Grain bins are synonymous with on-farm grain storage. While many farmers have this storage option available, others are looking for different options like commercial storage at an elevator, or even bagged storage. Let’s take a closer look at off-farm and on-farm storage as we get into the harvest.
Across the US, on-farm storage is quite different. In the Northern corn belt, there are more farmers with large grain bins. As you move to the Southern states, there’s less and less bin storage available. We see that difference in marketing behavior, too – those without on-farm storage are more aggressive in forward selling than their farmer counterparts in the North.
For those without on-farm storage, they have several options. The most common is delayed pricing, or what we often know as DP. The elevator charges a fee to store grain through a specific timeframe, and these fees are all set by each elevator. Some farmers use a basis contract and spread the basis over the full month during fall hauling to help keep them on the futures side. We also see some farmers taking the straight price from the elevator, but then turning around and buying a futures contract on the board. This works well for farmers who have a good risk tolerance and a bearish bias on the market.
Grain bins have their own ups and downs to consider, too. On-farm storage allows you to keep rolling through the harvest without waiting in delivery lines at the elevator. And if you happen to have a high moisture content, you can dry the grain in the bin without getting docked once you sell. However, we find that sometimes, farmers are using their grain bins as a crutch. If you have on-farm storage, the carry (or the spread between current and futures prices) is what pays for the bin itself. That means, though, that when market prices hit target levels, you must act. Too often, we find farmers with grain in the bin at the end of the summer because they couldn’t pull the trigger earlier in the year – and their paralysis ended up costing them.
If you are considering adding on-farm storage in the near future, make sure it’s a worthwhile investment. Figure out what the total cost will be (including interest if taking out a loan), and what kind of carry needs to be achieved to get the bin paid off. In central Illinois, for example, historic data tells us that the spread is about 28 cents per bushel, so multiply that by average yearly production, and it should be able to pay off the bin in a few years. If it can’t, it may not be worth the investment. Working with an advisor is a great way to find those historic spread figures.
An advisor can also help in identifying hidden costs of on-farm storage. For instance, shrink is a real issue, especially in soybeans. It’s not free to add grain to the bin and then pull it out – we often work with a figure of “5 cents in/5 cents out,” because handling the grain twice means increased shrink, broken kernels and double the trucking. Before making any final decisions on storage plans for the harvest season, be sure to check with your advisory team to get a second opinion and perhaps insights that you may not have considered.