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Can you make on-farm storage pay?

Some grain farmers are relying less on elevators and more on on-farm storage. However, before taking the on-farm storage route, there are some things to consider.

“The best you can do during storage is simply maintain quality. You can't improve quality, but you certainly don't want the grain to degrade. You have to store it properly,” says Jim Castellaw, Extension area specialist in Somerville, Tenn.

There are benefits to storing and drying your own grain:

  • Added value through time management. “This is one of the biggest benefits. If you're storing grain to sell at a later date, you'll likely have an opportunity to sell at a higher price,” says Castellaw, who spoke at the Milan, Tenn., No-Till Field Day on July 26.

  • If you're selling many bushels, you might be able to obtain better prices by selling in large volume.

  • Efficient use of labor and equipment. “This may be the biggest reason on-farm storage of grain exists. Farmers are able to harvest more crop quickly if they're not waiting in line at the elevator.”

  • Early harvest. “If you allow corn to dry down to 15.5 percent in the field, you can experience some dry matter loss,” says Castellaw. Conversely, if a farmer can harvest corn at 20 to 25 percent moisture and put it in storage where it's cool and dry, he can harvest early. That spreads the harvest season out a bit. Also, if he's double-cropping, having on-farm storage allows much more ease in getting the second crop planted.

  • Grain drying. Through removal of moisture, farmers can help avoid discounts at the elevator. Of late, one of the popular things among farmers has been the early harvest of corn to get a premium. This often means purchase of a dryer.

    What's cheaper: drying grain on the farm or letting the elevator do it? “Studies have shown that in buying a 5,000-bushel-capacity dryer with 10,000 bushels of grain, the grain can be dried for about 10 cents. At the time of the study, the moisture discount at the elevator was 20 cents. So the farmer is able to dry his grain cheaper than taking the moisture discount.”

    Castellaw says with all factors considered, the return on a dryer investment is about 16 percent. Bottom line: it's economical for a farmer to buy a dryer as long as he can dry his grain for less than what the moisture discount is.

  • Marketing flexibility. Farmers can buy time with storage depending on how much risk they're willing to accept. “You can also put grain in the bin and take out a cash loan to help with cash flow. The grain isn't considered income until it's sold. So you can use storage to do income averaging on grain from one year to the next.”

    Another thing that's become popular deals with Loan Deficiency Payments (LDP). “There's the possibility of putting grain in bins during the fall, taking an LDP without a loan and then selling the grain for a higher price later. You've locked in a large LDP at harvest so the result is you get a higher than average price for your grain.”

    There are also premiums on some crops to think about. “Buyers of some genetically enhanced corn, food-grade corn or large-seeded soybeans encourage or insist that there is on-farm storage.”

    Then there are on-farm storage disadvantages. Among them:

  • Storage is costly. “If we look at construction, we must consider economy of scale. Small bins typically cost $3.50 per bushel; larger bins (holding 20,000 bushels) cost about $1.50 per bushel. As the bins get larger, the initial construction costs (per bushel) drop.”

    In addressing these storage systems, Castellaw points to annualized costs for grain storage in three systems: a 3,500-bushel bin, a couple of 6,500-bushel bins, and three 6,500-bushel bins.

    “As noted earlier, the larger the bin, the more the cost per bushel decreases. With corn, for example, a 3,500-bushel bin (with depreciation over a year) is right at 32 cents. The 13,000-bushel system has a depreciation of 25 cents. The larger system's depreciation is 18 cents.

    “The fixed cost for corn in the small system is 32 cents. The large system's cost is 18 cents. The variable costs for corn are much less across the board — mainly because a large portion of that is the interest, and “we're looking at a product that's normally 40 percent of the value of soybeans.”

    The small system variable cost for corn is 25 cents and the larger system is 21 cents. The total cost — variable and fixed — for corn over a six-month period is around 57 cents for the small bin and 39 cents for the large bin.

  • Prices after harvest. Castellaw says a five-year average shows that six months after harvest, the price of corn goes up about 25 cents. The data for soybeans is more erratic, but soybeans, too, went up about 25 cents.

“We can conclude that construction of new systems may be hard to justify if prices only jump 25 cents when it costs 50 to 70 cents per bushel to build. If you already own a storage facility, you must make a decision about how beneficial the costs are to using it.”

However, being able to add a dryer to your grain system tends to be “beneficial by avoiding the moisture discount,” says Castellaw.

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