Kelvin Leibold
Farm & Ag Business Management
Field Specialist
ISU Hardin County Extension
524 Lawler
Iowa Falls, IA 50126
(641) 648-4850
kleibold@iastate.edu
www.extension.iastate.edu/
Costs and Returns from
Grain Storage
90 million gallon
corn ethanol plant
Hog confinement
facility with 3,300
head capacity with
deep pit / full slats
Golden Oval Eggs, Thompson, IA
Iowa Ethanol Production in Million Gallons
Million gallons
Iowa Ethanol
1200
1000
800
600
400
200
0
1978 1983
1988 1993
1998 2003
Iowa Corn used for ethanol - million bu.
62 Planned + current in Iowa
11 Just across the borders
*
*
*
*
*
* HowardWinnesh
Osceola
* DickensonEmmet
* Mitchell
* WinnebagoWorth
Allamakee
iek
*
O’Brien Clay Palo
* Kosuth Hancoc * Floyd
Sioux*
* * *Chickasaw Fayette
CerroGordo
* Alto
k
Clayton
Humbol
Cherokee
* BuenaV*ista Pocahontas dt* *Wright Franklin Butler Bremer
Plymouth
*
*
*
*
BlackHawk Buchana Delawa
Hamilton
*
*
Woodbury
Webster
* Hardin
Ida
re
** Grundy
n
*Sac Calhoun *
*
Lyon
Tama
Monona Crawford Carroll Greene
*
Boone
*
*
*
*
Harrison
Shelby Audubon Guthrie
Mills
*
Fremont
Montgomery
*Page
*
Adams
*
Jasper
*
Union
Clarke
Linn
Jackson
Jones
* ** **
*
Poweshiek
Johnson
Cedar
Iowa
*
Mucatine
Madis Warren
on
Adair
Cass
Marshal
l
Dalla Polk
s
*
Pottawattamie
*
Story
r
Benton
n
Dubuque
Marion Mahask Keokuk
a
Lucas Monroe
Taylor Ringgold Decatur Wayne
Appanoose
*Wapello
Davis
*
Scott *
Clinton
n
Washington
Jefferson
Louisa
Henry
*
DesMoines
VanBuren Lee
*
*
Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned., 8/22/06
Data are from Terry Francel at AFBF, Press releases, and Renewable Fuels Association
Number of ethanol plants
120
110
100
90
80
70
60
50
40
1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Renewable Fuels Association
US Corn used in Ethanol Production –
million bushels Today ≈ 2 billion bu.
Source: Dr. R Wisner
Source: Dr. R Wisner
Needed Yld. @ current Acres
Source: Dr. R Wisner
Importers or Exporters ???
•
•
•
•
•
•
•
•
Yield
Acres
Location
Time of year
New Demand
Old Buyers – rail
Crop Mix – no longer 50/50
New Livestock – beef, dairy, pork
Future of livestock
No man is an Island, entire of itself;
every man is a piece of the Continent,
John Donne(1572 - 1631),
Meditation XVII
http://www.card.iastate.edu/ag_risk_tools/basis_maps
Source: Dr. R Wisner
Seasonal Price Movements in Iowa Corn Prices, 1990-2005
235
230
225
220
215
210
g
Au
l
Ju
n
Ju
M
ay
Ap
r
M
ar
Fe
b
Ja
n
De
c
No
v
Oc
t
205
Pre-harvest sales opportunities?
If you pre-sell grain for fall delivery some of the
storage issues disappear!
Storage may allow you to capture premiums
for grain in pre-harvest sales. How large will
these premiums be in 3 years?
What is Carry?
Carrying charges are the difference
between futures delivery months
(e.g. December and July)
CBOT Dec,July
Corn Futures
1990-2006
All were positive
years
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Ave.
Dec 10/15
July 10/15
2.28
2.46
2.10
2.49
2.18
3.28
2.87
2.90
2.27
1.99
2.07
2.06
2.54
2.17
2.07
2.04
3.17
2.41
2.47
2.67
2.29
2.63
2.41
3.33
3.01
3.07
2.50
2.23
2.32
2.32
2.66
2.31
2.31
2.31
3.34
2.60
Dec/Jul
Carry
0.19
0.21
0.19
0.15
0.23
0.05
0.14
0.17
0.23
0.23
0.25
0.26
0.12
0.15
0.24
0.27
0.16
0.19
CBOT Nov, July
Soybean Futures
1990-2006
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Ave.
Nov
10/15
6.14
5.48
5.35
6.15
5.39
6.57
6.93
7.05
5.56
4.92
4.65
4.29
5.48
7.30
5.14
5.90
5.89
5.77
July
10/15
6.60
5.89
5.64
6.34
5.74
6.87
6.86
7.29
5.90
5.21
5.01
4.46
5.52
6.66
5.39
6.17
6.31
5.98
Nov/Jul
Carry
0.46
0.40
0.29
0.20
0.35
0.30
(0.06)
0.25
0.34
0.29
0.36
0.26
0.04
(0.64)
0.25
0.28
0.42
0.21
Corn
Dec 27, FC
Delivery
Month
Bid
Basis
Op
Mth
Futures
Delivery
Date
Oct/Nov 2006
2.97
-0.35
Z
3.325
2006-11-30
Dec 2006
3.03
-0.29
Z
3.325
2006-12-31
Jan 2007
3.06
-0.38
H
3.445
2007-01-31
Mar 2007
3.11
-0.33
H
3.445
2007-03-31
May 2007
3.18
-0.34
K
3.52
2007-05-31
Jul 2007
3.23
-0.34
N
3.575
2007-07-31
Oct 2008
2.96
-0.42
Z
3.3825
2007-10-31
Corn
Delivery
Month
VeraSun Energy
Oct 27
Basis
Op
Mth
Futures
Delivery
Date
Oct/Nov 2006 2.98
-0.35
Z
3.325
2006-11-30
Dec 2006
3.03
-0.30
Z
3.325
2006-12-31
Jan 2007
3.07
-0.38
H
3.445
2007-01-31
Mar 2007
3.13
-0.32
H
3.445
2007-03-31
May 2007
3.19
-0.33
K
3.52
2007-05-31
Jul 2007
3.21
-0.37
N
3.575
2007-07-31
Oct 2008
2.88
-0.50
Z
3.3825
2007-10-31
Bid
Difference
in Basis
VS
FC
Difference
Oct/Nov 2006
-0.35
-0.35
.00
Dec 2006
-0.30
-0.29
.01
Jan 2007
-0.38
-0.38
.00
Mar 2007
-0.32
-0.33
-.01
May 2007
-0.33
-0.34
-.01
Jul 2007
-0.37
-0.34
-.03
Oct 2008
-0.50
-0.42
-.08
Webster
County
Basis
Corn
Soybeans
www.card.iastate.edu
Cash
VS
FC
Difference
Oct/Nov 2006
2.98
2.97
.01
Dec 2006
3.03
3.03
.00
Jan 2007
3.07
3.06
.01
Mar 2007
3.13
3.11
.02
May 2007
3.19
3.18
.01
Jul 2007
3.21
3.23
-.02
Oct 2008
2.88
2.96
-.08
Off-farm Corn Storage Costs
8 months
•
•
•
•
•
Extra shrink to 14%
Extra drying to 14%
Interest @ 8%
Handling
Storage
Total
$0.04
0.04
0.16
0.00
0.225
0.465
Will storage pay?
•
•
•
•
Will the carry improve more than normal?
How is basis going to impact this?
How much will storage cost?
Who is building the storage now and who
is going to build?
• What will they charge?
Off-farm Corn Storage Costs
8 months
•
•
•
•
•
Extra shrink to 14%
Extra drying to 14%
Interest @ 8%
Handling
Storage
Total
$0.04
0.04
0.16
0.00
0.225
0.465
Factors Encouraging More
On-Farm Storage
•
•
•
•
Specialty/Identity Preserved Crops
Larger Trucks – Easier Grain
Transport
Harvest Time Bottleneck Concerns
New demand and carry ????
The Cost of Storing Grain
Adapted from materials developed by
Daniel M. O’Brien
Extension Agricultural Economist
Northwest Kansas
What Storage Costs to
Consider?
Annual decisions to store grain are based only on covering
VARIABLE storage costs and potential drying costs if a
factor
If VARIABLE costs of storage can be covered THEN
grain should be stored
Regardless of whether FIXED costs are covered
Relevant to EXISTING Grain Storage Facilities
Handling INTEREST Cost on Unsold Grain
When Should Fixed Storage Costs
be Considered?
Fixed Costs should be considered when deciding
whether or not to actually build NEW GRAIN
STORAGE facilities
Before construction, ALL Grain Storage Facility
costs are VARIABLE
The cost NEW GRAIN STORAGE facilities
should be compared to Commercial Storage
Costs
Variable Farm Grain Storage Costs
Study by Dhuyvetter, et al. KSU 2000
Conveyance: Cost of Tractor used on Auger
Aeration: $0.01 /bu
Insecticide: Bin wall spray, protectant, fumigant
Interest Cost
 (#  12 months) x (% interest) x (Harvest $)
Shrinkage
 [1% Shrink + (#months x 0.1%)] x (Harvest $)
Corn Variable Farm Storage $$
$3 Harvest Corn, 6 Months, Less Drying
Bin A:
12500 bu
Bin B:
25000 bu
Bin C:
50000 bu
Conveyance
$0.002
$0.002
$0.002
Aeration
$0.010
$0.010
$0.010
Insecticide
$0.040
$0.020
$0.010
Repairs (1.5% Investment)
$0.024
$0.023
$0.019
Interest: $3/bu, 6 mo,
7.5%
$0.115
$0.115
$0.115
Shrinkage: 1.6% shrink
$0.048
$0.048
$0.048
$0.24
$0.22
$0.20
Variable Cost / bu
Variable Cost / bu
Corn Variable Farm Storage $$
3 Farm Bin Sizes, $2 /bu Corn @ Harvest
$0.25
$0.23
$0.20
$0.20
$0.17
$0.14
$0.15
$0.11
$0.16
$0.13
$0.10
$0.05
$0.19
$0.11
$0.08
Nov
Dec
Jan
Feb Mar Apr May June July
Months
12500 bu
25000 bu
50000 bu
Corn Interest/Variable Storage $$
25,000 bu Bin, $2 /bu @ Harvest
Variable Cost / bu
0.25
0.20
0.15
0.10
0.01
0.03
0.04
0.05
0.06
0.08
0.09
0.10
0.11
0.05
0.00
Nov
Dec
Jan
Feb
Mar
Apr
May
Months
25,000 bu Bin Variable Interest Cost
25,000 bu Bin Other Variable Costs
June
July
Fixed Farm Grain Storage Costs:
Individual Bin Initial Fixed Investment
3 Grain Bin Investment Examples
 12500 bu, 25000 bu, & 50000 bu capacities
 20 year life
Conveyance Equipment (Augers, etc)
 $0.10 /bu storage, 20 year life
Other Costs
 $0.05 /bu storage
Fixed Farm Storage Costs
Initial Investment in Individual Bins
Bin A:
Bin B:
Bin C:
12500 bu 25000 bu 50000 bu
Upfront Grain Bin
Investment (20 yr life)
Conveyance
Equipment (20 yr life)
Other Equipment
$18,500
$25,000
$1,250
$34,250
$42,500
$3,425
$625
$1,712
$56,500
$62,500
$5,000
$13,000
$2,500
(10 yr life)
Total Investment
$20,375
$38,000 $64,000
Fixed Farm Grain Storage Costs:
Annual Fixed Costs
Bin Depreciation
 Bin Investment  20 year useful bin life
Interest Cost
 Based on government subsidized loan rate
& ½ the grain bin investment
Taxes & Insurance
 0.7% of Initial Investment
Fixed Farm Storage Costs
Annual Fixed Cost for Individual Bins
Bin A:
Bin B:
Bin C:
12500 bu 25000 bu 50000 bu
Annual Grain Bin
Depreciation (20 yr life)
Interest Cost (7.5%)
Taxes & Insurance
$0.084
$0.078
$0.067
$0.061
$0.011
$0.057
$0.011
$0.048
$0.009
$0.1560
$0.1460
$0.1240
(0.7% of Investment Cost)
Annual Fixed Cost/bu
Note: $60,000 expense with after tax loan 50% bracket = 6¢/ bu. pmt.
Corn Fixed & Total Storage $$
3 Farm Bin Sizes, $2 /bu @ Harvest
$0.40
$0.38
Total Cost / bu
$0.35
$0.33
$0.30
$0.30
$0.27
$0.32
$0.29
$0.26
$0.20
$0.23
$0.20
$0.16
$0.15
$0.12
$0.10
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Months
12.5K bu TC
12.5K bu FC
25K bu TC
25K bu FC
50K bu TC
50K bu FC
Corn Commercial vs Farm Storage
Variable Cost / bu
$2 /bu Corn @ Harvest, 25,000 bu Farm Bin
$0.40
$0.30
Breakeven Farm TC &
Commercial TC @ 8 1/2 mo (June)
$0.20
$0.10
Breakeven Farm VC &
Commercial TC @ 3 mo (January)
$0.00
Nov
Dec
Jan
Feb Mar Apr May June July
Months
25000 bu Bin VC
25000 bu Bin TC
Commercial Storage TC
For NEW Grain Storage Facilities:
All costs are VARIABLE before
construction of bins/storage facilities
TOTAL per unit cost (VARIABLE +
FIXED) should be considered in the
decision
New ON-FARM STORAGE is generally
MORE COSTLY than COMMERCIAL
STORAGE for periods up to 8-9 months for
the major commodities
The Six Challenges
1. Harvest Cost or Storage Cost
2. Drying Benefit
3. “Carry in the market” + “Basis Improvement
4. Incomes Taxes and Cost of $$$
5. Market Taker or Market Maker
6. Other Choices – commercial, condo
Harvest Cost or Storage Cost
Specialty / Identity Preserved Crops
Larger Trucks – Easier Grain Transport
Harvest Time Bottleneck Concerns
Need to keep the combines rolling
New demand and carry ????
Drying
Bottleneck – create or solve
Cost of drying- 4¢/pt.?
Shrink factors – 1.4%?
Moisture level 17%
Blending capabilities
Mechanics – location, access,
capacity, design, electricity
Factors to consider
Site location
Drying needs
Expansion options
Cost of capital
Tax issues
Carry and Basis
Does historical data reflect the future?
If basis would go positive would it impact the
return for storage?
Difference
in Basis
Oct.27, 2006
VS
FC
Difference
Oct/Nov 2006
-0.35
-0.35
.00
Dec 2006
-0.30
-0.29
.01
Jan 2007
-0.38
-0.38
.00
Mar 2007
-0.32
-0.33
-.01
May 2007
-0.33
-0.34
-.01
Jul 2007
-0.37
-0.34
-.03
Oct 2008
-0.50
-0.42
-.08
Cash
VS
FC
Difference
Oct/Nov 2006
2.98
2.97
.01
Dec 2006
3.03
3.03
.00
Jan 2007
3.07
3.06
.01
Mar 2007
3.13
3.11
.02
May 2007
3.19
3.18
.01
Jul 2007
3.21
3.23
-.02
Oct 2008
2.88
2.96
-.08
Market Taker or Market Maker
Volume premiums - ¢¢
Quality Premiums- ¢¢
Utilizing labor and equipment – hired
help and semis - ¢¢
Grain Trader – have semi will travel
- ¢¢¢¢¢¢ Posted Price???
Owning paper versus owning commodity
Tax Issues
Producer can Sec. 179
Placed in service
Grain bins are MACRS 7 year
property
10% state, 15% FICA, 25% Fed
If in the zero bracket it’s harder to pay for!
Cost of Money
Higher priced grain means higher opportunity cost
to store each bushel.
You can still “seal grain” but the savings are not
near the value it is with prices below loan rates.
FSA does have a loan program for storage up to
$100,000 at competitive rates.
Other Choices – commercial, condo
Years to retirement
Location
Size of structures
Safety
TX, AZ, FL
Condo Storage
Easy way to expand storage
Can turn the storage several times a year
Cost may be less than own storage
construction costs
May be easier to resell or transfer ownership
Professionally managed
Condo Storage
Annual maintenance fee – taxes, electricity
Limits on tax credits
Unknown life and salvage value
Bottleneck – create or prevent
May limit where you sell (basis, pricing tools,
etc.)
Review the fine print
Commercial Storage
Has offered value in the past; will continue
Professionally managed
Going to build; not concrete
Going to see interesting marriages??
Going to export corn unless USA becomes
a major importer
Factors to consider
Commercial vs. On-Farm Storage Costs
Availability of commercial storage
Market flexibility – several competitive
markets
Preserving grain identity
Bottlenecks within the system – hauling
distance, lines
Transportation costs / savings
Blending capabilities
Web sites to review
http://www.agecon.ksu.edu/kdhuyvetter/Spreadsheets/
On-farm%20storage.xls
$$$$
http://www.ag.ndsu.nodak.edu/abeng/postharvest.htm
http://www.bae.umn.edu/extens/postharvest/
http://www.abe.iastate.edu/fileadmin/www.abe.iastate.e
du/research/wetcorn2.xls
$$$$
http://www.farmdoc.uiuc.edu/fasttools/index.html
$$$$$
C:\FILES\FILES\Storage costs2.xls
ESTIMATING GRAIN STORAGE COSTS
Crop:
Note: enter values in highlighted cells. See notes at bottom.
1. Commercial storage charge (off-farm , only)
-base fee
-months paid by base fee
- monthly charge thereafter
0.10 $/bu.
3 months
0.025 $/bu./mo.
$
Nov
0.100
Dec
corn
Jan
Feb
Mar
Apr
May
June
$
0.025
$
0.025
$
0.025
$
0.025
0.005
$
0.005
$
0.005
$
0.005
$
0.005
$
July
Aug
Sept
$
0.025
$
0.025
$
0.025
$
0.025
2. Fixed costs for on-farm storage (blank for existing storage)
1.33 $/bu. capacity
6.0% %
$
$
$
0.040
0.053
0.040
$
0.133
$
$
0.040
0.053
$/bu./month
$
0.005
%
$
0.023
$/bu.
$
0.020
$/bu.
%
$
0.013
2 % points
0.02 $/point/bu.
1.18 %
4. Electricity cost
$
0.005
(on-farm, only)
5. Quality loss and spoilage
1
(on-farm, only)
6. Extra handling cost
0.02
(on-farm, only)
7. Interest cost
-harvest-time cash price
$
2.25
-interest rate on operating $
7.00%
8. Interest saved on income tax postponement
-marginal income tax rate
40%
(blank for pre-tax costs, only)
$
0.005
$
$
0.013
$
0.013
0.013
$
0.013
$
0.013
$
0.013
$
0.013
$
0.013
$
0.013
$
0.013
$
(0.063)
%
9. Total storage cost for commercial
-monthly cost
-cumulative cost
$/bu.
$/bu.
$
$
Nov
0.21
0.21
$
$
Dec
0.01
0.22
$
$
Jan
Feb
(0.05) $
0.04
0.17 $
0.21
$
$
Mar
0.04
0.25
$
$
Apr
0.04
0.28
$
$
May
0.04
0.32
$
$
June
0.04
0.36
$
$
July
0.04
0.40
$
$
Aug
0.04
0.44
$
$
Sept
0.04
0.47
8. Total storage cost for on-farm
-monthly cost
-cumulative cost
$/bu.
$/bu.
$
$
Nov
0.15
0.29
$
$
Dec
0.02
0.30
$
$
Jan
Feb
(0.04) $
0.02
0.26 $
0.28
$
$
Mar
0.02
0.30
$
$
Apr
0.02
0.31
$
$
May
0.02
0.33
$
$
June
0.01
0.35
$
$
July
0.01
0.36
$
$
Aug
0.01
0.37
$
$
Sept
0.01
0.38
1. Commercial storage charge. Enter a base fee if there is a minimum charge for commercial storage.
Enter the monthly charge for storage beyond the period covered by the base fee.
Leave this blank for on-farm storage.
$0.40
Commercial
On-farm
3. Some spoilage and quality loss may be experienced w ith on-farm storage.
$0.30
$0.20
4. For on-farm storage, enter the variable costs for extra handling into and out of storage.
$0.10
A
ug
Ju
ly
M
ay
Ju
ne
ar
M
n
Ja
Fe
b
D
ec
6. When sales are delayed beyond January 1, they are not taxed until the follow ing year.
Interest can be earned on the funds that w ould have been used to pay the tax.
The marginal tax rate should include federal income, state income, and self-employment taxes.
$N
ov
5. There is an interest cost for delaying cash receipts that could earn interest or be used to pay off loans.
A
pr
2. Storage may require additional drying to avoid spoilage. This often results in some dry matter
loss due to shrinkage. Shrink factors of .0125 or .015 % for each point of moisture removed
are commonly used for corn.
Grain Storage Costs--Cumulative
$ per bushel
$0.50
t
3. Extra drying to store, and shrinkage
-points of extra drying
-variable cost per point
-shrink factor
$
Se
p
-investment for new storage
-interest rate on investment
-interest cost per year
-depreciation cost (25 years)
-repairs and maintenance (3%)
Web sites to review
Drying cost calculator
$$$$$
http://www.extension.iastate.edu/agdm/crops/xls/a120dryingcostcalculator.xls
Cost of storing grain
http://www.extension.iastate.edu/agdm/crops/xls/a2-33.xls
http://www.farmdoc.uiuc.edu/fasttools/index.html
$$$$$
Factors to consider
Commercial vs. On-Farm Storage Costs
Availability of commercial storage
Market flexibility – several competitive
markets
Preserving grain identity
Bottlenecks within the system – hauling
distance, lines, dryers, logistics
Transportation costs / savings
Blending capabilities
Questions or Comments
Grain Storage Costs--Cumulative
$ per bushel
$0.50
$0.40Commercial
$0.30On-farm
$0.20
$0.10
Fe
b
M
ar
A
pr
M
ay
Ju
ne
Ju
ly
A
ug
Se
pt
n
Ja
D
ec
N
ov
$-
Run your own numbers
What should we be doing for you?
1.
2.
3.
4.
5.
6.