There are advantages and drawback to on-farm and off-farm storage.
The need for more grain storage was the most obvious reason Adam Wolf and his dad added a new 105,000-bushel grain bin this past summer to their farm near the southwest Missouri community of Lamar.
“Even with five other bins that hold 30,000 to 40,000 bushels each, we were having to rent bin space from other farmers,” Wolf explains. “We just decided it was time to put the money into our own property. Plus, I was tired of having to tow the auger down the road.”
Wolf adds that they raise corn, soybeans, and wheat. However, because of insufficient storage capacity, they had to move wheat out of the bins within weeks so they could make room for the corn harvest. Now, with at least a third more storage space and a bigger auger, they can make financial decisions based on the markets rather than space.
The Wolf family isn’t alone. According to a recent USDA report, on-farm storage has increased by 1.6 billion bushels (14%) in the last 10 years for a total of around 14 billion bushels, with the greatest increase in the Midwest. Off-farm storage saw an even larger increase: 2.2 billion bushels (24%).
On-Farm Storage Considerations
One of on-farm storage’s biggest advantages is it gives the producer flexibility in where and when to sell grain, since grain prices tend to be higher later in the marketing year than at harvest. Harvesting may also progress faster if grain need not be delivered to an off-farm location.
“The costs for any type of grain storage can be classified as either fixed or variable,” says Chad Hart, professor and Extension economist at Iowa State University. “Fixed costs are those that occur regardless of the degree to which the capacity is utilized and for how long. Variable costs are those that increase or decrease in relation to the number of bushels stored and the length of time they are stored. Generally, investing in on-farm storage involves both fixed and variable costs, while renting commercial storage involves only variable costs.”
The major cost of on-farm storage structures is the initial investment in the bin, Hart says, plus the costs of site preparation, wiring, fans, concrete, transfer legs, and augers. However, he points out, this investment can be spread over the life of the bin in the form of depreciation, as well as interest on the invested capital.
Costs for new on-farm grain storage have increased over the past two years, along with interest rates. According to one Nebraska dealer, a 50,000-bushel bin with a concrete foundation hits the “sweet spot” at around $2.25 per bushel, depending on the options. While the economy of scale makes a larger bin less expensive, the extra concrete pushes the cost a little higher, up to around $2.50 per bushel in Wolf’s case. A smaller bin, on the other hand, doesn’t save a proportionate amount on labor.
“Other fixed costs include insurance, property taxes, and maintenance,” Hart adds. “Note that once on-farm storage is constructed, fixed costs are locked in. It’s the variable costs that matter when comparing the cost of utilizing it versus other storage options, or when deciding how long to store grain each year.”
Variable costs associated with grain storage include electricity to operate fans; insecticides and fungicides; fuel to operate augers; and the operator’s time for handling the grain in and out of the bin, as well as monitoring grain condition. On-farm storage always entails some risk of quality losses due to spoilage and foreign material.
Off-Farm Storage Considerations
Variable costs are one reason some producers consider off-farm storage. Another is that often, the co-op or elevator can dry the grain for a lower cost than the producer, and they manage the grain and guarantee the quality. Plus, the producer only needs to handle the grain once.
Also, with rented commercial storage the customer only pays for the exact amount of needed storage time. Although a minimum charge often applies, storage fees generally run around 4¢ to 6¢ per bushel per month.
However, a major disadvantage to commercial storage is it may slow down harvesting because of longer travel distances and time waiting to unload. If grain is routinely stored into late spring or summer, commercial storage costs may exceed on-farm storage costs.
The producer must also balance the spread between storage fees and any financial gain achieved by holding the crop a few more months. Consider that with on-farm storage, it can easily cost 10¢ per bushel to handle and transport the crop a second time. That can amount to two months’ worth of rental.
A Newer Off-Farm Option
Another option that some cooperatives have more recently added is condominium storage. Similar to on-farm storage, a farmer determines how much storage is needed and how much it will cost to purchase the necessary storage space. As with on-farm storage, the farmer incurs fixed costs, whether or not the space is filled.
Generally, condo storage can be resold and in many cases costs less than on-farm storage. Also, producers can eliminate grain quality management risks they otherwise would face storing grain on-farm.
Matt Zeman, with the Cooperative Farmers Elevator in the northwest Iowa community of George, says his employer was an early adopter of condo storage and has offered the option for at least 18 years. He says the condo option has particularly appealed to farmers who could potentially lose some leased acres or are looking toward retirement, which would affect future storage needs. Because the storage can be resold, tenants in those situations are protected. Finally, farmers who rent land can access storage without building on someone else’s property.
Zeman says the elevator’s current price for condo storage is $2.60 per bushel per 5,000-bushel share, plus an annual maintenance fee. “In essence the producer then owns that storage space,” Zeman explains. “He can move grain in and out as often as he wishes, or keep it in storage as long as he likes. He can deliver grain to any one of our locations in northwest Iowa, southwest Minnesota, and southeast South Dakota, and we maintain and guarantee the grain quality.” He notes that, in comparison, the co-op charges 6¢ per bushel per month for rental storage.
Weighing the Costs
Storage costs are “definitely” increasing, Hart says: “Interest is higher, weather events have caused insurance to go up, and labor and material costs have increased. But farmers must also consider opportunity income, which has decreased in many situations.
“In other words, we’re not only betting that grain will increase in value while it’s in storage,” Hart says, “but we’re betting that it will increase in value by a greater amount than if we sold it earlier and invested the money somewhere else.”
Fortunately, several university Extension websites include forms to help calculate the cost of storage in different situations. You can find one from Iowa State by following the link at extension.iastate.edu/agdm/crops/html/a2-33.html.
Agriculture.com