Pulsating Market Boundaries in Supply Chain Network of Nitrogenous Fertilizers

All the market boundary for a fertilizer plant is function of natural-gas prices (henry-hub), demand of nitrogen based fertilizer at county level, and transportation cost by mode (rail, truck and barge). The demand for nitrogenous fertilizers is largely driven by agriculture, wherein, the composition and pattern of crops varies widely with time and region. Variation and uncertainty in natural-gas prices and transportation cost results in pulsating market boundaries, the area that is served by a fertilizer plant. A combined approach of statistical analysis and geographic information systems (GIS) is used to build a spatial equilibrium model representing structure of supply chain network for United States comprising origins (fertilizer plant, point of imports), destinations (counties), and various mode of transportation (truck, rail and barge). Such approach helps in (a)visualizing the market boundaries, (b) structure of supply chain network of nitrogen based fertilizers, (c)analysis of potential impacts due changes in natural-gas prices

Facility Location Problem of Beverage Distribution Considering Time Window and Land Use Plan Using GIS

As the boundaries and population of urban areas expand, beverage distributors may seek to expand the capacity in their distribution centers. As a result, they may need to add new locations or increase the utilization of their existing center. This paper investigates the facility location problem through network space, considering traversable truck roads, thereby providing a strategic decision for identifying a depot location in consideration of vehicle routings from a real application. For the analysis, a geospatial tool, which is embedded in the commercial software ArcMap®, was used for routing and calibrating the model. Ten candidates from commercial and industrial zones in the cities of Fargo, West Fargo, and Moorhead were considered for future distribution centers. The candidate locations were analyzed to determine which site minimizes the total transportation costs and travel miles in consideration of time window, vehicle capacity, heterogeneous vehicle types, land use plan, and hours-of-service. Most attractive candidates are close to the intersections of major highways. From the analysis, the study recommends locating a distribution center at three alternatives based on the average ranking method. This study can be used by distributors as they consider new locations and extra depots to support strategic planning to deal with mid-term and long-term growth of demand in beverage markets. This study provides a ready-to-use example of how to adopt state-of-the-art spatial technology and operations research using Geographic Information Systems (GIS), and bring it to state-of-practice

Valuing New Random Genetically Modified (GM) Traits in Corn

Numerous genetically modified (GM) traits are currently under development. Those currently being developed for corn include traits for drought tolerance, cold tolerance, and nitrogen use efficiency, among others. The value of these traits is random and sporadic, creating challenges in assessing its ex ante value. This study estimates the ex ante value of a GM trait in corn with random characteristics. A real option model is developed to capture risks and returns associated with the traits, and estimates are derived for drought tolerant corn. Base case results indicate a slight chance that the option value would be out-of-the-money during the discovery phase. In all other phases, the expected value is in-the-money. The results are highly sensitive with respect to trait efficiency and regarding assumptions of randomness in some of the other important variables, particularly trait values

Valuing New Random Genetically Modified (GM) Traits in Corn

Numerous genetically modified (GM) traits are currently under development. Those currently being developed for corn include traits for drought tolerance, cold tolerance, and nitrogen use efficiency, among others. The value of these traits is random and sporadic, creating challenges in assessing its ex ante value. This study estimates the ex ante value of a GM trait in corn with random characteristics. A real option model is developed to capture risks and returns associated with the traits, and estimates are derived for drought tolerant corn. Base case results indicate a slight chance that the option value would be out-of-the-money during the discovery phase. In all other phases, the expected value is in-the-money. The results are highly sensitive with respect to trait efficiency and regarding assumptions of randomness in some of the other important variables, particularly trait values

Structural Changes in North American Fertilizer Logistics

Nitrogen-based fertilizer industry in United States is undergoing major changes the demand for which is primarily driven by agriculture. Traditionally, this industry sources anhydrous ammonia through imports from Canada and U.S.-Gulf, the latter comprises bulk of imports, or produces domestically to be supplied as is or converted into urea or UAN variations of nitrogen-based fertilizer with various combinations with other minerals. With change in composition of crops and increasing acreage of crops that are fertilizer intensive, there is an increased demand for nitrogen-based fertilizer in order to promote foliar growth as a standalone form, for example Urea, or in combination, for example Di-ammonium phosphate (DAP). Second compelling reason for change in industry is reduction in prices of natural-gas, in part due to oil exploration, that makes it cheaper to produce anhydrous ammonia domestically. Anhydrous ammonia is perquisite for making other types of nitrogen-based fertilizer and highly energy intensive. Thus, lower natural-gas prices provide incentive for domestic firms to either expand existing fertilizer plants or opens up the possibility of new entrants. Many companies/firms have recently announced their plans to expand existing plants or open new units, exerting competitive pressure on an industry that already has lot of surplus capacity but highly competitive in terms of production costs and technology used. It is to be noted that natural-gas prices are volatile; therefore, any commitment to expand or open new plant is subject to volatility in demand, natural-gas prices, and import price of fertilizers. The purpose of this dissertation is to analyze spatial competition among U.S. nitrogen-based fertilizer plants and their respective market boundaries. This dissertation also derives the structure of the supply chain for nitrogen-based fertilizer in the United States (at macro level); and the stochastic spatial-optimization model to account for risk in random variables. Locational information is used to account for spatial nature of problem, and linear and mixed-integer based optimization techniques are applied to arrive at current and most likely future cases. Combination of linear optimization, and mixed-integer, and geographical information systems helps in determining regional areas where competition is expected to be ruinous and most intense; and provide insights on viability of newly announced fertilizer plants that are most likely to be successful and significantly impact the structure of overall supply chain.Upper Great Plains Transportation Institute (UGPTI

Structural changes in North American fertilizer logistics

Nitrogen-based fertilizer industry in United States is undergoing major changes the demand for which is primarily driven by agriculture. Traditionally, this industry sources anhydrous ammonia through imports from Canada and U.S.-Gulf, the latter comprises bulk of imports, or produces domestically to be supplied as is or converted into urea or UAN variations of nitrogen-based fertilizer with various combinations with other minerals. With change in composition of crops and increasing acreage of crops that are fertilizer intensive, there is an increased demand for nitrogen-based fertilizer in order to promote foliar growth as a standalone form, for example Urea, or in combination, for example Di-ammonium phosphate (DAP). Second compelling reason for change in industry is reduction in prices of natural-gas, in part due to oil exploration, that makes it cheaper to produce anhydrous ammonia domestically. Anhydrous ammonia is perquisite for making other types of nitrogen-based fertilizer and highly energy intensive. Thus, lower natural-gas prices provide incentive for domestic firms to either expand existing fertilizer plants or opens up the possibility of new entrants. Many companies/firms have recently announced their plans to expand existing plants or open new units, exerting competitive pressure on an industry that already has lot of surplus capacity but highly competitive in terms of production costs and technology used. It is to be noted that natural-gas prices are volatile; therefore, any commitment to expand or open new plant is subject to volatility in demand, natural-gas prices, and import price of fertilizers. The purpose of this dissertation is to analyze spatial competition among U.S. nitrogen-based fertilizer plants and their respective market boundaries. This dissertation also derives the structure of the supply chain for nitrogen-based fertilizer in the United States (at macro level); and the stochastic spatial-optimization model to account for risk in random variables. Locational information is used to account for spatial nature of problem, and linear and mixed-integer based optimization techniques are applied to arrive at current and most likely future cases. Combination of linear optimization, and mixed-integer, and geographical information systems helps in determining regional areas where competition is expected to be ruinous and most intense; and provide insights on viability of newly announced fertilizer plants that are most likely to be successful and significantly impact the structure of overall supply chain

Valuing and Pricing of Random & Non-Persistent Genetically Modified Traits (Corn & HRSW)

With many genetic traits discovered and many more in progress, it is imperative to the industry that firms (biotechnology companies) decide on the trait valuation and pricing. This includes more than one trait (also referred to as stacked traits) in a single variety of crop; the risk and uncertainty of expected returns associated with the development and release of a variety increases even more in case of stacked traits. The purpose of this thesis is to develop a model that can be used for the valuing and pricing of genetically modified (GM) traits that are random, sporadic, and non-persistent (e.g. drought tolerance, heat/cold stress) using the real option approach. The efficiency gain in case of occurrence of random event and expression of GM traits will be measured and used as a decision factor in determining the value of GM trait(s) at different phases of development.Agribusiness and Applied EconomicsAgribusiness and Applied EconomicsCollege of Agriculture, Food Systems and Natural Resource

Pulsating Market Boundaries and Spatial Arbitrage in US Gulf Region: Impact of Panama Canal Expansion on US Agriculture

US agricultural exports reached a record high of $137.37 billion for fiscal year (FY) 2011, an increase of 26.5 percent from FY 2010. Export capacity of bulk grain and soybean is expanding at 10 percent nationally with up to 30 percent in Pacific North West. Several other expansions have taken place with two Greenfield facilities under development one of which is opening for 2011 fall harvest. Total US grain and soybean exports are forecasted to increase more than one billion bushels or 25 percent from 2011/12 to 2020/21. Most of these exports are expected through center gulf driven towards East Asian countries via Panama Canal. Panama Canal currently handles 44 percent of total US exports. Some of the prospects from expansion of Panama Canal include increased loadings per vessel use of larger vessel size along with reduced canal transit time and lower transportation cost (overall). Grain exports are mostly exported during short time of the year, for example, soybeans are mostly exported from mid-September to mid-February. Such dynamics require efficient throughput capabilities. Other crops like Wheat and Corn have similar periodic surges and compete with surges in supply of other crops. Increased capacity of inland shuttle locations and elevators, with reduction in loading time (increased efficiency gained from technology advancement at loading facilities) combined with increased handling capacity at ports expected to benefit from panama canal expansion will open up more draw areas or increase existing draw areas for crops producing/supplying regions. This means that the areas farther away from ports may be able to export considering the expected gain in transportation cost. This study will focus on spatial arbitrage and pulsating market boundaries for some of crops at key ports specifically located in US Gulf Region and their expected impacts on US agriculture. Market boundaries (area from which the supply is drawn) for ports are expected to increase with Panama Canal expansion combined with ongoing expansion at shuttle elevators elsewhere in inland. Market boundaries are subject to price expected at destination minus the total transportation cost. Other factors that might influence the market boundaries are reliability (risk) in terms of price and volume, cost of congestion and delay time may also play a role. Since these market boundaries are subject to spatial arbitrage (difference in markets located at different geographical region), draw area is expected to change as when any of parameters affecting price at destination and transportation costs are changed. Volatility in price and transportation cost will cause change in draw areas until equilibrium is reached. This equilibrium will be defined by maximum profit that a farm/elevator/shuttle in crop producing region can expect by exporting through different ports. Choice of ports will be based on maximizing profit. Origins at boundaries are expected to be indifferent in shipping to more than one ports, however, the convenience and other factors might play important role for shipper. With price volatility and different transportation cost (determined by rates at different volume between same pair of origins and destinations, and different ports), a rational shipper is expected to maximize profit while minimizing risk. Price at destination and transportation cost are treated as random with certain distribution and expected gains will be compared from existing Panamax rates with those of post-expansion. Other variables such existing capacities of shuttle/elevators will be treated as fixed in base case and then relaxed in sensitivities. Optimization of maximum profit through various combinations of shuttle and ports will be calculated by SAS or other statistical package and spatial aspect of distance and locations will be handled by using ArcMap (ESRI). Key ports of consideration are primarily on east coast. Other ports will be considered based on their relevance to crop supplying regions. Corn and soybean will be potential crops to be analyzed

Dynamic Changes in Spatial Competition for Fertilizer

Changes are evolving that are impacting the U.S. nitrogen fertilizer industry. Changes in crops, increased demand, reductions in natural gas prices, and spatial competition among producers and imports are affecting the nitrogen fertilizer industry. A spatial competition model of the United States fertilizer sector was developed to determine the likely future spatial distribution of production and flows for nitrogen fertilizer. The model minimizes production and shipping costs from plants and imports to demand areas. A base model of 2010-12 was developed and a future case was modeled representative of 2018. The most valuable (lowest cost) origins for US processing are primarily in Louisiana, followed by others states with low natural gas prices. Shadow prices indicate several locations in Wyoming, Iowa, Georgia, Louisiana, Nebraska, Kansas, and North Dakota would be positive. Not all of proposed plants would be viable and if forced to operate at 75% of capacity or more only a few of the new plants including those located in Louisiana, Iowa and North Dakota would be viable