Farm Progress

The answer depends, in part, on your farm’s current storage capacity.

Darren Frye, CEO

August 28, 2017

2 Min Read

Do you have any rules of thumb for when someone should or shouldn’t build a bin? I’ve been thinking about building another one. — S.K., Illinois

First, the answer for you will depend in part on what your current storage capacity is like. You mentioned you were thinking of building another bin, so I assume you already have some on-farm storage.

If you rent quite a bit of land and are short on storage, it can be very tough to plan out capital purchases, such as bins. But the odds are that you’ll always be renting at least some land, so you’ll have that to work with.

In general, a helpful rule of thumb for evaluating your capacity is being able to store about 80% of your average production (but this will vary by region). If you determine you’re not achieving that level currently, the question then turns to how to get the bin to pay for itself over time.

You can do this through three different avenues. The first includes the advantage of harvesting sooner at a pace that’s ideal for you. You’re not as tied to the elevator’s hours or hampered by its busy times. Plus, if you have drying capacity, you’re able to dry more cheaply than what the elevator would charge, saving money there. These are major logistical and cost advantages.

The second way a bin pays for itself is letting you take advantage of basis change. If your area gets a wide harvest basis historically, you might simply be able to put the corn in your bin for a couple months and pick up 10 to 15 cents or so of basis appreciation. Being able to keep the corn off the market and out of the elevator at harvest can be advantageous.

The third method has to do with the futures side — and capturing carry. Although marketing is not for everyone and you should always evaluate your risks, if you have a bin and are able to store grain, you gain the ability to capture certain opportunities as they arise.

Through a proactive, informed strategy, building a bin can become an opportunity to add value to your grain, even beyond the advantages that help make for an easier harvest.

Frye is president and CEO of Water Street Solutions. [email protected]

About the Author(s)

Darren Frye

CEO, Water Street Solutions

Darren Frye grew up on an innovative, integrated Illinois farm. He began trading commodities in 1982 and started his first business in 1987, specializing in fertilizer distribution and crop consulting. In 1994 he started a consulting business, Water Street Solutions to help Midwest farmers become more successful through financial analysis, crop insurance, marketing consulting and legacy planning. The mission of Finance First is to get you to look at spreadsheets and see opportunity, to see your business for what it can be, and to help you build your agricultural legacy.

Visit Water Street Solutions

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