Grain shippers are constantly faced with making merchandising and logistical decisions while trying to achieve a positive net margin. They have to decide how much grain to sell and when the most opportune time to do so occurs. In addition, decisions regarding how much freight should be acquired and where grain should be shipped need to be addressed. These decisions are met by several sources of risk such as futures spreads, basis levels, transit times, equipment placements, and farmer deliveries. The primary objective of this thesis was to develop a model to determine both the optimal amount of grain that should be sold in the pipeline and the optimal amount of freight that should be hedged by grain shippers through the use of forward shipping mechanisms. Certificates of Transportation (COTs) offered by the Burlington Northern Santa Fe (BNSF) Railway were used to represent forward shipping mechanisms in this thesis. A stochastic simulation model of a prototypical grain shipper containing three country elevators and two export facilities was developed. A sensitivity analysis was conducted on merchandising and logistical variables to evaluate different scenarios. The analysis revealed that committing to too many shuttle COTS limited the shipper's flexibility, forced sales to be made in suboptimal periods, and significantly increased the level of demurrage. The type of freight ordering strategy implemented by each elevator ultimately determined the overall sustainability of the firm; shippers need to diversify the type of freight they commit to because ordering too much long-term freight can result in bad sales decisions, whereas relying only on short-term freight is costly and inefficient. Not being able to quickly adapt to volatile market conditions can result in making bad selling decisions and untimely freight purchases which can hinder the longevity of a firm.
| Identifer | oai:union.ndltd.org:ndsu.edu/oai:library.ndsu.edu:10365/29633 |
| Date | January 2010 |
| Creators | Ritteman, Thomas Arthur |
| Publisher | North Dakota State University |
| Source Sets | North Dakota State University |
| Detected Language | English |
| Type | text/thesis |
| Format | application/pdf |
| Rights | NDSU policy 190.6.2, https://www.ndsu.edu/fileadmin/policy/190.pdf |
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