Transcript Cost Analysis Tool: On-Farm Drying & Storage Audrey Luke-Morgan University of Georgia Center for Agribusiness & Economic Development Corn Short Course Tifton, GA January 23, 2007 CR-07-03

Cost Analysis Tool:
On-Farm Drying &
Storage
Audrey Luke-Morgan
University of Georgia
Center for Agribusiness & Economic Development
Corn Short Course
Tifton, GA
January 23, 2007
CR-07-03
What is the Center for Agribusiness
& Economic Development (CAED)?
• We are a unit of the College of Agricultural and
Environmental Sciences, combining the missions
of research and extension.
• The Center for Agribusiness and Economic
Development (CAED) has economists and business
specialists with skills and knowledge to add value
to Georgia's agricultural economy and help
individuals succeed in agribusiness.
• The Center provides timely assistance to
producers and entrepreneurs in researching and
implementing their ideas. Projects are reviewed
and considered by their potential impacts.
What are the objectives of the
Center for Agribusiness &
Economic Development (CAED)?
• The Center has three major objectives.
– Our first objective is to provide feasibility and
marketing services.
– Secondly, we provide agricultural and
demographic data for private and public
decision makers.
– Finally, we conduct analysis related to policy
issues in Georgia agriculture and provide that
information to relevant decision makers.
Levels of Feasibility
Assessment
• A feasibility study of an idea is conducted at
three levels
– Operational Feasibility
• “Will it work?”
– Technical Feasibility
• “Can it be built?”
– Economic Feasibility
• “Will it make economic sense if it works and is
built?”
• “ Will it generate PROFITS?”
On-Site Storage &
Drying
A Cost Analysis Tool
Why Dry & Store on Farm?
• Bottom Line– Offers marketing flexibility for
producers
– Opportunity to capture potential basis
increase from harvest time to some
point in the future
– Historical basis improvement for SWGA
has been in the $0.35 to $0.40/per
bushel range
• Key Questions– Consider all cost Factors involved.
– Can you make any money doing it?
What Costs Are Considered?
• Fixed Costs
–
–
–
–
–
Depreciation
Interest on Average Investment
Insurance
Taxes
R&M
• Variable Costs
– Operating Costs
– Shrink
– Interest on Inventory
Capital Outlay-Storage
Capacity
Cost
$/Bu
10,000
$ 27,100
$ 2.71
20,000
$ 46,200
$ 2.31
30,000
$ 66,900
$ 2.23
40,000
$ 86,000
$ 2.15
Assumptions used for cost analysis:
Depreciable Life: 20 Years
Interest Rate: 9%
Shrink: 2%
Grain Price: $4.00
Months in Storage: 4
Cost Analysis for On Farm Storage
1 0 ,0 0 0
C a p a c ity(B u s h e ls )
2 0 ,0 0 0
3 0 ,0 0 0
$ /B u
0 .1 2 $
0 .1 1
0 .1 0 $
0 .1 0
0 .0 1 $
0 .0 1
0 .0 2 $
0 .0 2
0 .0 1 $
0 .0 1
0 .2 7 $
0 .2 6
F ix e d C o s ts :
D e p re c ia tio n
In te re s t o n A ve ra g e In ve s tm e n t
T axes
In s u ra n c e
R e p a irs
T o ta l F ix e d C o s ts
$
$
$
$
$
$
0 .1 4
0 .1 2
0 .0 1
0 .0 3
0 .0 1
0 .3 1
$
$
$
$
$
$
V a ria b le C o s ts :
O p e ra tin g C o s t***
E le c tric ity
Labor
C h e m ic a l/T re a tm e n t
M a in te n a n c e
In s u ra n c e o n In ve n to ry
S u b to ta l O p e ra tin g C o s ts :
$
$
$
$
$
$
0 .0 1 1
0 .0 1 1
0 .0 2 8
0 .0 3 5
0 .0 3 6
0 .1 2 2
$
$
$
$
$
$
0 .0 1 1
0 .0 1 2
0 .0 2 8
0 .0 2 8
0 .0 3 5
0 .1 1 4
$
$
$
$
$
$
S h rin k
In te re s t o n G ra in S to re d
$
$
0 .0 8
0 .1 2
$
$
0 .0 8
0 .1 2
T o ta l V a ria b le C o s ts
$
0 .3 2
$
T o ta l C o s ts fo r S to ra g e
$
0 .6 3
$
4 0 ,0 0 0
$
$
$
$
$
$
0 .1 1
0 .1 0
0 .0 1
0 .0 2
0 .0 1
0 .2 5
0 .0 1 0
0 .0 1 1
0 .0 2 6
0 .0 2 6
0 .0 3 3
0 .1 0 7
$
$
$
$
$
$
0 .0 1 0
0 .0 1 0
0 .0 2 4
0 .0 2 4
0 .0 3 1
0 .1 0 0
$
$
0 .0 8
0 .1 2
$
$
0 .0 8
0 .1 2
0 .3 1
$
0 .3 1
$
0 .3 0
0 .5 8
$
0 .5 6
$
0 .5 5
***Estimates based on OSU Publication F-210. Analysis in Progress for Georgia.
C o m m e rc ia l S to ra g e
C o s t P e r M o n th p e r B u s h e l:
M in im u m C h a rg e p e r B u s h e l:
$
$
0 .0 6
0 .2 5
M o n th s in S to ra g e C o s t/B u
1
0 .2 5
2
0 .2 5
3
0 .2 5
4
0 .2 5
5
0 .3 0
6
0 .3 6
7
0 .4 2
8
0 .4 8
9
0 .5 4
10
0 .6 0
11
0 .6 6
12
0 .7 2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
P rice
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
5.25
5.50
In terest o n G rain p er M o n th S to red
In terest R ate
6.0%
7.0%
8.0%
$
0.01 $
0.01 $
0.01 $
$
0.01 $
0.01 $
0.02 $
$
0.01 $
0.01 $
0.02 $
$
0.01 $
0.02 $
0.02 $
$
0.02 $
0.02 $
0.02 $
$
0.02 $
0.02 $
0.02 $
$
0.02 $
0.02 $
0.02 $
$
0.02 $
0.02 $
0.03 $
$
0.02 $
0.02 $
0.03 $
$
0.02 $
0.02 $
0.03 $
$
0.02 $
0.03 $
0.03 $
$
0.02 $
0.03 $
0.03 $
$
0.03 $
0.03 $
0.03 $
$
0.03 $
0.03 $
0.04 $
$
0.03 $
0.03 $
0.04 $
$/B u
9.0%
0.02
0.02
0.02
0.02
0.02
0.02
0.03
0.03
0.03
0.03
0.03
0.04
0.04
0.04
0.04
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10.0%
0.02
0.02
0.02
0.02
0.03
0.03
0.03
0.03
0.03
0.04
0.04
0.04
0.04
0.04
0.05
On-Farm Drying
On-Farm Drying Cost Analysis
C apital O utlay:
C ontinuous Flow D ryer
3000 B ushel W et B in
T otal Investm ent
$
$
$
D epreciable Life (Years)
Interest R ate
T ax
Insurance
R epairs
38,000
18,000
56,000
Variable C ost Factors***
LP G as Price
Electricity $/kw h
Labor $/H our
Starting M oisture
12
9.00%
0.50%
1.00%
0.50%
Estim ated Variable C ost
$ $/bu 0.456
10,000
Fixed C osts:
D epreciation
Interest on Average Investm ent
T axes
Insurance
R epairs
T otal Fixed C osts
$
$
$
4,666.67
2,520
280.00
560.00
280.00
8,306.67
1.75
0.1
9
30
$
$
$
$
$
$
0.47
0.25
0.03
0.06
0.03
0.83
$
$
$
$
$
$
C apacity(B ushels)
20,000
30,000
$/Bu
0.23 $
0.16
0.13 $
0.08
0.01 $
0.01
0.03 $
0.02
0.01 $
0.01
0.42 $
0.28
40,000
$
$
$
$
$
$
0.12
0.06
0.01
0.01
0.01
0.21
*Dries 525 bu/hr at 5 points moisture per hr on 20 hr drying day or 335 bu/hr at 10
points moisture per hr on a 20 hr drying day.
Estimated Variable Cost to Dry Corn to 15.5%
Moisture using Continuous Flow Dryer (Cents/Bu)
Fuel
30
29
28
27
26
25
24
23
22
21
20
19
18
4 2 .0
3 9 .7
3 7 .6
3 5 .0
3 2 .7
3 0 .1
2 7 .5
2 4 .7
2 2 .2
1 9 .1
1 6 .1
1 2 .8
9 .6
A d ju s te d 2 0 0 7
E le c tric ity L a b o r
1 .4
1 .2
1 .1
0 .9
0 .9
0 .8
0 .7
0 .7
0 .6
0 .6
0 .5
0 .5
0 .5
T o ta l
2 .2
1 .9
1 .7
1 .5
1 .4
1 .3
1 .2
1 .1
1 .0
1 .0
0 .9
0 .8
0 .8
4 5 .6
4 2 .8
4 0 .4
3 7 .5
3 4 .9
3 2 .2
2 9 .4
2 6 .5
2 3 .8
2 0 .7
1 7 .6
1 4 .2
1 0 .9
Commercial Drying Discount Rates
B a s e M o is tu re
C o s t p e r 1 /2 p o in t a b o v e b a s e
3 0 .0
2 9 .5
2 9 .0
2 8 .5
2 8 .0
2 7 .5
2 7 .0
2 6 .5
2 6 .0
2 5 .5
2 5 .0
2 4 .5
2 4 .0
2 3 .5
2 3 .0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1 5 .5
0 .0 1 7 5
0 .5 1
0 .4 9
0 .4 7
0 .4 6
0 .4 4
0 .4 2
0 .4 0
0 .3 9
0 .3 7
0 .3 5
0 .3 3
0 .3 2
0 .3 0
0 .2 8
0 .2 6
2 2 .5
2 2 .0
2 1 .5
2 1 .0
2 0 .5
2 0 .0
1 9 .5
1 9 .0
1 8 .5
1 8 .0
1 7 .5
1 7 .0
1 6 .5
1 6 .0
1 5 .5
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0 .2 5
0 .2 3
0 .2 1
0 .1 9
0 .1 8
0 .1 6
0 .1 4
0 .1 2
0 .1 1
0 .0 9
0 .0 7
0 .0 5
0 .0 4
0 .0 2
-
In Summary…
• Must consider all costs when deciding whether
to invest
– In the short-run must cover variable costs at a
minimum
• Includes Shrink
• Includes Opportunity Cost—Interest on Inventory
– Consider long-run implications— “sunk” costs to be
recovered
• Can you make any money doing it?
– On average, the basis gained will be enough to cover
variable costs and some years will also cover fixed
costs.
• Are there other factors to be considered?
–
–
–
–
Insufficient Commercial Storage Facilities
Transportation issues/bottlenecks during harvest
Historical trends in prices—Post Harvest
Management Issues
“The increased return per
bushel is measured in
pennies. The risk of losing a
bin of grain due to improper
management can be measured
in dollars.”
“Adding Value to Georgia’s
Agricultural Economy through
Research & Extension”
Questions or Comments?
Audrey Luke-Morgan
Agribusiness Economist
Center for Agribusiness & Economic Development
UGA Tifton Campus, RDC
PO Box 1209
Tifton, GA 31793-1209
Phone: 229-391-6877
Fax: 229-386-3440
Email: [email protected]
www.caed.uga.edu