The following information is bonus material from Top Producer. It corresponds with the article "Before You Bin It” by Linda Smith. You can find the article in the October 2009 issue.
Calculating Storage Costs on the Farm
There may be as many ways to calculate storage costs as there are operations. Here are comments from a few of the top producers we know. We hope they will give you some ideas for figuring yours.
Cost of storing corn? The question needs to be asked but is highly variable and difficult to answer depending on not only the individual but the marketing environment.
Handling to bin from field
- Field haul to dryer/bin on same farm site .04/bu.
- Field haul for a multiple farm operation to a central site .08 to .14/bu.
- Depends on short holding period or indefinite
- Depends on moisture content in field and desired moisture level at time of putting it into bin
- Depends on dryer efficiency, old dryer vs new dryer
- Many air dry with bin fans from 17% to 15%
- Fuel cost, fuel type (LP vs natural gas vs solar, etc.)
- We separate fines/red dog with vacuum system
- Costs more up front but quality of air flow is enhanced
- Risk management is everything! Each year is different.
- Spoilage risk: Last two years we had high-quality grain that was easy to store. Can't always count on that
- Third-party risk – whose bins
- Pricing does not always go up while holding grain.
- A little spill here, a little there
Net present value of money
- Opportunity cost is lower at the moment because of low interest rates, however if you have a 7% loan you could pay down early…
Time management cost
- Bringing the grain ‘home' is another thing to manage and the more grain you store the more time it takes.
- Elevator wait in line cost vs storing on site and keep combine moving is the MAIN reason we hold it.
- Tax management cost/opportunity vs cash-flow challenges.
- Grain bins are big tin cans with single purpose use. They are expensive.
All that said, we need .05 to dry, .16 in and out cost, .03 electric, .10 deprec./replacement cost, .08 management cost, .02 repairs, etc. If I can't get at least .45 I should have not stored it.
I charge $.20/bu. for storage and infrastructure (dryer, augers, legs, plus actual electricity and LP costs to dry. I hire trucking, so cost for last year was .07 for field to farm and .12 to .20 for farm to ethanol plant.
I start with the commercial rates that the local elevator would charge or that I could negotiate:
3 to 4 cents/month/bu. for storage;
8 to 9 cents each way for in and out (loading in and loading out)
We use 1.2% as the shrink factor - which is slightly above the actual mathematical factor (about 1.183 perhaps) and gives us a bit of room for error - or overdrying.
Drying costs change every year. Natural gas is going to be very cheap this year ($4 range). When gas was higher, most years my average gas cost per bushel dried was 2 to 2.5 cents. The highest-ever cost for drying very wet corn with expensive gas was, on average, 4.5 cents. Electricity can add up as well - two of my very large bins are capable of drying grain with air only - we can put it in as high as 18 to 19 percent moisture. When I have done figuring, the cost to air dry versus gas was about double.
Since the investment in the dryer and the bins is a SUNK COST - that is, the money has already been spent - I only look at variable costs of gas-electricity-repairs and maintenance when making decisions about drying/storing.
I market directly out of the bins to the same channels the elevator uses - truck freight to the feedlots and ethanol plants. Their costs, I am told, are about 25 cents/bu. I can normally beat their posted price by about that amount, crediting that amount back as returns to my facility investment.
I've just put up a new bin that holds 600,000 bushels - the costs are running around $2/bu. including a new leg, dump pit and overhead loadout. I figure I need to be able to credit at least 20 cents/bu. to justify the project.
A charge for trucking from the field is going to start at around 13 cents/bu. and go up, depending on the haul. Also keep in mind that is figured on wet bushels.
We usually charge about $.05 to $.06/bu. to dry. That's probably cheap, but we don't use propane, it's all natural air, slower but cheaper. We also charge about $.03/month for storage but not many of our landlords store their crops with us. Also 1% loss because of moving it.
Digital grain bin monitors offer several advantages:
- You can monitor temperature, pressure and humidity at the fan, at the top of the bin and throughout the grain
- You can watch bins at several sites from your computer
- Software will provide various drying scenarios based on historic weather and even adjust temperature and airflow.
- OCTOBER 2009