Three primary components make up your flour price – which you can “buy better” by understanding the commodities market and pricing the components separately when the market offers opportunity. This posting is technical so may not be terribly fun to read or talk over cocktails. These are:
- Futures bushel price
- Protein premium – basis
- Millfeed Credit (millfeed is a “byproduct” of the milling process, and used in animal feed)
The price of a hundredweight (cwt) of flour is determined by a formula:
Futures + Basis X 2.3 = Cost of wheat for a cwt of flour
Subtract the millfeed credit— ($ per ton) x .019 = credit for cwt of flour Add the “block” charges: transportation, manufacturing and incidental fee charges
The block charges are typically negotiated for a year and can be used to compare competing —whichever has a lower block is likely the most efficient.
Searching for a flour mill isn’t like buying something on the corner – it is all up to your food product and protein requirements. Due to the equipment and technical needs, some mills will mill soft wheat, some mills in the northern regions will mill spring wheat (North and South Dakota, Montana, and Minnesota). Other mills from the Midwest (Kansas and Oklahoma) mill Hard Red winter wheat.
The Bottom Line
Transportation dictates what mills specialize in. For example, Buffalo, NY does not grow much wheat but rail and waterways are exceptional making it a hub.