| Updated November, 2009 |  |
 |
 |
File A2-33 |
|
 |
|||||
Cost of Storing Grain
| Use this decision tool to project the cost of storing grain past harvest in existing storage facilities or commercial storage. |
The availability of storage adds fl exibility to a
grain marketing program. Storage enables the
producer to use marketing tools that capture
seasonal price increases and/or narrower basis
levels following harvest. Storage facilities may also
increase the rate at which harvesting can be completed
by decreasing the time spent transporting and
unloading grain.
The proper use of storage will increase a producer’s income. However, maximum storage income results from selective rather than continuous use of storage facilities.
Storage costs
The cost components of storing grain versus selling at harvest are:
- Storage facility cost
- Interest on grain inventory
- Extra drying of corn
- Extra corn shrinkage
- Extra handling cost
- Quality deterioration
Storage facility cost
If grain can be stored in existing farm storage facilities, the ownership costs (depreciation, return on investment, maintenance, insurance, etc.) of the farm storage facility are not included in the analysis of whether to store grain in a particular year.
These costs are incurred whether grain is stored or
sold from the fi eld at harvest. Therefore, they do not
affect the annual decision of whether or not to store
grain.
However, if grain is stored commercially, the commercial
storage charge should be included in the
analysis because the charge is incurred only if grain
is stored. Storage charges vary among elevators, but usually are a fi xed charge for the fi rst few months
with an additional charge for each additional month
thereafter. Some elevators charge a daily rate.
Interest on inventory
Some costs of storing grain are hidden. An example is the interest cost of having money tied up in stored grain inventory. If a producer has a loan, the loan can be repaid with the proceeds from the sale of grain. So interest expense is reduced if the grain is sold at harvest. However, if the grain is stored, the loan is not repaid and interest expense continues. So, a cost of storing grain is the additional interest expense incurred.
Even if no money is borrowed, there is an interest
cost of storing grain. If the grain is sold, the
proceeds can be invested in the business or placed
in savings to earn an interest return. If the grain is
stored, the amount of interest foregone is a cost of
storage.
Extra drying
The cost of drying corn to a safe storage level is a
cost of storing corn. Many producers prefer to dry
farm stored corn that they intend to store into the
summer to about 13 to 13.5 percent moisture. However,
No. 2 corn sold at harvest can be 15 to 15.5
percent moisture, depending upon elevator policy.
The extra drying fuel and power costs required to
remove the additional moisture are costs of corn
storage.
Extra shrinkage
Because grain is sold on a weight basis (No. 2 corn weighs 56 lbs.), the removal of additional moisture for farm stored corn also reduces the number of bushels. This reduction in bushels is a cost of storage.
To compute the extra shrinkage for farm stored corn, use a shrink factor of 1.25 percent. Commercial elevators often use a shrink factor of 1.35 percent to 1.4 percent. The extra shrink cost is calculated by multiplying the extra points of moisture removed times the shrink factor times the current corn price. For example, the cost of removing an additional two points of moisture for farm storage when corn price is $3.00 is 7.5 cents (2 x 1.25% x $3.00 = 7.5 cents).
Aeration
A charge for the cost of aerating dried grain stored on the farm may be included. It is estimated that aeration costs for managing dry grain in storage (cooling grain into winter and subsequently warming grain in the spring to match outside temperature) will cost from .2 to .3 of a cent per bushel under good management. These charges are for keeping already dried grain in condition.
Extra handling
The cost of moving grain in and out of farm storage is another cost of storage. Costs vary by the type of handling equipment, bin size, and bin shape.
Generally, handling costs are greater for fl at storage and smaller bins. The extra handling costs associated with most farm storage facilities range from 2.0 cents to 2.5 cents per bushel.
Quality deterioration
Another cost of farm storage is the possibility of
additional grain shrinkage and quality deterioration.
Generally, the loss due to shrinkage from moving
grain into and out of storage and shrinkage during
storage is 0.5 to 1 percent. The cost of the shrinkage
loss can be computed by multiplying the percentage
by the corn selling price.
Quality deterioration is quite variable depending on the quality of grain placed in farm storage, quality of the storage facility, and how the stored grain is managed. If the grain is stored commercially, these costs are covered in the elevator storage charge.