Thinking about investing in grain storage?
Author: Michael Thomson | Date: 17 Oct 2013
The prospect of capturing higher grain prices can be tempting but in some circumstances investing large sums of money in on-farm grain storage could prove a costly mistake.
ProAdvice consultant Chris Warrick said farmers should do their homework thoroughly and take a broad range of factors into account before taking the plunge into grain storage.
“You need to work out exactly how much the storage could earn and compare that to expected returns from other farm business investments such as buying more land, a chaser bin, a wider boomspray, a second truck or paying off debt,” Mr Warrick said.
“There is no point spending all of that money on storage if the money would be better used somewhere else.”
The Grains Research Development Corporation (GRDC) has put together a handy guide containing all of the relevant questions and equations farmers need to calculate whether grain storage is right for their farm business.
A step-by-step template is included to help farmers work out the potential financial gains such as marketing, harvest timeliness and freight savings from carting grain direct to port after harvest.
The template also contains calculations to work out the fixed costs of on-farm storage such as the annualised capital costs of all of the infrastructure, site works, concrete and equipment, as well as the opportunity cost of capital.
It also covers variable costs including hygiene, aeration cooling, repairs and maintenance, in-loading and out-loading, monitoring and management, opportunity cost of stored grain, insect treatment, shrinkage and drying.
“It is a very worthwhile tool because it makes you think about all of the different factors that should influence a decision as significant as this one,” Mr Warrick said.
“In many cases more than one benefit would be necessary to make storage pay.
“For example, relying on seasonal market trends alone often won’t cover the costs of storage, but when combined with avoiding peak freight rates it might be feasible.
“Most importantly the type of storage needs to suit the planned benefits. If marketing grain throughout the year is one of the benefits, farmers need to budget for gas-tight, sealable storage to enable reliable insect control.
“On the other hand if the planned benefits only require short term storage then a cheaper type of storage may be viable.
“There are a lot of variables to take into account but it is well worth doing the calculation to determine if on-farm storage as a long term investment is likely to provide the best return for your business.”
The template and more information can be found at www.storedgrain.com.au.
Chris Warwick, Consultant, ProAdvice
0427 247 476
Senior Consultant, Cox Inall Communications
07 4927 0805
Media releases and other media products can be found at www.grdc.com.au/media-news