Competitive Local Grain Markets Increase with Investment, Consolidation and Joint Ventures

Posted August 31, 2015

The record world supply of wheat may drive crop prices lower, but increased competitiveness in local markets is providing Kansas farmers with opportunities to capitalize on basis. At the 2015 Risk and Profit Conference on August 20 and 21, Dan O’Brien, Kansas State University agricultural economist, presented results of his research examining the changes in the structure of the Kansas grain industry from 2008 to 2014.

O’Brien focused on shifts in grain elevators and railroads. To conduct his research, he examined grain elevator statistics, including location, storage capacity, access to rail, competing elevators and proximity to ethanol plants and wheat mills.

Storage Capacity by Business Type, Dan O’Brien, 2015 Risk & Profit Conference, 2015
He discovered that while the total number of grain storage facilities has decreased from 698 in 2009 to 687 in 2014, total grain storage capacity per elevator has increased nine percent to 1.433 billion bushels in 2015. He said this trend is likely the result of larger, new facilities being built while older, smaller facilities are abandoned or used only for seasonal storage.

Grain Elevators within 15 & 35 Miles, Dan O’Brien, 2015 Risk & Profit Conference, 2015
The most significant portion of this increase is due to increased joint ventures, according to O’Brien. He reported that the number of non-affiliated firms within 35 miles for Kansas crop reporting districts ranges from 10 in the southeast to 30 in south central. Kansas wheat farmers also have the option to haul directly to mills, ethanol plants or livestock feeders, depending on the district.

For the rail sector, O’Brien said railroads have de-emphasized or abandoned short lines in favor of shuttle train facilities. These shuttle-lading facilities provide yet another competitive option for delivering grain.

“There is a lot of competition in the local economy,” he said. “In hand-over-fist competition, the number of non-affiliate competitors would positively affect price.”

Find a full version of O’Brien’s presentation at http://agmanager.info/events/risk_profit/2015/Papers/14_OBrien_GrainIndustry_2.pdf.

This year marked the 20th Risk & Profit Conference, organized by the K-State Department of Agricultural Economics. The conference is intended to update key agricultural decision makers on contemporary agricultural issues. For more resources from the conference, visit http://agmanager.info/events/risk_profit/2015/Papers.asp.

By Julia Debes