Des Moines Register
11-19-06
Corn goes to condos
Storage system maintains crop quality, moves grain to market faster
By ANNE FITZGERALD
REGISTER AGRIBUSINESS WRITER
Grinnell, Ia. - Condominiums have a new resident: corn.
In small but growing numbers, farmer-investors are jointly building grain bins that
can hold hundreds of thousands of bushels apiece - larger than those they might
build on their own farms. Known as "condo storage," the alternative approach
helps farmers and grain elevators maintain crop quality and move commodities to
market faster than if grain were stored on the farm.
First employed in the late 1980s, condominium storage faded as demand for
additional storage space leveled off. Now, with corn production expected to
skyrocket to meet growing domestic demand, farmers and grain elevators are
rekindling the concept.
Unlike in the 1980s, most condo storage projects today are being built by limited
liability companies owned by farmer-investors. Typically, condo storage bins are
located near existing grain-handling facilities. Farmer-investors own rights to
storage space equal to the number of bushel-based shares they own. Just as
with residential condominiums, farmers pay an annual fee to cover such costs as
insurance, taxes and utilities.
"I think it makes some sense today, as well as it did back then," said Roger
Ginder, an Iowa State University Extension economist.
A big driver in the trend is soaring demand for grain by ethanol manufacturers.
That demand, coupled with cash corn prices running twice as high as a year ago,
is fueling expectations that farmers will shift more acreage into corn production,
increasing the need for grain storage.
Sully Cooperative Exchange formed a limited liability company to launch condo
storage three years ago.
In 2003, the farmer-owned company built two bins in Grinnell, each with 305,000
bushels of storage capacity. Last year, it constructed two more condo storage
bins - another 305,000-bushel bin in Sully and a 500,000-bushel bin in Grinnell.
Shares sold for the expected lives of the bins - 35 to 40 years - are tradeable, but
only crop farmers can buy them, said Jim Magnuson, general manager of the
Sully co-op.
"It's a little bit like ethanol plant shares trading, but on a very, very small scale,"
he said.
Dan Dunsbergen manages a grain-handling facility in Grinnell, the largest of six
locations owned by the Sully cooperative. Located on the south edge of this
central Iowa college town, the site has more than 3 million bushels of storage
capacity, including 1.1 million bushels of condo storage space. In addition, the
site has co-op-owned bins to hold 1 million bushels of corn and soybeans. This
fall, another million bushels of grain are stored under cover in an outside bunker.
In northwest Iowa, where livestock feeders and ethanol plants drive demand for
corn, condo storage structures are cropping up, too.
Co-op Elevator Association, based in Ocheyedan, offered shares in a 425,000bushel condo storage bin last spring. The first farmers to invest paid $1.30 per
bushel for storage space. Shares sold out in August, with investors then paying
$1.40 per bushel, said Rob Jacobs, general manager of the cooperative.
"We could have been an investor in it, and we would have been, if it had not sold
out," Jacobs said. "It was a good fit for us and for our farmer-customers. ... We
might do another offering this next year."
U.S. farmers are expected to harvest a total of 10.74 billion bushels of corn this
year. If that projection, issued Nov. 9 by the U.S. Department of Agriculture, is
realized, it will be a smaller crop than previously projected and 3 percent smaller
than a year ago, but the third-largest corn crop on record.
The USDA also projected total demand of 11.79 billion bushels for the marketing
year that began Sept. 1. Ethanol production, expected to double to nearly 10
billion gallons annually by 2008, is taking a growing share of the U.S. corn crop,
and many in the corn industry expect U.S. farmers to increase planted corn
acreage in 2007 and beyond.
"The industry is looking two to three years out and seeing more ethanol plants
coming online, so there will be need for additional corn acres beyond 2007," said
Robert Wisner, also an ISU Extension economist.
Increased acreage, combined with higher-yielding corn hybrids, will push farmers
and grain handlers to find storage space for added grain. But building new grain
storage structures, especially steel bins, can be costly, even prohibitive, for a
farmer-owned grain elevator.
"If we switch a lot of soybean acres to corn, we're really going to have a lot more
corn to store," Ginder said. "But expanding commercial storage costs quite a bit
of money, and a lot of elevators don't have the balance sheet to expand."
Condo storage offers grain handlers a way to add storage space while
minimizing capital expenditures.
At the same time, producer-owned condo storage offers financial advantages to
farmers. The storage is a depreciable expense for income tax purposes, and it is
a salable asset - a more liquid asset than on-farm grain bins, Ginder said.
"The whole idea of it is you separate the real estate from the farm," he said.
Reporter Anne Fitzgerald can be reached at (515) 284-8122 or
afitzgerald@dmreg.com
Will there be enough corn?
That’s only one of the big questions surrounding ethanol, and the Register wants
your help in finding answers. Many myths, hopes and unknowns surround the
ethanol industry, and much is at stake for the state. What questions do you have
about ethanol? What confuses you? What would you like to know more about?
Here are some other questions we’d like you to discuss:
How has the growing biofuels industry affected your city or county?
Is Iowa’s ethanol industry growing too big?
Do you think Iowa’s ethanol industry should continue to grow, even if means you
might have to pay more for meat?
* Talk: Click here to discuss ethanol questions and share answers.
Condo storage at Sully co-op
WHAT: Four large steel bins built for condo storage — one at headquarters in
Sully and three at the co-op’s Grinnell location — with total capacity of about 1.4
million bushels.
HOW IT WORKS: Farmer-investors pay for construction of condo storage bins.
They own the bins, foundations and aeration equipment to dry corn. The
cooperative owns grain elevation and conveyance equipment; provides labor and
management; and pays property taxes, insurance and utilities. Participating
farmers pay an annual fee to cover taxes, insurance and utility costs, similar to
maintenance fees paid by owners of residential condos.
BENEFITS TO PRODUCERS: Farmers get access to larger, more modern
storage structures than they would build on-farm, and benefit from the co-op’s
expertise in grain handling and marketing.
“He doesn’t have to climb up on a ladder in February and risk slipping. … He
doesn’t have to worry about equipment going to pieces or anything like that,
because we take care of that,” said Jim Magnuson, general manager of Sully
Cooperative Exchange. “We’ve made it real simple and real easy.”
BENEFITS TO THE CO-OP: Condo storage draws more bushels to the
cooperative, boosting revenue in a low-margin, high-volume business.
Crop production growth outpaces storage
Grain piled on the ground has become a common sight in Iowa and other major
corn-producing states, signaling the need for more storage space.
“Piles on the ground say we don’t have enough space to get everything under
cover at harvest,” said Roger Ginder, an Iowa State University Extension
economist.
Soybeans do not tolerate outdoor storage, so once grain bins are filled, corn
goes on the ground. For years, grain piles have played “a shock absorber role,”
Ginder said.
Ideally, excess grain is piled outdoors in late October or in November, then
picked up by the end of January. Increasingly, however, those piles remain
outdoors longer than that. Often, the practice is a money-loser, he and others
said.
“We are putting a lot of grain on the ground, and you never come out (ahead)
putting grain on the ground,” said Rob Jacobs, general manager of Ocheyedanbased Co-op Elevator Association.