Kelvin Leibold Farm & Ag Business Management Field Specialist ISU Hardin County Extension

1. Kelvin Leibold Farm & Ag Business Management Field Specialist ISU Hardin County Extension 524 Lawler Iowa Falls, IA 50126 (641) 648-4850kleibold@iastate.edu www.extension.iastate.edu/

2. Costs and Returns from Grain Storage

3. 90 million gallon corn ethanol plant Hog confinement facility with 3,300 head capacity with deep pit / full slats

4. Golden Oval Eggs, Thompson, IA

5. Iowa Ethanol Production in Million Gallons

6. Iowa Corn used for ethanol - million bu.

8. * * * * * * * * * * Lyon Lyon * * * * Emmet Emmet * * O O s s c c e e o o l l a a Worth Worth Dickenson Dickenson Mitchell Mitchell Howard Howard Winnesh Winnesh W W i i n n n n e e b b a a g g o o Allamakee Allamakee iek iek * * * * * * * * * * * * Clay Clay O O ’ ’ Brien Brien Kosuth Kosuth Sioux Sioux Palo Palo * * Hancoc Hancoc Floyd Floyd Chickasaw Chickasaw Fayette Fayette C C e e r r r r o o G G o o r r d d o o Alto Alto k k Clayton Clayton * * * * * * * * Humbol Humbol Plymouth Plymouth Cherokee Cherokee Butler Butler * * B B u u e e n n a a V V i i s s t t a a Wright Wright Franklin Franklin Bremer Bremer P P o o c c a a h h o o n n t t a a s s dt dt * * * * * * * * Delawa Delawa * * Buchana Buchana Dubuque Dubuque B B l l a a c c k k H H a a w w k k Woodbury Woodbury Webster Webster Hamilton Hamilton * * I I d d a a re re S S a a c c * * * * Hardin Hardin Grundy Grundy Calhoun Calhoun n n Tama Tama Linn Linn Jackson Jackson J J o o n n e e s s Benton Benton n n * * Crawford Crawford Story Story * * * * r r Monona Monona Greene Greene Boone Boone Marshal Marshal * * ** ** * * Carroll Carroll * * l l Clinton Clinton * * * * n n Cedar Cedar Poweshiek Poweshiek Shelby Shelby Guthrie Guthrie Dalla Dalla Polk Polk Johnson Johnson Harrison Harrison A A u u d d u u b b o o n n J J a a s s p p e e r r Iowa Iowa Scott Scott * * * * s s M M u u c c a a t t i i n n e e W W a a s s h h i i n n g g t t o o n n Warren Warren Madis Madis Pottawattamie Pottawattamie A A d d a a i i r r Marion Marion Cass Cass Mahask Mahask Keokuk Keokuk on on Louisa Louisa a a * * * Mills Mills Union Union Montgomery Montgomery J J e e f f f f e e r r s s o o n n D D e e s s M M o o i i n n e e s s W W a a p p e e l l l l o o Adams Adams Clarke Clarke Monroe Monroe Lucas Lucas Henry Henry * * Page Page Fremont Fremont Taylor Taylor Ringgold Ringgold V V a a n n B B u u r r e e n n Decatur Decatur Wayne Wayne A A p p p p a a n n o o o o s s e e Davis Davis Lee Lee * * * * * * Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 8/22/06 , , 62 Planned + current in Iowa 11 Just across the borders * * * * * * * * * * * * *

10. Source: Renewable Fuels Association

11. US Corn used in Ethanol Production – million bushels Today ≈ 2 billion bu.

12. Source: Dr. R Wisner

13. Source: Dr. R Wisner

14. Needed Yld. @ current Acres Source: Dr. R Wisner

15. Importers or Exporters ??? • Yield • Acres • Location • Time of year • New Demand • Old Buyers – rail • Crop Mix – no longer 50/50 • New Livestock – beef, dairy, pork Future of livestock

16. No man is an Island, entire of itself; every man is a piece of the Continent, John Donne(1572 - 1631), Meditation XVII

17. http://www.card.iastate.edu/ag_risk_tools/basis_maps

19. Source: Dr. R Wisner

21. Pre-harvest sales opportunities? If you pre-sell grain for fall delivery some of the storage issues disappear! Storage may allow you to capture premiums for grain in pre-harvest sales. How large will these premiums be in 3 years?

22. What is Carry? Carrying charges are the difference between futures delivery months (e.g. December and July)

23. CBOT Dec,July Corn Futures 1990-2006 All were positive years

24. CBOT Nov, July Soybean Futures 1990-2006

25. Dec 27, FC

26. Corn VeraSun Energy Oct 27

27. Difference in Basis VS FC Difference

28. Webster County Basis www.card.iastate.edu Corn Soybeans

29. Cash VS FC Difference

30. Off-farm Corn Storage Costs8 months • Extra shrink to 14% $0.04 • Extra drying to 14% 0.04 • Interest @ 8% 0.16 • Handling 0.00 • Storage 0.225 Total 0.465

31. Will storage pay? • Will the carry improve more than normal? • How is basis going to impact this? • How much will storage cost? • Who is building the storage now and who is going to build? • What will they charge?

32. Off-farm Corn Storage Costs8 months • Extra shrink to 14% $0.04 • Extra drying to 14% 0.04 • Interest @ 8% 0.16 • Handling 0.00 • Storage 0.225 Total 0.465

33. Factors Encouraging More On-Farm Storage • Specialty/Identity Preserved Crops • Larger Trucks – Easier Grain Transport • Harvest Time Bottleneck Concerns • New demand and carry ????

34. The Cost of Storing Grain Adapted from materials developed by Daniel M. O’Brien Extension Agricultural Economist Northwest Kansas

35. What Storage Costs to Consider? • Annual decisions to store grain are based only on covering VARIABLE storage costs and potential drying costs if a factor • If VARIABLE costs of storage can be covered THEN grain should be stored • Regardless of whether FIXED costs are covered • Relevant to EXISTING Grain Storage Facilities • Handling INTEREST Cost on Unsold Grain

37. When Should Fixed Storage Costs be Considered? • Fixed Costs should be considered when deciding whether or not to actually build NEW GRAIN STORAGE facilities • Before construction, ALL Grain Storage Facility costs are VARIABLE • The cost NEW GRAIN STORAGE facilities should be compared to Commercial Storage Costs

38. Variable Farm Grain Storage CostsStudy by Dhuyvetter, et al. KSU 2000 • Conveyance: Cost of Tractor used on Auger • Aeration: $0.01 /bu • Insecticide: Bin wall spray, protectant, fumigant • Interest Cost •  (#  12 months) x (% interest) x (Harvest $) • Shrinkage •  [1% Shrink + (#months x 0.1%)] x (Harvest $)

39. Corn Variable Farm Storage $$ $3 Harvest Corn, 6 Months, Less Drying

40. Corn Variable Farm Storage $$3 Farm Bin Sizes, $2 /bu Corn @ Harvest

41. Corn Interest/Variable Storage $$25,000 bu Bin, $2 /bu @ Harvest

42. Fixed Farm Grain Storage Costs:Individual Bin Initial Fixed Investment • 3 Grain Bin Investment Examples •  12500 bu, 25000 bu, & 50000 bu capacities • 20 year life • Conveyance Equipment (Augers, etc) • $0.10 /bu storage, 20 year life • Other Costs • $0.05 /bu storage

43. Fixed Farm Storage CostsInitial Investment in Individual Bins

44. Fixed Farm Grain Storage Costs:Annual Fixed Costs • Bin Depreciation •  Bin Investment  20 year useful bin life • Interest Cost • Based on government subsidized loan rate & ½ the grain bin investment • Taxes & Insurance • 0.7% of Initial Investment

45. Fixed Farm Storage CostsAnnual Fixed Cost for Individual Bins Note: $60,000 expense with after tax loan 50% bracket = 6¢/ bu. pmt.

46. Corn Fixed & Total Storage $$3 Farm Bin Sizes, $2 /bu @ Harvest

47. Corn Commercial vs Farm Storage $2 /bu Corn @ Harvest, 25,000 bu Farm Bin Breakeven Farm TC & Commercial TC @ 8 1/2 mo (June) Breakeven Farm VC & Commercial TC @ 3 mo (January)

48. For NEW Grain Storage Facilities: • All costs are VARIABLE before construction of bins/storage facilities • TOTAL per unit cost (VARIABLE + FIXED) should be considered in the decision • New ON-FARM STORAGE is generally MORE COSTLY than COMMERCIAL STORAGE for periods up to 8-9 months for the major commodities

50. The Six Challenges • Harvest Cost or Storage Cost • Drying Benefit • “Carry in the market” + “Basis Improvement • Incomes Taxes and Cost of $$$ • Market Taker or Market Maker • Other Choices – commercial, condo