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Estimating Storage Costs Storage can be profitable – but there are costs to
Post-harvest storage can help producers escape seasonal price lows, a weak local basis, 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 07 Mpls futures and Dec 07 futures more or less than the prices quoted for May 08, Sept 08, and Dec 08? 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. NDSU extension crops economist George Flaskerud outlines estimated variable costs for storing grain on-farm in tables 1 and 2 on pages. On-farm storage costs in these tables are for existing facilities only. Producers can expect storage costs to be higher compared to years past, due to higher interest rates and fuel/energy costs. For example, NDSU figures storing wheat on the farm for about three months this year would cost 24.5 cents per bushel, compared to 20.6 cents/bu last year and 14.4 cents in 2005. To justify the three-month storage cost of 24.5 cents, a producer would have to expect to receive at least that much in November, compared to the selling price for delivery off the combine in August. In/out charges (costs of moving grain in and out of farm storage) 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. 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 the average harvest price forecast as of mid-July. 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 8.5 %. 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 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 another five months. Using table 2, the relevant total storage charge to consider
in this decision would be about 21.6 cents per bushel. You would need to evaluate whether the market offers potential to give you a return on that storage cost in five Table 1. Cumulative variable storage costs per month on farm relevant to storage decisions prior to harvest (these include in/out charges).
Table 2. Cumulative variable storage costs per month on farm relevant to storage decisions after the grain is in the bin.
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