1. Farm & Ag Business Management
Kelvin Leibold
Farm & Ag Business Management
Field Specialist
ISU Hardin County Extension
524 Lawler
Iowa Falls, IA
(641)

2. Costs and Returns from Grain Storage

3. 90 million gallon corn ethanol plant
Hog confinement facility with 3,300 head capacity with deep pit / full slats
90 million gallon corn ethanol plant

4. Golden Oval Eggs, Thompson, IA

5. Iowa Ethanol Production in Million Gallons

6. Iowa Corn used for ethanol - million bu.

8. 62 Planned + current in Iowa
11 Just across the borders * S a c
Linn
Lee I d
Tama
Clay
Kosuth J s p e r
Lyon
Page
Story o n
Fayette A i
Benton W l P h t O f u b g B V k H w C G M
Dickenson D
Montgomery
Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 8/22/06 ,
Poweshiek
Polk
Boone
Greene
Carroll
Crawford
Plymouth ’
Brien
Woodbury
Monona
Harrison
Shelby
Wright
Franklin
Floyd
Chickasaw
Webster
Hardin
Louisa
Emmet
Palo
Alto
Hancoc
Worth
Mitchell
Howard
Winnesh
iek
Allamakee
Bremer
Butler
Hamilton
Grundy
Buchana
Delawa re
Dubuque
Jackson
Clinton
Guthrie
Dalla
Johnson
Marshal
Pottawattamie
Mills
Fremont
Madis on
Warren
Marion
Mahask
Keokuk
Adams
Union
Clarke
Lucas
Monroe
Taylor
Ringgold
Cherokee
Calhoun
Decatur
Wayne
Davis
Henry
Scott
Humbol dt
Clayton
Cedar
Sioux
Cass
Iowa * **
* * * * * * * * * * * * * * *

10. Source: Renewable Fuels Association

11. US Corn used in Ethanol Production – million bushels Today ≈ 2 billion bu.

12. Source: Dr. R Wisner

13. Source: Dr. R Wisner

14. Needed Yld. @ current Acres
Source: Dr. R Wisner

15. 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

16. No man is an Island, entire of itself; every man is a piece of the Continent,
John Donne( ),
Meditation XVII

19. Source: Dr. R Wisner

21. 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?

22. What is Carry?
Carrying charges are the difference between futures delivery months (e.g. December and July)

23. CBOT Dec,July Corn Futures 1990-2006
Year
Dec 10/15
July 10/15
Dec/Jul Carry
1990
2.28
2.47
0.19
1991
2.46
2.67
0.21
1992
2.10
2.29
1993
2.49
2.63
0.15
1994
2.18
2.41
0.23
1995
3.28
3.33
0.05
1996
2.87
3.01
0.14
1997
2.90
3.07
0.17
1998
2.27
2.50
1999
1.99
2.23
2000
2.07
2.32
0.25
2001
2.06
0.26
2002
2.54
2.66
0.12 
2003
2.17
2.31
2004
0.24
2005
2.04
0.27
2006
3.17
3.34
0.16
Ave.
2.60
CBOT Dec,July Corn Futures
All were positive years

24. CBOT Nov, July Soybean Futures 1990-2006
Year
Nov 10/15
July 10/15
Nov/Jul Carry
1990
6.14
6.60
0.46
1991
5.48
5.89
0.40
1992
5.35
5.64
0.29
1993
6.15
6.34
0.20
1994
5.39
5.74
0.35
1995
6.57
6.87
0.30
1996
6.93
6.86
(0.06)
1997
7.05
7.29
0.25
1998
5.56
5.90
0.34
1999
4.92
5.21
2000
4.65
5.01
0.36
2001
4.29
4.46
0.26
2002
5.52
0.04
2003
7.30
6.66
(0.64)
2004
5.14
2005
6.17
0.28
2006
6.31
0.42
Ave.
5.77
5.98
0.21
CBOT Nov, July Soybean Futures

25. Corn Dec 27, FC Delivery Month Bid Basis Op Mth Futures Delivery Date
Oct/Nov 2006
2.97
-0.35 Z
3.325
Dec 2006
3.03
-0.29
Jan 2007
3.06
-0.38 H
3.445
Mar 2007
3.11
-0.33
May 2007
3.18
-0.34 K
3.52
Jul 2007
3.23 N
3.575
Oct 2008
2.96
-0.42
3.3825

26. Corn VeraSun Energy Oct 27 Delivery Month Bid Basis Op Mth Futures
Delivery Date
Oct/Nov 2006
2.98
-0.35 Z
3.325
Dec 2006
3.03
-0.30
Jan 2007
3.07
-0.38 H
3.445
Mar 2007
3.13
-0.32
May 2007
3.19
-0.33 K
3.52
Jul 2007
3.21
-0.37 N
3.575
Oct 2008
2.88
-0.50
3.3825

27. Difference in Basis VS FC Difference Oct/Nov 2006 -0.35 Dec 2006 -0.30
Jan 2007
-0.38
Mar 2007
-0.32
May 2007
-0.33
Jul 2007
-0.37
Oct 2008
-0.50
-0.35
-0.29
-0.38
-0.33
-0.34
-0.42
.00
.01
-.01
-.03
-.08

28. Webster County Basis
Corn
Soybeans

29. Cash VS FC Difference Oct/Nov 2006 2.98 Dec 2006 3.03 Jan 2007 3.07
Mar 2007
3.13
May 2007
3.19
Jul 2007
3.21
Oct 2008
2.88
2.97
3.03
3.06
3.11
3.18
3.23
2.96
.01
.00
.02
-.02
-.08

30. Off-farm Corn Storage Costs 8 months
Extra shrink to 14% $0.04
Extra drying to 14% 8%
Handling
Storage
Total

31. 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?

32. Off-farm Corn Storage Costs 8 months
Extra shrink to 14% $0.04
Extra drying to 14% 8%
Handling
Storage
Total

33. Factors Encouraging More On-Farm Storage
Specialty/Identity Preserved Crops
Larger Trucks – Easier Grain Transport
Harvest Time Bottleneck Concerns
New demand and carry ????

34. The Cost of Storing Grain
Adapted from materials developed by
Daniel M. O’Brien
Extension Agricultural Economist
Northwest Kansas

35. 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

37. 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

38. 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 $)

39. Corn Variable Farm Storage $$ $3 Harvest Corn, 6 Months, Less Drying
Bin A: bu
Bin B: bu
Bin C: bu
Conveyance
$0.002
Aeration
$0.010
Insecticide
$0.040
$0.020
Repairs (1.5% Investment)
$0.024
$0.023
$0.019
Interest: $3/bu, 6 mo, 7.5%
$0.115
Shrinkage: 1.6% shrink
$0.048
Variable Cost / bu
$0.24
$0.22
$0.20

40. Corn Variable Farm Storage $$ 3 Farm Bin Sizes, $2 /bu Corn @ Harvest

41. Corn Interest/Variable Storage $$ 25,000 bu Bin, $2 /bu @ Harvest

42. Fixed Farm Grain Storage Costs: Individual Bin Initial Fixed Investment
3 Grain Bin Investment Examples
 bu, bu, & bu capacities
 20 year life
Conveyance Equipment (Augers, etc)
 $0.10 /bu storage, 20 year life
Other Costs
 $0.05 /bu storage

43. Fixed Farm Storage Costs Initial Investment in Individual Bins
Bin A: bu
Bin B: bu
Bin C: bu
Upfront Grain Bin Investment (20 yr life)
$18,500
$25,000
$34,250
$42,500
$56,500
$62,500
Conveyance Equipment (20 yr life)
$1,250
$3,425
$5,000
$13,000
Other Equipment (10 yr life)
$625
$1,712
$2,500
Total Investment
$20,375
$38,000
$64,000

44. 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

45. Fixed Farm Storage Costs Annual Fixed Cost for Individual Bins
Bin A: bu
Bin B: bu
Bin C: bu
Annual Grain Bin Depreciation (20 yr life)
$0.084
$0.078
$0.067
Interest Cost (7.5%)
$0.061
$0.057
$0.048
Taxes & Insurance (0.7% of Investment Cost)
$0.011
$0.009
Annual Fixed Cost/bu
$0.1560
$0.1460
$0.1240
Note: $60,000 expense with after tax loan 50% bracket = 6¢/ bu. pmt.

46. Corn Fixed & Total Storage $$ 3 Farm Bin Sizes, $2 /bu @ Harvest

47. Corn Commercial vs Farm Storage $2 /bu Corn @ Harvest, 25,000 bu Farm Bin
Breakeven Farm TC &
Commercial 8 1/2 mo (June)
Breakeven Farm VC &
Commercial 3 mo (January)

48. 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

50. The Six Challenges Harvest Cost or Storage Cost Drying Benefit
“Carry in the market” + “Basis Improvement
Incomes Taxes and Cost of $$$
Market Taker or Market Maker
Other Choices – commercial, condo

51. 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 ????

52. 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

53. Factors to consider Site location Drying needs Expansion options
Cost of capital
Tax issues

54. Carry and Basis Does historical data reflect the future?
If basis would go positive would it impact the return for storage?

55. Difference in Basis VS FC Difference Oct/Nov 2006 -0.35 Dec 2006 -0.30
Jan 2007
-0.38
Mar 2007
-0.32
May 2007
-0.33
Jul 2007
-0.37
Oct 2008
-0.50
-0.35
-0.29
-0.38
-0.33
-0.34
-0.42
.00
.01
-.01
-.03
-.08

56. Cash VS FC Difference Oct/Nov 2006 2.98 Dec 2006 3.03 Jan 2007 3.07
Mar 2007
3.13
May 2007
3.19
Jul 2007
3.21
Oct 2008
2.88
2.97
3.03
3.06
3.11
3.18
3.23
2.96
.01
.00
.02
-.02
-.08

57. 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

58. Tax Issues Producer can Sec. 179 Grain bins are MACRS 7 year property
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!

59. 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.

60. Other Choices – commercial, condo
Years to retirement
Location
Size of structures
Safety
TX, AZ, FL

61. 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

62. 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

63. 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

64. 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

65. Web sites to review
$$$$
$$$$
$$$$$

66. C:\FILES\FILES\Storage costs2.xls

67. Web sites to review Drying cost calculator Cost of storing grain
$$$$$
Cost of storing grain
$$$$$

68. 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

69. Questions or Comments
Run your own numbers

70. What should we be doing for you?1. 2. 3. 4. 5. 6.