Modeling the Economic Evaluation of Wheat Flour Milling Operations

Abstract

A mill management, economic model was developed and implemented in an electronic spreadsheet. The model consists of five major components or steps: operating characteristics, manufacturing, annual performance, financial planning, and long-term analysis. A 428 t/day (7,000 cwt/day) hard red winter wheat flour mill was modeled and the impact of the following variables tested: (1) energy costs, (2) straight flour extraction, (3) hourly wages, (4) bulk flour sale price, and (5) wheat transportation cost. Sensitivity analysis for these variables with the model indicates that: (1) a reduction of 5.0% in energy costs would reduce variable costs by $0.176/t ($0.008/cwt), (2) a reduction of 1% in flour extraction from 75% would require an increase in millfeeds price of $3.80/t ($3.40/s.ton) in order to maintain the net income obtained with 75% flour extraction, and (3) an increase in the hourly wages of $0.22/h for 31 employees would increase the flour production cost by $0.309/t ($0.014/cwt). Linear relationships were explored between the internal rate of return (IRR) and the variation in flour sale price, and between the IRR and reduction in wheat transportation cost.