“Today’s farming operations face risk not only from fluctuating commodity prices, but also input prices, yield variance and other factors which have forced producers to become more marketing savvy,” says ag consultant Adam Dryer, of Blue Reef Agri-Marketing, Inc., based in Morton, Ill. “We’ve seen a trend toward more on-farm storage in recent years because producers understand they can put more money in their own pockets.”
Dryer explains that the economics of on-farm storage can work to farmers’ benefit in two ways:
- The ability to bypass historically wide “basis” levels in the fall. Basis is the difference between the Chicago Board of Trade daily market price and the price that elevators pay to farmers. At harvest this price is typically much lower due to the fact that elevators are receiving large quantities of grain when there is no additional demand to account for it. Dryer notes that the basis spread may be more favorable to the producer, depending on his location, by storing and delivering grain at a later date, when the market has reduced supply and there is still demand.
- Higher prices when farmers contract their grain and store it for future delivery – known as market carry. For example, Dryer says that the combination of basis appreciation and market carry on a summer 2015 corn delivery contract could add 40 to 50 cents per bushel to a farmer’s gross revenue, assuming an average or better crop this season.
Market demand, farm income driving storage investment
The increasing need for a consistent grain supply to processors, rail facilities and ethanol plants in the Midwest is another factor supporting more on-farm storage. Grain marketing experts say on-farm storage is one of the keys to ensure that farmers can capitalize on this opportunity, which in part is being fueled by strong global demand for food and feed.
Michael Gunderson, associate professor of agricultural economics at Purdue University, notes that higher farm income over the past five years has also been driving on-farm storage. “With land prices going to record levels, farmers have been making investments to improve their land, and many see the addition of grain storage as a strong opportunity,” observes Dr. Gunderson, who also serves as associate director at Purdue’s Center for Food and Agricultural Business.
Having 24/7 access to their own storage system also enables producers to get their crop out of the field quickly, when conditions are optimal, reducing the potential for lost revenue and profits, according to Scott Becker, sales operation manager for GSI (Grain Systems, Inc.), a leading provider of grain storage, conditioning and handling equipment.
“Avoiding any potential delays due to waiting in lines or limited receiving hours at their grain facility reduces the chance of grain loss due to wind, stalk quality and over-drying in the field,” Becker says. “Grain that is allowed to dry down too far in the field increases the potential for damage and head loss, as well as reduced test weight.”
Reducing harvest bottlenecks may also help reduce costs. “Maximizing the speed of harvest can reduce the need for excess grain carts, grain trucks and operators,” Becker says. “In several instances, customers have been able to sell a semi after investing in a new state-of-the-art on-farm grain system complete with drying and grain handling.”