Farm storage is a marketing tool. If it’s integrated into your marketing plan, it can increase net returns. If abused, it only adds cost.
“On-farm storage allows farmers to separate delivery decisions from pricing decisions,” says Charlie Pearson, market analyst for Alberta Agriculture and Food. “It also allows farmers to make delivery and pricing decisions throughout the year.”
That said, Pearson recommends farmers keep a wider perspective in mind. “The need for storage is not only for pricing,” he says. “It’s for meeting customer needs.”
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This is one of the reasons why storage can pay. For instance, at Ontario’s Hensall Co-operative this August you could lock in 50 cents to store old-crop wheat for shipment in early 2010, and traders were bidding 25 cents carry on old-crop corn for shipment two months out.
The reason? The trade needs to supply a market that eats all year long.
With the increase in processing plants, more farmers are selling directly to ethanol plants, oilseed-crushing companies, flour mills and feedlots, among others. “These facilities don’t necessarily want all their grain needs at harvest,” says Pearson.
Identity-preserved markets have also changed the need and requirement for on-farm storage. Better bins, more monitoring, cleanliness in and around storage facilities, identification and more discipline are needed during unloading and loading if you’re storing IP crops.
Issues such as variety declarations and GMO separation, paper trails, stringent cleaning procedures, insecticide storage treatments limited to certain bins, and crop identification and security from tampering and stealing may become more important to your marketing plan in the future.
Depending on the system, it costs north of $2 per bushel to build new storage. You must consider depreciation and interest for this fixed cost. Some farmers instead of building, look for local storage structures or renting storage space.
“I’m not going to sit”
Ken Motiuk doesn’t like to sit on crop too long. “When it hits $9.50 for canola and that meets my budget, I’m not going to wait for $10.50,” he says.
“I’m not going to sit here carrying inventory,” says Motiuk. “After all, cash flow is king.” He tries to sell all his canola by April. “It’s too volatile in the bins.”
The duration Motiuk is forced to carry wheat goes against his marketing plan. “We sell a lot of wheat in April, May, June, July and until then it’s bin filler,” says Motiuk. “I wouldn’t grow wheat if I didn’t have to rotate a cereal.”
Motiuk has on-farm storage for a whole crop so normally they rent out the space to neighbours. Every year, they’ve put up another bin so they could slowly absorb these fixed costs.
“With one turn a year you just can’t justify putting legs under them,” Motiuk says. “As we get bigger, I’m considering bagging some grain.”
“It just gives you options”
The Lepps own an old Pool elevator and have on-farm storage for about 260,000 bushels. Most years, that’s enough room with some carry-over, but sometimes they’ll use temporary storage for their oats.
“Those systems load and unload quickly,” says Ian.
Having their own elevator makes it more practical to load producer cars. Lately they haven’t done it because premiums from local elevators have been similar to the $5-to $15-per-tonne savings of sending producer cars to the coast. Moreover, there’s less risk selling it locally, since you don’t know what your grade is until it gets to port. “It just gives you options,” says Lepp.
