Consider cost of storing grain

Crop prices are down, yields are up, and for the first time in several years, you may be storing grain for a longer period of time as part of your marketing strategy. Iowa State University Extension specialists have updated their grain storage-related information and decision tools on the Ag Decision Maker website. The site has a helpful publications and information files on storage, basis an

Consider cost of storing grain

Crop prices are down, yields are up, and for the first time in several years, you may be storing grain for a longer period of time as part of your marketing strategy. Iowa State University Extension specialists have updated their grain storage-related information and decision tools on the Ag Decision Maker website. The site has a helpful publications and information files on storage, basis and marketing at www.extension.iastate.edu/agdm/cdmarkets.html.

William Edwards, retired ISU farm management specialist, suggests two of the first files you may want to take a look at are “Cost of Storing Grain,” File A2-33, and “Renting Extra Grain Storage,” File C2-25. He says to use the “Cost of Storing Grain” tool to project the cost of storing grain past harvest in existing storage facilities or in commercial storage.

The availability of storage adds flexibility to a grain marketing program, he notes. Storage enables a farmer to use marketing tools that capture seasonal price increases and narrower basis levels following harvest. Storage facilities may also increase the rate at which harvesting can be completed by decreasing time spent transporting and unloading grain. Proper use of storage will increase a farmer’s income.

However, maximum storage income results from selective rather than continuous use of storage facilities.

The cost components of storing grain vs. selling at harvest are storage facility cost, interest on grain inventory, extra drying of corn, extra corn shrinkage, extra handling cost and quality deterioration.

Storage facility cost. If grain can be stored in existing farm storage facilities, the ownership costs (depreciation, return on investment, maintenance, insurance, etc.) of the farm storage facility aren’t included in the analysis of whether to store grain in a particular year. These costs are incurred whether grain is stored or sold from the field at harvest. Thus, they don’t affect the annual decision of whether or not to store grain. However, if grain is stored commercially, the commercial storage charge should be included in the analysis because the charge is incurred only if grain is stored. Storage charges vary among elevators, but usually are a fixed charge for the first few months, with an charge for each additional month thereafter. Some elevators charge a daily rate.

Interest on inventory. Some costs of storing grain are hidden. An example is the interest cost of having money tied up in stored grain inventory. If a farmer has a loan, the loan can be repaid with proceeds from the sale of grain. So interest expense is reduced if the grain is sold at harvest. But if the grain is stored, the loan is not repaid and interest expense continues. So, a cost of storing grain is the additional interest expense incurred.

Even if no money is borrowed, there is an interest cost of storing grain. If grain is sold, proceeds can be invested in the business or placed in savings to earn an interest return. If grain is stored, the amount of interest foregone is a cost of storage.

Extra drying. The cost of drying corn to a safe storage level is a cost of storing corn. Many farmers prefer to dry farm stored corn that they intend to store into summer to about 13% to 13.5% moisture. However, No. 2 corn sold at harvest can be 15% to 15.5% moisture, depending upon elevator policy. The extra drying fuel and power costs required to remove the additional moisture are costs of corn storage.

Extra shrinkage. Because grain is sold on a weight basis (No. 2 corn weighs 56 pounds), removal of additional moisture for farm-stored corn also reduces the number of bushels. This reduction in bushels is a cost of storage.

To compute the extra shrinkage for farm-stored corn, use a shrink factor of 1.25%. Commercial elevators often use a shrink factor of 1.35% to 1.4%. The extra shrink cost is calculated by multiplying the extra points of moisture removed times the shrink factor times current corn price. The cost of removing an additional 2 points of moisture for farm storage when corn price is $6 is 15 cents (2 × 1.25% × $6 = 15 cents).

Aeration. A charge for cost of aerating dried grain stored on the farm may be included. It’s estimated that aeration costs for managing dry grain in storage (cooling grain into winter and subsequently warming grain in the spring to match outside temperature) will cost from 0.2 to 0.3 of a cent per bushel under good management. These charges are for keeping already dried grain in condition.

Extra handling. The cost of moving grain in and out of farm storage is another cost of storage. Costs vary by the type of handling equipment, bin size and bin shape. Generally, handling costs are greater for flat storage and smaller bins. The extra handling costs associated with most farm storage facilities range from 2 cents to 2.5 cents per bushel.

Quality deterioration. Another cost of farm storage is the possibility of additional grain shrinkage and quality deterioration. Generally, the loss due to shrinkage from moving grain into and out of storage, and shrinkage during storage is 0.5% to 1%. The cost of the shrinkage loss can be computed by multiplying the percentage by the corn selling price.

Quality deterioration is quite variable depending on quality of grain placed in farm storage, quality of the storage facility, and how the stored grain is managed. If grain is stored commercially, these costs are covered in the elevator storage charge.

Source: Iowa State University

Renting extra grain storage

When grain storage is in short supply, older bins and other structures that are not usually in use may be put into service. Often this extra space is available for rent. Several questions arise about fair rates and terms.

Commercial storage rates often run from 2 to 3 cents per bushel per month, with a 60-day or 90-day minimum. But elevator storage also includes handling and managing the grain, and bearing risk of storage losses. When storage is rented on the farm, those services are usually not provided. Thus, farm storage rental will generally be below commercial rates. ISU’s AgDM information file A3-10, “Iowa Farm Custom Rate Survey”, is a good source of rental rates.

The 2014 survey shows an average rental rate of 2.5 cents per bushel per month for on-farm grain storage, or 17 cents per bushel for the whole year. Ranges reported were 1 to 6 cents per month, and 10 to 30 cents per year. Owners of farm storage usually prefer to rent by the year, since they will seldom have a chance to rent a bin more than once during a crop year.

The wide range in rates reflects a variety of conditions and features. Size of the bins and convenience for unloading and loading are obvious. Likewise, type of aeration available and availability of supplemental heat can add or subtract several cents per bushel.

Other types of storage structures will generally rent for less than conventional grain bins. Flat storage, such as a machine shed, wasn’t included in the survey. However, based on rental rates for machine storage, 8 to 10 cents per bushel is probably adequate. The owner of the grain would have to provide aeration and any other modifications needed to make the building suitable for storing grain, and assume responsibility for storage losses. Corn cribs would probably be worth a similar amount.

Another option is to store corn as high-moisture corn in an airtight silo. A survey a few years ago showed an average rental charge of $2 per ton of silage for such structures. Assuming 30 bushels of corn takes the same space as a ton of silage, an equivalent rate for corn would be about 7 cents per bushel.

The actual rental rate isn’t the only concern when negotiating a rental agreement for storage. For example, who is responsible for checking condition of the grain and deciding when to aerate? Access to bins is important, also. Who is responsible for clearing snow or moving machinery?

Cost of electricity used for aeration is usually paid by the renter. If there is a separate electric meter for the bins, the cost can be observed directly. If not, the kilowatt-hours of electrical use can be estimated by multiplying 85% of the horsepower rating of the motor by the hours of use. Cost per kilowatt-hour can be found on the farm utility bill.

Date and manner of payment for rent should be specified in advance. Some agreement about the date by which grain must be removed is also important. Enough time should be allowed to clean the bin before the next harvest.

Source: Iowa State University

This article published in the September, 2014 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2014.

Crop Storage

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