Some farmers find the benefits of on-farm storage

A line of shiny, galvanized metal bins rises like a tree row on Jeremy Stone’s Nebraska farmstead.

Over the past decade or so, new grain bins have popped up like weeds across the Great Plains. Stone, 36, a fourth-generation farmer who is working to grow the family operation, said he realized there was value in holding a crop in storage on the farm.

He was tired of sitting in line at the local elevator. He was tired of the harvest dumping and storage fees. He also saw he couldn’t effectively capture seasonal prices or narrower basis improvements after harvest.

In 2006, Stone and his father, Keith, each put up one 20,000-bushel bin. Today, that site has grown into 180,000 bushels of grain storage with the latest—a 70,000-bushel bin, constructed in time for the 2017 fall harvest.

It has paid for itself and then some, he said.

“I have no regrets,” he said, then added he has a few. “The only regret I have is I wish we would have started out with bigger bins or started building the bins sooner.”

Taking control of the market

On-farm storage has been a win for Stone. He can keep the combines going during harvest. Even more importantly, he said, he has the flexibility to move grain when he wants, reaping the benefits of basis appreciation and market carry. Altogether, the family farm’s on-farm storage system can hold up to 250,000 bushels.

“You always have that harvest lull, but, if you can hold that grain for two or three months,” Stone said. “This year we are picking up 35 or 40 cents on corn. And when corn is $3, you need every penny you can get.”

He sold soybeans harvested in late October for 50 cents over the harvest price.

“It isn’t always a winning situation,” Stone said. “But a majority of the time it is.”

With that kind of cash, he said he can pay for his bins in just a few years.

Most of Stone’s grain goes to a soybean processor and an ethanol plant—both located in Council Bluffs, Iowa, about 40 miles away.

“We drive past them, the local co-op anymore,” Stone said. “They are 40 or 50 cents out of the market.”

Capturing carry

J.D. Hanna, who has been expanding his grandparent’s farm near Silver Lake, Kansas, since 1999, said farmers in his area are blessed to have access to terminals. However, he realized he wasn’t maximizing his profits through the nearby grain company’s limited cash-only and no-price-established contracts.

The company, Hanna said, was making the money while he was taking on the risk, hoping the futures price would augment.

“I don’t want to sell my grain at harvest all the time,” Hanna, said.

In 2016, the 37-year-old farmer rented storage and realized he was making good money on the grain he was binning. Hanna said he grossed $1 a bushel more for his soybeans than if he had taken the crop to the terminal.

Last fall, he built a 20,000-bushel bin on his farm. He set the concrete forms, did the excavation and most of the construction, keeping the cost to about $25,000.

Proximity to end users helps, he said. In 2016, Hanna took all his corn to a local feed mill. The past few years, he has hauled his beans to Edgerton, Kansas—a community just outside of Kansas City, Kansas, that has a BNSF intermodal yard just 60 miles away. The soybeans are taken by rail to the coast, then shipped to China.

In early February, the cash price at the local terminal was $9.30 a bushel. The price at Edgerton was 30 cents better.

He still hasn’t sold any soybeans, he said. “If it goes to $10, then I’m selling.”

“If this pattern continues where I’m making 80 cents to a dollar a bushel more, I will have (my bins) paid off in less than two crop seasons,” Hanna said.

Farmers need to think outside the box, he added.

“You can’t be afraid to find those marketing opportunities that make money rather than sell to the co-op like grandad did or dad did,” Hanna said.

Government loans available

While the economy has stopped some from going through with plans for expansion, interest remains high, said Dave Erwin, who owns Wabash Construction in Falls City, Nebraska. Erwin built Stone’s grain bin last summer.

It’s why he bought Swisegood Construction four years ago—leaving a 30-year career in the Kansas and Nebraska grain elevator industry. Erwin changed the name of the company to Wabash Construction.

“Corn yields continue to improve,” Erwin said. “And I think that is going to be a long-term trend.”

“As yields improve, the marketing opportunities that farmers have by having on-farm storage are greatly enhanced,” he said.

About a third of his clients take advantage of a Farm Service Agency program that provides low-interest financing—about 2 percent interest—so producers can build or upgrade facilities to store commodities. Most loans give farmers an average of seven years to pay for their bin.

“If a bin won’t pay for itself in that seven-year period, you are doing something wrong,” Erwin said. “There are too many good marketing opportunities that a bin allows you to have. On-farm storage should allow you to pay for that bin easily in that time period.”

Since its inception in May 2000, the Farm Service Agency has issued more than 33,000 loans for on-farm storage, increasing storage capacity by 900 million bushels, according to the FSA.

“Naturally, you have to jump through a few hoops and barrels for government financing, but it is a good way to start building,” Erwin said.

It’s how J.B. Stewart expanded his farm in the 1970s. Stewart, of Keyes, Oklahoma, realized some of the area’s more successful farmers had on-farm storage.

Stewart built his first bin through an FSA loan in 1978. It held 8,000 bushels.

Today, he has 800,000 bushels of grain in storage. Stewart estimated farmers pay about 5 cents a bushel a month to store grain at the local elevator. His own storage costs about 3 ½ to 4 cents a bushel.

Having his own storage has made him a better farmer, which includes increased quality and fertility. He also can gain value for crops like wheat and sorghum by marketing it directly to end users.

“Even when grain prices are in the tank….we are gaining 15 percent going to the end user,” Stewart said.

Future expansion

Hanna is already thinking of expansion. In mid-January, he bought a 12,000-bushel bin at auction and will disassemble it and move it back to his farm.

“I’m going to put a couple more rings on it and make it taller,” he said. That will make it an 18,000-bushel bin—bringing his on-farm storage space to 38,000 bushels.

Meanwhile, Hanna and one of his landlords are talking about building grain storage jointly. At present, Hanna can store about 10 percent of is crop. The rest goes to the terminal. He tries to have about 70 percent of that grain hedged at harvest, so he doesn’t have to pay the storage fee.

“I hope to get to 50 percent storage in the next five years,” he said. “The benefit has been to market my grain when I want to and not during the seasonal lows of harvest.”

There are other positives to on-farm storage than just the markets, said Hanna. He likes the flexibility of having his own bins. If the elevator shuts down at 5 p.m. or on a weekend, he can keep cutting.

Also, he doesn’t have to have two or three truck drivers during harvest. One driver can keep up with the combine when going directly to the bin.

“Because of where it is located, that is another cost savings,” Hanna said. “It all adds up. Every penny counts in the world of agriculture.”

Amy Bickel can be reached at [email protected] or 620-860-9433.