While grain farmers may face a storage crunch at harvesttime, the advent of more ethanol and biofuels plants will change how farmers store, transport and market their harvest.
In Iowa specifically, storage space shortages will continue. The need created by ethanol plants finds the state holding on to more corn, Iowa State University agricultural engineering professor Charles Hurburgh says.
In Indiana, grain storage capacity is growing, and storage space exceeds total crop production.
Hurburgh describes the local demand for corn like this: Each ethanol plant (50-million gal. capacity) consumes the corn of 1.5 Iowa counties, and that's without any of it being intended for other uses.
More Midwest corn acreage will be needed to supply ethanol plants. Some soybean acres could be planted to corn, and some conservation acreage may revert to corn, says Robert Wisner, ag economist at Iowa State University.
So…how best to supply those plants year round, and how best to store and market your grain to get the best quality and price? One major factor is that the processing plants only have a couple of weeks of on-site storage.
The economics of ongoing local demand equaling or exceeding local supply will prompt farmers to reevaluate storage options. The type and scale of grain storage, the drying system and rising steel prices are all factors, experts say.
Harden County, IA, farmer Jim Axtell has ⅔ of the storage space he needs, and that's after putting up a bin last year. He predicts elevator corn will become a thing of the past because of its expense.
On-farm storage can be costly, but Axtell says if he puts up another it will be a forced-air bin that does not use LP to dry. He has seen a few new bins go up in his area, but older farmers don't want to invest in a new bin because they won't see a return in their lifetime, he says.
The Farm Service Agency grain bin loan program has grown consistently in Iowa since it was reborn in 2000, giving 438 loans this year by mid-June. The seven-year payback program loans 85% of the cost of the bin and equipment, says Jim Book, agricultural program specialist for Iowa Farm Service Agency.
“All the agriculture advisors are saying that the only sure bet for marketing grain is having storage,” says Charles Sukup, president of Sukup Manufacturing Co.
His company in Sheffield, IA, added bin manufacturing to the grain bin accessory equipment business in 2001, and sales have more than tripled, Sukup says.
The long-term issue of grain storage goes beyond picking a bin. Grain farmers' marketing skills must be sharpened as they tackle the storage issue, Wisner says.
“The quality management issue is bigger than the shortage issue,” says Dirk Maier, ag engineer at Purdue University.
Farmers aren't used to carrying grain into the summer. If they plan to in the future, they must address the possibility of mold, spoilage and insect infestation, he says.
Farmers should not buy into the misperception that ethanol plants don't care about the quality of grain. “Ethanol plants are eager to have good quality grain coming in,” Maier says.
“This is a change in the storage structure and how we've been operating,” he says. “It's an exciting time. The technical solutions are there, but it's a matter of finances, of making these changes pay for you, and managing so you preserve the quality.”
Now is the time for farmers to do something many have never done before: Develop a marketing plan that encompasses the physical handling and financial aspects of the crop.
“Know how you're going to get there,” Hurburgh says. For example, buying a semi with no on-farm storage is foolish. Consider learning how an operating line of credit works. Get a handle on your cash flow.
“All of those things have to wrap up together when the market is changing so rapidly,” Hurburgh says.
“For someone with a lot of grain to sell and not much storage now, shop around and find a marketing advisor, work out a marketing plan and use financial tools rather than scramble or try to build storage,” Hurburgh says.
In a panic for short-term storage? He suggests piling grain inside a machine shed and covering it with a tarp, and avoid making smaller piles outdoors.
Most of the ethanol and biofuels plants don't have more than 2-3 weeks of on-site storage.
The Economics Of Planning For Storage
“Simply putting corn in a bin and waiting is no guarantee you'll earn a storage profit,” says Robert Wisner, ag economist at Iowa State University.
It's important for farmers to understand basis behavior, price seasonality and carrying charges in futures because “those are the tools of the grain trade that allow farmers to read market signals and lock in storage returns,” Wisner says.
With the increasing number of ethanol plants, farmers with on-site storage and semi trucks can be better market watchers and find a better basis and price for the grain, Wisner says.
If grain is in the elevator, however, the elevator could work out a deal to sell the grain to a processing plant that has a better bid, but it will charge for that service, Wisner adds.
But because some industry analysts and ethanol plants are concerned there won't be enough corn to supply the plants, the plants may get acres under contract to lock in the corn supply. Elevators won't be the middle-man, says Iowa State University agricultural engineering professor Charles Hurburgh.