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A vacation home for your grain

To meet the storage needs for this year's mammoth corn crop, Corn Belt cooperatives are turning to an alternative grain storage option.

Condominium grain storage, developed in the early- to mid-1980s, has seen a resurgence in popularity in recent months. A condo system offers an alternative to on-farm storage: A cooperative builds specific storage facilities, usually anywhere from 500,000 to 700,000 bushels each, with each site's capacity parceled out into increments that are sold to individual farmers as shares.

"The condo encourages producers to deliver grain for the elevator to manage," says University of Missouri Extension ag business management specialist Parman Green. "Producers are encouraged to utilize the condo because they have an equity interest in the storage facility. For a given investment, a producer gets the right to store a specified amount of grain in the facility."

Once a farmer pays a one-time price of around $1.30 to $1.60 per bushel (and an annual management fee), he or she essentially owns that storage capacity, usually in 5,000-bushel increments, and is entitled to deliver and sell grain when so desired or sublease or sell the storage capacity down the road. For the farmer, says Cooperative Elevator Association (CEA) general manager in Ocheyedan, Iowa, Rob Jacobs, the primary benefit for the farmer is marketing flexibility.

"He's always got grain in a sellable position," Jacobs says. "He pulls the trigger whenever he wants to."

"They can deliver both corn and soybeans into that 5,000-bushel space," says West Des Moines, Iowa-based Heartland Cooperative executive vice president Tom Hauschel of the farmers utilizing the condominium storage facilities the co-op operates at its Iowa locations. "It gives them flexibility and allows them to better manage their supplies."

Jacobs says CEA completed a 425,000-bushel site at its Sibley, Iowa, location in summer 2006, comprising 85 5,000-bushel farmer-owned shares. This summer, CEA constructed an additional 540,000-bushel condo site, selling shares for $1.35 to $1.50 per bushel. Including grain handling and infrastructure improvements, the cost is typically lower than initial construction for on-farm storage.

"For on-farm storage, the farmer really considers his cost for the augers, motors, spreaders and bins," Jacobs says. "Here, the farmer's just buying the bin. We're responsible for everything else."

Heartland Co-op, like CEA, expanded its condo storage capacity this year, adding a 680,000-bushel facility at its Dallas Center, Iowa, location. Most of the shares in the 2.3 million bushels of condo storage owned by Heartland should be sold well ahead of this latest project's completion this fall, Hauschel says.

The availability of condo storage in parts of the Corn Belt comes at a good time, according to Steve Sukup with grain storage manufacturer Sukup Manufacturing Company in Sheffield, Iowa. With storage in high demand right now, the farmer is able to have marketing flexibility without the handling and infrastructure concerns that on-farm storage can create.

"Everybody's scrambling for storage. If some of the farmers out there are looking at 50,000-, 100,000- or 200,000-bushel sites and wondering if they'll be able to handle that kind of infrastructure at one of their own farm locations, that's where I think some of them are looking to partner with the local co-op," says Sukup, who also farms in north-central Iowa. "If they've been working with a co-op for a number of years and have a good working relationship -- like on my own farming operation -- it should work out."

Most cooperatives are handling condominium storage facilities as limited liability corporations (LLCs). As such, the tax implications are no different than with on-farm storage, according to Iowa State University agricultural economist Roger Ginder. Some condo facilities, though, are leased, which means the leasing costs are not tax-deductible.

"That's one of the primary reasons there are more LLCs," Ginder says of the growing number of condo storage units. In general, he adds farmers owning shares in condo facilities are "dealing with the same market forces" as they are with on-farm storage.

Hauschel admits not all of Heartland's members are shareholders in the cooperative's condominium grain storage. "There's a certain segment of the membership who are using it actively," he says. "There are others for whom it doesn't fit into their operations. Everybody has different needs in their marketing plan."

It's this kind of attention to existing marketing and management that should be of utmost concern to the farmer pondering the purchase of condo storage shares. No decision like this, Ginder says, should be made without considering the marketing picture as a whole.

"Building storage is always a big decision. Some farmers may have concerns," he says. "They do have more flexibility than building on-farm, in terms of what to do with it later if you no longer need it. These are the kinds of things that a lot of farmers should think about going in to condo storage."

To meet the storage needs for this year's mammoth corn crop, Corn Belt cooperatives are turning to an alternative grain storage option.

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