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Agricultural Economics Report No. 282

February 1992

WHEAT CLEANING COSTS AND GRAIN MERCHANDISING

Daniel J. Scherping, David W. Cobia, D. Demcey Johnson, and William W. Wilson

Department of Agricultural Economics Agricultural Experiment Station North Dakota State University Fargo, ND 58105

ACKNOWLEDGEMENTS This research was financed by the Federal Grain Inspection Service (FGIS) through a Cooperative Agreement (#58-3AEK-0-800094) between the Economic Research Service (ERS) of the USDA, and the North Dakota Agricultural Experiment Station. The authors wish to acknowledge Jay Larsen, a former research assistant at North Dakota State University, who provided much of the preliminary work and made significant contribution in several sections of this study. We are grateful to the country elevator managers, representatives of grain cleaner manufacturers, and export elevator managers who provided much of the data. We appreciate Les Backer, Tim Petry, and Mark Ash for their constructive comments, and to Charlene Lucken for editorial suggestions. Remaining errors and omissions are the responsibility of the authors.

ABSTRACT This report documents dockage levels at various locations in the marketing system, describes merchandising practices that influence dockage levels, derived economicengineering cleaning cost estimates, and presents cleaning costs at country and export elevators for durum, hard red spring (HRS), and white wheat. Dockage levels are higher for durum and HRS than for other wheat classes. If the dockage level is greater than 1%, country elevators generally clean wheat at costs ranging from 3.9/bu to 8.1¢/bu. Cleaning costs at export elevators range from 4.5/bu to 14.4/bu because of higher labor costs, lower values of screenings, and greater loss of salable wheat in the cleaning process. These costs are wholly or partially offset by revenue from the sale of screenings, savings in transportation costs, increased storage capacity, and improvements in the grade of wheat. The two easiest measurable benefits are transportation savings and revenues from the sale of screenings, and equal 2.4/bu (transportation cost of 60¢/bu) and 4.8bu (screening values of $40/ton), respectively, when cleaning to any ending dockage level of 0% with a beginning dockage level of 4%.

TABLE OF CONTENTS

Page List of Tables ..................................................... iii

List of Figures .....................................................

.

vi

Highlights .........................................................

Dockage in the Grain Market System ................................... Dockage Levels in Wheat .......................................... Cleaning Practices and Benefits ..................................... Production Practices and Harvest Cleaning (8); On-Farm Cleaning (8); Cleaning at the Country Elevator (9); Cleaning by Grain Processors (9); Terminal and Export Cleaning (10) Dockage as a Feed Ingredient ...................................... Previous Studies ................................................ Cost Studies (10); Effects of Policy Change (12) .

vii

2 3 7

.. .

10 10 14 14 16 21 24

Economic-Engineering Cost Estimates ................................... .. Cleaning Technology ............................................. Screen Cleaners (14); Aspiration Cleaner (15); Disk/Cylinder Cleaner (15) Survey of Equipment Manufacturers .................................. Working Capacity (18); Wheat Loss (18) . Derivation of Economic-Engineering Costs ............................. Capacity (21); Wheat Loss (22); Energy (22); Labor (23); Working Maintenance (23); Fixed Costs (23); Utilization Rate (24) ................................. Cleaning Costs .................. Cleaning Costs for Country Elevators (25); Cleaning Costs for Export Elevators (27); Effects of Wheat Loss on Cleaning Cost (29); Effects of Grain Cleaner Utilization on Cleaning Cost (30) Country Elevators .................................................. Characteristics of Country Elevators in the Spring Wheat Area ............. Cleaning Capacity and Timing of Cleaning (37); Binning Wheat (39) Cleaning Costs at Country Elevators ................................. National Grain and Feed Association Survey Results .................... Cost of Cleaning (44) Export and Terminal Elevators ........................................ Characteristics of Export Elevators .................................. Cleaning Costs at Export Elevators .................................. Case Study of Cleaning at an Export Elevator .......................... Cleaning and Merchandising Practices ..................................

. Factors Influencing the Cleaning Decisions . ........................... . Screenings .................................................... .......................................... Merchandising Practices Discounts for Dockage and Foreign Material (55); End-Users and Handlers of Wheat (55); Importer (57) Budget Analysis of the Cleaning Decision .............................

37 37 . 40 42 47 47 48 50 52

52 54 54 58

Conclusions ..................

. ...........

..

.... ........

.........

.

61 65 67 69 75 79

References ........................................................ Appendix A - Survey of Grain Cleaner Manufacturers on the Capabilities of Removing Dockage From Wheat ..................................... Appendix B - National Grain and Feed Association Survey ................... Appendix C - Survey of Country Elevator Managers on the Capabilities to Remove Dockage From Wheat ...................................... Appendix D - Survey of Export Facilities on Dockage Removal From Wheat ......

ii

List of Tables Table 1.1 1.2 MAXIMUM LIMIT OF FOREIGN MATERIAL IN WHEAT FOR ................. .. EACH GRADE .. ................... AVERAGE DOCKAGE LEVELS AT THE FARM AND COUNTRY ELEVATOR FOR NORTH DAKOTA AND THE REGIONAL AREA, HARD RED SPRING AND DURUM WHEAT, 1984-1990 ....... AVERAGE DOCKAGE LEVELS FOR ALL GRADES BASED ON NATIONWIDE WHEAT SAMPLES, 1986-1990 .................... AVERAGE DOCKAGE LEVELS FOR EXPORT AND NONEXPORT ..... ...... WHEAT FROM 1989-1991 ...................... COST, TECHNOLOGY, AND OPERATIONAL CHARACTERISTICS OF SELECTED GRAIN CLEANERS AND DUST SYSTEMS, 1991 .... PERCENT OF RATED CAPACITY WHEN CLEANING FROM AN INITIAL TO AN ENDING DOCKAGE LEVEL FOR SELECTED GRAIN CLEANERS, 1991 .................................... ESTIMATES OF WHEAT LOST WHEN CLEANING WHEAT TO SPECIFIED ENDING DOCKAGE LEVELS ...................... ESTIMATED COST OF INSTALLING ADDITIONAL CLEANING CAPACITY BY COUNTRY ELEVATOR MANAGERS, 1991 .......... ESTIMATED WHEAT-CLEANING COSTS FOR A COUNTRY ELEVATOR, CLEANER A (DISK/CYLINDER), 500 BU/HR, 1991 ...... BASE TABLE USED TO ILLUSTRATE THE IMPACT OF CHANGES IN EQUIPMENT UTILIZATION RATE AND WHEAT LOSS ON WHEAT CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR AT THE COUNTRY ELEVATOR, 1991 ........ ESTIMATED WHEAT-CLEANING COSTS FOR AN EXPORT ELEVATOR, CLEANER E (SCREEN), 20,000 BU/HR, 1991 .......... ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR FOR SCREEN

CLEANERS AT EXPORT ELEVATORS, 1991 ..................... 2. 9 ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR WITH NO WHEAT LOSS AT THE COUNTRY ELEVATOR, 1991 .............. 29

Page 2

5 6 7 17

1.3 1.4 2. 1 2. 2

19 20 24 25

2. 3 2. 4 2. 5 2. 6

26 28

2. 7 2. 8

31

iii

Table 2.10 ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR WITH HIGH

LEVELS OF WHEAT LOSS AT THE COUNTRY ELEVATOR, 1991 ....

Page

32

2.11

ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH LOW EQUIPMENT UTILIZATION RATE (350 HOURS PER YEAR) AT THE COUNTRY ELEVATOR, 1991 ........................ ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH HIGH EQUIPMENT UTILIZATION RATE (1,050 HOURS PER YEAR) AT THE COUNTRY ELEVATOR, 1991 ......................... TIMES WHEN WHEAT CLEANING IS DONE, NORTH DAKOTA COUNTRY ELEVATORS, 1990 ................................ WHEAT BINNED ACCORDING TO DOCKAGE LEVELS, NORTH DAKOTA COUNTRY ELEVATORS, 1990 ........................ CLEANING COSTS AND PERCENTAGE CLEANED BY COUNTRY ELEVATORS IN NORTH DAKOTA AND DOCKAGE LEVELS OF THE HRS CROP, 1984-1990 ........ .... .. ....... ... ..... CHARACTERISTICS OF ELEVATORS IN THE DURUM AND HRS AREA AND WHITE WHEAT AREA, 1991....................... ELEVATORS THAT OWN AND OPERATE GRAIN CLEANERS FOR WHEAT, 1991..................... .... .................. RESPONSES OF ELEVATOR MANAGERS TO THE QUESTION OF INSTALLING ANOTHER GRAIN CLEANER AND ESTIMATED COST WITHIN THE PRESENT SPACE, 1991 .................... ESTIMATED CLEANING COSTS OF DURUM AND HRS WHEAT AND WHITE WHEAT ELEVATORS AT SPECIFIED LEVELS OF DOCKAGE REMOVAL, 1991............................... SPECIFIED CAPACITIES OF EXPORT ELEVATORS WHICH CLEAN WHEAT, 1991 ..... ..... .......... ......... ......

AVERAGE WORKING CAPACITY OF CLEANERS AT EXPORT ELEVATORS THAT CLEAN WHEAT, 1991 ...................... TIME OF CLEANING AT EXPORT ELEVATORS THAT CLEAN WHEAT, 1991 ...................................... . .. ALLOCATION OF VARIABLE CLEANING COSTS AT EXPORT ELEVATORS THAT CLEAN WHEAT, 1991 ......................

34

2.12

35 38 39

3. 1 3. 2 3. 3

40 43 43

3. 4 3. 5 3. 6

44

3. 7

45 . 47

48 48 49

4. 1

4. 2 4. 3 4. 4

iv

Table 4. 5 5. 1 5. 2 5. 3 5. 4 5. 5 TECHNIQUES USED TO MEET CONTRACT SPECIFICATIONS ..... IMPORTANCE OF FACTORS IN DECIDING TO CLEAN WHEAT, NORTH DAKOTA COUNTRY ELEVATORS, 1990 ................. IMPORTANCE OF FACTORS IN DECIDING TO CLEAN WHEAT AT DURUM AND HRS ELEVATORS, 1991 ...................... IMPORTANCE OF FACTORS IN DECIDING NOT TO CLEAN WHEAT AT WHITE WHEAT ELEVATORS, 1991 .................. VALUE OF SCREENINGS, NORTH DAKOTA ELEVATORS, 1984-90 .. COUNTRY ELEVATORS THAT USE GROSS WEIGHT AND WEIGHT DEDUCTIBLE TO HANDLE DOCKAGE IN TRANSACTIONS, 1991 ...................................... AVERAGE DOCKAGE DISCOUNT SCHEDULE OFFERED TO COUNTRY ELEVATORS FROM BUYERS, 1991 ................... FOREIGN MATERIAL DISCOUNT SCHEDULE OFFERED TO COUNTRY ELEVATORS FROM BUYERS, 1991................... CONTRACT SPECIFICATIONS FOR PRINCIPAL BUYERS OF HRS, 1991 ............................................... CLEANING MARGINS FOR A BUSHEL OF WHEAT (¢/BU), WITH VARIOUS SPECIFIED CLEANING COSTS, SCREENING PRICES, INCOMING DOCKAGE LEVELS, AND TRANSPORTATION COSTS, 1991 .................................................. ..

Page 50 52 53 53 54

55 56 56 57

5. 6 5. 7 5. 8 5. 9

58

V

List of Figures Figure 1.1 1.2 2.1 2.2 Production Regions of the Five U.S. Market Classes of Wheat ......... Dockage Levels at the Farm and Country Elevator Level for Durum and HRS Wheat ................................... Economic-Engineering Cleaning Costs for Cleaner A at Country Elevators With a Beginning Dockage of 3%, 1991 .................. Economic-Engineering Cleaning Costs for Cleaners C and E for Country and Export Elevators, Respectively, With a Beginning ....... ... ... ................. Dockage of 1%, 1991 .... Effects of Wheat Loss on Cleaning Costs for Cleaner A, With Beginning and Ending Dockage Levels of 3% and 0.7%, ............................ Respectively, 1991 ............. Effects of Equipment Utilization Rate on Cleaning Costs for Cleaner A, With Beginning and Ending Dockage Levels of 3% .............. and 0.7%, Respectively, 1991 ................... Estimated Wheat Cleaning Capacities of North Dakota Elevators for Different Ending Dockage Levels, 1990 ....................... Estimated Cleaning Costs of North Dakota Country Elevators for Different EndingDockage Levels, 1990 .......................... Allocation of Cleaning Costs by Country Elevators in North ..... ................... ...... ......... Dakota, 1990 ....... Justification of Reported Cleaning Costs at Country Elevators from NDSU and NGFA Surveys, 1990 and 1991, Respectively ......... Wheat Cleaning Costs at Export and Country Elevators, 1991 and .............................. 1990, Respectively .......... Cleaning Margins With Specified Screening Values, Beginning Dockage Levels, and Cleaning and Transportation Costs of $.05/bu ..... ......................... and $.60/bu, Respectively ... . Page 4 6 27

30

2.3

33

2.4

36 38 41 42 46 49

3.1 3.2 3.3 3.4 4.1 5.1

.

59

vi

HIGHLIGHTS The 1990 farm bill mandated that a study of benefits and costs of cleaning grain be completed before the Federal GrainInspection Service makes any changes in the grade standardswith respect to dockage. This report on grain dockage is one of four publications related to the study of hard red spring (HRS), durum, and white wheat. The second publication, 'Wheat Cleaning Decisions at Country Elevators," is an analysis of blending and cleaning opportunities at country elevators. The third publication, "Measuringthe Impacts of Dockage on Foreign Demand for U.S. Wheat," describes an integratedexportimport model, which can be used to evaluate the impact of dockage on import demand and U.S. export revenue. The final publication, "Impactsof Alternative Policies Regulating Dockage," analyzes different ways to regulate dockage and the economic impact of those regulations. Although dockage is a nongrade-determiningfactor in the official graingrade standards, dockage is reported in grade certificates. Thus, dockage can be a contractual term between buyers and sellers. Country elevators in the durum and HRS wheat production area typically buy wheat on a dockage deductible basis. Discounts and premiums are sometimes used in conjunction with deducting dockage in transactionsbeyond the country elevator. Durum and HRS wheat generally contain higher amounts of dockage than hard red winter and white wheat because of climatic conditions and production techniques. The average dockage level for the main HRS wheat-producing states has varied from 0.8% to 2.3%, and for durum dockage has rangedfrom 0.8% to 4.2% over the past seven years. The 1989-91 average dockage level for U.S. #2 HRS and durum wheat for export was 0.73% to 0.76/%, respectively. Country elevators remove most of the dockage. A majority of elevators in the durum and HRS wheat-producting areaown and operate cleaners. Elevators in North Dakota cleaned over 70% of the HRS wheat in 1990 at an estimated average cleaning cost of 4.4¢ / bu. These cleaning costs have rangedfrom an average of 3.54 /bu to 4.64 /bu over the past seven years. Cleaning costs were compared for two groups of country elevators: the first with load-out capacities of 25 rail cars or less per day and the second with 26 rail cars or more per day. The smaller elevators had lower cleaning costs when cleaning down to an ending dockage level of 1%. The larger elevators had lower cleaning costs when cleaning to dockage levels of 0.4% or less. Cleaning capacity for both groups declines as the specified ending dockage level decreased. A majority of the export elevators do not own or operate grain cleaners designed for wheat. The few elevators that own or operategrain cleaners do not have sufficient capacity to meet either receiving or load-out capacity. If elevators had to match cleaning capacity with loadout capacity, substantial investment would be required or the elevator's operation would be severely restrained. The few elevators that clean wheat indicate that cleaning costs are around 4.5¢ /bu when cleaning to an ending dockage level of 0.5%. However, costs increase to over 144 /bu for an ending dockage level of 0.1%

Economic-engineeringcosts were estimated from surveys of equipment manufacturers and elevator managers for screen and disk/cylinder cleaners. Cleaning cost estimates for a disk/cylinder cleaner, CleanerA, used at country elevators were 4.54 /bu. For a screen cleaner, Cleaner C, the estimated cost was 2.7¢ /bu. These estimates are based on an assumed utilization rate of 700 hr/yr, wheat loss of 0.4%, and beginning and ending dockage levels of 3% and 0.7%, respectively. Cleaning costs for a country elevator increased

vii

to 6.9 /bu and 4.64 /bu for a disk /cylinder and screen cleaner, respectively, with alternative assumptions about ending dockage level (0.1%) and wheat loss (1%). Cleaning costs were 2.5¢ /bu and 5.1 /bu for a screen cleaner, CleanerE, used by export elevators, assuming a 1% beginning dockage level and an ending dockage level of 0.7% and 0.1%, and a wheat loss of 0.4% and 1%, respectively. Costs of cleaning include the value of wheat lost during the cleaningprocess, in addition to the cost of operating the equipment. Benefits include revenue from the sale of dockage (screenings), transportationsavings, premiums gained/discountsavoided, increased storage capacity, increased aeration and drying efficiency, and reduced insect and mold problems. Transportationsavings and revenue from the sale of screenings are the easiest to measure. For example, if the dockage level of incoming wheat is 4% and is cleaned to 0%, transportationsavings are 2.4¢/bu and 1.2/bu with transportationcosts of 60 /bu and 30 /bu, respectively. Revenue from sale of screenings are 4.8o /bu and 3.6¢/bu when

screening values are $40/ton and $30/ton, respectively. The sooner wheat is cleaned in the marketing system, the greaterare the benefits that accrue. Also, benefits from cleaning increase as lower dockage levels are attained. However, the costs also increase substantially with more intensive cleaning.

viii

WHEAT CLEANING COSTS AND GRAIN MERCHANDISING

Daniel J. Scherping, David W. Cobia, D. Demcey Johnson, and William W. Wilson* Competition in export grain markets has generated interest in issues related to grain quality. The focus of much of this discussion has related to dockage in the U.S. marketing system. Dockage currently is being removed in response to market forces. However, recently there has been interest in modifying the grain grade standards to insure that U.S. wheat is competitive with that of other exporting countries. Dockage is currently a nongrade-determining factor. Currently, needs of buyers and sellers are met through contract specifications, including dockage. Dockage could be regulated in several ways; each would have a different impact on the grain marketing system. Many country elevators, especially in the spring wheat area, own grain cleaners and regularly clean wheat because of economic incentives. Country elevators located in other regions of the country and export elevators clean on a limited basis. Export elevators clean grain to fulfill contract specifications of individual importing countries, and market pressures have prompted more export elevators to expand their cleaning capacity. The 1990 farm bill includes a provision to study benefits and costs of cleaning grains before the Federal Grain Inspection Service (FGIS) makes any changes in the grade standards with respect to dockage. The Economic Research Service (ERS) in cooperative agreement with North Dakota State University (NDSU) initiated a study on the impacts of incorporating dockage into grade standards for hard red spring (HRS), durum, and white wheat.' This paper, the first of a four-part series of the NDSU/ERS study, reports why and where grain is currently being cleaned, the costs of cleaning at various locations, and current merchandising practices. The second publication, "Wheat Cleaning Decisions at Country Elevators," is an analysis of blending and cleaning opportunities at country elevators. The third publication, "Measuring the Impacts of Dockage on Foreign Demand for U.S. Wheat," illustrates an integrated export-import model, which can be used to evaluate the impact of dockage on import demand and U.S. export revenue. The final publication, "Impacts of Alternative Policies Regulating Dockage," analyzes different ways to regulate dockage and the economic impact of those regulations. This report contains five parts. The first provides background on dockage levels at various locations in the grain marketing system and reviews previous studies. The second reviews cleaning technologies and presents economic-engineering cost estimates based on

technical specifications of various cleaners. Results from a survey of country elevators, including descriptive data of elevators in the spring wheat area and cleaning costs for two typical elevators are presented in the third part. The fourth presents descriptive data on export elevators and their cleaning costs. The fifth describes merchandising practices and

*Research Assistant, Professor, Assistant Professor, and Professor, respectively, Department of Agricultural Economics, North Dakota State University, Fargo.

'ERS and Oklahoma State University undertook a similar study with respect to hard red winter and soft red winter wheat.

2

the factors that influence cleaning; also a budget analysis of a cleaning decision is used to demonstrate the impacts of individual factors on the economics of cleaning. Dockage in the Grain Market System Dockage is handled differently at various points in the marketing system. Also, the level of dockage in wheat changes as the grain moves through the grain marketing system, reflecting the amount of cleaning and handling damage. Dockage is "all matter other than wheat that can be removed from the original sample by use of an approved device according to procedures prescribed in FGIS instructions. Also, underdeveloped, shriveled, and small pieces of wheat kernels removed in properly separating the material other than wheat and cannot be removed by properly rescreening or recleaning" (USDA 1990). Dockage is considered a nongrade-determining factor in the official grain grade standards. However, since dockage is reported in grade certificates, the level of dockage can be a contractual term between buyers and sellers. 2 Dockage does not include foreign material, which is defined as "all matter other than wheat that remains in the sample after the removal of dockage and shrunken and broken kernels" (USDA 1990). Foreign material is a grade-determining factor. The maximum limit for each grade is given in Table 1.1.

MAXIMUM LIMIT OF TABLE 1.1. FOREIGN MATERIAL IN WHEAT FOR EACH GRADE U.S. No. 1 2 3 4 5 Foreign Material

--

percent --0.5 1.0 2.0 3.0 5.0

USDA, FGIS. Grain SOURCE: Grading Procedures.

Wheat received at country elevators generally has not been cleaned. Wheat is usually bought on a net weight basis (dockage deductible), meaning that the weight of the dockage is deducted from the total gross weight. The seller is not penalized for having

the amount of dockage was rounded down to the nearest 0.5%. Grain was considered dockage free if the amount of dockage was between 0 and 0.49%. Grain with dockage as high as 0.99% would be considered as containing 0.50% dockage. In May 1987, the regulations were changed to report dockage to the nearest 0.1%.

2Historically,

3

dockage in the wheat. The incentive to clean the wheat by farmers is minimal. Discounts above weight reductions of dockage are rare in transactions between farmers and country elevators, even if the elevator is discounted for dockage when it sells the wheat. Recently dockage has become a discount factor in some transactions beyond the country elevator. Domestic and international end-users of wheat sometimes use discounts in purchase contracts while buying wheat on a dockage-deductible basis. Some domestic users of wheat have a "nonmilling discount" which penalizes wheat with higher-thanspecified levels of dockage. Some exporters use dockage discounts to encourage the delivery of wheat with low dockage levels to meet the specifications of some importing countries. Some importing countries impose stringent contract specifications on the amount of dockage in purchased wheat. However, other importers do not specify maximum dockage levels but simply treat dockage as deductible. These include many feed-deficit countries and countries with no regulatory restrictions dealing with dockage. Each buyer (importing country or firm) evaluates the benefits and costs of dockage and specifies contracts accordingly. Dockage Levels in Wheat Wheat is classified as either spring (seeded in the spring) or winter (seeded in the fall). Durum and HRS wheat are spring-planted wheat. Most white wheat is winter wheat; however, a small part of the white wheat crop is spring-planted. The main production areas of the five market classes of wheat grown in the U.S. are shown in Figure 1.1. Dockage levels in spring wheat exceed that of winter wheat for a number of reasons. Wheat seeded in the fall grows faster in the spring than spring-seeded wheat, reducing weed growth and, therefore, the amount of dockage. Spring-seeded wheat is generally harvested later than fall-seeded wheat; the later the crop is harvested, greater the chance of unfavorable harvest conditions, e.g., wet weather, which can increase the amount of dockage in the wheat. Also, spring wheat is frequently swathed before harvest. The combine picks up the swath and combines most of the wheat plant. Separating of the wheat kernel and plant stem (straw) is more difficult when more straw is present. Thus, spring wheat generally contains more straw. Also, some small stones and dirt are also picked up with the swath. Dockage levels vary from year to year, especially in the durum and HRS wheat area. The average dockage levels for HRS and durum wheat in the main producing crop

region have varied from 0.8% to 2.3% and from 0.8% to 4.2%, respectively, over the past seven years (Table 1.2). These dockage levels are averages, based on samples taken from farm bins and grain deliveries to local elevators, and represent the dockage level of that crop year. Dockage levels in Table 1.2 are average dockage levels, the variation of individual samples was greater. The regional average dockage level for HRS wheat in 1987 was 2.3%; the lowest and highest sample contained 0.2% and 9.6% dockage, respectively. The 1990 regional average dockage level was considerably less than in 1987; however, the dockage levels for HRS wheat varied over a wider range from 0.5% to 11.5%. Wheat received at country elevators will have approximately these dockage levels (Table

4

FIGURE 1.1 Source:

Production Regions of the Five U.S. Market Classes of Wheat

Briggle et al

5

1.2), because little cleaning takes place on farms. However, country elevators in the HRS and durum wheat areas clean a significant portion of the wheat they receive. The dockage level after cleaning at country elevators is not reported; however, the approximate level can be inferred from data published by FGIS.

TABLE 1.2. AVERAGE DOCKAGE LEVELS AT THE FARM

AND COUNTRY ELEVATOR FOR NORTH DAKOTA AND THE REGIONAL AREA, HARD RED SPRING AND DURUM WHEAT, 1984-1990a HRS Durum

Year

North Dakota

--------------

Regionb

North Dakota

Regionb

percent ---------------

1990 1989 1988 1987 1986 1985

1984

1.0 1.0 2.2 2.7 2.0 0.9

0.9

0.8 0.9 1.7 2.3 2.1 0.9

1.0

0.8 1.0 2.7 4.4 2.4 1.1

1.1

0.8 1.1 2.8 4.2 2.4 1.1

1.2

aDockage levels for individual samples were

reported to the nearest 0.1% for all years. bRegional area includes Minnesota, Montana, North Dakota, and South Dakota. SOURCE: Department of Cereal Science and Food Technology.

FGIS has published a U.S. Wheat Crop Quality report (U.S. Department of Agriculture, FGIS, 1986-1990) since 1986. This report is based on wheat samples offered for official inspection shortly after the local harvest. The wheat samples offered for official inspection are from the local area; however, whether an individual sample came from elevators, farmers, or other interested parties cannot be determined. A majority of the samples, however, come from local elevators, checking the quality of the wheat after cleaning and blending has occurred. The results of the FGIS reports are summarized in Table 1.3.

All the HRS wheat dockage levels are lower in the FGIS report than in the Durum and HRS Wheat Regional Quality Reports (Department of Cereal Science and Food Technicology, 1984-1990), and most of the durum dockage levels are also lower. The difference between the two dockage levels is greater for the years when the wheat contained relatively high amounts of dockage (Figure 1.2). The difference between dockage levels in these two reports can be used as a proxy for the amount of dockage being removed from the wheat at country elevators. The dockage at the farm level varies greatly from year to year. However, in recent years the dockage level at the farm level has decreased to around 1% (Figure 1.2). The dockage levels of submitted samples are

6

AVERAGE DOCKAGE LEVELS TABLE 1.3. FOR ALL GRADES BASED ON NATIONWIDE WHEAT SAMPLES, 1986-1990a

Wheat

Year HRS Durum White

------- percent -------1990 1989 1988 1987 1986b 0.73 0.76 1.03 1.09 1.07 0.84 1.24 0.92 1.08 1.01 0.94 0.93 0.91 0.81 0.86

aBased on submitted samples shortly after the local harvest. bDockage levels for individual samples for 1986 were reported to the nearest 0.5%. USDA, FGIS. 1986-1990 SOURCE: U.S. Wheat Crop Quality.

5.0 S4.0 ............................... 2 .0

30

................................ ------------

. ............................................

/s

.

...........

X

Regional-Durum1

*...................................

0

/

Regional-HRS 1

<2

d)

",z/-

... ...........

1.0

FGIS-HRS n n

2

.......

1988 1989

SFGIS-Durum 2

"J"1984

1985

1986

1987

1990

FIGURE 1.2 Dockage levels at the farm and country elevator level for durum and HRS wheat. 1. Regional: Samples obtained from farms or deliveries at country elevators -farm level. 2. FGIS: Submitted samples shortly after local harvest - country elevator level. SOURCE: Department of Cereal Science and Food Technology and U.S. Department of Agriculture, FGIS. 1986-1990 U.S. Wheat Crop Quality.

7

relatively stable; country elevators clean or blend wheat to around 1% if incoming dockage level is greater than 1% (Figure 1.2). Average dockage levels for export and nonexport wheat are generally lower than the reported FGIS dockage levels in the U.S. Wheat Crop Quality report (Table 1.4). This indicates that dockage levels are further reduced through blending and cleaning at either the country elevators or by other parties who handle the wheat.

AVERAGE DOCKAGE LEVELS FOR EXPORT AND TABLE 1.4. NONEXPORT WHEAT FROM 1989-1991 Export Durum White Nonexport Durum White

Grade

HRS

HRS

---------------- percent--------------U.S. U.S. U.S. #1 #2 #3 0.64 0.73 0.89 0.68 0.76 0.84 0.66 0.69 0.89 0.74 0.74 0.74 0.87 0.87 0.87 0.83 0.83 0.83

SOURCE: USDA, FGIS. Export Grain Inspection System (EGIS) 1991, and Grain Inspection Monitoring System (GIMS) Wheat Data, 1991.

Dockage levels for U.S. #1 and #2 grade wheat for export are lower than dockage

levels of nonexport wheat. This likely reflects differences in potential transportation savings. Some exported wheat is shipped a greater distance relative to nonexported wheat and incentives to clean (i.e., reduce freight costs) are greater. Also, U.S. #1 and #2 grade wheat have the highest grade standards, and countries importing high-quality wheat may specify low dockage levels. Dockage levels for U.S. #3 HRS and white wheat are higher for export shipments. U.S. #3 wheat has lower grade standards than either U.S. #1 or #2, and countries importing a lower quality of wheat may not be as concerned about the dockage level. Cleaning Practices and Benefits3 Decisions regarding the optimal location of cleaning activity within the U.S. marketing system should include both costs and benefits. The earlier in the marketing

chain that cleaning takes place, the greater the benefits from cleaning. However, economies of size, cost of cleaning, technology availability, and other factors may dictate that the grain be cleaned at a later stage in the grain marketing system.

3 Authors

wish to acknowledge Jay Larsen, former research assistant, for his

significant contribution to this section.

8

The point at which grain is cleaned in the marketing system will determine the net benefit of cleaning since specific costs and benefits vary from location to location in the grain marketing system. Potential economic benefits derived from cleaning wheat include

- revenue from sale of screenings - transportation savings - avoid discounts or obtain premiums - meet contract specifications - increase storage capacity - reduce insect and/or moisture problems - increase drying and/or aeration efficiency

The impact of revenue from sale of screenings, transportation savings, and the cost of cleaning were analyzed to determine the economic benefit of cleaning. Premiums and discounts and contract specifications were examined and discussed; however, they were not included in the analysis because of the variability across merchandisers and through time. Increased storage capacity, reduced insect and/or moisture problems, and increased drying and/or aeration efficiency were not analyzed because they are of minimal importance in wheat producing regions covered in this report. Production Practices and Harvest Cleaning Production practices can have an important impact on the amount of dockage in wheat. Tillage or chemical weed control can effectively reduce the amount of dockage. However, economics, weather, and environmental concerns limit the scope for reducing dockage during the production phase. Combines can be adjusted at harvest to remove nearly all nonwheat materials. However, overcleaning may occur resulting in wheat loss. Decreasing ground speed of the combine can also improve dockage removal, but producers often are unwilling to slow harvest activities because of time constraints. Australian producers attach a second screen to their combines to clean the wheat further; an additional hopper on the combine stores the removed dockage. The cost of these cleaners in 1981 was $10,600 (U.S.) and was available for a few American made combines. There has been little development or acceptance of these cleaners since 1981 (Fridirici et al.). On-Farm Cleaning Wheat producers in the Northern Great Plains states store a large percentage of their crop. Removing dockage before placing wheat in the bin reduces grain quality

deterioration during storage. Upon placement into a storage facility, grain naturally separates according to particle size. Fine material will segregate and concentrate in the middle of the bin. The moisture content of fine material is generally higher and impedes aeration. The increased moisture and temperature will create a favorable environment for mold and insect growth. Cleaning grain before storing also provides more efficient utilization of storage space and improves aeration efficiency. Although several types of grain cleaners designed specifically for on-farm use are available, limited wheat-cleaning capacity exists on farms, probably because of low

9

incentives to deliver clean grain (Backer 1991). One equipment vendor indicated limited potential for sales of on-farm cleaning equipment (Skatvold 1991). He cited the producers' reluctance to spend more time to clean grain and to purchase needed equipment; also, processors still would clean wheat regardless of its cleanliness. However, a grain equipment manufacturer saw that the quality issue, especially dockage, generated a market for on-farm grain cleaners it designed and tested (Delvo 1991). It has not been a common trading practice at country elevators to accurately measure the level of dockage on individual inbound shipments. However, a trend toward recording dockage at the 0.1% level is beginning to develop. Since discounts are rarely assessed on high dockage wheat, producers delivering grain to country elevators with low levels of dockage seldom benefit from the cleaning activity. Also, a producer who cleans grain on-farm would generate screenings in much smaller quantities than would a country elevator. Unless the screenings are fed to the individual's livestock, profitable disposal of the screenings can be more difficult because of the smaller quantities and seasonal supply. Cleaning at the Country Elevator High amounts of dockage in spring grains has resulted in considerable cleaning activity at country elevators in North Dakota. Savings in storage and transportation costs and revenue received from the sale of the screenings generally offset or exceed the cost of cleaning in the Upper Midwest. The economic incentive to clean in the winter wheat regions is not as apparent. Lower initial levels of dockage result in minimal savings in transportation and storage and smaller revenues from the sale of screenings. Relatively few country elevators in winter wheat regions have invested in cleaning equipment, suggesting the capital investment and operational costs exceed the benefits of cleaning wheat. Elevators typically clean and/or blend incoming grain if dockage exceeds 1% to levels between 0.5% and 1% (North Dakota State University). Requiring elevators to remove additional dockage may severely constrain throughput and may require additional equipment and possible structural modifications. Since elevators operate on small margins, the costs associated with cleaning grain to lower dockage levels may result in some elevators with insufficient investment in cleaning equipment being unprofitable. Cleaning by Grain Processors

Domestic grain processors clean grain extensively before milling. The industry is highly regulated to minimize impurities in food products; therefore, processors remove nearly all forms of nongrain material. It is inconceivable that food processors would eliminate their cleaning activities, even if handlers cleaned wheat more intensively before the sale of wheat. However, it is possible that lower dockage levels of incoming wheat could decrease the processor's cleaning costs. Combined with possible quality improvements obtained through earlier cleaning activities, cleaning wheat earlier in the grain marketing system might be advantageous.

10 Terminal and Export Cleaning The potential also exists to clean grain at terminal or export elevators, and largescale cleaning operations may realize economies of size. However, cleaning at port terminals may not be economically advantageous since the cost of a cleaning operation large enough to match the throughput rate would be expensive. Screenings would need to be transported to areas of demand, and transportation savings obtained from receiving cleaned grain would not be realized. Dockage as a Feed Ingredient Dockage removed from grain possesses considerable feed value and is generally used as a feed ingredient or as a substitute for feed grains. Elevators normally dispose of their screenings through their own feed manufacturing or sell screenings to livestock producers or firms that process screenings into feed pellets. The price received for screenings varies, but revenues from screenings are largely responsible for the economic incentive to cleaning wheat. Previous Studies Cost Studies4 Since Canadian climate and production techniques are similar to those found in North Dakota and other northern tier states, dockage levels in wheat arriving at Canadian elevators are similar to North Dakota's. Incentives in Canada through the combined effects of grade factors, the configuration of the intergrade price differentials, and explicit cleaning tariffs virtually guarantee that all wheat is cleaned before export. Cleaning takes place at export terminals, and costs are charged back to the producer. At the time these cleaning incentives were first implemented, a large majority of exported grain moved through Thunder Bay, Ontario. Export elevators also served as a primary storage facility. Therefore, cleaning activities were performed at export terminals to: (1) improve grain storability, (2) capture economies of size, and (3) use the inspection and grain weighing facilities of the Canadian Grain Commission already on-site (Leibfried 1987). The Canadian system has been reviewed as cleaning activities constrain any increase in shipping volume, especially at West Coast ports. Because of shipping

problems during a 1987 work stoppage at Thunder Bay, the Canadians initiated a preliminary study to look at alternatives to cleaning at port terminals (Leibfried 1987). The major recommendation from the Leibfried study was to place a temporary freeze on cleaning investments at the ports while evaluating alternative sites to clean grain. Other suggestions were to use inland cleaning equipment already in place. Shipping activities could be coordinated to direct "cleaner" grain to ports where cleaning operations constrained the system. Also emphasized was the need for producers to put forth an effort to deliver cleaner grain.

Ibid.

11 A study conducted in 1983 evaluated the economics of cleaning wheat at various levels of the marketing chain (Fridirici et al. 1984). A cleaning system, emulating a typical system in Canada, was developed to match the throughput of U.S. ports, inland terminals, and country elevators. The model cleaning system for an export elevator consisted of multiple screening and cylinder machines with cleaning capacities as high as 90,000 bu/hr. To reach this cleaning volume, 288 machines at a total acquisition cost of more than $24 million (1981 U.S. dollars) are required. Total annual costs were estimated at $11 million or nearly 14¢/bu. Costs include fixed costs (depreciation and interest) and variable costs (maintenance, wages, and electricity). The cost estimates did not include a building for machines or other supporting equipment. The report suggested that including these costs could nearly double the cleaning cost of 14¢/bu. The load-out capacity of this export elevator is more than three times the annual throughput. Required cleaning capacity and subsequent cleaning cost estimates could likely be reduced to approximately one-third if the excess cleaning capacity were eliminated. Fridirici et al. (1984) evaluated two cleaning systems at an inland terminal elevator. One required cleaning capacity at one-half of the load-out capacity at an estimated cleaning cost of 4.1¢/bu. The second system reduced the number of machines to handle one-fourth of the load-out rate and assumed additional efficiencies in labor requirements. By incorporating these cost savings, cleaning costs were reduced to 2g/bu. Costs of housing the equipment and other related expenses were not included in this analysis. The large differences in costs between the inland and port facilities come from matching cleaning capacities to load-out capacities. Cleaning equipment at export points did not have the utilization rate of inland facilities. Estimated cleaning costs at the country elevator level were 2.3¢/bu with an additional employee and 1.60/bu without an additional employee. Cleaning costs were estimated for a complete cleaning system capable of cleaning 1,000 bu/hr but without a reclaim cleaning system, which the Canadians use in their cleaning systems. Recommendations from the Fridirici et al. (1984) study were (1) analyze the actual amount of foreign material, dockage, and shrunken and broken kernels in domestic wheat shipments, export wheat shipments, and wheat shipments that arrive at foreign ports; (2) evaluate conditions when the removal of dockage is economically profitable; (3) determine what procedures would be needed to prevent the reintroduction of dockage into wheat that already has been cleaned; (4) determine the economic impact on the domestic or export market if dockage levels were reduced; (5) analyze alternative classification systems for dockage; and (6) determine what portion of the premium that Canadian grains receive is

attributed to quality and what portion to its low percentage of dockage and foreign material. A case study of a Kansas elevator compared costs and revenues associated with cleaning wheat with a rotary and an aspiration cleaner versus selling the grain without cleaning (Kiser 1984). The study monitored the rotary cleaning of 56 truckload shipments at 800 bu/hr and the aspiration cleaning of 22 truckload at 1,500 bu/hr. The rotary cleaner removed 1.17% of the total weight of the shipments; the aspirator removed 0.67%. Both cleaning methods significantly increased test weight, decreased dockage percentages and the price discounts assessed on dockage, and improved numerical grade. Removing

12 dockage by screening decreased the level of shrunken and broken kernels; aspiration did not. The Kiser study (1984) reported the removal of dockage to ending levels of less than 0.5% was profitable. The price of screening needed to break even were $0.17 to $1.16 for aspiration and $3.22 to $4.27 per hundredweight for the rotary cleaner. Economic benefits associated with cleaning would have been greater with higher amounts of incoming dockage. A spreadsheet template was developed to evaluate the profitability of cleaning for individual producers or managers. Various components of costs and benefits of cleaning can be altered in the spreadsheet template to determine the net effect on profitability of cleaning (Kiser et al. 1987). Effects of Policy Change A FGIS study on the effects of including dockage and foreign material as a grade factor for wheat was divided into three major components: public comments, domestic and export inspection data, and a contract with ERS to assess the economic impact (USDA 1989). The public indicated that "the wheat industry supports efforts to market cleaner wheat; however, a consensus of opinion does not exist with respect to achieving this goal. Further, there is no agreement on whether the costs of achieving cleaner wheat would be offset by making U.S. wheat more competitive and helping prevent market erosion" (USDA 1989). Most overseas respondents favored combining dockage and foreign material into one grading factor. Most domestic respondents favor the current system. The results of reviewing domestic and export inspection data concluded: 1. Wheat generally contains less foreign material than dockage. 2. A majority of U.S. wheat contains foreign material within the U.S. #1 grade limit. 3. Dockage levels are more uniform at the export market than at the domestic market. 4. The proportion of dockage to foreign material is lower at the export market when compared to the domestic market. 5. Shifts in numerical grade designations occur (better quality becomes lower quality) at the domestic and export markets when dockage and foreign material are combined as a grading factor. 6. Shifts in numerical grade designations occur (lower quality becomes better quality) at the domestic and export markets when dockage and foreign material are combined as a nongrading factor.

The results of the ERS study concluded: 1. The economic impact of combining dockage with foreign material as a grading factor would range between $18.7 and $19.9 million. 2. The economic impact of combining dockage with foreign material as a deductible by weight would range between $5.4 and $10.9 million. 3. The economic impact of combining dockage with foreign material as a nongrade deductible with a discount for foreign material would range between $20.9 and $22.3 million.

13 4. The economic impact of cleaning wheat would range between $23.4 and $26.7 million; however, between $2 and $3 million in costs could be recovered by selling the cleanings as a feed ingredient.

The study also indicated that there might be premiums for higher quality wheat and transportation savings, and that the cost of any of the new proposed policies is not large compared to the value of exports. On a per bushel basis, the cost ranged from 0.8 to 1.9 cents.

14 Economic-Engineering Cost Estimates This section presents economic-engineering costs of cleaning for country elevators and (to a lesser extent) for export elevators. These costs were based partly on a survey of grain cleaner manufacturers and elevator managers. The effects of wheat loss and utilization rate on the cost of cleaning are examined. However, the first three types of technologies used to clean grain (aspiration, screens, and disk/cylinders) are described. Cleaning Technology Removing dockage from grain is a common handling practice in the Northern Great Plains. Food processing requires clean wheat to insure purity. Cleaning grain for seed also requires considerable cleaning to insure the highest quality seed. Although cleaning grain for marketing purposes may not require the degree of foreign material removal or size separation necessary for food processing or seed cleaning, the same technology is used. Primary differences are throughput rates and the number of cleaning processes to which the grain is subjected. For example, when cleaning for seed, nearly all weed seeds, broken and inferior sized kernels, and other inert material is separated from sound wheat kernels. Additional separation processes are used to size seed kernels. The degree of dockage removal for grain destined for the market, like wheat used for food or seed, is determined by economics associated with the cleaning activity. Screen Cleaners Grain cleaning typically removes fines, bulky, and low density material. If material to be removed differs in size from the sound grain, sieve (screen) technology can be used effectively. Large material is generally separated by scalping, considered the first stage in a cleaning process, which allows grain and fines to pass through a screen while large material is carried across the screen. The scalping rate depends on the crop being scalped, incoming dockage level, and the degree of dockage removal. Removal of fines is the reverse of scalping. Undesirable material (fines) passes through a screen. Rated capacities (per area of screen) for removing fines is considerably lower than scalping as the material removed is generally similar in size to the grain. Flow rates across the screen, therefore, will be reduced to insure proper separation. Sieve (screen) cleaners are typically classified according to the way in which grain is moved across the screen. Gravity cleaners consist of perforated plates or wire screens set at an angle and are generally installed within the piping system below the outlet of

the elevator leg. Grain flows across the screens due to the drop in elevation. Drag-type cleaners consist of a moving chain conveying grain across the screen. Revolving rotary screen cleaners use a revolving drum with perforated plates or a wire screen on the surface of the drum. Grain is introduced into the center of the drum, and desirable particles are conveyed to the end. Vibrating screen cleaners consist of inclined screen decks vibrating at 600 to 1,500 revolutions per minute (rpm) and provide a shaking motion (Quinn 1987). Gyrator cleaners use the same concept, but the strokes are longer at only 200 to 300 rpm (Quinn 1987).

15 Since material often plugs the vibrating screen cleaner's openings, hard rubber balls commonly are stationed between screen decks. As the cleaner vibrates, the balls contact the screen surface and remove plugged material. Gravity cleaners can clean large volumes of grain at a low cost. The absence of moving parts and electric motors minimizes both the capital and operational costs. The degree of dockage removal, however, is a function of the size differences between the dockage and grain being cleaned and the rate of flow. Problems can exist when material plugs the screen openings. The comparative advantage of gravity cleaners is removing fines from dry corn. Purchase and operating costs of vibrating screens generally exceed those of gravity cleaners because of additional screens and moving parts. However, dockage removal is more effective because the multiple screen decks can remove multiple-sized dockage. Problems associated with the vibration of the screens may require reenforcing of the existing facility or constructing additional framing specifically for the cleaner. Aspiration Cleaner Aspiration (increased air flows) is used to remove low density materials (chaff and insects) or material with significantly differing shape and surface roughness. Aspiration is one of the least expensive techniques for removing foreign material (Kiser 1984). The air flow velocity must be significant to remove the lighter material from the passing grain. High air flow rates may result in wheat loss, which a low-capacity disk/cylinder cleaner

can reclaim.

Disk/Cylinder Cleaner Disk/cylinder cleaners separate by length. Grain is introduced into a cylinder cleaner in the middle of a horizontal revolving cylinder, which has small indentations embedded in the metal. Smaller materials fall into the indentations and are lifted as the cylinder revolves. As the material approaches the top of the cylinder, gravity causes the material to drop. The exact point at which materials fall from the indentations depends on length. Adjustments can be made so that the threshold length can vary according to the type of grain being cleaned and the type of material being separated. Disk cleaners use multiple disks whose surfaces contain indentations similar to those found with cylinders. The disks are attached to a rotating shaft which lifts smaller material to a point where it is separated from the grain. Cylinders are often preferred

over disk cleaners because they can be adjusted more easily. Scalping and aspiration are often used ahead of the disk/cylinder cleaner. Disk/cylinder technology is generally the most effective way to remove the largest percentage of dockage; however, investment and operating costs are relatively high. A practical use of a disk/cylinder cleaner in a high capacity cleaning system is to reclaim wheat. A large screen cleaner is used for the initial cleaning, allowing more grain to pass through the screen (overcleaning). A disk/cylinder cleaner then reclaims wheat from the screenings.

16 Disk/cylinder cleaners are the most common type of cleaner in the spring wheat area. Most elevators installed these machines in the 1960s and early 1970s to clean grain for seed; now they are used to clean grain for the market. Gyrating or rotating screen cleaners have recently been installed at country elevators to clean grain for the market. Export elevators that own cleaners generally have screen cleaners. Survey of Equipment Manufacturers A survey (Survey A in Appendix A) of grain cleaner manufacturers was conducted to collect information on the capacity, cost, and technical characteristics of cleaners. The main focus was on cleaners used in country elevators, but information was also requested for cleaners used at export elevators. Of the 18 manufacturers surveyed, four returned surveys that were usable in this analysis. Information was collected on 14 cleaners that covered the range of cleaning technologies (Table 2.1). This study includes two disk/cylinder cleaners; these cleaners also incorporate an aspiration and scalping process. Disk/cylinder cleaners are generally considered the best technology for reducing dockage to low levels. However, the capacities of these machines are low, and the per-bushel investment cost is higher than for other types of cleaners (Table 2.1). This study also includes nine screen cleaners, and a scalping screen is also employed in these cleaners. These machines used differing techniques to move the grain across the screen, including a rotary motion, circular gyrator/reciprocating, circular gyrator, and straight line reciprocating motion. However, the range in capacity is large regardless of how the grain is moved across the screens. The capacity of these cleaners range from 1,600 to 22,000 bu/hr. The investment cost per bushel of cleaning capacity is lower than those of the disk/cylinder cleaners (Table 2.1). An aspirator manufacturer returned information about three of its cleaners. The range in capacity of these cleaners is large, and the per-bushel investment cost is the lowest of the three type of cleaners (Table 2.1). However, this study did not estimate cleaning costs for aspiration cleaners because of their limited use in the Northern Great Plains. The maintenance cost varies among the types of cleaners. Disk/cylinder cleaners had the highest maintenance cost per bushel (Table 2.1), followed by the screen cleaners and the aspiration cleaners. The cleaners' energy requirements are given in kilowatts. The manufacturers

reported the energy requirements in kilowatts or the horsepower of the motor. When horsepower was given in the survey, the conversion rate was 0.746 kw/hp. The typical response for cleaner labor requirements was that only casual inspection was needed. The synthetic cost calculation included a dust system because most elevators have such systems, which have relatively large energy requirements. Dust is often removed during cleaning as a safety procedure and usually requires a source of air outside the cleaner. The dust system air requirements, cfm (cubic feet per minute), came from the manufacturers.

TABLE 2.1. COST, TECHNOLOGY, AND OPERATIONAL CHARACTERISITCS OF SELECTED GRAIN CLEANERS AND DUST SYSTEMS, 1991

Operating Requirements Manufacturer Cleaner A Ceaner B2 Cleaner C2 Cleaner D2 Cleaner E2 Cleaner F2 leaner G2 Cleaner H' Cleaner IS Cleaner J Cleaner KS Cleaner ' Cleaner M Cleaner N Cost $24,185 $39,310 $69,342 $76,265 $165,146 $47,000 $165,000 $13,950 $23,215 $75,255 $91,120 $18,000 $35,000 $45,000 Rated Capacity (bu/hr) 500 1,000 2,000 5,000 20,000 5,000 22,000 1,600 2,000 9,600 12,800 2,500 7,000 12,000 Investment Technology Cost ofCleaner' Useful Life (per bu) 4837 3931 34.67 15.25 8.26 9.40 7.50 8.72 11.61 7.84 7.12 7.20 5.00 3.75 A A B B B C D E E E E F F F (years) 20 20 20+ 20+ 20+ 25+ 25+ 20 20 20 20 40 40 40 KWH 6.0 10.0 7.5 7.5 15.0 5.0 8.9 1.06 1.06 839 10.56 11 26 33 Labor Occasional supervision Occasional supervision Casual inspection Casual inspection Maintenance $4,500/5 million bu $9,000/5 million bu 50s/hr 50t/hr $1.00/hr 50t/hr 75t/hr 10t/hr 12¢/hr 39t/hr 52/hr CFM 3,000 6,000 1,500 1,000 3,000 300 600 1,600 2,000 4,000 4,000 Dust System KWH 5.6 112 2.24 1.5 3.73 38 .75 1.5 1.5 3.73 3.73 Cost $10,500 $21,000 $5250 $3,500 $10,500 $1,050 $2,100 $,300 $3,300 $,300 $3,300 --t -,

Casual

inspection Occasional inspection Occasional inspection Casual inspection Casual inspection Casual inspection Casual inspection Casual observation Casual observation Casual observation

1¢/hr

2¢/hr 4/hr

A = aspiration, cylinder/disk, and scalper B = rotary screen C = circular gyratory/reciprocating screen D = circular gyratory screen E = straight line reciprocating screen F = multi-aspiration 2Dust system cost and energy requirements are from a local vendor. SDust system cost and energy requirements are from the manufacturer. Portable cleaner. SOURCE: Survey A.

18 The cost and energy requirements of the dust system for most of the cleaners according to the cfm requirements were obtained from a Moorhead, MN equipment vendor. A $3.50/cfm charge was used to approximate the cost of the air system, which includes the cost of the dust system and installation (Table 2.1). Salable wheat removed with the dockage and working capacities (percent of rated capacity) of the cleaner are two important technical aspects associated with cleaning. These two factors vary, interrelate, and significantly affect cleaning costs. Information on working capacity was available, but very little information was obtained on wheat loss (see discussion in following section). Working Capacity Grain cleaners are generally listed by their rated or theoretical cleaning capacity. Most cleaners can operate at or near their rated capacity when the amount of dockage to be removed is small and the specified ending dockage level is high--at or above 0.7% dockage. However, intensive cleaning takes more time (hence more electricity, labor, etc.). Thus, the actual cleaning capacity (hereafter working capacity) is the bushels per hour at which the cleaner operates in normal operating conditions. Factors that influence the working capacity of a cleaner are generally the same factors that influence the efficiency of the cleaner. The efficiency of a cleaner is defined as (% fficie Efficiency(%) = 100 x amount of material actually removed amount of material that could be removed

"Efficiency is not constant. It falls with initial level of undesirable material, with increasing moisture, and with increasing flowrate" (Hurburgh 1988). Some types of dockage are more difficult to remove. "Near-fit" is dockage that is similar in size and shape to wheat. The cleaning efficiency for near-fit is lower than for sizes that are smaller than the screen opening (Hurburgh 1988). To achieve a high efficiency rate, the flowrate (work capacity) can be reduced and/or a larger screen opening can be used. Although a larger screen opening does a better job of fines removal, it increases the loss of acceptable broken grain (Quinn 1987). Working capacity in this study was related to initial and ending dockage levels. Respondents included the percent of rated capacity that the cleaner could operate given initial and ending dockage levels. All the surveys indicated a change in working capacity associated with changes in the initial and ending dockage levels (Table 2.2). Cleaning

capacity decreases as the ending dockage level decreases and/or the initial dockage increases. The reduction in cleaning capacity affects the amount of grain cleaned and thus the cost of cleaning. Wheat Loss The wheat loss associated with cleaning to low dockage levels is an area in which little research has been conducted. Two lines of thought were evident in interviews with

TABLE 2.2. PERCENT OF RATED CAPACITY WHEN CLEANING FROM AN INTIAL TO AN ENDING DOCKAGE LEVEL FOR SELECTED GRAI N CLEANERS, 1991

From 5 Percent To: From 3 Percent To: From Percent To:

Manufacturer

Cleaner A Cleaner B Ceaner C Ceaner D Ceaner E Ceaner F Cleaner G Ceaner H Cleaner I Ceaner J Cleaner K Cleaner L Cleaner M leaner N SOURCE: Survey A.

1

60 60 60 60 40 65 70 100 100 100 100 100 100 100

.7

50 50 50 50 30 45 50 100 100 100 100 95 95 95

.

40 40 40 40 20 35 34 80 80 80 80 90 90 90

.1

N/A N/A 30 30 N/A N/A N/A N/A N/A N/A N/A 80 80 80

1

80 80 70 70 50 75 80 100 100 100 100 100 100 100

.7

70 70 60 60 40 70 75 100 100 100 100 98 98 98

.

60 60 50 50 30 60 65 85 85 85 85 95 95 95

.1

50 50 40 40 N/A N/A N/A N/A N/A N/A N/A 85 85 85

.7

100 100 80 80 60 100 100 100 100 100 100 99 99 99

.

80 80 75 75 50 85 90 90 90 90 90 98 98 98

.1

60 60 60 60 40 N/A N/A N/A N/A N/A N/A 95 95 95

20 elevator managers and equipment manufacturer representatives. The first group thought

that the only way to clean wheat down to the 0.1% dockage level was with a disk/cylinder cleaner. This technology can be used independently or in conjunction with another system; e.g., first, overclean wheat with a different type of cleaner and reclaim the salable wheat from removed dockage with a cylinder/disk cleaner. The second group thought that screen and aspiration cleaners could achieve low levels of dockage with some loss of salable wheat. They disagreed about the economic significance of this loss but agreed that the disk/cylinder cleaners lost the least wheat and the aspiration cleaners lost the most wheat when cleaning to low dockage levels. The loss factor varies with all the conditions affecting efficiency (Hurburgh 1988). Factors affecting wheat loss include type of dockage to be removed (e.g., near-fit), moisture, flow rate, incoming dockage, and the elevator manager's ability in adjusting the cleaner. Among the manufacturers surveyed, only the aspiration manufacturer included a percentage for wheat loss. All other manufacturers had no loss of salable wheat in the removed dockage. However, selected elevator managers agreed that wheat loss occurred. The loss increased as the wheat was cleaned to lower dockage levels. Representatives of a screen cleaner manufacturer indicated in telephone conversations that while some wheat was lost with dockage, the loss could be kept to a minimum by correctly matching screen size to the wheat and dockage. When cleaning to low dockage levels with correct screens, the main loss would be in working capacity. Table 2.3 contains reported estimates of wheat loss associated with different specified ending dockage levels for disk/cylinder and screen-type cleaners by elevator managers and representatives of grain cleaner manufacturers. The zeros in Group A are

TABLE 2.3. ESTIMATES OF WHEAT LOST WHEN CLEANING WHEAT TO SPECIFIED ENDING DOCKAGE LEVELS Ending Dockage Group B

A

--

C

percent ---

1.0 0.7 0.4 0.1

0 0 0 0

0.1 0.4 0.7 1.0

0.2 0.8 1.4 2.0

Survey A and SOURCE: conversation with selected elevator managers.

21 values from manufacturers, and Group C is the upper level from elevator managers. Group B is an intermediate range that will be used to demonstrate how wheat loss affects cost. The percentages given for wheat loss depend on many factors, as previously stated, that are difficult to quantify. The value of wheat loss (to the extent such loss exists) is the difference between the wheat value and screenings value. Derivation of Economic-Engineering Costs Economic-engineering costs for disk/cylinder and screen cleaners were derived from information contained in survey results of grain cleaner manufacturers and from interviews with elevator managers and manufacturer representatives. Economicengineering costs for the aspiration cleaner were not calculated because few elevators in the spring wheat area or export elevators use aspiration cleaners. Costs were calculated on a per hour basis and converted to a per bushel rate. The cleaning costs were defined as a function of working capacity, wheat loss, energy, labor, maintenance, depreciation, opportunity cost (interest) on investment, and utilization rate (number of bushels cleaned per year). Each component is classified as variable or fixed costs. Fixed costs are incurred whether or not the cleaner is operated; i.e., depredation and opportunity cost of capital. Variable costs, by definition, change with the amount of use. Working Capacity Working capacity is the actual cleaning capacity at which the cleaner can operate under given conditions. The working capacity of a particular cleaner in this study was found by

Working Capacity = RC * PRC

where

RC = rated capacity (bu/hr)

PRC = percent of rated capacity when cleaning from a specified initial dockage level to an ending dockage level As the PRC changes, so does the working capacity. In this study, PRC changes with initial and ending dockage levels. The rated capacity is given in Table 2.1 and the percent of rated capacity (PRC) in Table 2.2.

The working capacity was used to place all hourly costs on a per bushel basis. Most costs were calculated on a per hour basis, and these costs were divided by the working capacity to obtain per bushel costs. When the working capacity changes, so does the rate at which costs of cleaning are incurred. As the working capacity decreases, all per unit costs increase, and cleaning to lower specified dockage levels becomes more expensive.

22 Wheat Loss Wheat loss is related to the desired ending dockage level (this is consistent with findings from interviews) and was estimated by

Wheat Loss = WC * PWL

where

WC = working capacity

PWL = percent of wheat loss when cleaning to a desired ending dockage level The actual amount of wheat that is lost depends on many variables, which need more research. For lack of detailed information, we did not include recovery systems in the analysis, i.e., recleaning of screenings. For this study, three sets of wheat loss associated with different specified ending dockage levels were defined for disks/cylinder and screen-type cleaners (Table 2.3). These represent an educated guess about wheat loss under a range of conditions. Most elevators in North Dakota sell their screenings, so the actual value of the wheat loss is the price difference between screenings and wheat. In North Dakota the average price of screenings in 1990 was $29.54 per ton, and the average price of wheat was $2.24 per bushel, which equals a 2.26/1b. difference (North Dakota State University). The value of wheat loss at export elevators is generally greater than at country elevators because the wheat values are greater and screening values are generally lower. A grain company that recently cleaned a shipment of wheat indicated the price received for the wheat was $123.60/ton and $15/ton for screenings--a 5.430/lb. difference. This value was used to calculate the value of wheat loss at export elevators. Energy Energy requirements were taken from manufacturers' and vendors' specifications (Table 2.1). Monthly energy costs equal a one-time charge reflecting the highest kilowatt draw of the month plus 50/kw. The one-time charge is calculated by multiplying the largest 15 minute draw in the month times $5.25. Selected North Dakota electrical cooperatives supplied these rates. Annual energy cost was estimated by

Energy Cost = [(KW/4 * $5.25) * MN] + [(KW * 5i) * HR] where KW = kilowatt requirement of the cleaning system MN = number of months that the cleaner is operated HR = annual hours of operation The one-time, 15 minute highest draw, energy demand charge is reflected in the first term. This is charged every month, so (KW/4 * $5.25) has to be multiplied by the number of months that the cleaner is operated--12 months in this case.

23 Labor Most equipment manufacturers reported that casual inspection was the only labor requirement needed to operate a cleaner. However, most country elevator managers frequently inspected the cleaner to see if it was operating properly. They felt an average of 10 to 15 minutes per hour was devoted to starting, inspecting, and adjusting the cleaner. Labor requirements were assumed to be 12 minutes per hour (20% of an hour). The wage rate was taken from the Results of 1981 Employee Compensation Survey of North Dakota Country Elevators (North Dakota Grain Dealers Association 1981) and indexed to the current year by the Consumer Price Index ($7.71 per hour). Labor costs at export elevators are higher than those at country elevators. The wage rate used for export elevators is $35 per hour, and 2.5 man hours are required per hour of cleaning. These labor requirements and wage rates were provided by managers of export elevators that clean wheat. Labor requirements for an export elevator are significantly greater than those of country elevators. The 2.5 man hours represent additional labor requirements caused by delay of loading and interruption of normal loading procedure. Maintenance Long-term maintenance costs reflect upkeep from normal wear. This includes replacing disks, cylinders, and screens. Maintenance costs were obtained from the equipment manufacturers and are reported on a per bushel or per hour basis (Table 2.1). Fixed Costs Fixed costs are incurred regardless of cleaner operating time. Therefore, average fixed costs decrease as operating time increases (or number of bushels cleaned increases) and vice versa. Fixed costs associated with owning the cleaner include depreciation and opportunity costs on the investment (for equipment and installation). Installation cost varies. Some elevators can accommodate adding a cleaner without major modifications, while others require substantial structural modifications. The National Grain and Feed Association (NGFA) survey (Survey B in Appendix B--results will be published in a forthcoming ERS report) questioned managers on the cost of installing a grain cleaner in their existing facilities. The majority of elevators could install a grain cleaner for under $100,000 (Table 2.4).

Field representatives of a grain company that operates in North Dakota reported most country elevators could remove a grain bin to make room for a cleaner. that Elevator construction contractors estimated that installation costs range from $10,000 to over $100,000. In our analysis, the cost of installation was assumed to equal the value of the cleaner and dust system.

24

TABLE 2.4. ESTIMATED COST OF INSTALLING ADDITIONAL CLEANING CAPACITY BY COUNTRY ELEVATOR MANAGERS, 1991 Estimated Cost of Additional Cleaner Production Area Durum White & HRS Wheat --Less than $100,000 $100,001 - 500,000 76.5 23.5 percent --68.8 31.2

SOURCE: Survey B (forthcoming ERS report).

Depreciation The cleaning system and installation costs were depreciated using a straight-line schedule over 25 years. This was used because it was within the range of what equipment manufacturers said was the useful life of cleaners. Opportunity Costs of Capital An opportunity cost was charged against ownership of the cleaning system and installation cost to account for foregone interest or interest being paid on borrowed funds. Two percentage points were added to the 1981-90 average prime interest rate to represent a rate that an elevator would face. The rate used was 13.32%. This opportunity cost was charged against one-half of the purchase price of the cleaning system and the installation cost. One-half represents the average investment in the cleaning system and installation if the ending value of the cleaning system is zero. Utilization Rate The rate of use in hours or days of operation, along with working capacity, determines the volume of wheat over which fixed costs are distributed. A survey of selected elevators indicated that this rate varies from 50 to 150 days of operation per year, with an average of seven hours of cleaning per day. The utilization rate was varied from 50 to 150 days in this study to show the impact of this variable on cleaning costs. Cleaning Costs The cleaners in Table 2.1 are grouped into two broad groups for this study. The disk/cylinder and small-screen cleaners represent the cleaning capacities and technology used by country elevators in the spring wheat area. The larger screen cleaners represent the type of technology export elevators use.

25 Cleaning Costs for Country Elevators Country elevators mainly have disk/cylinder types of cleaners; however, lately screen cleaners have been installed. The cleaning capacity of cleaners at country elevators is generally under 5,000 bu/hr. Two disk/cylinder cleaners and five screen cleaners with a capacity of 5,000 bu/hr or less were selected to represent available technologies and capacities at the country elevator level. Cleaner A is used to illustrate cleaning cost components. Cleaning costs were estimated using an initial dockage level of 3.0% and an ending dockage level of 0.7% and 0.1%. An ending dockage level of 0.7% is near the level at which elevators currently clean wheat in the spring wheat area. The 0.1% dockage level illustrates the impacts on cost of more intensive cleaning. Cost estimates assume that the cleaner was operated 100 days per year at seven hours per day, or 700 hours per year, and wheat loss was 0.4% and 1%, respectively, when cleaning to ending dockage levels of 0.7% amd 0.1%. The derivation of cleaning costs is shown in Table 2.5. The 700 hours of cleaning translate into 245,000 and 175,000 bushels being cleaned per year with an initial dockage level of 3% and ending dockage levels of 0.7% and 0.1%, respectively. Cleaning costs were 4.5/bu and 6.9/bu, respectively, when cleaning down to dockage levels of 0.7% and 0.1%.

TABLE 2.5. ESTIMATED WHEAT-CLEANING COSTS FOR A COUNTRY ELEVATOR, CLEANER A (DISK/CYLINDER), 500 BU/HR, 1991a

Cleaned to Dockage Level of 0.7% /bu Annual Bushels cleanedb Fixed costs: Depreciation Cleaner Install Opportunity Cleaner Install

TOTAL FIXED COSTS Variable costs: Wheat lossc Energy Labor

Cleaned to Dockage Level of 0.1% /bu Annual 175,000

245,000

1,387 1,387 2,310 2,310

7,394 1,329 1,136 1,079

0.6 0.6 0.9 0.9

3.0 0.5 0.5 0.4

1,387 1,387 2,310 2,310

7,394 2,373 1,136 1,079

0.8 0.8 1.3 1.3

4.2 1.4 0.6 0.6

Maintenance

TOTAL VARIABLE COSTS TOTAL COSTS

aInitial

220

3,764 11,158

0.1

1.5 4.5

158

4,746 12,140

0.1

2.7 6.9

dockage level of 3%. bCleaning for 700 hours per year. CAssuming 0.4% and 1% wheat loss when cleaning to

0.7% and 0.1%,

respectively.

26 The difference involves both fixed and variable costs. Fixed costs per bushel are higher when cleaning to the lower dockage level because the costs are spread over fewer bushels. All variable costs increased, except maintenance costs for Cleaner A which are already on a per bushel basis. The value of wheat loss increases because of the assumption that more salable wheat is removed as the wheat is cleaned to a lower dockage level. Both energy and labor costs increased on a per bushel basis; this is due to the decreased working capacity associated with cleaning to a lower dockage level. The costs involved in this example change with cleaners, beginning and ending dockage levels, and utilization rate. Cleaning costs for the different cleaners that country elevators use, under the same assumptions as above except for varying initial and ending dockage levels, are given in Table 2.6. The two disk/cylinder cleaners have higher cleaning costs than screen cleaners because of high fixed costs, low cleaning capacities, and higher maintenance costs. However, as stated previously, there may be less wheat loss associated with disk/cylinder cleaners than with other types of grain cleaners, and that is not reflected in this table.

TABLE 2.6. BASE TABLE USED TO ILLUSTRATE THE IMPACT OF CHANGES IN

EQUIPMENT UTILIZATION RATE AND WHEAT LOSS ON WHEAT CLEANING COSTS (¢/BU.) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR AT THE COUNTRY ELEVATOR, 1991

Cleaning From To

Assumed Wheat Loss

Disk/Cylinder B A (0.5) (1.0)

Type of Cleanera Screen F C D (2.0) (5.0) (5.0)

H (1.6)

I (2.0)

--- percent ----5.0 1.0 0.7 0.4 0.1 1.0 0.7 0.4 0.1

0.7 0.4 0.1

0.1 0.4 0.7 1.0 0.1 0.4 0.7 1.0

0.4 0.7 1.0

4.8 6.1 7.9 3.7 4.5 5.6 6.9

3.4 4.5 6.0

4.0 5.2 6.8 3.8 3.9 4.8 6.0

2.9 3.9 5.3

2.3 3.2 4.2 5.7 2.0 2.7 3.7 4.6

2.2 2.7 3.5

1.1 1.7 2.3 3.2 0.9 1.5 2.0 2.7

1.2 1.7 2.3

0.7 1.3 1.9 0.6 1.0 1.5

0.6 1.0 1.5 0.6 1.0 1.4

0.6 1.0 1.6 0.6 1.0 1.5

3.0

1.0

0.9 1.4

1.0 1.4

1.0 1.5

aRated capacity

(1,000 bu/hr) in brackets.

27 Cleaning costs depicted in Table 2.6 are positively related to beginning dockage and negatively related to ending dockage. Cleaning costs rise substantially when cleaning to lower levels of dockage (Figure 2.1). This relationship is due to increased wheat loss associated with cleaning to lower ending dockage levels and lower working capacities.

8.0 7.0

I

~~~~~~~~~~. ............11

3

6.0

......... .. ............... ..... ...... ....r r ........... ...........I

0

un 5.0

U U-

4.0

in

.#,j

1.0

0.7

0.4 0.1 Ending Dockage (%)

FIGURE 2.1

Economic - engineering cleaning costs for Cleaner A at country elevators with a beginning dockage of 3%, 1991. See Table 2.6 for assumptions and numerical values.

Cleaning Costs for Export Elevators

Export elevators typically have large screen cleaners. The rated cleaning capacities of

cleaners at export elevators are generally over 10,000 bu/hr. The four large screen cleaners of 9,600 bu/hr or more represent the technology and capacities at export elevators. It was assumed that cleaning capacity does not have to meet the elevator's load-out capacity. This is currently the situation at export elevators with grain cleaners. Grain is cleaned only on a limited basis, and not having to match cleaning with load-out capacity allows the elevators to operate with lower investments in cleaning equipment, thus drastically reducing fixed costs. Cleaning costs are illustrated for an export elevator for Cleaner E, based on the following assumptions. The cleaner is operated 700 hours per year, with wheat loss at 0.4% and 0.7% and cleaning costs are 3.1/bu. and 4.7/bu when cleaning to ending dockage levels of

28 0.7% and 0.4%, respectively (Table 2.7). Cleaning costs are calculated to an ending dockage level of 0.4% because this cleaner cannot clean the wheat down further from a beginning dockage level of 3%.

TABLE 2.7. ESTIMATED WHEAT-CLEANING COSTS FOR AN EXPORT ELEVATOR,

CLEANER E (SCREEN),

20,000 BU/HR,

1991a

Cleaned to Dockage Level of 0.7% Annual /bu Bushels cleanedb Fixed costs: Depreciation Cleaner Install Opportunity Cleaner Install

TOTAL FIXED COSTS

Cleaned to Dockage Level of 0.4% Annual ¢/bu 4,200,000

5,600,000

7,026 7,026 11,698 11,698

37,448

0.1 0.1 0.2 0.2

0.7c

7,026 7,026 11,698 11,698

37,448

0.2 0.2 0.3 0.3

0.9C

Variable costs:

Wheat lossd 72,979 1.3 95,785 2.3

Energy Labor Maintenance

TOTAL VARIABLE COSTS TOTAL COSTS

1,836 61,250 700

136,765 174,213

0.03 1.1 0.01

2.4c 3.1

1,836 61,250 700

159,571 197,019

0.04 1.5 0.02

3.8c 4.7

dockage level of 3%. bCleaning for 700 hours per year. cNumbers do not add up because of rounding.

aInitial

dAssuming 0.4% and 0.7% wheat loss when cleaning to 0.7% and 0.4%, respectively.

Cleaning costs for the four screen cleaners (with the same assumptions as above, except for varying initial and ending dockage levels) are illustrated in Table 2.8. These cleaning costs are slightly higher than screen cleaners used at country elevators (Table 2.6). However, if cleaning capacity had to match load-out capacity of the export elevator, the cost of cleaning would increase further. Fixed costs on a per bushel basis would increase if the elevator did not operate at full load-out capacity because fewer bushels would cover fixed costs.

29

TABLE 2.8. ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR FOR SCREEN CLEANERS AT EXPORT ELEVATORS, 1991

Cleaning From To

Assumed Wheat Loss

Screen Cleanera J K E G (20.0) (22.0) (9.6) (12.8)

--percent---5.0 1.0 0.7 0.4 0.1 1.0 0.7 0.4 0.1 0.7 0.4 0.1 0.1 0.4 0.7 1.0 0.1 0.4 0.7 1.0 0.4 0.7 1.0 2.1 3.7 5.9 1.2 2.6 3.7 1.5 2.5 3.8 1.2 2.2 3.4

3.0

1.8 3.1 4.7

1.2 2.2 3.4

1.5 2.5 3.7

1.2 2.2 3.4

1.0

2.5 3.7 5.1

2.0 3.1

2.5 3.6

2.2 3.3

aRated capacity (1,000 bu/hr) in brackets.

Cleaning costs with screen cleaners at export and country elevators are illistrated in Figure 2.2. Costs are higher at the export elevator for several reasons--labor costs are higher and the difference between screening values and wheat price is higher for the export elevator, giving a higher value for wheat loss. Effects of Wheat Loss on Cleaning Cost The amount of wheat lost with the dockage in the cleaning process has a sizable impact on the cleaning costs. As noted earlier, little research is available on the magnitude of wheat loss with different types of cleaners or the significance of different cleaning conditions (e.g., type of dockage to be removed, moisture of grain, beginning and ending dockage level, and differing characteristics of the wheat). Wheat loss was varied by the amount listed in Table 2.3 to illustrate sensitivity of cleaning costs to wheat loss. Cleaning costs in Tables 2.6, 2.9, and 2.10 vary according to size of wheat loss. Cleaning costs are directly related to wheat loss (Figure 2.3). Cleaning costs increase at a constant rate with wheat loss; the movement from 0% to 2% wheat loss has a sizable impact on cleaning costs--over 25% in the case of Cleaner A.

30

3.D

r r

5.0 ' 4.5

84.0

... .... ................ ........... ...... ... .............. ................. ............. ..

--*- -*-*****-;; - -- ** **** ***** ********

Cleaner E _ ^

S3.5

Cleaner C E

3.0 U

2 .5

0 n

* to

00 to 00

40 00 00 00 oo oo. ao

o e ooaM amt M w M ome a m M M M w aM Ma 0.4 0.1

" 0.7

Ending Dockage (%)

FIGURE 2.2 Economic - engineering cleaning costs for Cleaners C and E for country and export elevators, respectively, with a beginning dockage of 1%, 1991. See Table 2.6 and 2.8 for assumptions and numerical values.

Effects of Grain Cleaner Utilization on Cleaning Cost Grain cleaners have a high investment and installation cost compared to operating costs. Therefore, utilization has an important impact on average fixed cost. Thus, elevators that closely match their rate of cleaning and cleaning capacities will have lower total average cost of cleaning than elevators that have underutilized cleaning capacity. This sensitivity of cleaning cost due to equipment utilization is illustrated in Tables 2.6, 2.11, and 2.12. Utilization of 50, 100, and 150 days per year yielded costs of 7.9, 4.50, and 3.4/bu, respectively, for Cleaner A, assuming an initial dockage level of 3% and an ending dockage level of 0.7% and wheat loss of 0.4% (Figure 2.4).

31

TABLE 2.9. ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR WITH NO WHEAT LOSS AT THE COUNTRY ELEVATOR, 1991

Cleaning From To

Assumed Wheat Loss

Disk/Cylinder A B (0.5) (1.0)

Type of Cleanera Screen C D F (2.0) (5.0) (5.0)

H (1.6)

I (2.0)

--- percent---5.0 1.0 0.7 0.4

0.1 3.0 1.0 0.7 0.4 0.1 0.7 0.4 0.1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.5 4.0 4.7 5.6 2.8 3.5 4.7 3.0 3.4 3.9 4.7 2.4 3.0 3.9

0.00 0.00 0.00

4.7 5.6 7.0

3.9 4.7 5.8

2.2 2.6 3.3

4.4 1.9 2.2 2.6 3.3 1.6 1.7 2.2

0.9 1.1 1.4

1.8 0.8 0.9 1.1 1.4 0.7 0.7 0.9

0.5 0.8 1.0

0.5 0.5 0.6

0.4 0.4 0.5

0.4 0.4 0.5

0.5 0.5 0.6

0.5 0.5 0.6

1.0

0.4 0.4

0.4 0.5

0.5 0.5

aRated capacity (1,000 bu/hr) in brackets.

32 TABLE 2.10. ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH A UTILIZATION RATE OF 700 HOURS PER YEAR WITH HIGH LEVELS OF WHEAT LOSS AT THE COUNTRY ELEVATOR, 1991

Cleaning From To

Assumed Wheat Loss

Disk/Cylinder A B (0.5) (1.0)

Type of Cleanera Screen C D F (2.0) (5.0) (5.0)

H (1.6)

I (2.0)

--- percent---5.0 1.0 0.7 0.4 0.1 1.0 0.7 0.4 0.1 0.7 0.4 0.1 0.2 0.8 1.4 2.0 0.2 0.8 1.4 2.0 0.8 1.4 2.0 4.9 6.7 8.8 4.2 5.8 7.7 2.4 3.7 5.2 7.1 2.1 3.3 4.5 6.0 2.7 3.6 4.9 1.2 2.2 3.3 4.6 1.1 2.0 3.0 4.1 1.8 2.6 3.7 0.8 1.9 2.9 0.7 1.5 2.4 0.8 1.6 2.5

3.0

3.8 5.1 6.6 8.3 3.9 5.4 7.4

3.2 4.4 5.8 7.4 3.5 4.8 6.6

0.7 1.6 2.5

0.7 1.5 2.4

0.8 1.6 2.5

1.0

1.4 2.3

1.5 2.4

1.6 2.4

aRated capacity

(1,000 bu/hr)

in , brackets,

33

3.2

L ow.

S5.0

S4.8 |0 Q 4.6 S4.4

S4.2

.. .. . .. . .. .. .... . .. . .. .... .. .... . .. ... . . ......... . .

.. . . . .. ..... . . . . ... ... . . . .. ..

- . .. - .. .

.. .... . . . .... ....

........ . ........ .. ..... .

. ... .. ... ... .. ... ... .. ... ...

.. . .. . .. ... ...

..

. ... .. ..

...

. ... ....... ... .. ....... ...... ... . . . .

4.0

1 Q

.

0 1

Effects of wheat loss on cleaning costs for Cleaner A, with beginning and ending dockage levels of 3% and 0.7%, respectively, 1991. See Table 2.6, 2.9, and 2.10 for assumptions and numerical values.

S

2

Wheat Loss (%)

FIGURE 2.3

34

TABLE 2.11. ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH LOW EQUIPMENT UTILIZATION RATE (350 HOURS PER YEAR) AT THE COUNTRY ELEVATOR, 1991

Cleaning From To

Assumed Wheat Loss

Disk/Cylinder B A (0.5) (1.0)

Type of Cleanera Screen C D F (2.0) (5.0) (5.0)

H (1.6)

I (2.0)

percent--5.0 1.0 0.7 0.4 0.1 1.0 0.7 0.4 0.1 0.7 0.4 0.1 0.1 0.4 0.7 1.0 0.1 0.4 0.7 1.0 0.4 0.7 1.0 8.7 10.8 13.7 7.4 9.3 11.8 4.3 5.5 7.2 9.6 3.7 4.7 5.9 7.6 3.6 4.3 5.5 1.9 2.6 3.6 4.9 1.6 2.3 3.1 4.0 1.9 2.4 3.1 1.1 2.0 2.8 0.9 1.3 1.9 1.0 1.4 2.1

3.0

6.6 7.9 9.5 11.6 -5.7 7.4 9.9

5.6 6.8 8.3 10.1 5.0 6.4 8.6

1.0 1.5 2.0

0.9 1.3 1.9

1.0 1.4 2.0

1.0

1.2 1.7

1.3 1.8

1.4 2.0

aRated capacity (1,000 bu/hr) in brackets.

35

TABLE 2.12. ESTIMATED WHEAT-CLEANING COSTS (¢/BU) WITH HIGH EQUIPMENT UTILIZATION RATE (1,050 HOURS PER YEAR) AT THE COUNTRY ELEVATOR, 1991

Cleaning From To

Assumed Wheat Loss

Type of Cleanera Screen Disk/Cylinder D F B C A (0.5) (1.0) (2.0) (5.0) (5.0)

H (1.6)

I (2.0)

-percent 5.0 1.0 0.7 0.4

0.1 3.0 1.0 0.7 0.4 0.1 0.7 0.4 0.1

----0.1 0.4 0.7

1.0 0.1 0.4 0.7 1.0 0.4 0.7 1.0 2.7 3.4 4.3 5.4 2.6 3.5 4.7 2.2 2.9 3.7 4.7 2.2 3.0 4.1

3.5 4.6 6.0

2.9 3.9 5.1

1.7 2.4 3.2

4.4 1.4 2.1 2.8 3.6 1.7 2.2 2.9

0.9 1.3 1.9

2.6 0.7 1.2 1.7 2.3 1.0 1.5 2.0

0.5 1.1 1.7

0.5 0.9 1.4

0.4 0.9 1.3

0.4 0.9 1.3

0.5 0.9 1.4

0.5 0.9 1.4

1.0

0.8 1.2

0.9 1.3

0.9 1.3

aRated

capacity (1,000 bu/hr) in brackets.

36

9.0

... .. ... .. .. .. ... . . .. . ... . . .. .. ... .. 8.0 . .. .. .. ... ... .. ... ... .. ... ... ..

I7.0

.

. ... .. .. .. ... ... .. .. . .

. .. ... ... .. .. .. ... ... .. .. ... ...

0

o

6.0

. ... ... ... ... .. ... ... ... .. . . ... ... ... ... ... ... ... ... ... ... ...

5.0 u 4.0 3.0

.. .. ... ... .. .. .. .. .. . ... ... ... ... ... ... ... ... ... ... ... ... ... ...

50

100

150 Utilization Rate (Days)

FIGURE 2.4

Effects of equipment utilization rate on cleaning costs for Cleaner A, with beginning and ending dockage levels of 3% and 0.7%, respectively, 1991. See Table 2.6, 2.11, and 2.12 for assumptions and numerical values.

37 Country Elevators Country elevators cleaned 70% of the wheat in North Dakota before shipment in 1990.5 Thus, elevators in the spring wheat area play an important part in cleaning wheat, and understanding their role and cost structure is important to understand the economics of dockage removal. Information on physical characteristics and operational practices and costs was obtained from two surveys. NDSU's survey focused on country elevators in the State of North Dakota, while the second study conducted by NGFA surveyed elevators throughout the U.S. Characteristics of Country Elevators in the Spring Wheat Area North Dakota country elevators responding to NDSU's survey (Survey C in Appendix C) were classified according to load-out capacities. 6 One group consisted of elevators with load-out capacities of less than 26 rail cars (Group A). The second group (Group B) had load-out capacities of 26 rail cars or more per day. These groups represent two broad categories of elevators, with different operational characteristics and costs of cleaning. Group A represents smaller elevators that have not been upgraded to a unit train facility. These elevators generally have older cleaners with lower capacities, generally disk/cylinder cleaners. Group B represents elevators that have built or made modifications to accommodate unit trains. This second group is more likely to have newer cleaners or cleaners designed to clean grain for the market rather than for seed. Cleaning Capacity and Timing of Cleaning Cleaning capacities of the elevators ranged from 200 to 20,000 bu/hr. Cleaners range from low-capacity disk/cylinder cleaners, bought mainly to clean wheat for seed, to highcapacity screen cleaners designed to clean wheat for market. Estimated average working capacities decreased as wheat was cleaned to lower dockage levels for both groups (Figure 3.1). When the wheat is cleaned down to a dockage level of 0.5% instead of 1%, the estimated working capacity declines by 16% for Group A cleaners and by 35% for Group B cleaners. Cleaning capacities at country elevators are not large enough to handle all the wheat that the elevator can receive within an hour. Thus, most elevators clean at times other than when they receive the wheat (Table 3.1). The percentages add up to more than 100%-suggesting that some wheat is cleaned more than once. Over half of the wheat is cleaned at the time of delivery. Group B cleans 67% of wheat at delivery, 10% more than Group A.

However, Group A cleans more at the time of turning and shipping. Group A cleans 9% more of its wheat than Group B at the time of turning.

A pricing and marketing practices for North Dakota durum and hard red spring wheat crop survey has been done every year since 1984. survey was attached to the Pricingand Marketing Practicesfor North Dakota Durum and Hard Red Spring Wheat 1990 Crop Year survey.

6This

6

38

5,000

Group B: Loadout of 26 railcars or more.

4,000

-.

---------.............. ..-..I .p .. .

· /.............

-----------------------. .............. . ........

-..........

C,, 03

& 31 IBB(

U

3,000

u A:..................................

2,000

O

G roup A: Loadout of 25 railcars or less.

1,000

n

v 1.5

FIGURE 3.1 SOURCE:

*

I

I

I.

1.0

0.7

0.5 0.3 0.1 Ending Dockage (%)

Estimated wheat cleaning capacities of North Dakota elevators for different ending dockage levels, 1990. Survey C, Appendix C.

TABLE 3.1. TIMES WHEN WHEAT CLEANING IS DONE, NORTH DAKOTA COUNTRY ELEVATORS, 1990 Cleaned

During

Elevators

Group A Group B --- percent -----

Delivery Shipping Turning

57 28 23

67 22 14

SOURCE: Survey C.

39

Additional elevation is required if the elevator configuration is such that grain has to be handled an additional time to be cleaned. Additional elevation is required to clean wheat in 68% and 60% of the elevators in Group A and Group B, respectively. Elevating grain an additional time for cleaning adds to costs and incurs breakage. A few elevator managers felt that they lost 0.2% of the wheat with each elevation because of breakage. The wheat breakage that does occur with handling is minimal, and limited research has been conducted on this topic. One study places wheat breakage from a 43-foot free-fall at 0.13%; this was not statistically significant (Fiscus et al.). The extent of breakage appears minimal and therefore this factor was not explicitly included in the analysis. However, Group A incurs more costs--the cost of operating the grain leg--and also the likelihood that some of the wheat will break during handling. Binning Wheat Dockage is only one of many variables that influences the binning decision. The importance of these variables is subject to change. However, incoming wheat is generally binned according to the most valued characteristic, usually protein for HRS and vitreous for durum. There might be four to six bins that vary in protein; e.g., one bin for wheat with protein under 12%, a bin for each 1% interval up to 15% protein, and a bin for wheat with protein greater than 15%. For each protein range, several bins probably contain different levels of dockage and other quality characteristics, such as moisture, that are subject to premiums or discounts. Separating wheat facilitates later merchandising practices, such as blending, cleaning, and selling. The dockage level is usually secondary when deciding how to bin wheat. However, over 30% of the elevator managers bin over 50% of the wheat according to dockage levels (Table 3.2).

WHEAT BINNED TABLE 3.2. ACCORDING TO DOCKAGE LEVELS, NORTH DAKOTA COUNTRY ELEVATORS, 1990

Wheat Binned According to Dockage Levels

Elevators

-----0 6 26 51

percent---------5 25 50 - 100 28 20 21 31

SOURCE: Survey C.

40 During harvest, managers generally allocate more bins to separate wheat because of the volume. But they are usually less concerned with blending and cleaning opportunities because of time constraints. After the harvest period, there is generally more time to fine-tune merchandising practices for separating, blending, and cleaning wheat. Smaller grain bins are used primarily to hold grain that possesses some characteristic that is not desired or will be used for blending. Larger bins are used to store grains that comprise the majority of grain handled. Grain in these bins can be blended with grain from smaller bins for shipping. Smaller wooden elevators generally have between 10 to 20 bins--ranging from 1,100 to 10,000 bushels in storage capacity. Larger bins are primarily for storage and smaller bins are for blending and cleaning. Large elevators usually have fewer but larger bins, typically five to eight bins ranging from 60,000 to 100,000 bushels used for storage and six to eight bins with storage capacity of 3,500 to 11,000 bushels used mainly for cleaning and blending. Cleaning Costs at Country Elevators Although elevators in the spring wheat region have been cleaning grains for many years, few managers keep detailed records on these costs. Allocating overhead costs, such as electricity and labor, or costs associated with additional elevation and handling loss can be difficult and time-consuming. However, given that a majority of wheat is cleaned before shipment, many elevator managers probably have a good understanding of the overall cost of cleaning. Managers were surveyed on the cost of cleaning wheat and the amount cleaned for the past seven years. Their average cleaning costs have been fairly stable, ranging from a low of 3.50/bu to a high of 4.640/bu (Table 3.3).

TABLE 3.3 CLEANING COSTS AND PERCENTAGE CLEANED BY COUNTRY ELEVATORS IN NORTH DAKOTA

AND DOCKAGE LEVELS OF THE HRS CROP, Cleaning Wheat Cleaned Cost

1984-1990

Year

DockaQe Level for HRS North Dakota Regionm

¢/bu 1990 1989 1988 1987

1986 1985 1984

------------ percent----------70 82 85 99 1.0 1.0 2.2 2.7 0.8 0.9 1.7 2.3

2.1 0.9 1.0

4.37 4.64 4.00 3.50

4.00 4.20 3.50

95 98 100

2.0 0.9 0.9

aRegional area includes Minnesota, North Dakota, and South Dakota.

Montana,

SOURCE: North Dakota State University and Department of Cereal Science and Food Technology.

41 In 1990, almost 70% of the wheat in North Dakota was cleaned at the country elevator before shipment, a significant decrease from previous years. The decline in wheat cleaning is due to lower dockage levels in the HRS crop (Table 3.3), which reduces the incentive to clean. Wheat that was cleaned in 1990 was cleaned (on average) to 0.8% and 0.7% ending dockage levels during harvest and postharvest, respectively (North Dakota State University). The estimated cost of cleaning for both groups of elevators increases as the ending dockage level is lowered. Cleaning costs for Group B were higher than Group A when cleaning down to 1.5% or 1.0% dockage levels. However, Group B's costs did not rise as quickly as Group A's when cleaning to lower dockage levels (Figure 3.2).

^\.

I 8

8

(u6

01

b

7

--------------------------- ------ -- ------- --- ---Group A: Loadout of 25 railcars or less.

-----.......-. Group B: Loadout of 26 railcars or more.

4

2

1.5

1.0

0.7

0.5

0.3

0.1

Ending Dockage (%)

FIGURE 3.2 SOURCE: Estimated cleaning costs of North Dakota country elevators for different ending dockage levels, 1990. Survey C, Appendix C.

The allocation of cleaning costs differs between groups. Group A allocated a larger percentage for repairs, labor, energy, and additional elevation. Group B allocated more to wheat loss and "other" costs (Figure 3.3). Differences in the allocation of costs can be traced to differences in cleaning equipment. Group A's cleaners are predominantly of the disk/cylinder type, which are older and have a higher operating cost as shown in the economic-engineering section. Thus, repair and energy costs would be higher than Group B's, which has newer cleaners and screen technology resulting in lower maintenance and operating costs. Group A

42 allocates a larger percentage to labor, most likely because the cleaners have smaller capacities. Labor cost is, therefore, allocated over fewer bushels. Group B's higher wheat loss is due to the type of cleaner used; screen cleaners have a higher percentage of wheat loss than disk/cylinder cleaners.

30 · 25 20 15 10 5

N

GROUP A M GROUP B

11

I

-

m

Kepa Irs

Labor

Energy Add. Elev. Loss

Other

FIGURE 3.3

SOURCE:

Allocation of cleaning costs by country elevators in North Dakota, 1990. Survey C,Appendix C. National Grain and Feed Association Survey Results

The National Grain and Feed Association (NGFA) in 1991 conducted a survey (Survey B in Appendix B) of country, terminal, and export elevators that handled wheat, corn, soybeans, sorghum, and barley. The results of the NGFA survey are presented in two categories: one of 125 elevators that handle durum and HRS wheat and one of 56 elevators that primarily handle white wheat. The elevators in the first group were located in Minnesota, Montana, North Dakota, and South Dakota. Elevators in the second group are located in Idaho, Michigan, Oregon, and Washington. The elevators that handled white wheat had a higher average annual wheat volume and load-out capacity for both trucks and rail-cars than did the durum HRS elevators (Table 3.4). The average cleaning capacity at durum and HRS wheat elevators is more than twice that of white wheat elevators (Table 3.4), probably because most of the white wheat is winter wheat, which tends to have less dockage and thus does not need extensive cleaning. Since

43 white wheat is grown closer to domestic end-users and export elevators, potential savings in transportation cost are smaller than for durum and HRS wheat. Durum and HRS wheat elevators are six times more likely to own and operate a grain cleaner than elevators which handle white wheat (Table 3.5).

TABLE 3.4. CHARACTERISTICS OF ELEVATORS IN THE DURUM AND HRS AREA AND WHITE WHEAT AREA, 1991 Durum and HRS White Wheat

Characteristic

Elevators

--------779,745 --------

Elevators

bu--------1,499,737

Annual volume Load-out Truck Rail car Cleaning capacity

bu/hr ------8,683 6,709 1,400

6,645 6,537 3,631

SOURCE: Survey B (forthcoming ERS report). TABLE 3.5. ELEVATORS THAT OWN AND OPERATE GRAIN CLEANERS FOR WHEAT, 1991 Operate Grain Durum & HRS White Wheat

Cleaner

Elevators

Elevators

--------- percent ---------Yes No

SOURCE:

89.6 10.4

14.9 85.1

Survey B (forthcoming ERS report).

Most elevators indicated that their facilities had sufficient space to install another cleaner (Table 3.6). Elevator managers estimated that if another grain cleaner were installed, the average cleaning capacity would be 3,498 bu/hr for durum and HRS wheat elevators and 13,667 bu/hr for white wheat elevators, respectively. The much higher capacity for white wheat elevators is the result of one of few elevator managers reporting an extremely high cleaning capacity. Most respondents estimated that additional cleaning capacity could be added for less than $100,000 (Table 3.6).

44

RESPONSES OF ELEVATOR MANAGERS TO TABLE 3.6. THE QUESTION OF INSTALLING ANOTHER GRAIN CLEANER AND ESTIMATED COST WITHIN THE PRESENT SPACE, 1991

Item

Wheat Production Region White Durum & HRS ------- percent-------

Addition of cleaner Yes No Estimated cost of additional cleaner Less than $100,000 $100,001-$500,000

67.2 32.8

83.0 17.0

76.5 23.5

68.8 31.3

SOURCE: Survey B (forthcoming ERS report).

Cost of Cleaning Elevator managers in the durum and HRS wheat area reported cleaning 65% of the wheat that they handled in 1990 removing an average of 1.8% dockage from the cleaned wheat. In contrast, only 7 out of 56 elevators in the white wheat area cleaned wheat, and only 8.9% of the wheat handled was cleaned with an average dockage removal of 0.6%. The cost of dockage removal was 5.50/bu for elevators in the durum and HRS wheat areas. Only two white wheat elevators responded to this question, and one estimated a cost of 50/ bu and the other 30¢/bu. The estimated cost of cleaning for elevators in the durum and HRS wheat region increases with the amount of dockage removed (Table 3.7). The reported cleaning costs for white wheat elevators are based on only one or two elevators, so these may not be reliable estimates of actual cleaning costs for white wheat (Table 3.7). The long history of cleaning in the durum and HRS wheat area lends credence to the reported estimated cleaning costs for this area. Figure 3.4 illustrates cleaning costs at durum and HRS wheat elevators from both surveys. Cleaning costs are similar if one assumes (for

ease of comparison) that removing more than 2% dockage in the NGFA survey (Survey B) is similar to cleaning to an ending dockage level of 0.1% in the NDSU survey (Survey C).

45

TABLE 3.7. ESTIMATED CLEANING COSTS OF DURUM AND HRS WHEAT AND WHITE WHEAT ELEVATORS AT SPECIFIED LEVELS OF DOCKAGE REMOVAL, 1991

Amount of Dockage Removed

No. of Elevators Responding

Average Cost

Std Dev.

Min

Max

/-- ------------bu Durum & HRS

- percent -

0.5 1.0 1.5 2.0 >2.0 White wheat - percent 0.5 1.0 1.5 2.0 >2.0

67 70 73 71 73

4.19 4.74 5.01 5.35 6.31

3.68 4.11 4.50 4.75 5.81

0.00 0.06 0.06 0.06 0.06

20 20 25 30 30

2 2 2 1 1

17.50 17.50 20.00 30.00 30.00

17.68 17.68 14.14 -

5.00 5.00 10.00 -

30 30 30 30 30

SOURCE: Survey B (forthcoming ERS report).

46

9

Group B: Loadout of 26 railcars or more.

8

§

Group A: Loadout of 25 railcars or less. ---

*16 U

0

3

b0

7

S..,,

---

NGFA Survey

5 4

-

................................

...... ........ a**-......-ma...........

U

I

I

I

I)~~~~~~~~~~~~

3

1.5

1.0 .05

0.7 1.0

0.5 1.5

0.3 2.0

NDSU - Ending Dockage(%)

0.1

>2.0

FIGURE 3.4 SOURCE:

NGFA - Dockage Removed(%) Justification of reported cleaning costs at country elevators from NDSU and NGFA surveys, 1990 and 1991, respectively. Surveys B and C, Appendixes B and C.

47 Export and Terminal Elevators Wheat is assembled at terminal and export elevators (hereafter simply export elevators) from country elevators. Some wheat is also received directly from farmers. Like country elevators, export elevators vary in size, configuration, and operational characteristics. However, other than size, an export elevator and a country elevator in the spring wheat area differ in two ways: (1) Export elevators are generally classified by receiving and load-out capacities or throughput capacity. Most export elevators have a high load-out capacity because loading time is generally an important constraint on their operations. (2) Most export elevators do not have wheat cleaning equipment, and those that do generally do not have many years of experience in cleaning wheat. Characteristics of Export Elevators Eight of the 18 export elevators surveyed responded to an NDSU survey (Survey D in Appendix D). Of these, only five elevators had cleaned wheat. The other responding elevators either had a cleaner for scalping corn or no cleaning capacity at all. The results in Table 4.1 are based on five elevators with wheat cleaning experience. Their cleaning technology is primarily of the screen type--either circular gyrator or circular gyrator/ reciprocating. Two of the four elevators also had a small cylinder/disk cleaner, and one elevator relied solely on disk/cylinder cleaners.

TABLE 4.1. SPECIFIED CAPACITIES OF EXPORT ELEVATORS

WHICH CLEAN WHEAT,

1991

Elevator

Bushels Per Hour Receiving Load-Out Cleaning

Cleaning to Load-Out Capacity percent

1 2 3 4 5 Average

SOURCE:

55,000 55,000 60,000 80,000 30,000 56,000

Survey D.

55,000 75,000 50,000 26,000 40,000 49,200

40,000 25,000 25,000 10,000 3,000 20,600

73 33 50 38 8 42

Of the responding elevators, not one had sufficient cleaning capacity (rated cleaning capacity) to match the load-out capacity (Table 4.1). The cleaning to load-out ratio varies from 8% to 73%, with an average of 42%. However, the working capacities of the cleaners decrease as the ending dockage level is lowered, especially when cleaning to 0.5% or less (Table 4.2). Average working capacities of the cleaners are above 50% of

48

TABLE 4.2. AVERAGE WORKING CAPACITY OF CLEANERS AT EXPORT ELEVATORS THAT CLEAN WHEAT, 1991 Average Working Capacity

Ending Dockage

Cleaning/ Load-Out

percent

1.0 0.7 0.5 0.3 0.1

bu/hr

17,375 17,000 11,140 4,900 1,375

percent

35 34 23 10 3

SOURCE: Survey D.

rated capacity when cleaning down to a 0.5% dockage level, and the cleaning to load-out ratio falls to 23%. These cleaning capacities would place a constraint on the operation of the elevator if extensive cleaning were required. A majority of the cleaning occurs at the time of turning and during grain shipment (Table 4.3). Elevators located by the Great Lakes cleaned at the time of turning and incurred the cost of an additional elevation. Elevators located at places other than by the Great Lakes cleaned primarily at the time of shipment.

TABLE 4.3. TIME OF CLEANING AT EXPORT ELEVATORS THAT CLEAN WHEAT, 1991 Clean During Delivery Turning Load-out SOURCE:

Percentage 1.0 40.0 59.0 Survey D.

Cleaning Costs at Export Elevators Cleaning costs also increase at export elevators as the specified dockage level decreases (Figure 4.1). At high ending dockage levels, the cleaning costs are comparable to those of country elevators (Figure 4.1). As the ending dockage levels are lowered, the cleaning cost increases more rapidly for export elevators than for country elevators.

49

4

10

-

_

I

e

CA

14

Export Elevators

12 10

0-0 00 0.... ft 0a 0w0 00a000a 0 00a 00aý0a00 .. 0 00 0 0 a 0

Group A: Loadout of 25 railcars or less.

111 1111*I11 0 0

0

0"'

8

I

6

I I

4

2

I _

Group B: Loadout of 26 rail cars or more.

I I I

1.5

FI jURE 4.1 SO)URCE:

1.0

0.7

0.5

0.1 0.3 Ending Dockage (%)

Wheat cleaning costs at export and country elevators, 1991 and 1990, respectively. Survey C and D,Appendixes Cand D.

The allocation of cleaning costs indicates that a majority of the costs are associated with labor and energy. Repair costs are a small part of the total cost, probably because the majority of the cleaners are new (Table 4.4).

ALLOCATION OF VARIABLE TABLE 4.4. CLEANING COSTS AT EXPORT ELEVATORS

THAT CLEAN WHEAT, Allocation of Cost Repairs Labor Energy Additional Elevation Handling Loss Other SOURCE: Survey D.

1991

Percentage 7.0 29.0 28.4 16.4 17.0 2.2

50 Blending meets most of export contract specifications. Cleaning meets about 17% of the contract specifications (Table 4.5). One elevator cleaned about 50% of the wheat that was exported which caused the percentage cleaned to be higher.

TECHNIQUES USED TO TABLE 4.5. MEET CONTRACT SPECIFICATIONS

Technique

Percentage

Blending Cleaning Wheat already meets contract specifications SOURCE: Survey D.

65.9 17.1

17.0

If all the wheat were shipped with some low prespecified dockage level, this could require operational changes for export elevators. Three of the elevators responded that no operational changes would be necessary if the maximum dockage level on all shipments were 0.5%. One elevator stated that additional cleaning equipment would be needed, but without major facility modifications. The remaining elevator would require additional equipment and major modification to the elevator. If wheat exports were required to have no more than 0.1% dockage, three of the elevators would have to purchase additional cleaning equipment and make major modifications to their facilities. Two of the elevators would require an additional elevation or handling. Case Study of Cleaning at an Export Elevator At the time this study was being conducted, a major grain exporter filled a contract that required cleaning to a maximum of 0.4% dockage. This firm kept a detailed record of some of the variable costs associated with cleaning. The average dockage of the grain before cleaning was 0.69%, which meant removing 0.29% of dockage from the wheat. A total of 22,209,465 lbs. of wheat was cleaned, and 218,580 lbs. were removed during cleaning, leaving 21,990,885 lbs. of cleaned wheat. The difference between the dockage levels of the wheat before and after cleaning (0.29%) multiplied by the total pounds cleaned should equal the pounds of dockage removed or 64,407 lbs. Thus, 154,173 pounds (218,580 - 64,407) were removed in addition to the dockage. This amount included small wheat kernels and shrunken and broken kernels that passed through the screens of the cleaner, which would be salable wheat if recovered.

51

The firm recovered one-half of the 154,173 lbs. by recleanng the removed dockage. The remaining 77,086 lbs., along with the 64,407 lbs. of dockage removed, were sold as screenings for $15 per ton. The 77,086 lbs. of wheat sold as screenings is a loss to the firm--equal to the difference between the price of wheat and the price of screenings or $108.60 per ton. The revenue from the sale of dockage as screenings and loss of wheat sold as screenings is given below Revenue Loss Net loss 32.20 tons (64,407 lbs) * $15 = $ 483

38.54 tons (77,086 lbs) * $108.60 = $4,185 = $3,700

The intensive cleaning slowed down loading, which took 16 hours rather than the usual nine hours required to load a vessel. The seven additional hours are variable costs associated with cleaning. Below are the additional labor costs of cleaning. Type of Labor Extra labor Stevedoring Inspection Recleaning Lost dispatch Total variable cost Explanation 10 employees for 7 hours at time and one-half at $35/hr differential 6 employees for 7 hours at $6.00 1 employee for 3 hours at $35.00 Amount

= $3,675 S1,000 S 252 S 105 S 500 = $5,532

These costs do not include costs of electricity or maintenance for which no estimates were given. The costs described above equal $9,232 (5,532 + 3,700), which is the additional labor cost plus the loss associated with selling wheat as screenings. The cost of cleaning the wheat loaded on the vessel was equivalent to 2.52/bu. The 2.52/bu cleaning cost is below that reported in Figure 4.1. However, these costs exclude some variable costs and any costs associated with ownership, i.e., depreciation and opportunity costs. With only a small amount of wheat being cleaned, the ownership costs are probably large, as shown in the economic-engineering section.

52

Cleaning and Merchandising Practices

The grain marketing system in the United States treats dockage as a nongradedetermining factor; however, the level of dockage can be commercially regulated through contract terms. Wheat is usually sold as "dockage deductible," which means that the buyer pays only for the net weight of the wheat, exclusive of dockage. Cleaning has long been one of the handling practices country elevators use to enhance profitability. White wheat and export elevators' experience with removing dockage is not as extensive as that of country elevators in the durum and HRS wheat area. Factors Influencing the Cleaning Decisions The relative importance of various factors to elevator managers' cleaning decisions based on the North Dakota survey is shown in Table 5.1. The low rank of "cost of cleaning" does not imply that managers ignore costs; rather, it may reflect the stability of cleaning costs at individual elevators and lack of need for the manager's careful consideration. Presumably, elevator managers weigh the importance of other variables in conjunction with the cost of cleaning.

TABLE 5.1. IMPORTANCE OF FACTORS IN DECIDING TO CLEAN WHEAT, NORTH DAKOTA COUNTRY ELEVATORS, 1990

Factor

Mean Rankinga

Initial dockage Transportation savings Grade improvement Storage savings Contract specifications Price of screenings Cost of cleaning

2.3 3.1 3.3 3.8 4.1 5.4 5.6

aRanking: l=most important.. .7=least important. SOURCE: Survey C.

The NGFA survey also asked elevator managers what factors are important when deciding to clean wheat (Table 5.2). Fifteen elevator managers ranked "other" reasons as being an important factor in deciding to clean, giving this the highest mean ranking. Nine of the 15 managers indicated that transportation savings were important, and three included revenue from the sale of screenings as an important factor in deciding whether to clean.

53

TABLE 5.2. IMPORTANCE OF FACTORS IN DECIDING TO CLEAN WHEAT AT DURUM AND HRS ELEVATORS, 1991 Number of Respondents 15 82 Mean Rankinga 1.13 1.25

Reason Otherb Avoid discount

Reduce insect problems Meet contract specifications Increase storability Reduce moisture problems Maintain or increase exports Increase drying or aeration

85 75 85 77 71 71

1.33 1.45 1.57 2.23 2.37 2.56

aRanking: l=great importance, 2=some, and 3=little importance. bNine and three elevator managers responded that transportation savings and revenue from the sale of screening was important, respectively. SOURCE: Survey B (forthcoming ERS report).

Elevators in the white wheat region generally do not clean wheat because the premiums are insufficient and other incentives do not justify cleaning. Also, the investment cost in cleaning equipment is too large (Table 5.3).

TABLE 5.3 IMPORTANCE OF FACTORS IN DECIDING NOT TO CLEAN WHEAT AT WHITE WHEAT ELEVATORS, 1991

Reason Other Insufficient premium Equipment investment too costly Time constraint Insufficient market for cleaning Inadequate storage for screenings Difficulty in handling screenings aRanking: 1=great importance, importance. 2=some,

Number of Respondents 1 47 48 45 47 45 45 and 3=little

Mean Rankinga 1.00 1.08 1.23 1.64 2.28 2.38 2.42

SOURCE: Survey B (forthcoming ERS report).

54 Screenings

The value of screenings is generally higher at country elevators than at export elevators. A country elevator can incorporate screenings into a feed mix or sell the screenings to local farmers or pelleting plants. Export elevators are generally located in areas with excess supply or a low demand for feed. Thus, the price of screenings is usually lower at export points than at country elevators. The value of screenings fluctuates widely from year to year. The price of screenings follows the price of feed grains; when feed grain prices are high, so is the price of screenings. Fluctuations in the price of screenings have a direct impact on the cleaning margin. When screening values are low, the cleaning margin is not as high and vise versa. The average value of screenings in North Dakota has ranged from a low of $9.90 to a high of $42.67 per ton between 1984 and 1990 (Table 5.4). The value of screenings is generally higher in feed-deficit regions, i.e., the average price of $80 per ton for the two elevators in the white wheat region.

VALUE OF SCREENINGS, TABLE 5.4. DAKOTA ELEVATORS, 1984-90 Year Average --------1990 1989 1988 1987 1986 1985 1984 29.54 30.27 26.94 9.90 16.08 33.19 42.67 High $/ton -----------50.00 50.00 45.00 30.00 45.00 55.00 55.00 15.00 5.00 10.00 0.00 0.00 0.00 25.00 NORTH

Low

SOURCE: North Dakota State University.

Merchandising Practices Country elevators receive wheat that generally has not been cleaned. Dockage can be handled a number of ways in the transaction between the farmer and elevator. Typically, these transactions are specified in one of two ways: 1. Sell (buy) wheat on gross weight basis 2. Sell (buy) wheat on weight-deductible basis Gross weight basis means that the total weight of the grain and dockage in the transaction is sold as wheat. Weight-deductible basis means that the percentage of dockage is subtracted from the total weight, and the transaction is based on the weight of the wheat only. Weight deductible is the most common specification for country elevators (Table 5.5).

55

TABLE 5.5. COUNTRY ELEVATORS THAT USE GROSS WEIGHT AND WEIGHT DEDUCTIBLE TO HANDLE DOCKAGE IN TRANSACTIONS, 1991 Elevator's Primary Wheat Gross Weight Weight Deductible

Total

--------- percent ---------

White

HRS and durum

a0.8%

5.8

8.4

94.2

90.8

100.0

99.2a

of the elevators had weight deductible after a certain limit.

SOURCE: Survey B (forthcoming ERS report).

Discounts for Dockage and Foreign Material Dockage has become a discount factor in some transactions, like other nongradedetermining factors. This reflects buyers need, in some markets, to have wheat that meets a specified dockage limit. Country elevators generally have not imposed or transmitted dockage discounts to producers. If elevators are discounted for dockage when they sell wheat, they absorb this in their profit margin. Most elevators clean wheat with high dockage levels and recoup some or all of the discounts in the form of transportation savings and screenings revenue. Country elevators do not discount farmers on dockage for fear that this would alienate producers. Competition among country elevators is keen, profit margins are tight, and any loss of business would hurt an elevator financially. Country elevators face some markets with dockage discount and premium schedules. Discounts for dockage reported in the NGFA survey increased as the dockage level increased (Table 5.6). Dockage discounts are larger for white wheat than for durum and HRS wheat, possibly because most of the elevators handling durum and HRS wheat have grain cleaners and incentives to clean need not be as large; elevators that handle white wheat generally do not have cleaners, and a large discount is necessary to induce deliveries of cleaner wheat. Premiums also are offered at times to encourage the delivery of clean wheat. However, they are not as common as discounts and are small when they do exist. Foreign material is a grade-determining and discount factor. Both the durum and HRS, and white wheat elevators face discount schedules for foreign material (Table 5.7). End-Users and Handlers of Wheat Domestic wheat users almost always buy wheat on a dockage-deductible basis. Dockage has been a discount factor in some transactions in the domestic market. The discount factor is

56

TABLE 5.6. AVERAGE DOCKAGE DISCOUNT SCHEDULE OFFERED TO COUNTRY ELEVATORS FROM BUYERS, 1991

Dockage Level percent

Durum and HRS Wheat Elevator -----

White Wheat Elevator /bu -------

0.5

1.0 2.0 3.0 4.0 Over 5.0

0.09

0.49 1.36 2.73 3.33 4.47

0.00

1.02 2.94 4.87 6.78 8.95

SOURCE:

Survey B (forthcoming ERS report).

TABLE 5.7. FOREIGN MATERIAL DISCOUNT SCHEDULE OFFERED TO COUNTRY ELEVATORS FROM BUYERS, 1991

Elevators

Foreign Material percent

Durum and HRS --

White

cents/bu ---

0.5

1.0 1.5 2.0 2.5 Over 3.0

0.00

0.40 1.40 2.40 3.00 5.40

0.10

1.65 3.30 3.53 5.23 6.74

SOURCE: Survey B (forthcoming ERS report).

generally called a "nonmilling discount." A nonmilling discount, if applied, is currently 2¢/bu for dockage over 1%. Millers generally use the nonmilling discount to obtain wheat that meets their dockage requirements.

57 Exporters also have started to apply dockage discounts (along with buying wheat dockage deductible) to encourage cleaning at country elevators. Export elevators located in the Pacific Northwest (PNW) have been using a dockage discount to promote deliveries of cleaner wheat. Several countries that purchase wheat from elevators in the PNW have strict limits on the amount of dockage that the wheat can contain. The dockage discount has varied through time, depending on the dockage level of the incoming wheat and the dockage specifications of importing countries. The farther apart these two dockage levels, the greater the discount to assure deliveries that are low in dockage. Importer Importing countries use a variety of techniques to discourage deliveries of wheat with high dockage levels or dockage beyond a certain limit. The common techniques include 1. Dockage deductible 2. Cash discount - equal to the contract value of that portion of the cargo composed of dockage 3. Reimbursed for freight dockage 4. Maximum dockage level 5. A portion nondeductible and the remaining deductible Specific country dockage specifications are listed in Table 5.8. Importers adjust contract specifications according to their needs; however, contract specifications that are "too tight" can reduce the number of bids from export firms and increase the purchase price.

TABLE 5.8. CONTRACT SPECIFICATIONS FOR PRINCIPAL BUYERS OF HRS, 1991

Country/Agency Algeria Colombia Japanese Food Agency Korea Taiwan

Dockage Specifications all dockage deductible, 1.0% maximum all dockage deductible, 0.5% maximum

0.5% dockage nondeductible dockage deductible clean basis - dockage all deductible plus an additional penalty for all dockage based off of contract price 0.5% dockage nondeductible 0.1% dockage nondeductible, 0.1% maximum; excess dockage all deductible 0.5% dockage nondeductible, no mention of dockage no maximum

Philippines Chinaa USSR PL480 tender

aThis specification deducts dockage after the first 0.1%. SOURCE: U.S. Wheat Associates.

58 Budget Analysis of the Cleaning Decision Wheat is cleaned at country elevators because of economic incentives. Two incentives to clean that are significant and easy to measure are revenue from the sale of screenings and reduction in transportation costs. These two incentives, combined with the initial dockage level and cost of cleaning, determine the cleaning margin. A simple algebraic equation is used to illustrate the derivation of the margin associated with dockage removal. The assumptions are that all the dockage is removed, i.e., cleaning to 0% dockage, no wheat is lost during cleaning, and the cleaning decision is not influenced by contract specifications. Given the above assumptions the following equation yields a "cleaning margin." (DK) (S + T - DS + P) - (C) = cleaning margin where DK = percent of dockage S = price received for wheat screenings (¢/bu) T = cost of transportation from elevator to destination (¢/bu) DS = discount (¢/bu) P = premium (¢/bu) C = cost of cleaning wheat (¢/bu) DS and P are assumed to equal zero to highlight the significance of other factors on cleaning decisions. In particular, this equation illustrates the economic impact of changes in transportation cost and value from the sale of screenings (Table 5.9).

TABLE 5.9.

(¢/BU),

CLEANING MARGINS FOR A BUSHEL OF WHEAT

WITH VARIOUS SPECIFIED CLEANING COSTS,

SCREENING PRICES, INCOMING DOCKAGE LEVELS, TRANSPORTATION COSTS, 1991

AND

Incoming Dockage Levels

Cleaning Cost/Bushel 6'/bu 5 /bu screening value/lb. screening value/lb. .02 .015 .01 .02 .015 .01

5 4 3 2 1 5 4

3

------ transportation at 30¢/bu-------0.00 -1.50 2.50 1.00 -0.50 1.50 1.00 -0.20 -1.40 0.00 -1.20 -2.40 -0.50 -1.40 -2.30 -1.50 -2.40 -3.30 -1.00 -2.60 -3.20 -3.00 -3.60 -4.20 -3.50 -3.80 -4.10 -4.50 -4.80 -5.10 ------ transportation at 60¢/bu ------3.00 1.50 0.00 4.00 2.50 1.00 1.20 0.00 -1.20 2.20 1.00 -0.20

0.40 -0.50 -1.40 -0.60 -1.50 -2.40

2

1

-1.40

-3.20

-2.00

-3.50

-2.60

-3.80

-2.40

-4.20

-3.00

-4.50

-3.60

-4.80

59

The data in Table 5.9 illustrate how selected variables affect the cleaning margin. The cleaning margin is directly related to the incoming dockage level and price received for screenings. Thus, cleaning margins are greater (for a given screening price) when levels of incoming dockage are high. Cleaning margins are also positively related to transportation cost and negatively related to the cost of cleaning. The impact that differing screening values and beginning dockage levels have on the cleaning margin when cleaning and transportation costs are 50/bu and 60¢/bu, respectively, is illustrated in Figure 5.1.

J-W 6

V

4 2

Cis 0I "M-4 ui

0 (2) (4) (6) 1.0 2.0 3.0 4.0 5.0

Beginning Dockage (%)

FIGURE 5.1 Cleaning margins with specified screening values, beginning dockage

levels, and cleaning and transportation costs of $.05/bu and $.60/bu, respectively. See Table 5.9 for additional assumptions and numerical values.

The positive cleaning margin represents an opportunity for an elevator manager to gain additional income through cleaning. In the current marketing system, individual handlers of wheat clean when the economic incentives outweigh the associated costs. The cleaning margins of 2.20/bu and 1.2¢/bu in Table 5.9 are associated with a beginning dockage level of 4.0%, screening values of $40/ton (2(/lb.), transportation cost of 60¢/bu, and cleaning cost of 5¢/bu and 6¢/bu, respectively. Associated with the 2.2(/bu and 1.2¢/bu cleaning margins are savings in transportation costs and revenue from the sale of screenings which equal 2.40/bu and 4.8/bu, respectively.

60 Cleaning margins change with different screening values and transportation costs. Assuming cleaning costs of 5¢/bu and beginning dockage level of 4.0%, the cleaning margin is 10/bu when either transportation costs and screening values are 60¢/bu and $30/ton, or 30¢/bu and $40/ton, respectively. However, the benefits (transportation saving and revenue from sale of screenings) derived from cleaning differ between the two cases above. In the first case the saving in transportation cost is 2.4¢/bu and revenue from sale of screenings is 3.60/bu. Transportation savings are only 1.2¢/bu, and revenue from sale of screenings increases to 4.80/bu in the second case.

61 Conclusions

Dockage, unlike foreign material, is a nongrade-determining factor in the official grain grade standards; however, dockage is reported in the grade certificate. Dockage can be a contractual term between the buyer and seller. Country elevators in the durum, HRS, and white wheat production regions typically buy wheat on a dockage deductible basis. Transactions beyond country elevators generally involve selling on a dockage-deductible basis. Discounts called "nonmilling discounts" are sometimes used in the domestic market. Some importers specify a penalty for dockage from the contract price for dockage that exceeds the specified limit stated in the contract. Spring wheat, such as HRS and durum, generally contain higher amounts of dockage than winter wheat. Higher dockage levels are attributed to a combination of climatic conditions and production techniques unique to the growing region. The average dockage level for the main HRS and durum producing states has varied over the past seven years from 0.8% to 2.3% and 0.8% to 4.2%, respectively. Dockage levels of submitted samples which the FGIS received shortly after the local harvest indicate that dockage levels are reduced from harvest levels to the time when the wheat leaves the local elevator. The average dockage level for HRS and durum has varied from 0.73% to 1.09% and 0.84% to 1.24%, respectively, over the past five years. Dockage levels in white wheat varied from 0.81 to 0.93%. The average dockage level had decreased further by the time the grain has reached the export market but not as much as when it leaves the local area. Dockage levels in export shipments averaged for U.S. #2 wheat from 1989-91 were 0.73% for HRS, 0.76% for durum, and 0.69% for white wheat. Economic-engineering cost estimates derived from surveys of equipment manufacturers and elevator managers of country and export elevators indicate that cleaning costs are less at country elevators than at export elevators. Cost estimates for the country elevators were less because of lower wage rates and apparent efficiencies in labor utilization. Also, the difference between the value of screenings and wheat is less; thus, the value of wheat lost at the country elevator is not as great as at an export elevator. Economic-engineering cost estimates also indicate that cost increases when cleaning to lower dockage levels because the working capacity decreases when cleaning to lower ending dockage levels. Associated with the lower working capacity is an increase in fixed and variable costs. Also, the assumption that more wheat is lost with more intense cleaning leads to higher cleaning costs. Cost estimates for a disk/cylinder and screen cleaners were calculated. Disk/cylinders are the most common type of cleaners used by country elevators in the spring wheat production region. Export elevators use more screen cleaners and sometimes a disk/cylinder cleaner to

recover some of the wheat lost with the larger screen cleaner. Disk/cylinder cleaners have higher cleaning costs compared to screen cleaners; however, disk/cylinder cleaners are considered the best cleaning technology when cleaning to low dockage levels. Cleaning cost estimates for a disk/cylinder, Cleaner A, used at country elevators were 4.5¢/bu. For a screen cleaner, Cleaner C, the estimated cost was 2.7¢/bu. These estimates are based on an assumed usage rate of 700 hr/yr, wheat loss of 0.4%, and beginning and ending dockage levels of 3% and 0.7%, respectively. Cleaning costs for a country elevator increased to 6.9¢/bu and 4.6¢/bu for the disk/cylinder and screen cleaner, respectively, with alternative

62 assumptions about ending dockage level (0.1%) and wheat loss (1%). Cleaning costs were 2.50/bu and 5.1/bu for screen cleaner, Cleaner E, that export elevators used, assuming a 1% beginning dockage level and an ending dockage of 0.7% and 0.1%, respectively. Wheat loss was 0.4% and 1% when cleaning to ending dockage levels of 0.7% and 0.1%, respectively. Economic-engineering cost estimates demonstrate the sensitivity of cleaning costs to the amount of wheat lost with the removed dockage and utilization rate. The loss of whole wheat kernels and shrunken and broken kernels have a sizable impact on cleaning costs. A wheat loss of 0.8% increased cleaning costs over 27% of that for a wheat loss of 0% for Cleaner A operating 700 hr/yr and cleaning from 3% to 0.7% dockage level. Also, large fixed costs are associated with owning a grain cleaner. An elevator that matches cleaner size to the amount of grain being cleaned will reduce its cleaning costs. A utilization rate of 350 hours per day compared to a rate of 1,050 hours per year reduces cleaning costs for Cleaner A from 7.9/bu to 3.40/bu, assuming a 3% beginning dockage level and an ending dockage level of 0.7% with 0.4% wheat loss. Country elevators originally purchased their cleaning equipment to clean seed. Over time, economic incentives have caused managers to use the cleaners to remove dockage from HRS and durum wheat destined for the market. Country elevator managers in North Dakota estimate the average cost of cleaning was 4.40/bu in 1990. These cleaning costs ranged from 3.50/bu to 4.6¢/bu over the past seven years. These costs vary indirectly with the dockage level of a particular crop year. Cleaning costs for North Dakota elevators in 1990 were compared between two groups with different load-out capacities. The first group had load-out capacities of 25 rail cars or less and the second had 26 rail cars or more. These two groups represent two broad groups--the first representing elevators that have not expanded to accommodate unit trains and the second representing elevators that were built or have expanded to handle unit trains. Cleaning costs for the smaller country elevators were lower than the larger country elevator when cleaning down to an ending dockage level of 1%. Cleaning to a lower dockage level (0.4% or less), the larger elevators had lower cleaning costs. Both groups of elevators lost cleaning capacity as the specified ending dockage level decreased. Increased cleaning costs were associated with the lower cleaning capacities. A national survey indicates a majority of country elevators in the spring wheat production area clean wheat; however, very few elevators in the white wheat production area clean wheat. The cost of removing 0.5% and 2% or more dockage was 4.2¢/bu and 6.30/bu, respectively, for elevators that handled durum and HRS wheat. The few elevators in the white wheat region reported a much higher cost of cleaning.

A majority of the export elevators do not own or operate grain cleaners designed for wheat. The few elevators that own or operate cleaners do not have sufficient capacity to meet either their receiving or load-out capacity. Managers of the elevators that do clean wheat indicate that substantial operational changes and/or investment would be required if they had to clean all wheat. The export elevators surveyed that clean wheat cleaned 17% of the wheat they sell; blending and receiving wheat that already meets contract specifications is generally used to meet export contract specifications.

63 Managers of export elevators that do clean wheat reported cleaning costs around 5¢/bu when cleaning to an ending dockage level of 0.5%. However, costs increase to over 140/bu when cleaning to an ending dockage level of 0.1%. Benefits of cleaning wheat include revenue from the sale of screenings, transportation savings, premiums gained/discounts avoided, increased storage capacity, increased aeration and drying efficiency, and reduced insect and mold problems. Transportation savings and revenue from sale of screenings are easily measured, and the benefits derived from these two parameters change as their value changes. Assuming a beginning and ending dockage level of 4.0% and 0%, respectively, savings in transportation costs are 2.40/bu and revenue from sale of screenings is 4.8/bu when transportation costs are 60¢/bu and screening values are $40/ton, respectively. Transportation savings change to 1.2!/bu and revenue from sale of screenings is 3.60/bu when the value of transportation and screenings change to 300/bu and $30/ton, respectively. These benefits are weighed against the cost of cleaning, which include both the operational cost of the cleaner and the value of wheat loss. These costs increase as wheat is cleaned to lower dockage levels. Thus, an individual operating in a free environment needs to evaluate these costs in light of associated benefits to determine if cleaning margins are positive.

65 References Backer, Leslie. 1991. Personal communication. Department of Agricultural Engineering, North Dakota State University, Fargo. Briggle, L. W., Sandra L. Strauss, D. E. Hamilton, and G. H. Howse. 1982. Distribution of the Varieties and Classes of Wheat in the United States in 1979. SB-676. Agr. Res. Service, U.S. Department of Agriculture. Delvo, Joe. 1991. Personal communication. Kongskidle Corp., West Fargo, ND. Department of Cereal Science and Food Technology. 1984-1990 Durum and HRS Wheat Regional Quality Reports. North Dakota State University, Fargo. Fiscus, Douglas E., George H. Fostor, and Henry H. Kaufman. 1971. Physical Damage of Grain Caused by Various Handling Techniques. Paper No. 69-853. Transaction of the American Society of Agricultural Engineers (ASAE) Winter Meeting, Chicago (December 1969), pp. 480-85. Fridirici, R., H. L. Kiser, L. D. Schnake, and J. A. Wingfield. 1984. A View of the Economics of Removing Dockage From Wheat. Contribution No. 84-342-D. Kansas Agricultural Experiment Station, Manhattan. Hurburgh, Charles R. 1988. Cleaning - How and Why. Proceedings of the 59th International Technical Conference. Grain Elevator and Processing Society, Wichita, KS. Kiser, Harvey L. 1984. Cleaning Wheat at a Country Elevator, A Case Study. Kansas Wheat Commission and Kansas Agricultural Experiment Station, Manhattan. Kiser, Harvey L., John Brethour, and Garry L. Gilbert. 1987. AnswerQuick: Wheat Cleaning Analysis. Cooperative Extension Service, Kansas State University, Manhattan. Leibfried, James L. 1987. Grain Handling Efficiency Study. Prepared for the Grain Transportation Agency, Canada. North Dakota Grain Dealers Association. 1981. Results of 1988 Employee Compensation Survey of North Dakota Country Elevators. Fargo, ND. North Dakota State University, Department of Agricultural Economics. 1984-1990 Pricing and Marketing Practices for North Dakota Durum and HRS Wheat Crop. Report Nos. 91, 105, 116, 123, 129, 159, and 206. Quinn, Michael D. 1987. Facility Operations: Grain Cleaning - Design and Operation Overview. Proceedings of the 58th International Technical Conference, Grain Elevator and Processing

Society, Columbus, OH. Skatvold, Michael. 1991. Personal communication. The Scott Moeller Co., Moorhead, MN. U.S. Department of Agriculture, FGIS. 1989. Report on the Effects of Including Dockage and Foreign Material as a Grading Factor for Wheat. Washington, D.C. U.S. Department of Agriculture, FGIS. 1990. Grain Grading Procedures. Grain Inspection Handbook, Book II. Wheat--Chapter 13. Washington, D.C.

66 U.S. Department of Agriculture, FGIS. 1986-1990 U.S. Wheat Crop Quality. Washington, D.C. U.S. Department of Agriculture, FGIS. 1991. Export Grain Inspection System (EGIS) Wheat Data. Washington, D.C. U.S. Department of Agriculture, FGIS. 1991. Grain Inspection Monitoring Systems (GIMS) Wheat Data. Washington, D.C.

djs:lr\wheatss

67

Appendix A Survey of Grain Cleaner Manufacturers On The Capabilities of Removing Dockage From Wheat

68

Survey of Grain Cleaner Manufactures on the Capabilities of Removing Dockage from Wheat March 1991 1. Model : Purchase Price: Rated Capacity (bu/hr):

2.

This model uses the following technology(ies) Please specify by checking all that apply: Cylinder/Disk Scalper_ Aspiration

to remove dockage.

Screen (gravity) Screen (motion) Other (describe)

3.

Assuming that removing various levels of dockage requires changes in throughput, please provide the percent of rated capacity when cleaning from a given initial dockage level to the desired ending level of dockage. If removing a particular amount is not possible, please indicate with a zero (0).

Initial Dockage 5.0% 3.0% 1.0%

1.0%

Ending Dockage Level 0.7% 0.4%

0.1%

X

4.

Amount of reclaim material removed (as a percentage of rated capacity) when cleaning to the various dockage levels: 1.0% 0.7% 0.4% 0.1%

5.

Please estimate the following: a. Operating requirements per hour: KWH used: b. Labor Requirements:

Long-term maintenance and repair costs per hour of operation. Please specify other unit of measure if necessary:

c.

Expected useful life

of the cleaner:

69

Appendix B National Grain and Feed Association Survey

70 SURVEY OF COMMERCIAL ELEVATOR GRAIN CLEANING FACILITIES PART I: General Questions

1. Name of firm . .

Address Telephone

. . . . . . . . . . .

(

)

i

2. Check the term that best describes your business operation:

Elevator* (see below)

Country Inland terminal River Export

3. What is

All wheat

the average annual volume of grain moved through this elevator? (Bu.)

Corn Soybeans Sorghum Barley Barge

4. What is

this elevator's loadout

Truck

Rail

Ocean vessel

capacity? (bushels/hour) . . . . . . .

5. Does this elevator have cleaners? (check one) .. Yes No

If Yes, what type of cleaner(s) do you have? (list Manufacturer Model Year installed

all units below) Type of grain(s) cleaned

Actual throughput capacity (Bu./hr.)

6.

(a) Can you install or retrofit additional cleaning

. .

Yes

No

capacity within the present available space? (check one)

(b) If Yes, how much additional capacity can be installed or added? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

bu./hr.

(c) Estimate how much the additional capacity would cost you (check one)

I

I

.1

Please complete the following commodity-specific questionnaires for winter wheat, spring wheat, corn, soybeans, sorghum, and barley for each commodity that accounts for at least 10 percent of your entire operation.

*Country elevator is defined as one which receives over 50 percent of its grain from farmers, while inland terminal receives over 50 percent of its grain from other elevators.

71

PART II: Spring and White Wheats-Specific -- 1

.9

1. Which wheat class(es)

do you handle? 2. (Percent)

Hard Red Spring

X

Durum

X

ite Wh

% .

J '1.

N

I

X

Percent of wheat received annually from:

Farmers

SOther elevators

3. Estimate the average percentage for each factor in inbound wheat: 4.

Dockage

X

Foreign

Shrunk &

Damaged

material

X

broken

X

kernels

What are the primary sources of dockage and foreign material in wheat you

receive? (rank responses: 1- Great importance, 2- Some importance, 3- Little importance) Dockage (removable)

Weed seed Other (specify) or a weight deduction (net 5. (a) Are purchases made on gross weight basis % ___ ? If weight deduction, beginning at what level? of dockage) any applicable discounts (in cents/bushel) (b) Besides weight deduction, list buyers of your base grade of wheat routinely charge for the following levels of

Rank

Foreign material

(unremovable) Other grains

Rank

dockage? (or attach a copy of a recent schedule)

0.5% 1.0% 2.0% 3.0% 4.0% Over 5.0%

(c) List any applicable premiums (in cents/bushel) that buyers of your base grade of wheat routinely offer for the following levels of dockage.

0.5% 1.O0% 1.5% Over 1.5%

(d) What discounts (-)

or premiums (+)

(in

cents/bushel) do buyers of your base

grade of wheat routinely charge or offer for the following levels of foreign material?

0.5% 6. 1.0% 1.5% 2.0% 2.5% Over 3.0%

What percent of stored wheat is

treated with these protectants:

Malathion

% or Reldan ___

or others (specify)

X times/year cents/bushel Yes No times/year

7. How often is stored wheat fumigated? If applicable, estimate the cost per fumigation: 8. Do you have aeration equipment in your grain bins? How often is stored grain turned for conditioning? 9. Do you clean wheat that you handle . . .. (excluding cleaning for seed)? .. (If Yes, skip to #11) Yes .

No

72 PART II: Spring and White Wheats-Specific -2 10. If No for #9, what are the major reasons? Rank (1- Great importance, 2- Some importance, 3Little importance)

Insufficient market for cleanings

Insufficient premium for clean grain Equipment investment too costly Difficulty in handling screenings Inadequate storage for screenings

Time constraints Other (specify) Answer the remaining questions only if you clean wheat for market (excluding cleaning for seed) in most recent years. 11. What reasons do you clean your wheat? Rank (1- Great importance, 2- Some, 3- Little)

To avoid discount

Increase storability Reduce moisture problems Reduce insect problems Increase dryer or aeration efficiency

Maintain or increase export share

Meet contract specification

Other (specify) 12.

13.

What is your average percentage of wheat cleaned in a year?

How much dockage is usually removed from wheat?

%

percentage points

14. When is your wheat usually cleaned? (Percent) 15. (a) Estimate the cost to clean out the dockage in #13 (includes energy, wages, and interest on working capital but excludes lost grain)?

cents/bushel

(b) Estimate what it would cost (in amounts: 0.0-0.5% 0.5-1.0%

cents/bu.) to reduce dockage by the following 1.0-1.5% 1.5-2.0% Over 2%

g/bu. ,/bu.

I/bu.

,/bu.

g/bu.

PART II: Spring and White Wheats-Specific 16.(a) Volume of wheat screenings generated in 1990

-- 3 tons (2,000 Ibs)

(b) How were your 1990 wheat screenings used?

Percent

Estimated sales value or disposal cost ($/ton)

Sold to feed market Used in your own feed mill Disposed as waste Other (specify)

(c) (d)

% $ % $

% $ % $

miles. tons

Estimate the average distance that screenings sold were hauled: How much storage capacity is available for screenings?

(e)

Describe any regulatory or legal restrictions on disposing screenings:

(f) (g)

Is If

there equipment to pellet screenings at this facility? Yes, what percent of screenings were pelleted? %

Yes __

No

17. When are screenings sold? Please fill in the following monthly price and sales information for 1990. If know the price (even if no screenings were sold that month) please report it.

you

Month January February March April

May

Price ($/ton) $ $ $ $

$

Percent of 1990 sales % % % X

%

June July

August

$ $

$

% %

%

September October November December 1990

$ $ $ $ 100%

% X % %

Thank you for your conscientious efforts in completing this confidential survey.

75

Appendix C Survey of Country Elevator Managers On The Capabilities to Remove Dockage From Wheat

76

Survey of Country Elevator Managers on the Capabilities to Remove Dockage from Wheat

December 1990 1. Please provide the following information about equipment you currently operate to remove dockage

from wheat.

a) Machine#

1 2 3 4

Manuf.

Model

Year Purch.

Estimated Purch. Price

Capacity (bu/hr) Rated Working

b) As a system, utilizing the above machines, what is your total working capacity (bu/hr) cleaning to each of the following dockage levels:

1.5% 1% 0.7% 0.5% 0.3% 0.1%

c) Please estimate your current operating costs (including handling losses or shrink) in cents/bu, when cleaning to each of the following dockage levels:

1.5% 1% 0.7% 0.5% 0.3% 0.1%

d) Percentage of the operating costs to remove dockage from wheat allocated to: (total=100%) Repairs Handling Loss % Labor % Other % Energy % Additional Elevation %

% (describe)

e) What percentage of the wheat that you clean is elevated specifically to run through the cleaner?

f) What percentage of the wheat that you clean is cleaned at the time of: Delivery

2.

% Shipping

%

Turning

%

a) What were the average dockage levels of wheat purchased in: 1990 % 1989 % 1988

____%

1987 ____%

1986

%

b) Please rank the following factors according to their relative importance in your decision to clean wheat. (l=most important) Initial Dockage Levels

Contract Specification

Grade Improvement

Price of Screenings Transportation Savings

Storage Savings or Improve Storability Costs of Cleaning

77

3. When merchandising wheat, please indicate the percentage of time the following methods are used to adjust either the payment or receipt to account for the amount of dockage in wheat. When: Buying Selling

Net Net Net Net Net as measured to nearest 0.1% rounded to nearest 0.5% rounded to nearest 1.0% measured by the customer average measured by an elevator average Apply discount/premium schedule for dockage Meet contract limits; no further adjustments of dockage of dockage of dockage of dockage of dockage

Total

100%

100%

4. a) What was the annual tonnage of screenings generated during the past five years?

5 Year Average Highest Amount Lowest Amount

b) Percent of your screenings disposed over the past five years by:

selling for feed

using for own feed mill selling to pellet manufacturer

other; describe.

5. What percentage of the total wheat you receive is binned according to dockage levels? (check one)

0-5% 6-25% 26-50% 51-100%

6. When shipping wheat, what percentage of wheat is blended to specifically meet desired dockage levels?

0-5% 6-25% 26-50% 51-100%

7. If all wheat was to be shipped at the following dockage levels, what would best describe the changes you would need to make? (check only one for each dockage level)

0.5% 0.2% No equipment or operational changes would be necessary

No equipment changes but would require additional elevation or

handling

Purchase additional cleaning equipment without major modifications to

your facility Purchase additional cleaning equipment and make major modifications

to your facility

Provide discount and premium schedules to provide incentives for qUGfiA.QUE delivery of low dockage grain

79

Appendix D Survey of Export Facilities on Dockage Removal From Wheat

80

Survey of Export Facilities on Dockage Removal from Wheat

February 1991 1. Name of firm 2. Location of terminal/export elevator 3. What are the following capacities in bushels per hour?

a) Receiving b) Load-out c) Cleaning

Name of Respondent

4. Which of the following techniques were used to achieve contract dockage specifications for the past year? (Approximate percentages)

a) Blend % b) Clean ___ % c) Other___ % describe

5. Please provide the following information about equipment you currently operate to remove dockage from wheat. MacYear Estimated Capacity (bu/hr) a) hine Manufacture Model Purch. Purch. Price Rated Working

1 2 3 4

b) Utilizing the above machines, what is your total working capacity (bu/hr) cleaning to each of the following dockage levels:

1.5% 1% 0.7% 0.5% 0.3% 0.1%

c) Please estimate your current operating costs (including handling losses or shrink) in cents/bu, when cleaning to each of the following dockage levels:

1.5% 1% 0.7% 0.5% 0.3% 0.1%

d) Percentage of the operating costs to remove dockage from wheat allocated to: (total=100%) Repairs % Labor % Energy

% Other

% Handling Loss

% (describe) Export % Domestic

%

Additional Elevation

6. a) Approximate percentage of wheat cleaned in 1990 for:

%

b) What percentage of the wheat that you clean is elevated for the purpose of cleaning? (ie. not when receiving or loading-out) %

81

c) What percentage of the wheat that you clean is cleaned at the time of: Delivery % Turning_ % Loading %

7. Please rank the following factors according to their relative importance in your decision to clean wheat. (1=most important......6=least important)

Initial dockage levels Contract specification Grade improvement

Transportation savings

Storage savings or improve storability Costs of cleaning

8. a) Is the disposal of screening a problem? No Yes

b) If yes, in what way? No buyers Transportation

SOther, describe

c) Approximate prices received for wheat screenings over the past five years?

High

Low

Average

9. What percentage of the total wheat you receive is binned according to dockage levels? (check one) 0-25% 26-50% 51-75% 76-100%

10. What percentage of wheat is blended specifically to meet desired dockage levels? (check one)

0-25% 26-50% 51-75%

76-100%

11. If all wheat was to be shipped at the following maximum dockage levels, check the one statement for dockage levels of 0.5% and 0.1% that best describes the change you would need to make.

0.5% 0.1% No equipment or operational changes would be necessary

No equipment changes but would require additional elevation or handling Purchase additional cleaning equipment without major modifications to your facility Purchase additional cleaning equipment and make major modifications to your facility

82

12. Please provide the following information about wheat specifications to export destinations. The purpose of this question is to determine current dockage specifications in export contracts. Examples of contract specifications regarding quality for principle buyers would be useful and can be enclosed rather than filling out this question if it is more convenient. Grade # and class of purch. (usually) Dockage levels specified (usually) Discount of premium specified (usually)

Country/purch. agency 1. 2. 3. 4.

5.

6. 7. 8. 9.

10.

Information

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