Is On-farm Grain Storage Worth the Investment?

Many farmers utilize on-farm grain storage to store and preserve their harvested grain while waiting for optimal market prices and avoiding costly freight prices at busy harvest times.

Why Do Farmers Invest in On-farm Grain Storage? 

Farmers invest in on-farm storage for a number of reasons. First, having on-farm storage at harvest time can streamline operations by reducing the need to deliver to local elevators and therefore freeing up labor and equipment. Additionally, on-farm storage provides the opportunity to extend pricing for a grower's crop, potentially getting better prices after the harvest season has passed. 

But these on-farm storage benefits come with sizable upfront investments. 

How Much Does On-Farm Grain Storage Cost? 

A typical storage bin of 30,000 bushels can cost around $70,000, which translates into about $2.33 per bushel.

Unfortunately, these upfront investment costs must be weighed against uncertain returns of price improvements in the marketplace, making it challenging to evaluate. 

Furthermore, since cash grain markets throughout the U.S. can respond to different local and regional forces, there is no boilerplate investing advice that can be applied to all farmers. Instead, each farmer must not only look at the cost of a particular storage bin, but also have a firm understanding of market-based returns in the future.

Is On-Farm Grain Storage Worth the Investment? 

In this article, we will talk about the income benefits that on-farm storage brings to a farm and analyze which regions are more likely to achieve price improvements by having on-farm storage.

Financial Benefits of On-Farm Grain Storage

1. Harvest Efficiency 

Having control over grain storage can improve harvest process efficiency and logistics, allowing farmers to store their crops on the same farm where they were harvested instead of driving to the local elevators. This reduces the time and labor required for transportation, allowing farmers and personnel to focus on other aspects of their farming operations.

Additionally, on-site storage enables the combines to run non-stop, avoiding delays in the fields caused by long waiting times in the elevators and not having a place to unload grains in the field. This is particularly important in weather-related events, where the window for harvesting narrows and all farmers get back to harvest simultaneously, overflowing the local elevator.

2. Transportation Cost Savings

If farmers haul grains using farm equipment, having on-farm storage allows them to use that equipment more efficiently when there are fewer farm activities and equipment is more readily available. 

If the grains are transported using hired trucks, off-season transportation, and at large volumes, farmers can negotiate lower transportation fares. Waiting until there is a full truckload or more before transporting grain to the market or grain elevator also reduces transportation costs.

3. Higher Prices Through Futures Market Price Carry

Another benefit of on-farm grain storage is the ability to take advantage of futures market price carry. Price carry refers to the situation where futures prices for a commodity increase over time, resulting in a higher price for delivery at a future date. 

Futures market price carry can occur for many reasons, such as a tight commodity supply or a growing demand. Farmers can take advantage of futures market price carry by storing their grain and selling it later when prices are higher. 

Figure 1 here shows monthly patterns for average Iowa cash prices for corn and soybeans for the 2008 through 2017 marketing years. Holding grain off the market until the following spring resulted in prices 5-10% higher than those available during harvest months, on average. (This does not take into account price advantages that may have been gained through the use of futures and options contracts.)

4. Basis Improvement Over Time

On-farm storage can also lead to basis improvement after harvest. Basis is the difference between the local cash price of a commodity and the futures price on a commodity exchange for the closest time period. The basis is affected by many factors, including the local supply and demand balance, transportation costs, and storage costs.

After harvest, the basis tends to widen because of the increased supply of grain and the limited storage capacity at grain elevators. This can result in lower cash prices for farmers who are forced to sell their grain immediately after harvest.

However, with on-farm storage, farmers can hold onto their grain until the basis improves. This can happen when grain demand increases or transportation costs decrease, allowing the farmer to sell their grain at a higher cash price.

5. Increased Flexibility in Delivery Options

Another benefit of on-farm storage is increased flexibility, specifically in the following two ways:

Time Flexibility: By having the grains at the farm, the farmer does not need to choose an elevator at harvest and then be tied to sell the grains on that elevator. If another elevator has a better basis in the future, the farmer can take advantage of that. 

Geographical Delivery Area Flexibility: If grains are hauled at harvest, a farmer’s choices are constrained to a few miles radius around the field. However, if grains are stored on the farm, they can be shipped to markets far away, allowing for better selling prices.

6. Improved Quality Control

On-farm storage also gives farmers opportunities to profit from quality management. With enhanced flexibility from on-farm storage, farmers can store their crops at different moisture levels and blend different batches of grain to achieve the desired moisture content. Blending provides gains in volume (for excessive dry grain), or savings in drying and shrinking discounts (for grains above the moisture requirement).

In some situations, storage also allows for the separation of grain that must preserve its identity. For example, a farmer may have different varieties of a crop that need to be kept separate in order to maintain their identity and quality. This can be important for marketing to buyers who require specific varieties or qualities.

7. Tax Benefits

On-farm storage also offers tax benefits to farmers through the Section 179 deduction. Section 179 is a tax code that allows farmers to deduct the full cost of qualifying equipment or property from their taxable income in the year of purchase rather than depreciating it over several years. 

Spatial Analysis

Our analysis looks at cash prices across the corn-producing area of the U.S., covering nine years and totaling 4,900 cash corn markets. 

To simplify the analysis, we used the center of each county as a representative farm location. During harvest (October and November), we considered all the buyers at a 30 mile radius around the center location. During the summer (June and July), the radius expanded to 150 miles since transportation is less limited at that time. 

Next, we subtracted the transportation cost from the cash bid using USDA data (Grain Transportation Report) in both cases, considering the road distance from the center point to the buyer. 

Using those cash bids adjusted by transportation cost, we picked the best option for each county at harvest and the best one in summer. Then, we calculated the difference between both and called that the “spread.” 

This spread accounts for multiple factors, including the increase in Chicago Board of Trade (CBOT) prices over time, improvement in local basis, reduction in transportation costs and larger geographical delivery area during the off-season. All factors affect the profitability of the on-farm storage investment.

Corn Buyer Distribution

The map here (Figure 2) shows the distribution of the corn buyers – elevators, ethanol plants, etc. -- used in the analysis. 

Historical Price Change (%) by County

The price change illustrated in Figure 3 is the spread between the cash bids during harvest (in a 50 mile radius) and the cash bids during summer (in a 150 mile radius), adjusted by the historical transportation cost in each period. 

Source: FBN freight-adjusted cash price records (2013-2022). USDA-AMS Grain Transportation Report (2013-2022).

Average Cash Bid Improvement by State and Year

The table below shows the change in the transportation-adjusted cash bid from harvest to the summer for each state and year. 

It illustrates the variability between years and how it can sometimes be negative — mainly years when corn prices decreased — but, on average, favorable. The year indicated in the table reflects when the crop was harvested, even though it was sold the following summer. Only states with more than 10 counties that had at least five buyers are shown. (Missing values are due to insufficient data to estimate the average cash bid in both seasons.) 

Which U.S. States Have the Highest ROI for On-farm Storage?

To calculate the on-farm grain storage ROI, we must first consider the costs of building and maintaining the storage infrastructure. Those costs are specific to each operation and were not included in the analysis. That said, costs tend to be more stable across regions, and revenue is the factor that may change the most across regional areas. 

Focusing on revenue only, the top 10 states that historically obtained more significant benefits from on-farm storage are:

1. Oklahoma

2. Kansas

3. Kentucky

4. Tennessee

5. Colorado

6. Missouri

7. Georgia

8. Indiana

9. Michigan

10. Ohio

Average Distance Traveled to Buyer with Highest Bid

Illustrating the distance from a farm to the buyer with the best bid, averaged by state and year, the table below highlights one of the advantages of on-farm storage: the ability to explore markets farther away during the off-season when the rush and transportation costs are lower.

The table indicates that some states, like Kansas, Oklahoma, and Virginia, took advantage of the larger market options during the off-season and found better buyers at distances of almost 70 miles from the farm, accounting for the transportation cost.

On-Farm Grain Storage Benefit Takeaways 

On-farm storage provides numerous benefits to farmers. Farmers can improve their bottom line, protect their crops by investing in on-farm storage facilities, and achieve long-term success. As such, it is an essential strategy for farmers to consider when planning their crop management and marketing strategies.

© 2014 - 2024 Farmer's Business Network, Inc. All rights Reserved. The sprout logo, “Farmers Business Network”, “FBN”, "Farmers First", and “FBN Direct”  are trademarks, registered trademarks or service marks of Farmer's Business Network, Inc.

The material provided is for information purposes only. It is not intended to be a substitute for specific professional advice. Neither Farmer’s Business Network nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in the material and any liability therefore is expressly disclaimed. Images are for illustrative purposes only.