NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
August 10, 2000
by George Flaskerud, Extension Crops Economist
Storing wheat on the farm from harvest until November could cost about 16 cents per bushel in properly designed storage facilities. To cover storage costs, a producer would have to receive an additional 16 cents per bushel in November, compared to the selling price for delivery off the combine in August. A farmer would need an additional 11 cents for barley and 10 cents for oats to cover storage costs.
Storing sunflowers on the farm from harvest in October until May could cost about 59 cents per hundredweight. The cost could be about 17 cents per bushel for corn. To store soybeans from harvest in September to May could cost about 41 cents per bushel.
Notice that these costs begin at harvest. They are relevant to storage decisions made before the grain is actually put in the bin because they include charges for putting grain into storage and taking it out again. These in/out charges are important to the storage decision only before the grain is in the bin. Once the grain is in the bin, the in/out cost is not important to the storage decision since part of it has already been incurred and the remainder will be incurred regardless of whether the grain is hauled out immediately or later.
Total in/out costs were estimated to be approximately 8 cents per bushel for wheat, 8 cents for corn, 7 cents for barley, 7 cents for oats, 11 cents for soybeans, and 20 cents per hundredweight for sunflowers. This first category of costs includes the costs of operating and repairing the equipment, handling shrink, insurance, management, labor and trucking. The 7- to 20-cent charge would be considered as a cost during the first month of storage only.
How much storage costs change from one month to the next depends partly on crop prices. For this analysis, the costs were based on potential average prices during storage of $2.70 per bushel for wheat, $1.30 for corn, $1.25 for barley, $.90 for oats, $3.95 for soybeans and $5.70 per hundredweight for sunflowers.
This second category of costs also includes a cost per month for interest on investment in the grain in storage and storage shrink. The cost for shrink is very small for properly designed storage facilities.
Interest on investment was based on a bank loan annual interest rate of 11 percent. An alternative rate of interest would be applicable for those producers with no debt. It would be the potential rate of return from investing the proceeds of a grain sale. The rate of return on a money market mutual fund was about 6.5 percent during July.
Combined costs from both the first and second categories of costs are important to the sell or store decision made prior to harvest. When combined, they become cumulative variable monthly on-farm storage costs. They are the costs specified at the beginning of this article.
Now let's examine what the storage costs could be once the grain is in the bin. These storage costs are different because the in/out charges can be ignored because they have already been incurred.
Cumulative variable monthly on-farm storage costs that are relevant to storage decisions made after the grain is in the bin include only the total cost from the second category. Recall that the second category included a cost per month for interest on investment in the grain in storage and for storage shrink.
Suppose that a decision is being made in November whether to sell wheat for immediate delivery or to store until April. An additional five months of storage is being considered. The relevant total storage charge to consider in this decision would be about 13 cents per bushel.
Sell or store decisions have been covered for the situation at harvest and for a situation later in the year. A third situation needs to be examined: when grain is stored to speed-up harvest.
If storage is essential to harvesting efficiency, some producers may choose to include category one costs and several months of category two costs as harvesting costs instead of storage costs.
Suppose that a producer stores wheat to improve harvesting efficiency and that field work prevents him from delivering wheat to the elevator until November. If a decision is being made in November to either sell wheat for immediate delivery or to store until January, an additional two months of storage is being considered. The relevant total storage charge to consider in this decision would be approximately 5 cents per bushel.
On-farm storage costs were discussed here for existing facilities only. If a new bin is being considered, refer to NCR Extension Publication No. 217, Fact Sheet #19, for guidance in determining storage costs. The fact sheet is available from your county extension agent. Also, if the grain is stored in the elevator, the cost of storage per month is the rate specified by the elevator plus an interest cost. The monthly interest cost is the cash grain price times the interest rate.
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Source: George Flaskerud (701) 231-7377
Editor: Tom Jirik (701) 231-9629
Click here for a pdf version of this graphic. (3KB b&w table)
Click here for a pdf version of this graphic. (3KB b&w table)