Issue 31
Marketing Guide 2000
 

Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Association.

Copyright
Prairie Grains Marketing Guide 2000

Consider storage costs when evaluating marketing alternatives

By George Flaskerud, NDSU
Extension Crops Economist

Storing wheat on the farm from harvest until November could cost about 16 cents/bu in properly designed storage facilities. To cover storage costs, a producer would have to receive an additional 16 cents/bu in November, compared to the selling price for delivery off the combine in August.  A farmer would need an additional 11 cents for barley and 10 cents for oats.

Storing sunflowers on the farm from harvest in October until May could cost about 59 cents per hundredweight. The cost could be about 17 cents per bushel for corn. To store soybeans from harvest in September to May could cost about 41 cents per bushel.

In/out charges are important
Notice that these costs begin at harvest.  They are relevant to storage decisions made before the grain is actually put in the bin because they include in/out charges.  These in/out charges are important to the storage decision only before the grain is in the bin.  Once the grain is in the bin, the in/out cost is not important to the storage decision, since part of it has already been incurred and the remainder will be incurred regardless of whether the grain is hauled out immediately or later.

Total in/out costs were estimated to be approximately 8 cents/bu for wheat, 8 cents for corn, 7 cents for barley, 7 cents for oats, 11 cents for soybeans, and 20 cents per hundredweight for sunflowers. This "first" category of costs included the costs of operating and repairing the equipment, handling shrink, insurance, management, labor and trucking. The 7-20 cent charge would be considered as a cost during the first month of storage only.

How much storage costs change from one month to the next depends partly on crop prices. For this analysis, the costs were based on potential average prices during storage of $2.70 per bushel for wheat, $1.30 for corn, $1.25 for barley, $.90 for oats, $3.95 for soybeans and $5.70 per hundredweight for sunflowers. 

How much storage costs change from one month to the next also depends on interest rates. A "second" category of costs included a cost per month for interest on investment in the grain in storage and storage shrink. The cost for shrink is very small for properly designed storage facilities. 

Interest on investment was based on a bank loan annual interest rate of 11%. An alternative rate of interest would be applicable for those producers with no debt.  It would be the potential rate of return from an investment of the proceeds of a grain sale.  The rate of return on a money market mutual fund was about 6.5% during July.

Combined costs from both the first and second categories of costs are important to the sell or store decision made prior to harvest. When combined, they become cumulative variable monthly on-farm storage costs. They are the costs specified at the beginning of this article.

Binned grain storage costs
Now let's examine what the storage costs could be once the grain is in the bin. These storage costs are different because the in/out charges can be ignored.

Cumulative variable monthly on-farm storage costs that are relevant to storage decisions made after the grain is in the bin include only the total cost from the second category. Recall that the second category included a cost per month for interest on investment in the grain in storage and for storage shrink.

Suppose that a decision is being made in November whether to sell wheat for immediate delivery or to store until April.  An additional five months of storage are being considered.  The relevant total storage charge to consider in this decision would be about 13 cents per bushel.

Sell or store decisions have been covered for the situation at harvest and for a situation later in the year. A third situation needs to be examined, a situation where grain is stored to speed-up harvest.

If storage is essential to harvesting efficiency, some producers may choose to include category one costs and several months of category two costs as harvesting costs instead of  storage costs. 

Suppose that a producer stores wheat to improve harvesting efficiency and that fieldwork prevents him from delivering wheat to the elevator until November.  If a decision is being made in November to either sell wheat for immediate delivery or to store until January, an additional two months of storage is being considered.  The relevant total storage charge to consider in this decision would be approximately 5 cents per bushel.

On-farm storage costs were discussed here for existing facilities only.  If a new bin is being considered, refer to NDSU NCR Extension Publication No. 217, Fact Sheet #19, for guidance in determining storage costs. The fact sheet is available from your County Extension Agent.  Also, if the grain is stored in the elevator, the cost of storage per month is the rate specified by the elevator plus an interest cost. The monthly interest cost is the cash grain price times the interest rate.

Cummulative variable storage costs per month on the farm relevant to storage decisions prior to harvest - these include in/out charges Months in Storage Wheat ($/bu) Corn ($/bu) Barley ($/bu) Oats ($/bu) Soybeans ($/bu) Sunflowers ($/cwt) 1 0.1060 0.0919 0.8040 0.0787 0.1447 0.2565 2 0.1321 0.1051 0.0960 0.0874 0.1828 0.3116 3 0.1582 0.1183 0.1081 0.0961 0.2210 0.3667 4 0.1843 0.1315 0.1202 0.1048 0.2592 0.4218 5 0.2104 0.1447 0.1323 0.1135 0.2974 0.4769 6 0.2365 0.1580 0.1444 0.1222 0.3356 0.5320 7 0.2626 0.1712 0.1565 0.1309 0.3738 0.5871 8 0.2887 0.1844 0.1685 0.1396 0.4119 0.6422 9 0.3148 0.1976 0.1806 0.1483 0.4501 0.6973 10 0.3409 0.2108 0.1927 0.1570 0.4883 0.7524 11 0.3670 0.2240 0.2048 0.1657 0.5265 0.8075 12 0.3931 0.2373 0.2169 0.1744 0.5647 0.8626

Cummulative variable storage costs per month on the farm relevant to storage decisions after the grain is in the bin. Months in Storage Wheat ($/bu) Corn 9$/bu) Barley ($/bu) Oats ($/bu) Soybeans ($/bu) Sunflowers ($/cwt) 1 0.0261 0.0132 0.0121 0.0087 0.0382 0.0551 2 0.0522 0.0264 0.0242 0.0174 0.0764 0.1102 3 0.0783 0.0397 0.0363 0.0261 0.1146 0.1653 4 0.1044 0.0529 0.0483 0.0348 0.1527 0.2204 5 0.1305 0.0661 0.0604 0.0435 0.1909 0.2755 6 0.1566 0.0793 0.0725 0.0522 0.2291 0.3306 7 0.1827 0.0925 0.0846 0.0609 0.2673 0.3857 8 0.2088 0.1057 0.0967 0.0696 0.3055 0.4408 9 0.2349 0.1190 0.1088 0.0783 0.3437 0.4959 10 0.2610 0.1322 0.1208 0.0870 0.3818 0.5510 11 0.2871 0.1454 0.1329 0.0957 0.4200 0.6061 12 0.3132 0.1586 0.1450 0.1044 0.4582 0.6612