Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

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Please send your comments and send suggestions to Melvin Brees, Farm Management Specialist, University of Missouri Extension, #1 Courthouse Square,  Fayette, MO 65248, call 660-248-2272, or send messages by e-mail to: breesm@missouri.edu.
August 18, 2000

Grain Bin Rent

Storing grain is an important marketing tool. Large crops may create a storage crunch. "What should a grain bin rent for?" The answer depends upon condition of the bin, handling or unloading equipment, drying or aeration capability, and bin location.

The bin owner would like to recover all costs and earn a return on investment. This is often referred to as the DIRTI-5 (Depreciation, Interest, Repairs, Taxes, and Insurance). Dividing the sum of the DIRTI-5 by the capacity of the grain bin would equal the amount per bushel rent that provides the owner's desired return. This could be a starting point for lease negotiation.

Most grain bins rent for something less than commercial storage charges. Commercial storage is usually higher because grain handling and management services are provided. The elevator also assumes some of the risk associated with storage. Depending upon competition and storage availability, typical historical commercial storage rates have been 3 to 4 cents per bushel per month for actual bushels weighed in. In comparison, grain bin rents are often 1 or 2 cents per bushel per month and are usually calculated on bin capacity rather than measured bushels stored.

Grain bins are usually rented for several months or a year at a time. One or two months rent wouldn't recover much of the bin owner's cost or investment, so owners prefer that the tenant guarantee a minimum return. Rental rates of 11 to 15 cents per bushel per year (calculated by bin capacity) are common. This compares with most minimum commercial storage charges, but the tenant would have the use of the storage for a much longer period of time without additional monthly storage charges.

Bin rents get more complicated if grain handling and drying equipment are included. Repair and maintenance costs are higher and less predictable for the additional equipment. Allowance in the rent should be made for whoever pays these costs. Normally it works better if the tenant can pay for electricity and dryer fuel since these will depend upon the number of bushels and how wet the grain is. However, this isn't always possible. For example, the dryer may be connected to the same electric meter that the owner's house and other buildings are connected to. This would require an estimate of electricity use that both parties agree on or an allowance in the owner's rent to cover the electrical charges.

Location and convenience are important. Bins that are in good condition, with unloaders that work and are located so that semi trailers can be loaded under nearly all weather conditions, offer the tenant several advantages that may be worth a higher rent. With commercial storage, (while not required) producers often feel obligated to sell the grain wherever it is stored. Grain in a bin can be unloaded and sold anywhere. Storing grain offers marketing flexibility and can return profits. If they can be found, renting a bin can be an alternative to commercial storage. --Melvin


University of Missouri ExtensionDecisive Marketing - August 18, 2000
http://outreach.missouri.edu/agconnection/DCT/DM000818.html -- Revised: April 20, 2004
breesm@missouri.edu