Let me ask what your grain marketing plan is for the 2013 crop. That’s what I thought. Storage. Keep it off the market until the market comes to you. And that is why you have kept the grain bin makers very busy lately.
Grain storage is the name of the marketing game and this is the type of year when it should pay, but the cost of storage should be a known factor. There is no reason to store grain hoping a springtime sale will cover the cost of storage and all of the associated expenses. But how do you determine the cost and how do you know if you have all of the expenses included in your calculation? Good questions!
click image to zoom The availability of storage provides an alternative to a marketing plan that allows one to capture the carry in the market. Sometimes the carry is small and a high cost of storage may not pay to forward contract. Iowa State University economists Bob Wisner and Don Hofstrand evaluate the cost of storing grain and make the point, “Maximum storage income results from selective rather than continuous use of storage facilities.”
Facility costs include depreciation, return on investment, maintenance, insurance, etc., which are not included in the operational costs for drying and handling, but must be included.
You paid a lot of money for a bin and all of the loading and unloading equipment and that must be amortized over the thousands of bushels that are stored and handled. And that cost exists whether the bin is empty or full.
If you have no farm storage and only use commercial storage, the facility cost is built into the few cents per bushel charged by the elevator. Those rates may be monthly, daily, or even start with a minimum charge.
You may not want to go to the trouble of calculating it, but there is an interest charge on the money that you have tied up in storing your asset. It may seem insignificant, but calculate it some time and you will realize that it is a significant cost that has to be covered by your break-even price that rises while the grain is stored. Consider the grain as collateral for a loan, and the longer you store it, the higher the interest charge is. Whether you are paying a commercial loan interest charge or losing interest for money that might be invested, interest is still a cost of storage.
Grain stored in a bin will only have value when it is unloaded if the quality has not deteriorated. The quality will not improve during storage, but it will deteriorate, and that will happen if it is too wet and its shelf life is shorter than the length of time it needs to be stored. Drying the grain is a cost either with on-farm storage or commercial storage and needs to be included in the break-even cost.