Upgrade your storage to ensure your future

As long as we can remember, towering white, cement elevators operated by farm cooperatives were just about the only way people stored their grain. Farmers generally grew the same crops every year and settled for the best cooperatives could do to safely store their grain.

However, these days farmers are becoming more diversified to keep their operations profitable and some are taking the conditioning and marketing of their crops into their own hands. To accomplish this, many have turned to a government loan program to fund their storage needs.

In 2011, Levi and Curtis Johnson, of Johnson Farms in Helena, Oklahoma, were looking to purchase a large grain bin for storage and drying of their crops—specifically corn. The brothers returned to the family farm full-time in 2010 and saw a need to expand and build a grain bin so they could better manage and market their diversified crops, a need that was not being fulfilled by their local farm cooperative.

“In this part of Oklahoma, it’s hard to raise dryland corn and have a quality crop,” Levi said. “We mainly wanted to build the bin for the purpose of dryland corn and some irrigated corn, but it also allowed us to harvest sooner and hit the markets we needed to with the crop.”

After reaching out to banks and finding little consideration from loan officers, the Johnsons learned of a program through the Farm Service Agency within the U.S. Department of Agriculture, that was designed specifically for granting low-interest loans for farmers to build storage units, upgrade and expand existing storage, or purchase mobile storage facilities, called the Farm Storage Facility Loan program.

“We were in our late 20s, and we didn’t have a bunch of extra capital laying around,” Levi explained. “When we talked to our bankers about it, they didn’t really understand the need. They said well you’ve got elevators 4 miles this way and 4 miles this way from you, why do you need to build your own bin? It wasn’t the easiest thing to convey what we were wanting to do with it.”

Additionally, there are banks that have started to view agriculture loans as a higher risk, making it exceeding difficult for those producers to borrow money for farms.

“We also felt like we were kind of maximizing our bank lending at the time,” Levi added. “We were trying to add a lot of growth and expansion. We were having to add equipment and take on new rented ground and invest a lot of money into cleaning those farms up after they’d been overrun with noxious weeds. We were looking for alternatives to fund this grain bin and not have to tap into the money we were borrowing to operate with.”

Today, Johnson Farms cultivates about 7,500 acres of cropland and double crops a large portion of their acres, giving them about 10,000 cropped acres a year. The no-till and minimum-till operation raises corn, wheat, seed wheat, soybeans, sesame and milo, along with cattle.

With the 24,000-bushel grain bin they were able to build through the Farm Storage Facility Loan program, the Johnsons are able to mix different qualities and moistures of grains and they have to ability to dry and condition it through fans in the bin.

“Honestly the local cooperative elevators can do that pretty cheaply, but for us, to be able to harvest a crop with high moisture content and have the ability to blend off 3,000 bushels of poor quality with some of our really good quality, this loan program gave us the means to do that,” Levi said.

Why is a FSFL unique?

According to FSA, since the FSFL program was established in May 2000, more than 33,000 loans have been issued, increasing storage capacity by 900 million bushels. According to USDA, the FSFL annual budgeted program funding level is $300 million. Additionally, FSFL is an excellent financing program for on-farm storage and handling for small and mid-sized farms, and for new farmers, since it offers lower interest rates. 

Also, the FSFL program allows for marketing flexibilities where farmers can store the harvested commodity in their on-farm storage and take out a Marketing Assistance Loan to help with cash flow.

The maximum loan amount for storage facilities is $500,000 and loan terms vary from 3 to 12 years. The maximum loan amount for storage and handling trucks is $100,000. In 2016, FSA introduced a new loan category, the microloan, for loans with an aggregate balance up to $50,000. Microloans offer a 5% down payment requirement, compared to a 15% down payment for a regular FSFL.

For both loan types, the interest rate is fixed and set at the rate of interest charged on comparable U.S. Treasury securities—a lower rate than would be available commercially. According to USDA, loans are repaid in equal amortized installments.

Levi said when his family farm secured their FSFL there was a little bit of red tape involved and everything had to be figured out upfront to stay within their parameters, but he was confident the process has been simplified since 2011.

Although this loan program has traditionally benefited grain farmers, it has been recently expanded to include fruit and vegetable producers so they can finance cold storage, washing and packing sheds, and portable storage equipment. USDA hopes this will improve farmers’ ability to finance storage and packing sheds to keep their food fresh and safe prior to marketing, and ultimately enhance their ability to sell in local and regional food markets. For fruit and vegetable growers, especially small and mid-scale family farmers, packing and storage sheds are essential.

The products eligible FSFLs include: corn, grain sorghum, rice, soybeans, oats, peanuts, wheat, barley, malted grains, minor oilseeds, triticale, spelt, buckwheat, rye, hay, renewable biomass, lentils, chickpeas, dry peas, seed cotton, fruits, nuts, vegetables, honey, maple sap, maple syrup, meat, poultry, milk, eggs, cheese, butter, yogurt, aquaculture, floriculture and hops.

Eligible uses for storage equipment under the loan program include: grain storage cribs, bins, silos, related electrical equipment, equipment to maintain, improve, or monitor stored grain quality, grain drying equipment, seed cotton handling, storage, transport equipment, hay and biomass storage structures, cold storage buildings and equipment, packing sheds and handling equipment, portable storage structures, portable equipment, and storage and handling trucks.

According to USDA, structures and equipment generally must have an expected useful life of at least 15 years, which includes both new and used equipment. Facilities that are not for the sole use of the debtors are not eligible. Suitable uses for fruit and vegetable cold storage facilities include: new and used structures suitable for cold storage, walk-in prefabricated permanently installed coolers, permanently affixed cooling, circulating and monitoring equipment, electrical equipment integral to the proper operation of a cold storage facility or an addition or modification to an existing storage facility.

Items that can be financed include: baggers, batch dryers, boxing equipment, brush polishers, cold dip tanks, conveyors, drying tunnels, food safety-related equipment, hoppers, hydrocoolers, quality graders, scales, sealants, sorting bins and tables, vacuums, washers, waxers, and weight graders.

Just like the other FSFL recipients, Johnson Farms have utilized the equipment purchased from their loan to diversify, market and otherwise add value to their commodities.

“A lot of people look at it as plain old storage, but it’s a tool for us,” Levi said. “Being able to properly market and condition our grain is probably what I like most about what the Farm Storage Facility Loan did for us.”

According to a USDA spokesperson, farmers, unlike many other businesses, do not have the ability to ramp up or down production to meet demand. After the seed is in the ground, the condition of the crop dictates the timing of harvest and, without storage being available, when the crop is marketed. This means that having on-farm storage available for 24 hours a day, seven days a week saves time and allows a farming operation to run more efficiently.

“For us, as far as our diversified crops, we needed a customized marketing plan and we weren’t getting that out of our local cooperatives and their big elevators,” Levi added. “Obviously that’s where it makes a lot of sense for guys who have diversified crops to have some storage to best manage that. It’s not for everyone, but I think as people continue to diversify more, it is something that will be necessary to some extent.”

To learn more at the FSFL program, visit www.fsa.usda.gov/programs-and-services/price-support/facility-loans/farm-storage/.

Lacey Newlin can be reached at 580-748-1892 or [email protected].