After three years of unprofitable grain production margins, it’s difficult to consider a significant capital project. Yet, when I interview new clients, one of my first questions— after total acreage and crops produced—is, “How much grain storage do you have?” Yes, it is that important. You should consider five primary factors when evaluating whether expanding your grain storage will enhance revenues. For simplicity, I’ll look at corn, but similar economics apply to the other grains as well.
1. Get a higher value for your grain.
The primary reason for grain storage is capturing higher grain prices for deferring delivery after harvest. This comes in the form of basis improvement as well as gaining the “carry” in futures markets. Across the Midwest, it is common to see basis improve a minimum of 15 cents—and often more—from delivery during harvest vs. delivery during December/January. In years with adequate supply, there is generally another 10 to 15 cents of premium (the carry) from December corn futures to March corn futures. Taking it further, there is usually another 8 to 10 cents from March to May corn futures, and another 8 to 10 cents from May to July corn futures. As time goes on, there is usually higher basis in addition to the futures gains as end-users encourage producers to sell and deliver grain during light delivery periods. While cash flow needs may prevent you from storing grain until the following summer, the returns generally make it worthwhile to do so. Unless it is a short-crop year, you can consistently count on higher grain values even one or two months after harvest and continuing until the following summer.
2. Improve efficiency.
While it may not be as easy to measure the exact financial advantages that come from harvest speed and efficiency, reductions in trucking, fuel, labor, and idle combine time can be significant. Sitting in elevator lines is unnecessary with your own grain storage system.
3. Reduce drying and storage costs.
Often, an on-farm system can dry and store grain at a lower cost than a grain elevator, considering both shrink and drying. Savings of 2 to 4 cents per point of harvest moisture are common. Additionally, grants are available for energy-efficient grain drying that help offset the additional cost of the dryer.
4. Increase the overall value of your operation.
From a landlord’s perspective, cash rent or crop share will be higher for land with grain storage than without, and the market value of the land will be higher. From a tenant’s perspective, the ability to enhance revenue and improve efficiency through grain storage makes that ground more desirable than comparable land. A farming operation with its own grain system provides an attractive annual ROI that adds value every year. Your financial specialist can calculate the individual ROI for specific capital projects, which can make the difference between just breaking even and earning a improving farm profits.
5. A word of caution: there is a learning curve.
On a final, practical note, when producers deliver grain to the elevator off the combine, their quality risk is over and done with. Grain stored on the farm needs to be regularly monitored, or it can deteriorate more quickly than you might expect. The financial penalty for off-spec grain can be severe. Some mycotoxins grow particularly well in grain above 14.5% to 15% moisture in confined conditions, as do common molds and odors that damage grain quality. Sometimes, it’s better to let harvest quality be someone else’s problem, particularly if you don’t have experience in grain storage. You wouldn’t want to lose the revenue gains that holding grain off the market at harvest could earn by letting your grain quality degrade in storage.
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