Financial Management: Bin-Busting Economics

August 30, 2011 08:47 PM
 

Producers trying to decide whether to sell their crop or continue to store it almost need a crystal ball these days. Yet soaring corn prices have sparked a rush by farmers to build bins across the Midwest, providing the flexibility to profit from an expected shortage. Farmers have built more on-farm grain storage in the past three to four years than they’ve built in the previous 30 years, according to economist Michael Swanson of Wells Fargo. The demand for grain bins has meant profitable years for grain bin manufacturers, such as Iowa’s Sukup Manufacturing Co., which has grown from 120 employees to 400 and is adding another 100,000-sq.-ft. manufacturing building.

monthly storage costs

This chart provides an example of how costs for both on-farm and commercial storage can increase over time. It is typical for cost of commercial storage to start out lower than cost of on-farm storage, but to increase faster. Thus, the expected length of time the grain will be stored is an important consideration.

Advantages of On-Farm Storage Include:

  • Flexibility with regard to when and where the crop is marketed.
  • A guarantee that storage space will be available each year.
  • Convenient management of the stored grain.
  • Corn at different moisture levels can be blended.
  • The ability to separate grain that needs to have its identity preserved.

 

50%

The amount of bonus depreciation that bins might qualify for, depending on the time of deemed acquisition and when they’re placed in service.

15¢

Savings in grain storage costs per bushel of corn stored on-farm versus commercial storage during July and August.


USDA counts 12.5 billion bushels of capacity on U.S. farms, which is 900 million more than just four years ago.
 

 

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