Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

Decisive Marketing

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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 20, 1999

Storage Costs

As harvest approaches, most of us will be faced with making the decision whether or not to store corn and/or beans. It may not always be the most important consideration, but cost of storing impacts the decision. Storage costs can vary considerable depending upon interest rate and where you store. The following is a review of some storage alternatives and how to estimate the cost.

Interest: How you calculate this cost depends upon whether you are operating on borrowed funds or looking at a return on your equity. If storing grain forces you to delay repaying operating credit, then the interest rate for the borrowed funds should be used to determine cost. If selling the grain would mean investing in something else, use the rate of return expected from that alternative investment as an opportunity cost associated with storage.

Commercial Storage: These vary considerably from location to location. Some elevators offer a "free storage" period to allow you to decide whether to sell or store. Most have a minimum charge and a monthly per bushel charge. Most are in the range of 2 to 5 cents per bushel. An additional "load out" or handling fee is usually assessed if you remove the grain from the elevator. Commercial storage often limits your marketing choices, but the physical commodity risks (shrink, grain condition, etc) are eliminated.

Own Bin: Cash costs include utilities, repairs, insurance, labor, etc. You also have non-cash costs of shrink, grain damage, handling losses, theft, etc. that are difficult to estimate but must be included. While you do have fixed costs in the bin (depreciation and interest), they are what are sometimes called "sunken costs" in the business--you will have these costs whether you store or not. These fixed costs should not be considered in making annual storage decisions!

Rented Bins: Bin rents vary considerably. The common range is one to three cents per month times bushel capacity of the bin. A minimum number of months' rental is also commonly required. Others use a fixed annual rate ranging ten to thirty cents per bushel capacity. Another common guide is one-half up to as much or more than commercial storage monthly rates--depending upon bin condition, handling facilities and location. Who pays for the utilities and repairs is negotiated and usually reflected in the rental rate.

No Storage Available? When elevators receive more grain than they have storage capacity, they may offer delayed pricing contracts and suggest them as an alternative to storing. With these you give up title to the grain (so the elevator can move it out), but the contract leaves open the opportunity to capture price gains. One problem with giving up grain title is that you become ineligible for the CCC loan or the LDP. Another risk with giving up title is that you become an unsecured creditor to the elevator.

Market carry and potential for basis improvement provide clues for what the market will offer for storage. You need to determine what your storage cost will be in order to evaluate the profit potential for storage.

-- Melvin


University of Missouri ExtensionDecisive Marketing - August 20, 1999
http://outreach.missouri.edu/agconnection/DCT/DM990820.html -- Revised: April 20, 2004
breesm@missouri.edu