|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
 |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Park It Or Market It? Determine whether expected grain price returns will justify storage costs Assuming you have the bin space, why not store grain until prices improve? There’s nothing wrong with storing grain, if doing so is expected to be profitable. Indeed, short-term storage after harvest can help producers escape seasonal price lows and quality discounts that are usually greatest at harvest. However, be realistic in your price expectations. Realize seasonal market tendencies. Follow the “carry” in the futures market, which is the difference in price between nearby futures and prices into next year. For example, is the price between Sept 03 Mpls futures and Dec 03 futures more or less than the prices quoted for May 04, Sept 04, and Dec 04? If the price spread is small, or declines into far-away months, the futures market is signaling that there is little incentive to store grain. If the price in far-away months is significantly higher than nearby prices, then you have more incentive to store grain. Don Hofstrand, extension farm management specialist at Iowa State University, points out the following costs to consider when storing grain. Excluded are ownership costs of existing grain storage facilities (depreciation, return on investment, insurance) and cost for commercial charge (usually a fixed price at elevators for the first few months with an additional charge for months thereafter). Interest on grain inventory—There is cost in having money tied up in stored grain inventory. If a producer has a loan, the loan can be repaid with the proceeds from the sale of grain, and interest expense is reduced. Even if no money is borrowed, there is an interest cost of storing grain. If the grain is sold, the proceeds can be invested in the business or placed in an interest-bearing account. Drying, aeration— There is a cost to drying corn or other grain, and aerating dried grain, to recommended levels for storage. Shrink—Because grain is sold on a weight basis, the removal of additional moisture for farm-stored grain reduces the number of bushel weight to be sold, albeit to a small degree. To compute the extra shrinkage for farm stored corn, use a shrink factor of 1.25%. Commercial elevators often use a shrink factor of 1.35% to 1.4%. The extra shrink cost is figured by multiplying the extra points of moisture removed times the shrink factor times the current corn price. For example, the cost of removing an additional two points of moisture for farm storage when corn price is $2.30 is 6˘. (2 x 1.25% x $2.30 = 6˘). Handling (“In/Out Charge”)— Costs of moving grain in and out of farm storage vary as to the type of handling equipment, bin size, and bin shape. Generally, handling costs are greater for flat storage and smaller bins. The extra handling costs associated with most farm storage facilities range from 1.5˘ to 2.0˘ per bushel. Quality deterioration—This loss is variable depending on the quality of grain placed in farm storage and how the stored grain is managed. If the grain is stored commercially, these costs are covered in the elevator storage charge. Estimating storage costs NDSU extension crops economist George Flaskerud outlines estimated variable costs for storing grain on-farm in tables 1 and 2 on pages 15. On-farm storage costs in these tables are for existing facilities only. For example, storing wheat on the farm from harvest in August until November would cost about 13 cents per bushel. To cover storage costs, a producer would have to receive an additional 13 cents per bushel in November, compared to the selling price for delivery off the combine in August. 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, Flaskerud points out. Total in/out costs were estimated to be approximately 8 cents per bushel for wheat and corn, 7 cents for barley and oats, 12 cents for soybeans, 20 cents per hundredweight for canola and 22 cents per hundredweight for sunflower. The first chart with in/out charges includes the costs of operating and repairing equipment, handling shrink, insurance, management, labor and trucking. The in/out 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 $2.73 per bushel for wheat, $1.73 for corn, $1.98 for barley, $1.10 for oats, $4.80 for soybeans, $9.50 per hundredweight for sunflowers and $9.50 per hundredweight for canola. How much storage costs change from one month to the next also depends on interest rates. The first storage cost table also includes 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 6%. 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 six-month certificate of deposit was about 1.5% in 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. The second table indicates storage cost estimates 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 cost per month for interest on investment on 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 is being considered. Using table 2, the relevant total storage charge to consider in this decision would be about 8 cents per bushel. Storage Costs Prior to Harvest
Storage Costs After Grain is in the Bin
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||