Post-harvest marketing plans can be influenced by many factors. One of these is the cost of storing grain until some future date. There are several reasons to store grain including:
• Storage allows marketing plan flexibility
• Capture strengthening basics
• Capture seasonal price increases
• Manage income tax liability
There are two cost components of grain storage: fixed and variable costs. For commercial storage, people storing grain will pay a price which will include both costs, but farmer owned storage will only bear variable as cash costs when grain is stored. The aspects of thee costs include:
• Storage facility ownership cost
• Interest (opportunity cost) on owned grain
• Extra grain shrink
• Additional grain quality deterioration
• Added drying cost for long term storage
Let’s talk about storage facility ownership costs first. If grain is stored at a commercial facility, it will charge for the ownership of bins etc. On farm grain storage owners will not explicitly pay a cost for ownership of storage. Farmer owned storage may have debt financing but that doesn’t influence the annual decision to store grain. These ownership costs include depreciation, interest, repairs, taxes, and insurance (DIRTI5). In the long run these costs should be recaptured by using those grain bins to enhance grain prices.
The next set of costs, variable, are the ones that must be captured through enhanced market prices in order to make storage pay. What are the variable costs? Any repairs due to usage, broken belts, augers, drying fuel, electricity, labor and management of the grain in storage. Grain held in long term storage might be dried down to 13% moisture which adds additional drying expense and the loss of bushels to sell. Long-term storage also means the grain will have to be conditioned, aeration, for storage during winter and then again during spring to keep it in shape for sale in summer. But the largest cost of storing grain is interest on the grain while in storage. This is an opportunity cost. The grain money from grain sold could pay debts, farm and personal, be invested in a money making activity or used for family living.
Calculating all of those costs takes time but has been made much easier with a spreadsheet (http://www.agmanager.info/marketing/decisions/On-farm%20storage.xls). This spreadsheet presents costs as fixed, variable and total. When analyzing the storage decision, the first costs to recapture are variable costs. If monthly variable storage costs are 3 cent per bushel but the market is only offering 2 cents, the market isn’t paying enough to store. There may be occasions where the market pays 4 cents per bushel until April for instance but 2 cent after. In the latter situation a grain owner might want to store till April to capture that added grain price.
Storing grain can enhance grain revenue but the costs of storing grain must be considered when making the storage decision. There will be situations when grain storage costs more than the grain market would pay to store. Knowing those costs will allow you to profitably decide when to store and for how long. Or when not to store.