Grain storage – get the system and the economics right

Take home messages

• Planning for a storage system is vital to ensure growers can meet current and future needs, a system must be ‘fit for purpose’, to enable growers to outload a quality product and maximise their investment.
• The cheapest form of storage will be the one that suits your system, the grain being stored and the length of time it’s stored.
• Permanent on-farm storage is a 25+ year investment – it’s worth taking the time to do the numbers, consider the options and make informed decisions.
• Managing the storage system requires a systematic approach, a range of tools can and need to be implemented to enable success.

Background

As growers continue to expand on-farm grain storage, the question of economic viability gains significance. There are many examples of growers investing in on-farm grain storage and paying for it, in one or two years because they struck the market at the right time, but are these examples enough to justify greater expansion of on-farm grain storage?

The grain storage extension team conduct approximately 100 grower workshops every year throughout Australia and it’s evident that no two growers use on-farm storage in the exact same way. Like many economic comparisons in farming, the viability of grain storage is different for each grower. Depending on the business’s operating style, the location, the resources and the most limiting factor; the requirement to increase profit, grain storage may or may not be the next best investment. For this reason, everyone needs to do a simple cost benefit analysis for their own operation.

When comparing systems and thinking about investment decisions, growers need to consider their ultimate goal with a view to the future, and be sure that the system they settle on will actually allow them to do what they need and what the market requires. The common mistake made when grain storage is purchased is whether or not it is fit for purpose. This is particularly the case where storage is purchased with the intention to fumigate and when aeration is added to an existing system or purchased with new storage.

Essentially a systems approach to grain storage includes grain and system hygiene, insect control, grain quality control, grain insect eradication and monitoring. Achieving a good result in all of these areas may mean attention to detail in the case of hygiene, and for insect eradication having sealable gas-tight sealed storage is the only way to achieve this properly. The key to ensuring success relies on getting the planning right, getting the right information and knowing the investment will do what it needs to do.

Comparing on-farm grain storage

To make a sound financial decision, we need to compare the expected returns from grain storage versus expected returns from other farm business investments, such as more land, a chaser bin, a wider boomspray, a second truck or paying off debt, etc. The other comparison is to determine if we can store grain on-farm cheaper than paying a bulk handler to store it for us.

Calculating the costs and benefits of on-farm storage will determine a return-on investment (ROI) figure, which can be compared with other investment choices and a total cost of storage to compare to the bulk handlers.

Cheapest form of storage

The key to a useful cost–benefit analysis is identifying which financial benefits to plan for and costing an appropriate storage to suit that plan. People often ask, ‘what’s the cheapest form of storage?’ The answer is the storage that suits the planned benefits. Short term storage for harvest logistics or freight advantages can be suited to grain bags or bunkers. If flexibility is required for longer term storage, gas-tight, sealable silos with aeration cooling allow quality control and insect control.

Benefits

To compare the benefits and costs in the same form, it is necessary that you work everything out on a basis of dollars per tonne. On the benefit side, majority of growers will require multiple financial gains for storing grain to make money out of it. These might include harvest logistics or timeliness, market premiums, freight savings or cleaning, blending, or drying grain to add value.

Costs

The costs of grain storage can be broken down into fixed and variable. The fixed costs are those that don’t change from year to year and have to be covered over the life of the storage. Examples are depreciation and the opportunity or interest cost on the capital. The variable costs are all those that vary with the amount of grain stored and the length of time it’s stored for. Interestingly, the costs of good hygiene, aeration cooling and monitoring are relatively low compared to the potential impact they can have on maintaining grain quality. One of the most significant variable cost and the one that is often overlooked is the opportunity cost of the stored grain. That is, the cost of having grain in storage rather than having the money in the bank paying off an overdraft or term loan.

The result

Table 1. Cost-benefit template for grain storage

Table 1 can be used to figure out the likely economic result of on-farm grain storage for each individual business. Each column can be used to compare various storage options including type of storage, length of time held or paying a bulk handler.

While it’s difficult to put an exact dollar value on each of the potential benefits and costs, a calculated estimate will determine if it’s worth more thorough investigation. If we compare the investment of on-farm grain storage to other investments and the result is similar, then we can revisit the numbers and work on increasing their accuracy. If the return is not even in the ball park, we’ve potentially avoided a costly mistake. In contrast, if after checking our numbers the return is favourable, we can proceed with the investment confidently.

Summary

Unlike a machinery purchase, grain storage is a long term investment that cannot be easily changed or sold. Based on what the grain storage extension team are seeing throughout Australia, the growers who are taking a planned approach to on-farm grain storage and doing it well are being rewarded for it. Grain buyers are seeking out growers who have a well-designed storage system that can deliver insect free, quality grain without delay.

Useful resources

For more information or advice on grain storage or to download a copy of the cost benefit analysis booklet and spreadsheet, contact the grain storage extension team.

Economics of on-farm grain storage booklet and spreadsheet (Table 1 within this paper)

On-farm grain storage checklist

Contact details

Chris Warrick
0427 247 476
chris@primarybusiness.com.au

Peter Botta
pbotta@bigpond.com