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One of many indicators of performance is dirty (raw) wheat yield, which reports the number of units required to make a unit of flour. It is a gross measure of transformation process performance converting raw dirty wheat into straight grade flour.
It can take many forms. For example, in North America it may be reported as the number of commercial bushels (60 pounds/commercial of dirty wheat) required to make a cwt of flour (100 pounds) or as the number of tonnes required to produce one tonne of flour. The units of measure selected depends on the preference and practice of the business in the region.
Dirty wheat yield has the limitation that it does not identify yield loss improvement opportunities. The first two loss areas — invoice verses unloading, and inventory loss or elevator shrink (moisture and dust) — identify the amount of material paid for and moved into the elevator and the amount of material moved out of the elevator into the milling facility and may be the result of measurement error.
Cleaning losses may reflect inherent wheat quality issues and poor measurement. Flour and feed moisture gain/loss, as they will undoubtedly have deviated from target levels, may reflect poor moisture control and/or environmental influences or a combination of both. Milling yield may be influenced by the wheat milled, tempering, machine setting (operator), and machine maintenance. Just as with the raw material, the measurement and control of both flour and feed inventory influence recovery from the transformation process.
Finally, loading out of flour or feed in bulk or packaged goods may incur measurement errors, including over and under pack, which influence production based on raw material. These areas influence transformation process performance and should be carefully managed and controlled if one expects to influence dirty wheat yield.
Dirty wheat yield change values are important in that the dirty wheat yield is a snapshot measure of overall performance of raw material purchased to produce a unit of flour. Dirty wheat yield can provide an overall impact of a project investment in a post-completion audit. It also may be used to provide project justification.
Using a spreadsheet to manage risk
Creating a model in a spreadsheet is less costly than building a mill. It allows the model creator the opportunity to assess the model validity based on an existing operation and evaluate sensitivity to variable changes to identify greatest potential for investment opportunity and manage risk. The information presented herein is based on publicly available information.
The Wheat Outlook is published by the Economic Research Services (ERS) of the U.S. Department of Agriculture, which addresses both the U.S. and global wheat markets. It is analyzed based on the latest projections contained in the USDA’s World Agricultural Supply and Demand Estimates. This article utilizes data from Table 32 — Wheat and flour price relationships, Kansas City, of the November 2017 Wheat Outlook, which compiles information from reports of the USDA, the Agricultural Marketing Service, Monthly Feedstuffs Prices; Milling & Baking News, MarketFocus; and the ERS.
Current Wheat Outlook reports may be found on the web at https://www.ers.usda.gov/publications/pub-details/?pubid=85716 while Table 32 from the report is shown in Table 1 (page 66). Wheat Outlook also includes Table 33 — Wheat and flour price relationships, Minneapolis (dollars per cwt), which may be relevant to readers interested in spring wheat markets rather than hard red winter.
A flour pricing model commonly used is presented for consideration based on 2017-18 first-quarter, June-through-August data. Knowledge of the dirty wheat yield expressed as the number of units of dirty wheat required to produce a unit of flour for the milling site must be known or assumed. As can be seen in footnote 3 in Table 1, the dirty wheat cost is based on using 2.28 bushels of wheat (60 pounds/commercial bushel) to produce 100 pounds of flour.
A tonne of flour weighs 2,205 pounds, therefore a tonne of flour is equivalent to 22.05 cwts of flour. If every cwt of flour requires 2.28 bushels of wheat at 60 pounds per commercial bushel, the total weight of dirty wheat required is ((22.05 * 2.28* 60)/2,205) 1.368 tonnes of dirty wheat. Given that 2.28 bushels of dirty wheat are required at a cost of $15.31 for 2.28 bushels of wheat, the value of wheat is $246.77 per tonne. Therefore, the dirty wheat cost to manufacture 1 tonne of flour is $337.59 (1.368*246.77).
Subtracted from the wheat cost is the feed credit to identify flour material cost per tonne. The value of millfeed generated is $1.17 for approximately 36.8 pounds of millfeed, which converts to a millfeed value of $70.10/tonne. As 1.368 tonnes of dirty wheat is milled to produce 1 tonne of flour, there will be 0.368 tonnes of millfeed at a value of $25.80. Therefore, material cost to produce 1 tonne of flour is $311.79 ($337.59 dirty wheat-$25.80 feed credit). Markets for wheat and millfeed are well known by both the miller and baker, making material costs reasonably well known across both ends of the bargaining table.
In the USDA/ERS model shown in Table 1, the value of wholesale flour is reported to be $15.65/cwt, which is $345.08/tonne. The difference between the wholesale price of flour and the materials cost is assumed to be gross margin of $1.51 per cwt of flour, which is $33.30 per tonne of flour produced.
Gross margin is more often a negotiated value between the miller and baker who both have access to wheat and feed market data. Gross margin must cover profit, taxes and other costs, including, but not limited to, material costs other than wheat, repair costs, labor, energy, transportation, insurance, fixed capital cost, carrying cost, advertising and promotion. Margins in a commodity business such as flour milling have been historically thin and risks significant. Managing risk via market hedging, contracting and cost reductions play a critical role in determining profitability of the milling venture.
The spreadsheet model presented in Table 3 (page 70) shows the Wheat Outlook values previously discussed relative to dirty wheat yield and material costs. Variable data is input into the input area and the resulting conversions and outputs calculated. The economic value of increases or decreases in dirty wheat yield are identified relative to the assumptions of the Wheat Outlook report, which are 2.28 bushels per cwt or equivalently 1.368 tonnes of wheat per 1 tonne of flour (See the highlighted cell row, Table 3, page 70).
Commercially, raw wheat yield is less than identified by the USDA/ERS. However, such information is proprietary and closely held. Nonetheless, the value of even slight changes shown are significant for the mill size (daily capacity of 10,000 cwts of flour or approximately 620 tonnes of wheat milled) and number of operating days (340) identified.
A change in dirty wheat yield of 0.01 bushel per cwts of flour equivalent to 0.006 tonnes of wheat per tonne of flour has an impact of $164,390 per year. The difference is small — about 0.6 pounds of wheat per cwt of flour or 6 kilograms of wheat per tonne of flour — but cannot be ignored.
Alternate yield terms that consider screenings production going to millfeed wheat, dry wheat moisture and tempered wheat moisture are provided in Table 2 (page 68). These terms are useful to monitor performance at various locations in the milling process. Accurate scales and measurements are needed to assess performance in these areas of operation and are a must to identify performance improvement opportunities that are not revealed by dirty wheat yield alone.
Increases in screenings production may reflect increased screenings in the raw wheat, poor machine adjustment or maintenance. Changes in moisture gain/loss in milling may reflect inaccurate moisture measurement, calibration or control. Changes in milling yield based on tempered wheat to first break may be a result of wheat characteristics, mill operation and mill maintenance or a combination of all three.
Dirty wheat yield improvements are important, but having the information to assess operational performance is essential to locating the potential improvement opportunity and facilitating its recovery. Establishing targets and measuring performance against these targets is a path toward a more efficient milling operation.