bush

els




U.S. Grain Production & On-Farm Stocks Trends for MY 1969/70 – 2015/16

0

5,000

10,000

15,000

20,000

25,000

Mill

ion

Bush

els




Causes of Kansas Grain Industry Changes

Large crops in 2013-2016 are straining local grain handling & storage capacity Building more storage

Railcar Shuttle Loaders have been built by grain elevators to assure they have access to railcar shipping

o Fits preference of major Railroad’s for 100+ railcar shuttle trains

o Local consolidation of grain elevators is partly driven by need

for adequate procurement areas & supplies to have enough

volume of grain to efficiently operate 100 railcar shuttle loaders

Causes of KS Grain Industry Changes (more)

With more large multiple-location firms the # of locally competitive non-affiliated grain bids may have declined

Kansas ethanol plants have affected….

o The function of local grain elevators (some “store & feed” plants)

o The directional flow of grain to the “demand center” plants

o Regional feed supply-demand due to availability of DDGS

Farmer use of Semi-Trucks for regional hauls (arbitrage!)

Questions?Daniel O’Brien – Extension Agricultural Economist

Kansas State university

[email protected]

KSUGrains on Twitter & Facebook

www.AgManager.info

12. the changing competitive structure of the kansas grain ...€¦ · purpose & focus of this...

Documents