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Wed February 8, 2012
Farmers buy equipment to have more say in the market
Across the corn belt, more farmers are putting up their own grain bins —giant, metal cylindrical storage silos. In the past year alone, farmers nationwide have added some 300 million bushels of on-farm storage, up 2 percent from the previous year.
By Kathleen Masterson
By storing their own grain, farmers can choose when and at what price they want to sell. If they play the market right, they could bring in 20 or 30 cents more a bushel, which can translate into thousands of dollars in profit.
Larry Stolte understands the potential benefits. A few years ago he added a 75,000-bushel bin, and timed it just right to hit the commodity market jackpot.
"It was in '08, when things really took off, it's just because we had the corn at home in the bin. Otherwise if we hadn't had the bin, it probably all would have all been sold before the run-up," Stolte said.
He made as much as $3 more per bushel because prices shot up. Now that's not typical; Stolte happened to catch the market on a huge upswing. But a farmer could easily get about 20 cents more a bushel. That might not sound like much, but 20 cents a bushel for just 700 acres with average corn yields can translate to $20,000.
The grain bins themselves aren't cheap. At its most basic, a bin is a big hulking metal cylinder built on a concrete floor, and some are equipped with grain aeration systems and humidity monitors. They can cost anywhere from $100,000 to nearly $1 million with all the bells and whistles.
But with some hefty tax incentives in recent years, farmers can shelter up to 50 percent of the cost. And market spikes have meant that Stoltle and others have been able to pay off the bin cost relatively quickly.
Stolte markets his own grain. Every evening he checks grain prices at nearby ethanol plants, grain co-ops and larger buyers like Cargill.
"I have one source that lists probably 20 different locations, so at night I could go in computer, and I can look up who has best bids,” he said.
Around harvest-time, the market is flooded with corn — last year's harvest was 12.5 billion bushels — so prices are generally low. But Stolte knows if he can hold onto his grain until winter or even spring he's got a good chance at seeing higher prices.
Stolte also said that having his own storage speeds things up at harvest time; he can unload his grain and get back into the field, without having to wait in line at a local grain elevator. And, he dries his own grain, which he said is cheaper than what the local dealer charges to dry it.
Roscoe Eggers said farmer-owned building bins really took off about five years ago — about the same time the ethanol industry started really going strong.
“So all of a sudden here was a new market in your neighborhood, rather than having to take to town and ship it elsewhere," said Eggers, who farms 1,000 acres in central Iowa, and owns enough grain bins to store 100 percent of his yields.
John Harnig, bin sales director at Iowa-based Sukup Manufacturing Co. , pointed to other advantages.
"It's a psychological thing,” he said. “Yes, some elevators will store your grain, but if you're paying storage on it and the markets happen to be going down, it's too tempting to let it go. So when you have control of it, it's easier. You've got it in your bin, you can hang on and wait until markets turn around."
Still, Jim Magnuson of the Iowa-based Key Cooperative, a commercial grain buyer, said when farmers store grain in bins on their own farm they might not take storage costs into account.
"If they're really honest about what it costs: the electricity to run fans, to own the bin, to make the repairs on the augers, the charging for labor to empty that bin out — all those things. Most farmers just ignore those costs," Magnuson said.
And grain co-ops insure the grain for the farmer, Magnuson said, so if the grain spoils it's on the company, not the farmer to pay up.
But many farmers are taking that risk.
Grain bin dealer Steve Dakin said he's been getting calls off the hook from farmers.
"In the last year we had five projects past a half million dollars; I can remember back in the ‘90s when I had half million dollars worth of business I thought it was a big year," Dakin said. "And we priced out a $600,000 one yesterday."
Meanwhile, grain elevators say the bin building boom isn't hurting their business. In fact, they are adding storage to keep up with demand and stay competitive.
Key Cooperative is building a new facility at in Barn City, Iowa, with upgraded unloading docks and more storage, Magnuson said. And the company has added a train-loading facility at Newton, with more storage capacity and equipment to handle grain quickly.
Much of the increase is about sheer volume. The last five years have seen some record corn yields — and trend lines point to this continuing.
Both farmers and grain dealers know if too much corn floods the market, high prices won't last, but for now, they'll keep riding the wave.