It’s also why more and larger metal bins are replacing traditional barns as the signature sight on the rural landscape.
The U.S. Department of Agriculture reports that on-farm grain storage capacity in Ohio has grown by 90 million bushels in the past eight years to a record 500 million bushels.
Explained Carl Zulauf, an agricultural economist at Ohio State University: “One of the most profitable strategies for the past five years has been to wait to sell.”
That strategy has been a force in changing an important segment of agriculture, which contributes an estimated $8.8 billion annually to Ohio’s economy.
Nearby example
Of the 2011 boost to the state’s on-farm storage, 100,000 bushels came from the Pleasant Twp. operation of Bart Neer.
Experts interviewed by the News-Sun say Neer is typical of the farmers in the bin building world.
Neer farms 2,900 acres, some his own, some rented.
He sells all the crop he raises on rented land at the elevator each fall to split with land owners.
But 300,000 bushels in grain bin space allows him to store almost all he harvests from his own land. The additional money he makes from storing is not all profit, of course. Neer estimates the initial cost of putting up and operating a bin at $1.90 a bushel.
But he estimates the higher prices he can sell his corn for will allow him to recoup those costs in five to seven years.
In a competitive industry, he says he’ll need the extra money when it’s to replace increasingly expensive farm equipment: tractors are well over $100,000, combines go for $300,000, not to mention the semi-tractor trailer rigs needed to transport the crop at harvest and to market.
Carry
The two primary factors that have worked in favor of the farmers who store their grain are called “carry” and “basis.”
Most corn harvested in the fall is traded in what’s called the December futures market at the Chicago Board of Trade. “If you think of all the crop that’s coming out of the field,” Neer said, “there’s just a glut of it.”
As a result, the price tends to be at a yearly low.
But if a farmer can “carry” grain — store it and sell it on the future markets in March, May, July or September — the supply on the market slackens and the price tends to rise.
“The historical returns don’t necessarily tell you about the future,” said agricultural economist Zulauf.
But in recent years, March futures price have tended to be higher than December futures, May futures higher than March futures and so on.
“If I’m able to keep my corn in the bins until the summer months,” Neer said, “I’m able to take advantage of the ‘carry.’ ”
Basis
The second factor that has helped farmers storing grain is called basis.
Basis is essentially the difference between the price at a local elevator and the price at the Chicago Board of Trade.
The local price tends to be lower, in part because of the costs involved in shipping grain. But just as the “carry” tends to increase after the glut of harvest, “there is a tendency for basis to improve (drop) throughout the summer,” Neer said.
“None of them are a given,” Neer said, but the recent trends in carry and basis have helped him to get up to 50 cents more a bushel for his corn.
“For corn, it’s worth the risk to kind of gamble” on building the bins, he said. For soybeans, he said, the case is less strong.
Other pluses
As farming operations have grown larger, on-farm storage has become increasingly helpful for other reasons.
With his own bins, “We don’t have to wait in line at the elevator at the fall of the year” to get the crops harvested, Neer said.
“If we want to harvest until midnight, we can, whereas the elevator closes as 5 o’clock,” he addeed.
With on-farm storage, Neer said, “we’re kind of maximizing our productivity and efficiency.”
Zulauf said those efficiencies can have real consequence, because delays in the harvest can hurt a farmer’s bottom line.
“Harvest lost is a real potential,” Zulauf said. “An extra bushel (yield) of corn or beans an acre is significant. “You can easily lose that if you’re harvesting in late November instead of the beginning of October.”
Local markets
Neer said local farmers can particularly benefit from on-farm storage because the area is “pretty blessed” with markets for their corn.
Ethanol plants in Greenville and Bloomingburg and a corn sweetener plant in Dayton all provide places to sell corn .
Local co-operatives, including Truepointe, whose board Neer serves on, provide a ready pipeline for crops used as feed for poultry and other livestock markets of the Southeastern United States.
“We’ve got just excellent demand now, and that helps,” Neer said, who added that, like other things in farming, including the weather, “that can change quickly.”
But with corn near $6 a bushel, soybeans near $11 a bushel, and his 300,000 bushels of grain storage near full, Neer is content to wait for the carry and the basis to help the value of his crop grow this winter, increasing its value months after it stopped growing in the field.
Contact this reporter at (937) 328-0368.
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