2016 Risk and Profit Conference Breakout Session Presenters
12. The Changing Competitive Structure of the Kansas Grain Handling and Transportation Industry
Dan O’Brien
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 Industry Changes 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 & Processors
All Grain Elevators (#): 695 (2008) > 687 (2015)
Grain Elevators by Business Type o 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 Processors o 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 Elevator o 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 Elevator o Average: 199,490 bu(2008) < 256,099 bu(2015) (+28%) o Median: 0 bu(2008) =0 bu(2015)
Grain Storage Capacity by Business Type 2008 vs 2015
9,000 8,070 8,000 Average Storage Capacity 7,190 7,000 Median Storage Capacity 6,000 5,000
1,000 Bushels 4,000 3,000 2,267 2,112 1,735 2,000 1,340 894 1,107 1,000 720 829 764 844 0 COOP COOP Indep Indep Jnt Vntr Jnt Vntr 2008 2015 2008 2015 2008 2015 Business Type & Year Factors Affecting Elevator Competition in Kansas Grain Markets
Feedgrain Demand for Livestock Feeding
Consolidation of Local Grain Elevators o Formation of multi-location cooperatives o “Strategic” entry of national firms into local markets
Grain Ethanol Plant Development
Railroad Infrastructure Changes o 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 Market o Issue: Equilibrium $ for grain S/D in local markets
Elevator Grain Handling & Storage Capacity o Issue: Local market share (cost structure & market power-leadership)
Form of Business Organization & Multi-Site Area Coverage o Issue: Cooperative dividends reflected in grain $s (????) Economic Principles @ Work
“Oligopsonistic” Competition likely exists among grain elevators in local-regional grain markets
Regional competition among a small # of non-affiliated grain elevators (i.e., competing grain buyers) o Reflected in competitive local grain basis bids
Barriers to entry into local markets o Cost of facilities for grain handling & storage o Rail car handling facilities access & scale/size issues o Affiliated elevators seek to secure procurement areas for grain
Economies of Scale & Scope
Scale Economies o Theory: “Average cost falls as firm output increases” Cost efficiency improves as firm – facilities grow larger
Scope Economies
o Theory: “It is less costly for 1 firm to perform 2 integrated activities than for 2 specialized firms to perform them separately”
Relevance to the Kansas Grain Industry o Grain procurement ability of multiple elevator companies o Efficiencies of large scale grain handling facilities Transmitting Grain Prices$ 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 200 Year 2008 Year 2015 160 156155 151 124 120
72 80 62 48 46 31 # Grain Elevators 40 26 18 25 18 14 8 9 10 0 0 Union BNSF K&O KYLE* SSW SKOL CKRY NCKR* Other Pacific BNSF Shuttle Loader Locations in Kansas
BNSF Shuttle Loaders in NE, KS, OK, IA UP Shuttle Loader Locations in Kansas
UP Shuttle Loaders in NE, KS, OK, IA Kansas Rail Access & Handling Capacity 2008 2008 2015 2015 Category # Elevators % of Total # Elevators % of Total No Rail Service 233 33.5% 280 40.8% Rail Access 457 66.5% 407 59.2%
2008 2015 % Change Category # Elevators # Elevators 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 2008 2008 2015 2015 Category # Elevators % of Total # Elevators % of Total No Rail Service 233 33.5% 280 40.8% Rail Access 457 66.5% 407 59.2%
2008 2015 % Change Category # Elevators # Elevators 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)
350 302 300 250
200 168 150 113 100 65 50 15 2 1 5 11 0 7 3
Number of Grain Elevators 0 0 Cars 0-49 Cars 50-99 Cars 100+ Cars
Cooperatives 2008 Independents 2008 Joint Ventures 2008
Kansas Elevator Rail Capacity – 2015 # Rail Cars Handled by Business Type (per Location)
Versus 2008 350 302 – 113 – 1 Major changes in grain elevator Versus 2008 300 168 – 65 – 2 279 rail car capacity have occurred 250 over the 2008-2015 period in Kansas 193 200 150 87 85 Versus 2008 Versus 2008 100 5 – 11 – 0 7 – 15 – 3 50 17 1 002 10 10 4
Number of Grain Elevators 0 0 Cars 0-49 Cars 50-99 Cars 100+ Cars
Cooperatives 2015 Independents 2015 Joint Ventures 2015 KS Elevator Railcar # Changes: 2008-2015 # Rail Cars Handled by Business Type (per Location)
5,000 4,622 3,918 4,000 3,728 3,557
3,000
2,000 Number of Railcars 1,000 335 432 0 2008 Railcar Capacity 2015 Railcar Capacity
Cooperatives Independents Joint Ventures
Crop Production 2005-2008 vs Elevator Capacity 2008 by Kansas CRD*
350 232% 300.0% 187% 203% 145% 123% 200.0% 300 89% 84% 86% 91% 100.0% 250 220 197 0.0% 200 180 165 -100.0% 150 136 126 126 107 112 108 -200.0% 100 89 57 61 59 63 69 68 -300.0% 50 33 -400.0%
Million Bushels 0 -500.0% NW WC SW NC Central SC NE EC SE
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*
191% 192% 350 139% 200.0% 134% 136% 114% 97% 83% 78% 300 100.0% 250 212219 214 0.0% 200 -100.0% 156 166 137 150 127 -200.0% 119 115 94 94 89 82 100 68 -300.0% 61 53 62 50 32 -400.0% Million Bushels 0 -500.0% NW WC SW NC Central SC NE EC SE Kansas Crop Reporting Districts 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
300%
250% 232% 203% 200% 187% 191% 192% 145% 150% 134% 139% 136% 123% 114% 97% 89% 91% 100% 83% 84%78% 86%
% ProdnStorge Off-Farm / 50%
0% NW WC SW NC Central SC NE EC SE Kansas Crop Reporting Districts 2008 % Grain Prodn / Off-Farm Storage 2015 % Grain Prodn / Off-Farm Storage Focus on Grain Truck Transportation by Location & Region in Kansas
Elevators Within 55 Miles of an Ethanol Plant by Kansas CRD in 2008 & 2015
120
100
80 72 71 72 64 60 57 55
36 40 30 31 31 27 25 21 20 18 7 0 1 0 0 Miles to KS Ethanol Plant NW WC SW NC Central SC NE** EC SE Kansas Crop Reporting Districts
July 2008 August 2015
Minimum Distances to Wheat Mills by Kansas CRD in 2015
300 Closest Wheat Mill 2nd Closest 3rd Closest 250 212 198 197 197 200 204 171 191 150 133 141 139 99 122 100 114 79 119 119 104 74 98 92 92 Miles to KS Wheat Mill 76 50 61 6060 68 69
0 NW WC SW NC Central SC NE EC SE Kansas Crop Reporting Districts Competitive Elevators within 15 & 35 miles by Kansas CRD in 2015 (Affiliated & Non-affiliated)
40 35 30 30 25 24 23 19 20 17 18
15 11 11 10 10 6 6 7 4 4 4 4 5 5 # of Grain Firms 5 3 3 2 3 3 3 2 3 2 0 NW WC SW NC Central SC NE EC SE
Kansas Crop Reporting Districts ALL Firms within 15 mi Non-Affiliated within 15 mi Non-Affiliated within 35 mi
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 Ethanol & Soy Exports 1,600 1,400 1980’s Farm Crisis & Freedom to Farm 1,200 1,000 800 600
Million Bushels 400 200 0
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
Kansas Grain Production & Off-Farm Stocks Trends for MY 1969/70 – 2015/16 Ethanol & Soy Exports 1,600 1,400 1980’s Farm Crisis & Freedom to Farm 1,200 1,000 800 600
Million Bushels 400 200 0
12/1 Off-Farm Stks Production Cn-GS-Sb-Wht Off-Farm 3-YrAvg Off Farm 7-YrAvg Kansas Grain Production & Off-Farm Stocks Trends Since MY 2006/07 Plus Kansas Storage (2008 & 2015)
1,400 1,200 1,065 985 1,000 907 832 861 800 774 809 600 645 400 Million Bushels 200 0 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
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 Ethanol & Soy Exports 1,600 1,400 1980’s Farm Crisis & 1,200 Freedom to Farm 1,000 800 600
Million Bushels 400 200 0
12/1 Off-Farm Stks Production Cn-GS-Sb-Wht Off-Farm 3-YrAvg Off Farm 7-YrAvg U.S. Grain Production & Grain Stocks Trends for the 1969/70 – 2015/16 Marketing Years 25,000 Ethanol & Soy Exports 1980’s Farm Crisis & 20,000 Freedom to Farm
15,000
10,000 Million Bushels 5,000
0
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
U.S. Grain Production & Off-Farm Stocks Trends for the 1969/70 – 2015/16 Marketing Years 25,000 Ethanol & Soy Exports 1980’s Farm Crisis & 20,000 Freedom to Farm
15,000
10,000 Million Bushels 5,000
0
12/1 Off-Farm Stks Production Cn-GS-Sb-Wht Off-Farm 3-YrAvg Off Farm 7-YrAvg U.S. Grain Production & On-Farm Stocks Trends for MY 1969/70 – 2015/16 25,000 Ethanol & Soy Exports 1980’s Farm Crisis & 20,000 Freedom to Farm
15,000
10,000 Million Bushels 5,000
0
12/1 Off-Farm Stks Production Cn-GS-Sb-Wht Off-Farm 3-YrAvg Off Farm 7-YrAvg
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