Why on-farm storage pays

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More acres, more corn: that's the outlook for most Corn Belt farmers over the next three years as surging ethanol demand continues to impact grain prices.

If that scenario seems likely for you, you're probably wondering where you'll store those extra bushels. Ethanol plants don't want to be in the storage business. Commercial storage is expensive. Over the last three years, our Farm Futures surveys shows on-farm storage pays big dividends.

Even if corn markets fall, yields will likely trend higher just as many  farms expand acreage bases. "Even if you have only a 5% yearly growth over the next four years you will still have dramatic increases in need for storage,•bCrLf says Chris Hurt, Ag economist at Purdue University (below).

Hurt's research shows a typical 1,000 acre farm producing 100,000 bushels of wheat, corn, and soybeans, would still need 17% more storage by 2010 — even with zero growth. A farm that grows 10% over the next four years will need 71% more storage by 2010.

Why more storage?

More grain has caused commercial storage costs to go higher. That's simple supply and demand. A weak basis also makes on-farm storage more attractive. Of course, basis may not be an issue in your region, thanks to new ethanol plants. In Iowa, 28 ethanol plants now operate with 20 more being planned and that has restructured the corn basis there. IowaState's Chad Hart says in northwest Iowa the basis is usually 30-40., but currently is only 5..           

Even so, transportation costs spurred by higher fuel prices, as well as higher interest rates, have caused basis to weaken in the last two years in many parts of the country.

"It costs 8 to 11 cents more per bushel to truck grain 100 miles today than it did in 2003, thanks to higher transportation costs and higher interest rates,•bCrLf says Hurt. "That tends to weaken the basis compared to what you normally have.•bCrLf

In late 2004 diesel cost 16 cents per bushel to ship grain 100 miles. By 2007 it was 26 cents per bushel. In first quarter 2004 interest rates cost about 2 cents per bushel, compared to 3.5 cents per bushel by 2007.

On-farm interest adjusted storage returns can be hefty — as much as 50 to 60 cents per bushel. "Those returns will be strong enough to give incentives to build storage,•bCrLf predicts Hurt.

 

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