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On-Farm Grain Storage Pays Huge Dividends
By Cal Dickson, AFM, CCA
Chairman of the Hertz Farm Management Grain Marketing Committee
After drainage tile or irrigation, the highest returning improvement to Midwest landowners is most often onfarm grain drying and storage. The fall of 2005 will go down in history as one of the all time shortages for grain storage, primarily due to the following factors:
- Record or near record 2004 and 2005 corn and soybean yields in parts of the Midwest.
- Poor marketing of the 2004 crop by many farmers. This resulted in a glut of 2004 corn being hauled from farmer’s grain bins to commercial storage just before the 2005 corn harvest. Many commercial storage facilities were already nearly full before the 2005 corn harvest.
- Hurricanes Katrina and Rita disrupted many of the export terminals on the Mississippi River. Barges were not able to unload. This resulted in barge freight rates doubling or tripling, leading to record-wide basis levels along the Mississippi River terminals. These terminals had some of the lowest prices in the Midwest versus typically the highest corn and soybean prices.
Many grain elevators in the western Corn Belt faced the dilemma of being nearly full and not having room for the 2005 crop being harvested. Railcars that were ordered to empty out grain elevator’s huge inventories were late in arrival. Some elevators were hesitant to pile corn on the ground due to the heavy damage corn piles incurred during the fall and winter of 2004. As a result, elevators shut their doors to farmers who wanted to deliver 2005 corn, and some elevators forced farmers to sell corn as soon as it was delivered (often at the lowest prices of the year). There have been farmers forced to leave corn standing in the field waiting for a commercial storage facility that would accept the grain. Commercial elevators had no incentive to bid up for corn that they had no room for and did not want to accept.
Many landowners and farmers were frustrated at not being in control. They were at the mercy of the elevator’s timing for accepting grain, and were left with limited options regarding their grain marketing decisions. No one wants to be selling at the harvest low.
What is the alternative? Building on-farm grain drying and storage enables you to be in control. In control of when the grain is harvested, when the grain is marketed, and who the grain is eventually sold to. Instead of being forced to sell at harvest lows, forward contracts for grain can be locked in, resulting in prices up to $.40/bushel higher for payment in the spring of 2006.
The cost of installing an on-farm grain drying and storage bin is in the $2.25 to $3.25 per bushel range, depending upon the size of the bin and the amount of equipment. Historically, a grain bin has paid for itself within five to ten years of its construction. The combined benefit of lower drying costs, lower storage costs, less shrink, timely harvest, and more marketing options have resulted in a quick payback of the investment. Also, current IRS guidelines allow the option of either depreciating a grain bin over seven years or using it as an expense against taxable income in the first year by utilizing IRS Section 179.
If you are looking for that next 10 to 15 percent return on your investment, consider on-farm grain drying and storage to put you back in control of your harvest and grain marketing decisions.
