Waterloo Cedar Falls Courier, IA
05-14-07
Grain storage is a hot commodity
By MATTHEW WILDE, Courier Staff Writer
NEW HAMPTON --- Adding on-farm grain storage is a money maker, experts
say. But if farmers haven't booked a construction crew by now, most likely bins
won't go up in time to accommodate this year's harvest.
Corn buyers --- namely ethanol plants with limited storage capacity --- are
battling for an adequate year-round supply. And grain storage experts say buyers
are willing to pay farmers to keep corn for them.
"Ethanol plants only want to store 10 days or so worth of corn. They're willing to
pay a premium to farmers to store the grain," said Steve Phillips, owner of
Phillips Modern Ag Co. in New Hampton, specializing in grain storage and
handling.
Since last fall when corn prices spiked due to demand from the burgeoning
ethanol industry, Northeast Iowa farmers have noticed, at times, more than a 50cent carry per bushel --- the difference between immediate and future delivery
contracts --- in the market. If a buyer is willing to pay $3.50 now or $4 several
months later for 10,000 bushels, both profitable prices, being able to store the
grain longer could net an extra $5,000.
For many farmers, the decision is easy. Area grain storage and handling
businesses are booked solid into September and beyond.
On Friday, Phillips and his crew was at Bill Gutknecht's farm just southwest of
Cedar Falls. Gutknecht is planting more corn this year in response to demand,
and needs more drying capacity and storage space. A new 16,000-bushel wet
bin and continuous-flow drier was installed and plans are in the works to add
storage.
"I noticed a 51-cent carry on fall '07 corn to July '08. ... In two to three years the
bin is paid for," Gutknecht said.
Typically bins today cost between $1 to $1.50 per bushel to construct, builders
say. The larger capacity bins are cheaper since the cost is spread out over more
bushels. Typical storage bins today range from 30,000 bushels on the farm to
more than 300,000.
Phillips said it used to take about seven years or more for a bin to pay for itself
before true profits were realized. Elevators, on average, charge about 3 cents per
bushel per month for storage, officials said.
"When I started (building bins) 29 years ago, the average size farmers built was
6,000 bushels. Today it's 60,000 bushels," Phillips said. "Some of the best
income potential they've seen in 15 years is by doing this."
Government statistics show Iowa has nearly 2.8 billion bushels of grain storage
capacity, both private and commercial. However, Charles Hurburgh director of
the Iowa Grain Quality Initiative at Iowa State University, believes another 1
billion bushels is needed.
He said the shift in corn demand toward local processing, often bypassing the
local elevator, and more corn being planted is driving the bin building boom on
farms.
Iowa's ethanol industry currently consumes about 600 million bushels of corn, but
plants under construction and those on the drawing board will more than double,
maybe triple, usage in a few years.
To meet demand, farmers are planting more corn. This year, producers intend to
plant 13.9 million acres, a 10 percent increase from 2006. This is primarily at the
expense of soybeans. For the most part, corn yields are four times higher per
acre than soybeans, so more storage is needed.
Phillips said both farmers and elevators are adding storage at a rapid pace.
"Do the math," he said. "Someone has to build it. Corn is too valuable to be
laying on the ground."
During the 2005 harvest, cash corn was worth $1.50 per bushel. A year later,
prices more than doubled due to the ethanol frenzy.
Hurburgh said piling corn on the ground, especially for farmers, is not advised.
The spoilage factor and the amount of attention piles need is often too great for
producers to handle.
While bins seem like a good investment, Hurburgh said farmers need to closely
evaluate their marketing plans and cash flow needs. If farmers need to sell a
large quantity of grain to pay bills at the first of the year, then investing in a lot of
long-term storage may not be wise.
"With the right business plan there's money to be made. Without it, (bins) are a
pretty expensive liability," Hurburgh said.
Local bin builders are working overtime to meet demand. At Sukup
Manufacturing in Sheffield, one of only two bin manufacturers in the state,
officials said they've added a shift and are continually hiring more workers to
keep up.
Sukup is building about 350 bins a month, and every one is spoken for until the
middle of September. The company sells bins through a dealer network
domestically and abroad, which is responsible for on-site construction.
"When farmers put up bins, they are in control ... capitalizing on market highs,"
said John Hanig, director of bin sales for Sukup.
Government programs are available for producers to build bins. Local Farm
Service Agency officials have information about low-interest loan and down
payment options.
Contact Matthew Wilde at (319) 291-1579 or matt.wilde@wcfcourier.com.