{"id":3449,"date":"2012-07-18T05:58:29","date_gmt":"2012-07-18T10:58:29","guid":{"rendered":"https:\/\/www.insta-pro.com\/?p=334"},"modified":"2023-06-22T07:37:59","modified_gmt":"2023-06-22T12:37:59","slug":"will-my-feed-processing-plant-be-profitable-part-iii-raw-material-costs","status":"publish","type":"post","link":"https:\/\/instapro.spinuhost.com\/en\/blog\/businessstrategyandfinance\/will-my-feed-processing-plant-be-profitable-part-iii-raw-material-costs\/","title":{"rendered":"Will My Feed Processing Plant Be Profitable? – Part III – Raw Material Costs"},"content":{"rendered":"

We’ve already established three key variables<\/a> which will determine the ultimate profitability of your feed processing plant:<\/p>\n

    \n
  1. Feed formulation<\/a><\/li>\n
  2. Raw material costs<\/li>\n
  3. Market value of your output(s)<\/li>\n<\/ol>\n

    My last blog post<\/a> focused on feed formulation. You’ve got to have a pretty good idea of your formulation in order to effectively tackle today’s topic: raw material costs.<\/p>\n

    The raw material cost analysis can be broken down into two steps:<\/p>\n

     <\/p>\n

    1) Determining the quantity of each ingredient required to make 1 ton of your formulation<\/strong>.\u00a0 Let\u2019s use a very basic example and assume that this is the formulation you\u2019re planning to use:<\/p>\n

    Ingredient A \u2013 50%
    \nIngredient B \u2013 40%
    \nIngredient C \u2013 10%<\/p>\n

    \u00a0Your formula will require 1,000 lbs. of Ingredient A, 800 lbs. of Ingredient B, and 200 lbs. of ingredient C per ton of production.<\/p>\n

    2) Determining the blended cost per ton of raw material formulation<\/strong>.\u00a0 Let\u2019s use the following costs assumptions for our raw ingredients:<\/p>\n

    \u00a0Ingredient A \u2013 $130\/ton
    \nIngredient B \u2013 $100\/ton
    \nIngredient C \u2013 $0.75\/lb<\/p>\n

    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Your blended cost per ton can be calculated as follows:<\/p>\n

    Ingredient A – $130\/ton x .5 tons = $65
    \nIngredient B – $100\/ton x .4 tons = $40
    \nIngredient C – $0.45 x 200 lbs = $150
    \nTotal Raw Material Cost = $255\/ton<\/p>\n

    Keep in mind that these costs must be landed costs (the cost to get the ingredient to your doorstep); transportation of raw materials to your plant can be a major expense and shouldn’t be overlooked.<\/p>\n

    Now is a good time to begin some sensitivity analysis to help understand how cost changes will impact your overall raw ingredient cost. We’re all familiar with the wild fluctuations in oil prices, and it’s important to note that the impact that oil prices have on corn and soybean prices (major components of many feeds). From Watt AgNet’s Lower Feed Ingredient Prices Expected in 2012:<\/a><\/p>\n

    “Crop pricing all revolves around energy prices,” Ebert said. “Corn prices are tied to oil prices, and soybeans are tied to corn. As corn has stolen acreage from other crops, energy prices have pulled up the price for all grains.” As prices have risen, price volatility has increased as well. “There is now and will be more market volatility,” he said. “There has been a stunning amount of change in the market in the last five years.”<\/em><\/p>\n

    There will be more to come later on sensitivity analysis, but the point is that even seemingly small cost movements can have substantial impacts on your formulation costs (even more significant impacts on our processing margin!)<\/p>\n","protected":false},"excerpt":{"rendered":"

    We’ve already established three key variables which will determine the ultimate profitability of your feed processing plant: Feed formulation Raw material costs Market value of your output(s) My last blog post focused on feed formulation. You’ve got to have a pretty good idea of your formulation in order to effectively tackle today’s topic: raw material […]<\/p>\n","protected":false},"author":6,"featured_media":10829,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[31],"tags":[68,98],"class_list":["post-3449","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-businessstrategyandfinance","tag-feed-formulation","tag-raw-material-cost-analysis"],"acf":[],"yoast_head":"\nInsta-Pro | Determine if Feed Processing Plant Be Profitable<\/title>\n<meta name=\"description\" content=\"In order to determine if your feed processing plant will be profitable, you need to consider the cost of raw materials. 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