On-farm grain storage has profit potential Sometimes the best thing to hold in a grain storage facility is air. "On-farm storage doesn't pay every year," says Texas A&M Extension economist David Anderson, "and farmers should not think that just because they have made the investment they have to keep the facilities full."
There are things worse than empty bins, he says, "such as a huge price drop after harvest."
Only one of the past five years has seen market prices for corn move high enough to pay for storage, Anderson said during a grain seminar at the recent Blacklands Income Growth (B.I.G.) conference in Waco.
"In 1996, prices just kept going up," he said. "That was a good year to store. But in 1997, prices dropped from July on."
In 1998, 1999 and 2000 prices remained relatively flat, with some upturn between harvest and spring, but not enough to pay storage costs.
"We've seen the same pattern with grain sorghum," Anderson said. "The past few years farmers have had little incentive to store."
Anderson said farmers normally see the best price of the marketing season in March or April. "So, they have several months from harvest to market to hold and maintain quality on the grain."
Considering cost of the bins, costs to maintain quality and labor to load and unload the grain, prices have to increase significantly to justify storage. He figures a 0.52 cent per bushel per year cost (based on a seven-year payback schedule with a 9 percent interest rate) for storage, not counting drying, aeration and other practices necessary to maintain quality.
"A longer payback period, say 15 years, will lower the per bushel costs," he said. "Growers should expect at least a 15-year life span for new bins."
The key to making on-farm storage pay, Anderson said, is basis points. "Basis declined sharply the last few years, and that's what makes storage work. We often see a 45 cents to 50 cents improvement in basis the first 60 days after harvest. That's where the money is. Holding grain longer than that often doesn't pay."
He said that even in a flat year, storage could pay because of changes in basis.
"Just looking at the futures market and cash price may not be enough," he said. "Farmers have to consider basis."
He says basis charts represent "moving targets," but he recommends farmers call elevators regularly to determine cash and futures market prices, and then determine their basis.
"We've developed basis trends over the past five years and have them on a Website, www.agecoext.tamu.edu.
"Growers can get basis from other parts of the state as well."
He said a lot of end users are within trucking distance of central Texas growers. Marketing grain directly to these sources from on-farm storage facilities might offer profit potential.
Anderson says growers considering adding storage to their farms should consider the pros and cons.
- Lengthen marketing to year-round opportunities.
- Avoid selling at depressed harvest time prices.
- Maintain control of the grain.
- On-farm storage may be cheaper than commercial.
- Storage is speculative.
- Quality issues are paramount since deterioration will result in severe dockage.
There are often questions on whether commercial storage is more expensive.
Anderson says commercial storage does come with added costs. "Farmers pay to put grain in and to take it out."
He also said growers should consider finance sources such as local banks, Farm Credit and government loans.
"In a difficult lending environment, farmers should provide a solid analysis of the farm operation and make certain the paperwork is in order before they go to a lender."
He said a government loan program through the Farm Service Agency offers storage loans. Criteria to qualify include:
- Loans are for new bins or for new safety equipment for existing facilities.
- Some assistance may be available for used bins, such as pads, safety upgrades, etc.
- Portable equipment is not eligible.
Anderson said bins should have re-enforced concrete floors, inside and outside ladders, aerators and drying floors, fans and heaters.
He recommends a 15,000 bushel capacity bin have a 3,200-bushel per hour Econveyor system.
Such a system would cost approximately $38,964, Anderson says. That's about $2.60 per bushel. Used bins may cost from $1 to $2 per bushel.
With on-farm storage, the grower is the merchandiser, Anderson said. "He can move the crop to an end-user instead of through a middle-man. Storage does provide profit opportunities, especially if the grower considers trucking the grain to an end-user.
"And, if growers can expect premiums if they identify and segregate certain types of grain, non-GMO varieties, for instance, storage makes it possible to isolate those fields."
Anderson said on-farm storage provides another option for farmers who are interested in marketing grain instead of selling it.