Iowa’s grain-elevator industry: Factors affecting its organization and structural adjustment

Abstract

<p>In December 1970, there were 1,178 grain elevators in Iowa. The total storage capacity of these elevators was in excess of 432 million bushels. In recent years, both the number and the storage capacity of elevators have been increasing. More than half the elevators had a storage capacity of 300,000 bushels or less. This group, however, accounted for only 21 percent of the total storage capacity. The current organization of the industry is typified by an elevator that receives com and soybeans from a supply area with a radius of 5 to 7 miles.</p> <p>A statistical cost function, derived from data from over 150 cooperative elevators, indicated that significant economies of scale exist in elevator operations. This cost function showed that an elevator with a capacity of 300,000 bushels would have an average cost of 11 cents per bushel of grain handled, compared with a cost of 7.9 cents for an elevator with a capacity of 2 million bushels. Since the statistical cost function was based on accounting data reflecting historical investment costs and interest rates, these estimates of elevator costs should be regarded as conservative.</p>