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South Central Iowa | If you do all the seed, fertilizer, chemical with the same location and they custom apply it, they likely have an operating margin of $45-60 per acre on corn and $35-55 on soybeans just depending on what you have done. This is operating margin, so just revenue minus cost of goods sold and variable costs. That roughly $50 per acre average both crops has to go to staff, overhead, and the big fixed costs of property, plant, and equipment. If you also take your grain to the same elevator, and they are the least bit competent at merchandising, they should make 10-25c on a bushel of corn and 25-40c on soybeans, operating margin also. So using trend line yields of 171 and 48, they should be making $17-43 and $12-19 per acre, perhaps and average on all acres around $25.
So an average elevator has an operating margin somewhere in the neighborhood of $75 per acre that then goes towards overhead and PPE. Let's use 50,000 acres as a customer base, that would be $3.75 million. But a 2 million bushel commercial grain setup might cost $6 million, a large dry fertilizer building $4 million, a 120,000 gallon NH3 setup $750,000, and chemical, seed, shop, office building $1.25 million; so that is $12 million presuming land cost is within it; $1 million per year on a 20 yr payment roughly. All the tractors, spreaders, sprayers, tender trucks, grain trucks, ammonia tanks and bars, etc.. would also likely cost around $1 million annually for a 50,000 acre coop. I could see insurance being $150,000 or so for everything, electricity being $200,000 and salaries of 30 employees being $1.4 million.
So our average 50,000 acre elevator in a place with national average yields would have an operating margin of $3.75 million and payments of property of $1 million, equipment $1 million, and employees and overhead of $1.75 million; so $3.75 million. Now, they are not usually paying for all of the equipment and property like it were new as in the example, so there is probably a few hundred thousand that would be off of that and that becomes either patronage or is used to pay for more employees. But a pretty common net profit margin in the commercial inputs and grain sector would be 2%. It's highly competitive and tight.
Edited by Conan the Farmer 6/11/2017 23:41
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Lost grain business
