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Published December 22, 2010, 02:54 PM

Crop bounty spurs construction boom at elevators

LARNED, Kan. — A construction boom is underway at grain elevators across the Great Plains, where new varieties of corn are allowing farmers to grow more crops off the same acres and demand from ethanol plants is keeping more crops in state.

By: Roxana Hegeman, Associated Press

LARNED, Kan. — A construction boom is underway at grain elevators across the Great Plains, where new varieties of corn are allowing farmers to grow more crops off the same acres and demand from ethanol plants is keeping more crops in state.

In more recent years, a number of forces have coalesced to ignite a building boom of new storage facilities — particularly in states such as Kansas and Nebraska that are awash with more grain crops than places to put them. But demand for more storage space is up across much of the nation’s grain producing areas despite historically high storage capacity in the nation’s federally licensed grain elevators.

The boom is driven in part by the advent of drought-resistant corn varieties that gave growers in arid climates like western Kansas the option to switch to more profitable corn crops that yield far more bushels per acre than the traditional wheat crops they are replacing. Another factor driving the booming construction is the rise of an ethanol industry that has kept more corn and sorghum within the state, rather than shipping them out immediately after harvest. And commodity markets have given farmers more incentive to hold crops in storage during the harvest glut to wait for better prices later in the season.

All this comes at a time of low interest rates and high commodity prices that have allowed elevators to raise grain storage prices and ultimately build new capacity at existing facilities to handle the huge mounds of grain now being dumped on the ground during each fall harvest.

For communities, the boom is bringing in temporary construction jobs during the weeks it takes to build the storage, but the most immediate economic impact for rural towns will be in the added property valuation on the tax rolls that help fund schools and municipal services. Since most of this storage is going up in existing elevators, it is not adding new jobs at them because typically the existing staff can handle it, said Tom Tunnell, executive director of the Kansas Grain and Feed Association, the trade group representing grain elevators.

“But then that (construction) crew and that operation move to the next location within the state,” Tunnell said. “It is an ongoing process. Those guys are working somewhere all the time and mostly in our state. So it is good for the state.”

Capacity at federally licensed grain facilities nationwide reached a historical high in 2010 with more than 4.5 billion bushels of storage space, not counting capacity at state-licensed facilities, Agriculture Department statistics show. The previous high was in 1988. The low point since then was reached a decade later. But storage capacity in recent years has been steadily rising, with 2010 being a particularly busy year for new construction that has yet to be licensed and counted.

Among them are the two 140-foot-tall concrete silos now under construction at the elevator in Larned, Kan., owned by Pawnee County Co-op Association. The concrete bins will add some 600,000 bushels in new storage capacity — a welcomed addition given that the elevator now has a million bushels of corn piled on the ground a mile away exposed to the weather.

“The pipeline is full,” said Hugh Mounday, general manager of the Pawnee County Co-op. “There is hardly any export grain going out anymore and that is backlogging a lot of wheat in our area, so therefore it forces us to pile corn and milo outdoors.”

Orders for new concrete grain silos at McPherson Concrete Storage Systems, Inc., are backlogged until at least September 2011 or later, said sales manager Roy House. The McPherson-based company built 31 concrete silos in Kansas and Nebraska this past year, up from 25 in a normal year.

“We are putting up the big, concrete silos. We are in the business for the long term, said Frank Riedle, the general manager for the Great Bend Co-op. “Those last 30 years. We are building permanent storage.”

Within the past four years, the Great Bend Co-op Association has added concrete grain silos at its central Kansas elevators in Seward, Pawnee Rock and Ellinwood across central Kansas.

Woofter Construction and Irrigation Inc., based in Colby, Kan., has built metal grain bins for nearly 5 million bushels in new capacity this past spring through fall in Kansas, Colorado, Oklahoma and Nebraska, said salesman Larry McDonald.

“I’ve got probably more projects to bid on than I can physically get done,” McDonald said. “We could use more people. They are out there, we need them here.”

McDonald said the company needs to hire eight to ten millwright workers now. His company has kept some 60 employees busy, but he figures that if you count the outside concrete crews, millworkers, electricians and other contractors his grain storage projects alone have probably generated work for between 200 and 250 people.

The advent of the ethanol industry in Kansas beginning in 2002 has created more demand within state boundaries for corn and sorghum along with somewhere to store it all. It takes some 142 million bushels of these feed grains to produce the 400 million gallons of ethanol now produced by Kansas ethanol plants. About 17 percent of the state’s feed grains now go to produce ethanol here.

The shortage of space is reflected in rising storage rates that have nearly doubled within the past decade in Kansas. Elevators make money by charging farmers to store their grain or by buying their harvest outright for sale on commodity markets.

.”Storage rates have gone up tremendously in the last five years,” Riedle said. “It is more lucrative to have storage, but mostly we just have to keep up with the farmers — they produce more grain.”

For years, total grain production in Kansas of major crops — wheat, corn, sorghum and soybeans — hovered each year under a billion bushels, statistics show. Last year, it was 1.4 billion bushels and it is estimated to reach 1.3 billion bushels this year. Kansas is expected to harvest its second largest corn crop on record in 2010.

One measure of how much trouble elevators are having in keeping up with season after season of plentiful fall crops is the number of licenses issued for temporary storage, such as bunkers that store grain on the ground covered by tarps. Last month Kansas alone had 132 million bushels of temporary storage — a significant amount when you consider that the state has some 900 million bushels of state and federally licensed commercial storage combined, Tunnell said

At least 15 million bushels of storage capacity was added in Kansas alone last year, Tunnell said.

“The price of commodities has risen— they can’t afford to store it in piles,” said Larry Endress, a salesman for Cornbelt Fabric Structures, based in Bradford, Illinois. The company, which builds fabric-topped storage structures, has put in 3.5 million bushels of new storage capacity in Kansas, Nebraska, Illinois and Wisconsin this past year.

Even the most carefully stored outdoors is vulnerable to weather that deteriorates grain quality, with losses of one percent not uncommon.

The storage boom is focused in Kansas because of the emphasis away from wheat production to fall crops here, Tunnell said.

Corn harvest in the fall — when other row crops mature — puts an added strain on the old elevators original built to handle the winter wheat harvest in June, when storage space is more readily available. The storage shortage is further aggravated by the fact that corn yields more bushels per acre than winter wheat. A good acre of wheat produces between 40 and 50 bushels per acre. That compares to the new high tech corn varieties that average yields of more than 225 bushels per acre.

“I don’t know if you need a lot of economic analysis to figure out our growers are harvesting more bushels of about the same number of acres,” said Sue Schulte, spokeswoman for the Kansas Corn Association. “We have needed more storage especially for the fall crops for several years, and if factors like low interest rates are helping to get that done, that’s great.”

But the specter of another potential drought is always present. Dan O’Brien, an agricultural economist at Kansas State University, warns that farmers and the elevators who service them will not always be blessed with the bountiful crops.

“I don’t think they will be sitting empty by any stretch, but I do think that you will have some ups and downs,” he said. “Kansas is very cyclical in terms of its weather. Over time, I am sure we will have times when we won’t be busting at the seams as we are in some locations right now.”