Grain Segregation Profit Calculator
Authors:
Charles Martin, Graduate Research Assistant, Oregon State University-Corvallis
Dan Long, Research Agronomist, USDA-ARS Columbia Plateau Cons. Res. Center, Pendleton, OR
Introduction:
We envision that sensors will exist in the near future for segregating grain on the combine into two bins:
one for common quality grain and another for high quality grain, and that it can be marketed as a
segregated crop. Therefore, we created a calculator to help you examine the potential profit of
segregating grain by protein concentration into these two bins. You can play with the values of mean
protein for a farm field, the standard deviation of the protein, and the given market values for the grain
to see how you might increase revenue. The calculator also allows the user to examine the sensitivity of
profit to differences in mean protein and standard deviation. The optimal segregation cutoff point is
defined as the one which maximizes gross revenue per bushel. Production costs would need to be
subtracted from the predicted increase in revenue per bushel to provide the expected net return per
bushel.
Contents
How the Calculator Works: ........................................................................................................................... 2
Quick Instructions- Individual Field Optimization:........................................................................................ 2
Sensitivity Analysis: ....................................................................................................................................... 2
Entering Price into the Calculator: ................................................................................................................ 3
Low Protein (Soft White) Wheat Considerations:......................................................................................... 3
Sensitivity of Optimization: ........................................................................................................................... 4
Specific Field Optimization: ........................................................................... Error! Bookmark not defined.
Market Premium Variability/Sensitivity:....................................................................................................... 4
1
How the Calculator Works:
The calculator does a “what if” analysis to determine what happens as the segregation cutoff point is
moved for a range of protein values. The percentage of grain above and below each possible cutoff
point , and the average protein content of each bin of grain are then calculated based on the user
defined mean(s) and standard deviation(s). This calculator assumes the grain is distributed normally,
following a bell shaped curve.
Once the quantity and quality of grain above and below each possible cutoff point are known, the dollar
value of each bin of grain is calculated as a function of the user-defined market prices. The potential
profit from segregation is then calculated by subtracting the dollar value of segregated grain from the
dollar value of the same grain had it not been segregated. The optimal segregation cutoff point is the
one that maximizes profit. Additional information that is calculated includes the cutoff point to use,
volume of grain in the high protein and low protein bins, and the average protein content of the high
and low protein bins.
Quick Instructions- Individual Field Optimization:
1) Look at the calculator, and the empty cells
2) Click the “Show me some example data”
3) Notice the example mean protein level is 13.5% with a standard deviation of 1.2%
4) The market prices are the 20 year average at Portland, OR for Dark Northern Spring Wheat
(DNS) specified to the nearest whole percentage point of protein content:
a. There are no premiums below 12% or above 15%. Below are the prices at each level.
i. 12% = -$0.41 per bushel
ii. 13% = -$0.34 per bushel
iii. 14% = $0.00 per bushel
iv. 15% = $0.21 per bushel
b. The protein level must be entered from lowest to highest, starting at 12 and ending at
15.
i. This results in readings of “ 12, 13, 14, 15” on the protein line for the example
ii. The prices associated with each protein reading are then entered on the price
line and will read “-0.41, -0.34, 0, 0.21”.
5) The optimal grain segregation scheme that maximizes dollar return per bushel for this example
is given in the area outlined with the heading of “Solution”. In this document, we refer to
positive returns as “premiums” and negative returns as “discounts”.
6) The results show that segregating the grain into two bins will yield an extra $0.20 per bushel at
an optimal segregation cutoff point of 13%. The low bin will contain 34% of the grain at 12.4%
protein concentration and the high bin will contain 66% of the grain at 14% protein.
The above example demonstrates that specific segregation parameters can be determined for a field
provided the mean protein value and standard deviation are known. A graph of “Total
Premium/Discount” versus “Protein Segregation Cutoff” is drawn to show how the premiums/discounts
from segregation change across a range of protein values. The predicted premium of $0.20 per bushel is
expected to occur at the segregation cutoff of 13.0% protein.
2
Profit versus Protein Segregation Cutoff
However, due to the possibility of the sensor being off, or protein being distributed slightly different
than expected, there is risk of underestimating the protein and receiving a discount of -$0.02.
Therefore, it would be prudent to set the cutoff value higher than 13% because any cutoff value
between 13% and 15% is expected to yield premiums greater than $.05 per bushel. It is easy to visualize
this risk using a graph of potential profit versus each cutoff point. This graph, as well as the relative
accuracy of your sensor, should be utilized to evaluate the risk involved with segregation. There may be
cases where risk is reduced by setting a segregation cutoff point that is different than the optimal cutoff
point reported by this Calculator.
Entering Price into the Calculator:
This calculator relies upon user defined values at various protein levels to operate. It assigns the price of
wheat by rounding down to the nearest protein level in the price table. Let’s use the following pricing
scheme as an example:
A local elevator posts a price quote for DNS as $5.00 per bushel for 14% protein, with premiums of $0.20
for each 0.25% protein above 14%, and discounts of $0.30 for each 0.25% protein below 14%. There are
no premiums above 16% protein and no grain below 12% will be purchased. An alternative market price
such as the feed wheat price would be used for protein below 12%. All that is needed for the calculator
to work is the size of the premium or discount. We do not need to know the exact price for grain at 14%
protein.
It is important to enter the data properly. The protein values must be ordered from lowest to highest
e.g., 12, 12.25, 12.5, 12.75, 13, 13.25, 13.5, 13.75, 14, 14.25, 14.5, 14.75, 15, 15.25, 15.5, 15.75, and 16
for calculator to work. Similarly, the prices are inputted as -2.4, -2.1, -1.8, -1.5, -1.2, -.9, -.6, -0.30, 0,
0.20, 0.40, 0.6, 0.8, 1, 1.2, 1.4, and 1.6 so that all protein values have an associated dollar value. If the
elevator had posted prices for each protein level, and not the premium or discounts from 14%, then
these prices along with the price for 14% wheat would be used.
Low Protein (Soft White) Wheat Considerations:
Additional data must be added to make the price function work when using the Calculator with Soft
White Winter Wheat (SSW). Sometimes SSW premiums are paid at or below a certain protein level.
Let’s assume a quoted price of $6.00 for grain ≤8.5% and $5.00 for grain >8.5%. If these prices are input
into the calculator, the protein level line would read “0, 8.5, 100” and the price line would read “6, 6, 5”.
However, since the Calculator rounds down to the nearest protein percentage, it would assign a price of
3
$6.00 for all values less than 100. To correct this, a value just larger than 8.5 must be added to the
protein level read out, and the price for above 8.5% wheat applied to this value. This would result in a
protein level reading as “8.5, 8.5001” and a Price/Premium line reading “6, 5”.
This Calculator was designed for use with wheat having a protein concentration >8.0%. When protein is
<8.0%, it can be made to work by adding at least 3 times the standard deviation to the mean. In the
above example, adding 2 to the field mean of 8% yields 10%. Now, using the pricing scheme described
above the original protein market values would give values of “10.5, 10.5001”. This will give the results
for the segregations below the real 8.0% if they exist; however, the results for cutoff value, high bin
protein, and low bin proteins will need to be adjusted down by 2% to reflect reality.
Sensitivity Analysis:
Sensitivity analysis enables one to see how the optimal cutoff value, high bin protein, low bin protein,
dollar return per bushel, and percentage of high and low protein grain change are affected by different
values of mean protein and standard deviation.
a. Locate the “Sensitivity Tables Parameters”.
b. The example range for protein is from 12% to 16% in steps of 0.50%.
c. The standard deviation ranges from 0.8% to 2.0% in steps of 0.2.
d. The smallest minimum mean value of protein that you can enter is 8.0% and the largest
maximum mean value is 20.0% in whole numbers. Steps of 0.10, 0.20, 0.25, 0.50, and 1.00% are
available.
e. Likewise, the smallest minimum value of the standard deviation is 0.20% and the largest
maximum value is 2.0%. The available steps are 0.10, 0.20, and 0.50%.
Clicking “Calculate” will populate a series of tables with data for the specified range of protein values
and standard deviations. Tables for the optimal cutoff point, high bin average protein content, low bin
average protein content, the additional revenue per bushel, and the volume of grain in each bin are
reported. This information is useful to see how grain segregation may influence potential profit. The
results also show how small changes in the mean or standard deviation may affect segregation results.
If no optimal segregation value is found, the Calculator will default to a cutoff value of 8.0% in the table
reporting optimal cutoff and the additional premium by segregating will be $0.00 per bushel in the table
reporting revenue per bushel.
Market Premium Variability/Sensitivity:
Typically, the price of hard red spring wheat varies in 0.25% increments of protein concentration, which
produces a stepped price function. An example of the 20-year average Portland, OR price function for
Hard Red Spring Wheat is shown below. The fact that stepped prices occur is why the spikes are seen in
the graph of Profit Versus Protein Segregation Cutoff for individual fields. These stepped prices also
increase the net returns of segregating wheat by protein content.
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Dollars per Bushel
1990-2010 Average HRS
Premium/Discount from 14% Protein
0.5
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
-0.5
Premium
11.5 12 12.5 13 13.5 14 14.5 15 15.5 16 16.5
Protein Content (% at 12% Moisture)
5