KEY
Ag Decision Maker Activity
Cost of Storing Grain
File A2-33
Name:_________________________________________
Use the information in File A2-33 to answer the following questions and problems
What are the seven costs of storing grain?
1.
2.
3.
4.
5.
6.
7.
Storage facility cost
Interest on the value of grain inventory
Extra drying of corn
Extra corn shrinkage
Aeration
Extra Handling
Quality Deterioration
When deciding whether to store grain in existing farm storage facilities, does bin
depreciation, bin insurance, bin debt payments, etc., enter into your decision.
These costs and expenditures are incurred whether you store grain in
the bins or not (sunk costs). So there is not an additional charge that
will be incurred if the grain is stored. So they are not included in the
analysis.
Why is interest charged against the value of grain inventory
If the grain is sold at harvest (instead of being stored), the proceeds of
the sale can be used to pay off loans (reducing interest cost) or
invested (earning interest income). However, if the grain is stored, the
interest benefit is foregone. So the interest benefit is a cost of storing
grain.
Why is a drying and shrinkage charge included when calculating storage charges.
Won't the corn have to be dried even if it is sold at harvest.
Yes, the corn will need to be dried even if it is sold at harvest. The
drying and shrinkage charge that is included as a storage cost is the
additional drying and shrinkage charge that will be incurred to dry the
corn to a safe storage moisture level.
Ag Decision Maker Activity Continued…
Cost of Storing Grain
File A2-33
Calculate the cost of storage.
Corn price: $5.00 per bushel
Storage charge at elevator: 12 cents first 3 months, 2 cents per mo. thereafter.
Debt payment on farm storage bins: 10 cents per bushel
Depreciation on farm storage bins: 5 cents per bushel
Corn moisture in the field: 19%.
Corn moisture for harvest sale: 15.5%
Corn moisture for farm storage: 13.5%
Corn moisture for off-farm storage: 14.0%
Shrinkage: 1.25% per point dried (points x .0125 x grain price)
Drying cost: $.02 per point per bushel
Interest on grain inventory: 12% annually (price per bu. x interest rate / 12
months)
- Extra cost of handling: $.02 per bushel (due to taking it in and out of storage).
- Quality deterioration: 1% of grain price (for farm storage)
-
In Town
Local Elevator
On Farm
3 months 6 months 9 months 3 months 6 months 9 months
Storage Charge
Interest on Inventory
0
0
0
$.12
$.18
$.24
$.075
$.15
$.225
.075
.15
.225
Drying Cost/Extra Moisture
.04
.04
.04
.03
.03
.03
Extra Shrinkage
.063
.063
.063
.047
.047
.047
Extra Handling
.02
.02
.02
0
0
0
Quality Deterioration
.025
.025
.025
0
0
0
Total Cost of Storage
$.223
$.298
$.373
$.272
$.407
$.542
Ag Decision Maker Activity Continued…
Cost of Storing Grain
File A2-33
Add the storage cost to the current corn price to get the break-even stored price.
In Town
Local Elevator
On Farm
3 months 6 months 9 months
Current Corn Price
Storage Cost
Break Even Stored Price
$5.00
.223
$5.00
.298
$5.00
.373
$5.223 $5.298 $5.373
3 months 6 months 9 months
$5.00
.272
$5.00
$5.00
.407
.542
$5.272 $5.407 $5.542
. . . and justice for all
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race,
color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not
all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To
file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and
Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964.
Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S.
Department of Agriculture. Jack M. Payne, director, Cooperative Extension Service, Iowa State University of Science and
Technology, Ames, Iowa.