AMES, Iowa — While storing grain beyond harvest greatly increases the marketing opportunities available to farmers, their choice of storage options will depend on the relative cost of each and how it fits into the overall harvesting, handling and marketing system.
"Grain prices tend to be higher later in the marketing year than at harvest. Storing grain can help you capture the ‘carry’ in the market," said William Edwards, Iowa State University professor emeritus of agricultural economics. "Flexibility in where and when grain is sold can be maintained.
"Harvesting may progress faster if grain does not have to be delivered to an off-farm location directly from the field. Grain may be used gradually throughout the year for livestock feed."
Edwards said a factor that has surfaced in recent years is the expanding market of corn for production of ethanol. "Many ethanol manufacturing plants prefer to buy grain throughout the year rather than store large quantities on-site," he explained. "Adequate grain storage capacity allows producers to take advantage of this market."
According to monthly patterns for average Iowa cash prices for corn and soybeans for the 2004-13 marketing years, Edwards said holding grain off the market until the following spring resulted in prices 10-20 percent higher than those available during harvest months, on average.
Currently, nearly one-third of Iowa’s corn and soybean crops are marketed off the farm during the harvest months of September, October and November, he said. Marketing of the rest of the crop, however, is spread out fairly evenly throughout the remainder of the year.
Traditionally, grain storage in Iowa has included a mixture of off-farm (commercial) storage facilities and on-farm bins.
"The need for storage has varied from year to year, depending on the mix of acres planted to each crop and the yields attained," Edwards said. "Higher yields have increased the demand for storage capacity in recent years.
"Recent changes in the ratio of the price of corn to the price of soybeans have caused additional acres to be placed into corn production, increasing the total number of bushels to be stored even more."
According to the USDA, total U.S. storage capacity only stands at 13 billion bushels, estimating the corn and soybean harvest for the 2014/15 marketing year to be a little more than 18 billion, the agency’s February supply and demand reports indicated – a record output.
Debbie Carlson of CME Group said in 2014, the USDA enhanced its farm storage facility loan program to help U.S. producers to build or upgrade permanent facilities to store commodities. Edwards said grain producers have several choices available to them for storing grain:
•Invest in on-farm storage structures
•Invest in condominium storage space built by commercial elevators
•Rent storage space from commercial elevators
•Rent on-farm storage space from other farmers or landowners
"Each of these choices has advantages and disadvantages related to the initial investment, the annual operating costs, income tax considerations, the amount of time required for grain management, long-term availability of storage space and marketing flexibility," he added.
Edwards said building storage bins on their own farmstead has been the favored approach to increasing storage capacity by grain producers. "It provides maximum flexibility and control. Care must be taken that additional storage structures fit well into the existing drying, handling and storage system, though."
In turn, the costs for any type of grain storage can be classified as either fixed or variable.
"Fixed costs are those that occur regardless of the degree to which the capacity is utilized and for how long," he said. "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 or condominium storage involves both fixed and variable costs, while renting commercial or on-farm storage involves only variable costs."
Moreover, the major cost of on-farm storage structures is the initial investment in the bin itself, plus the cost of site preparation, wiring, fans, concrete, transfer legs and augers, Edwards said. "However, this investment can be spread over the life of the bin, in the form of depreciation and interest on the capital invested," he added.
On the other hand, renting storage from other farmers or landowners involves most of the same costs and management considerations as using on-farm storage. "The major difference is that no long-term investment is incurred," he said. "Instead, a monthly or annual rental rate based on the capacity of the bin is paid."
But, "higher transportation and labor costs may be incurred if the rented storage is located a significant distance from the producer’s home base, and grain may not be checked as frequently," he noted.
