Kelvin Leibold

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• Kelvin Leibold
• Farm Ag Business Management
• Field Specialist
• ISU Hardin County Extension
• 524 Lawler
• Iowa Falls, IA 50126
• [phone]kleibold_at_iastate.edu
• www.extension.iastate.edu/

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Costs and Returns from Grain Storage
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90 million gallon corn ethanol plant
Hog confinement facility with 3,300 head capacity
with deep pit / full slats
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Golden Oval Eggs, Thompson, IA
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Iowa Ethanol Production in Million Gallons
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Iowa Corn used for ethanol - million bu.
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62 Planned current in Iowa 11 Just across the
borders













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Source Renewable Fuels Association
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USA Ethanol Production in Million
Gallons Currently over 6 Billion gallons annual
production
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US Corn used in Ethanol Production million
bushels Today 2 billion bu.
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Source Dr. R Wisner
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Source Dr. R Wisner
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Needed Yld. _at_ current Acres
Source Dr. R Wisner
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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

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No man is an Island, entire of itself every man
is a piece of the Continent, John Donne(1572 -
1631), Meditation XVII
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http//www.card.iastate.edu/ag_risk_tools/basis_ma
ps
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Source Dr. R Wisner
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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?
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• What is Carry?
• Carrying charges are the difference between
  futures delivery months (e.g. December and July)

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CBOT Dec,July Corn Futures 1990-2006
All were positive years
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CBOT Nov, July Soybean Futures 1990-2006
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CBOT Corn Futures October 12, 2001
What determines price differences between
delivery months (e.g. December vs. March corn)?
Is it expectations?
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• How does your elevator use carry?
• Your elevator establishes forward cash grain bids
  using the futures market, less basis.
• HTA contracts and selling futures directly are
  two more ways for you to sell the carry.

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November 1, 2004
Harvest price _at_ 30 under the Dec
1.70
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Dec 27, FC

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Corn
VeraSun Energy Oct 27


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Difference in Basis
VS FC Difference
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Webster County Basis
www.card.iastate.edu
Corn Soybeans
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Cash
VS FC Difference
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Dec 30, Bradford


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Off-farm Corn Storage Costs8 months

• Extra shrink to 14 0.04
• Extra drying to 14 0.04
• Interest _at_ 8 0.16
• Handling 0.00
• Storage 0.225
• Total
  0.465

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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?

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Off-farm Corn Storage Costs8 months

• Extra shrink to 14 0.04
• Extra drying to 14 0.04
• Interest _at_ 8 0.16
• Handling 0.00
• Storage 0.225
• Total
  0.465

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Factors Encouraging More On-Farm Storage

• Specialty/Identity Preserved Crops
• Larger Trucks Easier Grain Transport
• Harvest Time Bottleneck Concerns
• New demand and carry ????

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The Cost of Storing Grain
Adapted from materials developed by Daniel M.
OBrien Extension Agricultural Economist Northwest
Kansas
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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
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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
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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 )
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Corn Variable Farm Storage 3 Harvest
Corn, 6 Months, Less Drying
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Corn Variable Farm Storage 3 Farm Bin Sizes,
2 /bu Corn _at_ Harvest
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Corn Interest/Variable Storage 25,000 bu Bin,
2 /bu _at_ Harvest
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Fixed Farm Grain Storage CostsIndividual 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
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Fixed Farm Storage CostsInitial Investment in
Individual Bins
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Fixed Farm Grain Storage CostsAnnual 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
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Fixed Farm Storage CostsAnnual Fixed Cost for
Individual Bins
Note 60,000 expense with after tax loan 50
bracket 6/ bu. pmt.
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Corn Fixed Total Storage 3 Farm Bin Sizes,
2 /bu _at_ Harvest
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Corn Commercial vs Farm Storage 2 /bu Corn _at_
Harvest, 25,000 bu Farm Bin
Breakeven Farm TC Commercial TC _at_ 8 1/2 mo
(June)
Breakeven Farm VC Commercial TC _at_ 3 mo
(January)
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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
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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

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Harvest Cost or Storage Cost
Specialty / Identity Preserved Crops Larger
Trucks Easier Grain Transport Harvest Time
Bottleneck Concerns Need to keep the combines
rolling New demand and carry ????
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Drying
Bottleneck create or solve Cost of drying-
4/pt.? Shrink factors 1.4? Moisture level
17 Blending capabilities Mechanics location,
access, capacity, design, electricity
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Factors to consider
Site location Drying needs Expansion options Cost
of capital Tax issues
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Carry and Basis
Does historical data reflect the future? If basis
would go positive would it impact the return for
storage?
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Difference in Basis
Oct.27, 2006
VS FC Difference
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Cash
VS FC Difference
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Market Taker or Market Maker
Volume premiums - Quality Premiums-
Utilizing labor and equipment hired help and
semis - Grain Trader have semi will
travel - Posted Price???
Owning paper versus owning commodity
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Tax Issues
Producer can Sec. 179 Placed in service Grain
bins are MACRS 7 year property 10 state, 15
FICA, 25 Fed
If in the zero bracket its harder to pay for!
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Cost of Money
Higher priced grain means higher opportunity cost
to store each bushel. You can still seal grain
but the savings are not near the value it is with
prices below loan rates. FSA does have a loan
program for storage up to 100,000 at competitive
rates.
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Other Choices commercial, condo
Years to retirement Location Size of
structures Safety TX, AZ, FL
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Condo Storage
Easy way to expand storage Can turn the storage
several times a year Cost may be less than own
storage construction costs May be easier to
resell or transfer ownership Professionally
managed
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Condo Storage
Annual maintenance fee taxes,
electricity Limits on tax credits Unknown life
and salvage value Bottleneck create or
prevent May limit where you sell (basis, pricing
tools, etc.) Review the fine print
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Commercial Storage
Has offered value in the past will
continue Professionally managed Going to build
not concrete Going to see interesting
marriages?? Going to export corn unless USA
becomes a major importer
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Factors to consider
Commercial vs. On-Farm Storage Costs Availability
of commercial storage Market flexibility
several competitive markets Preserving grain
identity Bottlenecks within the system hauling
distance, lines Transportation costs /
savings Blending capabilities
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Web sites to review
http//www.agecon.ksu.edu/kdhuyvetter/Spreadsheets
/On-farm20storage.xls

http//www.ag.ndsu.nodak.edu/abeng/postharvest.htm
http//www.bae.umn.edu/extens/postharvest/
http//www.abe.iastate.edu/fileadmin/www.abe.iasta
te.edu/research/wetcorn2.xls

http//www.farmdoc.uiuc.edu/fasttools/index.html

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C\FILES\FILES\Storage costs2.xls
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Web sites to review
Drying cost calculator

http//www.extension.iastate.edu/agdm/crops/xls/a1
-20dryingcostcalculator.xls
Cost of storing grain
http//www.extension.iastate.edu/agdm/crops/xls/a2
-33.xls
http//www.farmdoc.uiuc.edu/fasttools/index.html

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Factors to consider
Commercial vs. On-Farm Storage Costs Availability
of commercial storage Market flexibility
several competitive markets Preserving grain
identity Bottlenecks within the system hauling
distance, lines, dryers, logistics Transportation
costs / savings Blending capabilities
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Questions or Comments
Run your own numbers
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What should we be doing for you?
1. 2. 3. 4. 5. 6.