On-farm grain storage is in vogue. It's evident during any drive through the Midwest, where new grain storage facilities shine brightly in the afternoon sun.
Paying for these facilities when corn prices were north of $7/bu. seemed a shoo-in. And producers, flush with cash, were eager to get their expensive commodity under a more permanent roof.
“The cost of construction has gone up,” says Charles Hurburgh, professor of agricultural engineering at Iowa State University. “Costs now are probably over $2/bu. under roof for a round bin, and they're likely to move even higher.”
Higher fixed costs, combined with a pullback in commodity prices, may be giving some producers second thoughts about sinking money into a grain storage system. But experts say that the fundamentals of whether or not to build on-farm storage haven't changed.
“It's a matter of ensuring that you are getting what you need, and the payoff of the facility can be completed in a reasonable amount of time,” Hurburgh says.
Wachtel Farms, Inc., in Altamont, IL, increased its on-farm grain handling capabilities after more than two years of planning. So the Wachtels built a 150,000-bu. grain tank complete with a tower dryer and 22,000-bu. wet tank. “We were making up for some shortfalls in our grain handling,” Gary Wachtel says. “We didn't have enough wet storage, which was creating a bottleneck in our harvest.”
The addition now can dry 1,200 bu. of corn down 10 points of moisture in one hour. “We did not have enough storage on the farm, and we couldn't physically truck grain to the elevator and get harvest done in a timely manner. We like to forward contract some of our grain,but hauling 200-300 semis to the elevator was a real problem.”
Ethanol facilities in particular are working to ensure a steady supply of corn, and the incentives are built into the market for farmers to keep grain on the farm.
The decision on whether to build storage shouldn't focus on the physical storage needs. “When I counsel producers I encourage them to not think about storage, but about your farming operation and when you need cash flow,” Hurburgh says. “If you need a lot of cash flow at harvest, or you don't keep your grain very long, it doesn't make sense to have a lot of storage.”
Grain storage is really there to even out supply as indicated by the basis. “That's the fundamental justification for storage,” Hurburgh says. “The speculative reason for storage — to take advantage of an overall price rise in the base commodity — may or may not be in the market in any given year. And, there are ways to participate in the rise of grain prices without keeping the grain.”
Another thing to consider is variable operation costs. “It used to be typical that two-thirds of a grain bin's costs were fixed, and one-third variable. Now, with the increase in energy costs, the fixed vs. variable costs are about 50-50,” Hurburgh says.
Mark Welch, assistant professor and Extension economist with the AgriLife Extension Service at Texas A&M University, says the added management costs associated with on-farm storage, and the added risk of maintaining grain quality, can significantly add to the costs of storing grain on farm. “It's not simply a matter of building a bin and putting the grain in,” he says. “If producers are not accustomed to handling stored grain and monitoring grain quality while in storage, they can open themselves up to some tremendous risk.”
HISTORICAL BASIS LEVELS and the carrying charge in the market (the price difference between current and future price levels) should be carefully scrutinized as key factors in determining if on-farm grain storage will pay for itself in the long run. “There are many resources to get the history of basis levels in your area and give you a realistic expectation of how they respond throughout the year,” Welch says. However, basis levels are much more volatile and there's more basis risk now than in the past several years.
Ethanol demand in areas of the Midwest has caused a fundamental shift in basis levels and carrying charges, which can be an advantage for producers with on-farm storage capabilities.
Dirk Maier, professor and department head of grain science and industry at Kansas State University, says more corn being utilized closer to production (mainly ethanol demand) requires more storage on farm. “Temporary piles of grain may work for a few months in the winter and be safe until that grain is shipped out to the river or export system,” Maier says. “But now grain is being held into the spring and summer. Elevators aren't going to build all that storage by themselves. The market will give incentives to producers to keep grain on the farm.”
WACHTEL NOTES THAT more on-farm storage gives him additional flexibility in taking advantage of marketing opportunities. “We're not locked in to one elevator, so we can truck grain to an area that's offering us a better price,” he says.
Maier advises producers considering building new on-farm storage to evaluate the flexibility of any new system. “The market has talked about segregating grain for specialty purposes, so it might make sense to build four 50,000-bu. bins instead of one 200,000-bu. bin. Although it may be more expensive initially, you are better positioned to take advantage of changing market needs,” he says.
Welch cautions producers that while a new, larger grain bin may pencil out, it's imperative to not let that investment limit credit availability in other areas of the farm. “Lenders are going to be much more careful in looking at cash flow and debt-to-asset ratios,” he says. “Sit down with your lender and look at the long-term consequences of taking on new storage. And don't put your yearly operating loan in jeopardy.”
The corn market's reversal late this year will make those grain storage building decisions more difficult. “The market never thought about a $4 rise in corn, much less the $3 reversal. Those types of price swings are breaking new ground,” Hurburgh says. “The key is to look at the average market carry and if that amount will pay for your investment.”
There are other reasons to decide if on-farm storage will pay off for your farm, however. “There's also the accumulated effect of efficiency that larger storage systems offer,” Hurburgh says. “A big new combine doesn't do much good if it's sitting at the end of a row waiting to unload.”
KEEP AN EYE ON THAT STORED GRAIN
Wet weather, late plantings, lack of growing degree days…the 2008 growing season was a challenge to many producers. And with harvest ending, concerns may not be over just yet.
The variability of grain maturity within some fields also skewed the uniformity of moisture levels, and it's likely that corn went into storage that might average 19% moisture (or more), but could have pockets of higher moisture levels in that bin. It is also probably lower than normal in test weight, which is a good indicator of keeping quality.
Add to that the price of propane, and odds are that corn will enter storage a bit wetter. Not a problem, as long as you mind your storage.
“Mixed-moisture corn will go out of condition quickly if it is not stored properly,” says Charles Hurburgh, professor of agricultural engineering at Iowa State University. “The best defense a producer has is careful adherence to the correct practice for aeration and cooling.”
Bob Kacvinsky, technical support representative for Syngenta, says areas saw corn being pollinated over a four- to five-week time frame within the same field. “Some fields had pockets that were a week to two weeks behind,” he says. “There could be fields where only about 10-15% is wetter than the full load, but that small percentage could cause hot spots in the bin.”
Hurburgh says corn needs at least 0.10 CFM air/bu. of air to stay in condition. If the corn is wetter, double the airflow. “And look at the corn weekly,” he says. “Corn can go out of condition fast.”
It's not simply a matter of turning on the fans and detecting an off odor. “Producers are well advised to monitor the temperatures in the bin. There are automated monitors that can make the job easier, but the bottom line is to know the profile of the temperatures in the bin and whether it changes.”