Grain elevator: one shrinkage norm, three crops

“Twelve thousand tonnes a season, revenue 6 274 200 ₴, profit 1 106 535 ₴. I'll tell you straight away which crop feeds me: maize. On drying it gives 288 ₴ a tonne, wheat gives 54 ₴. And then somebody showed me that maize is the worst of the three I take in” — that is how Vitalii Kravets, owner of a line elevator in the Poltava region, opened the conversation.

If you take grain in for storage, this arithmetic is familiar. The wetter the grain that arrives, the more tonne-percents you removed, the bigger the invoice. Wet grain is good grain.

The sum breaks in one place. The elevator sells drying in tonne-percents, but settles shrinkage in grain — against a norm that is the same for every crop. Actual shrinkage is never the same.

Below we break one season down into three crops and get to the reason why dry wheat quietly subsidises wet maize.

Vitalii's path: from one shed to a 12 000-tonne elevator

Vitalii started with an old flat-storage shed that came to him along with the land. He took grain from his neighbours, dried it with a gas burner on a single drier, and did the sums on a sheet of paper: took in this much, spent that much, the difference is mine.

Nine years on there is a line elevator taking in 12 000 tonnes a season: silos, two driers, a lab with a sampling probe, a weighbridge, a shift foreman around the clock. That is also when the feel for the numbers disappeared: the tonnes multiplied several times over, and the profit stayed where it had been in the third year.

“When I had one shed, I poured the sample into the drying oven myself and signed the moisture certificate myself. Now they bring me a season summary: taken in this much, shipped out this much, revenue this much. And nowhere in that summary is there a single line telling me how many tonnes of grain my shrinkage comes to.”

Why “maize gives 288 ₴” is a truth that settles nothing

The drying tariff is 58 ₴ per tonne-percent. Gas and electricity for the same work are 22 ₴ per tonne-percent. The difference, 36 ₴, is what the elevator earns on every percentage point of moisture removed from every tonne.

Then comes one step. Wheat arrives at 15.5% and goes into the silo at 14.0% — 1.5 pp removed, so 54 ₴ a tonne. Sunflower is dried from 12.0% down to 7.0%: 5.0 pp and 180 ₴. Maize comes in at 22.0% and is dried to 14.0% — eight points and 288 ₴ a tonne.

There is no mistake in that arithmetic. There is a limit in it: it counts only the part of drying that is paid for in money. The client settles shrinkage in grain — and the figures there are entirely different.

58 and 22 are both per tonne-percent, not per tonne

These two numbers are worth labelling at once. 58 ₴ is what the elevator charges for taking one percentage point of moisture out of a tonne. 22 ₴ is what the gas and electricity for that cost, also per point and per tonne.

That is why the wheat tariff reads 58 × 1.5 and the maize tariff 58 × 8. And that is why wet grain really is dearer on the invoice: the tonne does not cost more, there are simply more points in it.

Life before shrinkage became money

The bookkeeping Vitalii lived with through those years is recognisable to any elevator that grew out of a single shed.

• The shrinkage norm in the contract was one figure for everything. 5.0% — for wheat, for sunflower and for maize alike, because that is what the template said from the very start.
• Shrinkage counted as a natural loss. The grain dried out — that is nature, there is nobody to ask about it.
• The drying tariff depended on points, not on incoming moisture. 58 ₴ per tonne-percent is the same for grain at 15.5% and for grain at 22.0%.
• The result was counted for the elevator, not for the crop. One figure for the season, with all three crops stirred together.
• The grain left over from shrinkage was never valued in hryvnias anywhere. It simply sat in the silo and was treated as a remainder.
• Crops were compared by the drying invoice. Whichever tonne bills higher is the better crop.

Not one word here is about driers, silos or grain quality. Six points, all of them bookkeeping — which is why neither the lab, nor the foreman, nor Vitalii himself ever saw them.

The unit that matters: a tonne after shrinkage is settled

An elevator counts itself in tariffs: intake and cleaning 70 ₴ a tonne, drying 58 ₴ per tonne-percent, storage 42 ₴ per tonne per month, outloading 55 ₴ a tonne. The storage term is 3.5 months, so 147 ₴ a tonne.

Against that stand the variable costs: gas and electricity 22 ₴ per tonne-percent, handling 48 ₴ a tonne, ventilation 8 ₴ per tonne per month — the same 3.5 months, so 28 ₴ a tonne. The difference between tariff and variables is the margin of a tonne.

Intake, storage, handling and outloading are identical to the kopiyka across all three crops: one tonne differs from another only in the number of points removed. And then shrinkage arrives and reshuffles the result.

Shrinkage is not a natural loss, it is 7 400 ₴ a tonne

The client collects less weight than he delivered: part of the water went into the drier, part of the grain stayed on the sieves and in the elevator legs. The contract describes this with a shrinkage norm of 5.0% — that is exactly how much weight the elevator may write off at outloading.

If the grain actually shrank less than the norm, the difference stays in the elevator's silo. If it shrank more, the elevator makes up the weight out of its own. Either way it is grain at 7 400 ₴ a tonne: a money position, not a line about nature.

How actual shrinkage is worked out

The formula is short: divide the percentage points removed by a hundred minus the final moisture, then add 0.4 pp of mechanical losses — what stays on the sieves and in the handling.

Wheat: 1.5 divided by 86 plus 0.4 — that comes to 2.14%. Sunflower: 5.0 divided by 93 plus 0.4 — 5.78%. Maize: 8.0 divided by 86 plus 0.4 — 9.70%.

Three crops, three different shrinkage rates. And one norm in the contract — 5.0%.

Why 14.0% stands for both wheat and maize

That is not a typo. A final moisture of 14.0% is the storage standard for cereals: both wheat and maize are dried down to it, because below that the grain lies without self-heating. Sunflower is dried to 7.0%: an oilseed will not keep at 14.0%.

The difference between crops is not what they are dried down to, but what they start from: wheat arrives at 15.5%, maize at 22.0%. That is where eight points against one and a half come from.

“I look at incoming moisture thirty times a day: it is on my weighbridge, on the certificate, in the register. And not once in nine years did I look at it as a shrinkage rate. To me it was a number that gets multiplied by 58.”

One season on a single page: three crops, one norm

Here is the season Vitalii was taking decisions from: 5 400 tonnes of wheat, 3 000 tonnes of sunflower, 3 600 tonnes of maize.

Season indicator	Wheat	Sunflower	Maize	Total
Tonnes taken in	5 400	3 000	3 600	12 000
Moisture, from and to	15.5 → 14.0	12.0 → 7.0	22.0 → 14.0	—
Percentage points removed	1.5	5.0	8.0	4.325
Tariff, ₴/t	359	562	736	—
Variable costs, ₴/t	109	186	252	—
Margin before shrinkage, ₴/t	250	376	484	—
Actual shrinkage	2.14%	5.78%	9.70%	—
Norm in the contract	5.0%	5.0%	5.0%	—
Gap	+2.86%	−0.78%	−4.70%	−38.4 t
Shrinkage settled in grain, ₴/t	+211	−57	−348	—
Result, ₴/t	461	319	136	—
Season total, ₴	2 491 183	955 652	489 700	3 936 535

Two rows here are worth reading together. The margin of a tonne rises from wheat to maize: 250, 376 and 484 ₴. The result after shrinkage is settled falls: 461, 319 and 136 ₴. The same season, the opposite order.

Two figures in the “Total” column are not sums. 4.325 pp is the average removal per tonne across the season: adding up 1.5, 5.0 and 8.0 makes no sense. And −38.4 t is net shrinkage, which has a table of its own below.

The exact results are 461.33, 318.55 and 136.03 ₴ a tonne, and the crop totals follow from them. Together that is 3 936 535 ₴ of contribution, less the season's fixed costs of 2 830 000 ₴ — a profit of 1 106 535 ₴ on revenue of 6 274 200 ₴. That is 17.6% of revenue and 92.2 ₴ per tonne taken in.

250, 376, 484 — and 461, 319, 136

Six numbers, two rows, opposite directions. The first is the margin before shrinkage: tariff minus variable costs, and in it maize is predictably first. The second is that same result after shrinkage has been settled in grain, and here maize is last by a wide gap.

One step sits between the rows: the gap between the 5.0% norm and the fact, converted into hryvnias at a grain price of 7 400 ₴ a tonne. For wheat it adds 211 ₴, from sunflower it takes 57 ₴, from maize 348 ₴.

The season's fixed costs: 2 830 000 ₴

Besides gas, handling and ventilation, the elevator keeps everything without which not a single tonne moves.

• Wages — 1 180 000 ₴: shift foremen, the weighbridge, the lab, the drier operators, the mechanics.
• Security — 160 000 ₴ a season, whoever's grain is in the silo.
• Repairs and maintenance — 420 000 ₴: elevator legs, conveyors, the burner, the aspiration.
• Depreciation — 760 000 ₴, the second largest item and the least noticeable of them all.
• Administration and taxes — 310 000 ₴.

Mark the lines here that depend on the incoming moisture of the grain. There are none. The weighbridge works the same way, and depreciation accrues on equipment, not on the water in the grain. All 2 830 000 ₴ build up over the season whatever crop is in the silo — which is why the difference between crops is decided higher up, in the contribution of a tonne.

What you see if you look only at drying

Let us put two views of the same three crops side by side.

Crop	Earnings on drying alone, ₴/t	Result after shrinkage, ₴/t
Wheat	54	461
Sunflower	180	319
Maize	288	136

The left column is the one Vitalii measured crops by for nine years: maize best, wheat worst. The right one is the result of a tonne after shrinkage is settled in grain, and in it everything is the other way round.

Not one of these six numbers is wrong. The elevator really does earn 288 ₴ on a tonne of maize: the gas is paid, the invoice is issued. But as long as that is the only number the owner looks at, he does not see that on the very same tonne he hands back 348 ₴ in grain.

“I built the second drier for maize. I negotiated gas for the cold months, worked out how many tonnes a day it could handle, put it closer to the entrance so the lorries would not queue. It never once crossed my mind that every tonne of maize I take in leaves me 136 hryvnias, while a tonne of wheat, which I barely cared about, leaves 461.”

Who subsidises whom: 154 tonnes against 169

The gap between norm and fact shows up not in percentages but in tonnes of grain, because grain is exactly what settles it.

Crop	Gap	Tonnes of grain a season	₴
Wheat	+2.86%	+154.21	+1 141 183
Sunflower	−0.78%	−23.29	−172 348
Maize	−4.70%	−169.28	−1 252 700
Net for the season	—	−38.36	−283 865

Wheat leaves the elevator 154.21 tonnes — that is 1 141 183 ₴ in grain that went nowhere. Maize takes away 169.28 tonnes, that is 1 252 700 ₴ made up out of its own. Sunflower takes another 23.29 tonnes, or 172 348 ₴.

Net for the season is minus 38.36 tonnes, or 283 865 ₴. The elevator put in grain of its own, and at the same time it is more than a million to the good on wheat. Two opposite flows, one remainder in the silo.

A plus in the gap means grain that stayed with the elevator

The sign here does not read the way it does in costs. Plus 2.86% on wheat is the norm exceeding the fact: 5.0% may be written off, 2.14% actually shrank, and the difference stays in the silo. Minus 4.70% on maize is the reverse: 9.70% shrank, and the contract allows only 5.0% to be written off.

So in the table a plus is income and a minus is goods genuinely handed over. And that is why one norm for everybody works as a redistribution: dry wheat pays for wet maize and never finds out about it.

Why 283 865 ₴ cannot be subtracted from the profit

The first reaction to a figure like that is always the same: book it as a cost, or take it off the 1 106 535 ₴ of profit. That must not be done — the money is already in there.

The result of a tonne — 461, 319 and 136 ₴ — is already worked out after shrinkage is settled: 211 ₴ added to wheat, 57 ₴ taken from sunflower, 348 ₴ from maize. The contribution of 3 936 535 ₴ is built out of those numbers. Subtracting the net again means counting the same tonnes twice.

What is the separate figure for, then? It measures not a cost but a phenomenon: one norm for everybody costs the elevator 38.36 tonnes of grain a season. Scattered across three crops, those tonnes look like a natural loss. Gathered into one number, they become something to talk to clients about.

“First I took two hundred and eighty-three thousand off my million and got angry. Then they showed me that those tonnes are already sitting inside my own result per tonne — and that felt worse. So they were not hiding at all. I had just never once added them up into one number.”

Minus 38.4 tonnes and 283 865 ₴ are one number

Do not look for two separate losses here. 38.36 tonnes is net shrinkage in grain weight; 283 865 ₴ is the same thing multiplied by 7 400 ₴ a tonne. One position in two units, and the report shows it in neither.

And 92.2 ₴ is something else entirely: the elevator's profit on one tonne taken in. Both numbers are “per tonne”, which makes them easy to merge in your head. But the 7 400 ₴ lies in the silo, while the 92.2 ₴ stays with the owner.

Move one: write actual shrinkage into every contract

The most obvious solution is to replace the 5.0% in the contract with the actual rate per crop: 2.14% for wheat, 5.78% for sunflower, 9.70% for maize. Then each one answers for itself.

On paper it looks good. Contribution rises from 3 936 535 to 4 220 400 ₴, profit from 1 106 535 to 1 390 400 ₴. Plus 283 865 ₴ a season: exactly the net the elevator had been making up out of its own.

Why plus 283 865 ₴ is a bad move even though the arithmetic is right

Because it is not a neutral correction but a trade. The elevator gives up 1 141 183 ₴ of guaranteed advantage on wheat in order to collect 1 252 700 ₴ on maize and 172 348 ₴ on sunflower. The gain rests on everybody signing.

The wheat clients will sign within a day: instead of a 5.0% write-off it will be 2.14%. The maize clients will not — for them the norm almost doubles. If even half of them agree, the elevator ends up worse off than it is now.

The move is bad not because of the arithmetic but because it has no leverage in it. One side gets a present straight away, the other has to give something up — and that still has to be negotiated.

Move two: a tariff that depends on incoming moisture

Vitalii did something else. The shrinkage norm stayed at 5.0% for everyone, and the contracts with the wheat and sunflower clients were left untouched. The only thing that changed was the drying tariff for grain with incoming moisture of 18% and above: 58 → 95 ₴ per tonne-percent.

Maize at 22.0% falls under that condition; wheat at 15.5% and sunflower at 12.0% do not. The result of a tonne of maize climbs from 136 to 432 ₴. The season's contribution goes from 3 936 535 to 5 002 135 ₴, plus 1 065 600 ₴. Profit is 2 172 135 ₴.

The logic is simple: shrinkage depends on incoming moisture, and until now the tariff did not. A client with wet maize paid the same per point as a client with dry wheat.

“They told me: do not touch the norm, everyone reads it and everyone haggles over it. Raise the price per point for wet grain — nobody reads that as a change of the rules, it is just a price list. I raised it, and in one season I got more than from all the tariff negotiations before that put together.”

The tariff at which maize breaks even: 41.00 ₴

It is worth knowing the reverse point too. At a tariff of 41.00 ₴ per tonne-percent, maize at the same 22.0% comes out at exactly zero: everything the elevator earns on the moisture goes on making up the weight in grain.

The current 58 ₴ sits above that point: maize still brings in a plus — but 136 ₴ a tonne instead of the 288 ₴ visible on the drying invoice. And 95 ₴ is the price per point that takes into account how many tonnes of grain a wet intake costs.

Three numbers are worth keeping side by side: 41.00 ₴ is the break-even point for maize, 58 ₴ is the tariff that used to apply, 95 ₴ is the tariff for grain at 18% and above. All three are per tonne-percent, and only the first never goes into the price list.

What changed once shrinkage became a line

There turned out to be three technical changes. Actual shrinkage started being worked out for every consignment — from the points removed and the final moisture. The gap between norm and fact started being converted into tonnes, and the tonnes into hryvnias. And the season's result stopped being summed up as one figure for the elevator.

• The drying tariff got a threshold on incoming moisture. Grain at 18% and above is dried at 95 ₴ per tonne-percent instead of 58 ₴ — and that is the one change nobody had to agree with the wheat clients.
• The shrinkage norm stopped being a template. 5.0% for everything is no longer copied into a new contract automatically: the actual rate for the crop now stands next to it — 2.14%, 5.78% or 9.70%.
• Crops are compared by the result of a tonne, not by the drying invoice. 461, 319 and 136 ₴ instead of 54, 180 and 288 ₴ — and the decision about what the next drier should be built for changed by itself.

No new silos, no across-the-board tariff rise, no giving up maize was needed. What was needed was to see shrinkage as a money position rather than a natural loss.

The takeaway for business owners. If your contract contains a norm — for natural loss, shrinkage, breakage, technological waste — check whether it is the same for everything you take in. The norm is one figure and the fact always differs: it depends on the properties of the particular consignment. Where the fact is below the norm you are quietly earning; where it is above, you are quietly paying up in your own goods, and that shows in no cost line anywhere. Work out the gap for each kind separately, convert it into physical units and then into money at the price of your own goods — and you will see that one line of business has been subsidising another for years. Any intake by weight works the same way: a warehouse, a cold store, processing, scrap metal, milk.

A few closing pieces of advice

• Work out the actual shrinkage for every crop. Points removed over a hundred minus final moisture, plus the mechanical losses: for Vitalii that is 2.14%, 5.78% and 9.70%.
• Put the shrinkage norm next to the fact in one row. 5.0% against 9.70% — a gap that will never appear in a cost report.
• Convert the gap into tonnes, and the tonnes into money. 38.36 tonnes a season is 283 865 ₴ at a grain price of 7 400 ₴ a tonne.
• Do not judge a crop by the drying invoice. 288 ₴ on a tonne of maize is true and settles nothing: the result of the tonne is 136 ₴.
• Split the result across crops, not across the elevator. 92.2 ₴ of profit per tonne is the average of 461, 319 and 136 ₴, and nothing is visible behind it.
• Tie the drying tariff to incoming moisture, not to points alone. An 18% threshold and 95 ₴ per tonne-percent brought in 1 065 600 ₴ a season without changing the norm at all.
• Work out the break-even point for your wettest crop. 41.00 ₴ per tonne-percent is the line beyond which maize stops bringing in anything at all.

The money does not vanish — you simply do not see it

People think an elevator is decided by two things: the volume taken in and the drying tariff. Without them you cannot start. But what the earnings turn on is a third: the gap between the shrinkage norm in the contract and how much the grain actually shrank. That gap is settled in grain at 7 400 ₴ a tonne.

The hole does not close by itself and it will not show in the bottom line: the line reports a profit of 1 106 535 ₴, and it reports the truth. But the moment shrinkage gets a price, the main thing becomes visible: the 17.6% return belongs neither to maize nor to wheat. It is the average of a tonne worth 461 ₴ and a tonne that, for the biggest drying invoice of all, gives 136 ₴.

How to see this at your own elevator

Everything above rests on one table: not the season as a single sum, but each crop as a row, with the moisture removed, the actual shrinkage and the norm from the contract side by side. As long as the result is measured by the drying tariff, you see neither that dry wheat is subsidising wet maize, nor that 154 tonnes of grain is 1 141 183 ₴. When the same data is collected automatically, the result per tonne after shrinkage becomes visible — which is exactly why owners of small and medium businesses use Finmap: to see the financial picture rather than guess at it.

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Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It