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Adding Bins Allows You to Capitalize on Carry
This year, U.S. growers collected among the largest corn crops in the nation’s history. With harvest near completion, those who have a lot of grain on the ground are not alone.
Prices are traditionally low this time of year, but that’s not necessarily bad news, as there is significant carry in the market. Futures prices indicate a strong basis, meaning buyers who don’t need grain immediately are willing to pay you to store corn for several months.
Grain-storage capacity has grown significantly in the past decade, and you are now able to store more than 13 million bushels of corn, soybeans, and wheat, according to the U.S. Department of Agriculture. On-farm bins allow you to take advantage of the carry in the market – sometimes to the tune of 30¢ or 40¢ a bushel – holding onto your commodities until buyers are willing to pay up.
“The addition of on-farm storage has the potential to improve your marketing capabilities,” says Dan Hueber, the president of The Hueber Report in Sycamore, Illinois. “For you logistically, it’s a benefit come harvesttime. You’re not at the mercy of lines at the elevators or their capacity for storage.”
Bins, however, aren’t inexpensive and may leave you wondering if the investment is worth it.
Dan Whalen, senior vice president of sales with GSI Group LLC, a manufacturer of grain storage bins, drying units, and other agricultural equipment, says it will take a producer with a 300-acre farm about five years to realize a return on investment, considering the bin will cost, on average, about $100,000.
While that’s a considerable investment, it’s important for you to be a good risk manager, Whalen said.
“Having a solid grain marketing plan is one of the best tools that you can use to manage this risk,” he says. “By utilizing on-farm storage to store grain and to capture market carry, you can typically produce greater returns for your farming operation.”
Jason Britt, the president of brokerage Central States Commodities in Kansas City, Missouri, says his family has a large amount of on-farm storage to take advantage of market carry. The family’s investment has paid off, he says.
Grain buyers “aren’t going to do you any favors” at harvesttime when prices are lowest, Britt says. So having storage bins gives you the ability to control your own destiny.
“You are working your business from your angle – that’s your job,” he says. “If you’re getting grain laid on your doorstep, you’re not going to have to pay up for it as a buyer. So, that buyer is usually going to get some kind of basis improvement – that’s probably the surest bet in farming.”
Most storage units have built-in driers, another cost-saving measure. That means you won’t have to pay an elevator to dry down your corn should it come in with above-premium moisture levels, Hueber says.
Still, there are risks to drying down your own crop, he says.
“Realistically, with fuel cheap like it is right now, you should be able to dry down your grain cheaper than it could be done in a commercial setting,” Hueber says. “There’s always the possibility that you’ll dry it more than you should, and, as a result, you could lose bushels that way.”
The risk is worth it, considering the wide carry in the market that growers saw this year, he says. Getting 25¢ to 40¢ a bushel more for your crop could mean the difference between breaking even and reaping a profit.
“It’ll move you past the glut period,” Hueber says. “Seasonally, we have our widest basis in the fall. That gives owners of storage the ability to manage those inventories, and it lets the market reward them for having it.”