To store or not to store? Do the math on grain storage
GRAND FORKS, N.D. — Deciding whether to store or sell grain is a tough call for Upper Midwest farmers — and one that too many may not be getting right, Frayne Olson said.
"I'm really, really concerned that guys are kind of flying by the seat of their pants when it comes to the cost of on-farm storage. I think it's much higher than most farmers realize," Olson said. "We're at the stage of the game right now when you can't afford to leave too much money on the table."
Olson, extension crops economist/marketing specialist with the North Dakota State University extension service, spoke Oct. 16 in Grand Forks, N.D., at the annual extension Outlook Conference for Agricultural Lenders. About 90 ag lenders from northeast North Dakota and northwest Minnesota attended the event, which featured a half-dozen speakers, most from the extension service.
Olson identified four general reasons to store grain: increase harvest efficiency, improve the basis, benefit from "carry in the market" and speculation.
Basis is the difference between local cash price and the nearby future price. The basis typically is greatest at harvest, which encourages farmers to store grain.
Carry in the market refers to the difference in prices over time. Put differently, it's the premium or loss a farmer receives for waiting to sell stored grain until sometime in the future. The carry rarely covers the full cost of storage, Olson said.
Olson also identified seven costs of storing grain: storage facility costs, interest on grain inventory, extra drying, shrinkage, quality deterioration, extra handling and aeration.
Interest on grain inventory can be either interest gained if grain is sold and the proceeds invested, or interest expense that would be saved if grain were sold and the proceeds used to pay down debt.
Olson presented a spreadsheet that calculated the net effect of the four benefits and seven costs on storing 30,000 bushels of corn, 20,000 bushels of soybeans and 20,000 bushels of spring wheat for seven months.
• Corn with a cash price of $2.70 per bushel at harvest would have an average total monthly storage cost of 2.4 cents per bushel if stored on-farm and 5.6 cents per bushel if stored commercially.
• Soybeans with a cash price of $8.60 per bushel at harvest would have an average total monthly storage cost of 5.8 cents per bushel if stored on-farm and 8.6 cents per bushel if stored commercially.
• Spring wheat with a cash price of $6 price at harvest would have an average total monthly storage cost of 4.3 cents per bushel if stored on-farm and 7.3 cents per bushel if stored commercially.
Olson said farmers generally tell him that they calculate their grain storage costs at 3 cents per bushel month, regardless of commodity.
"For corn, I think that's fairly close," though probably too low for wheat and soybeans, he said.
Olson encouraged ag lenders and farmers to work with the spreadsheet and make changes to it as appropriate to their situation.
To see the spreadsheet: https://www.ag.ndsu.edu/farmmanagement/tools