Cover Story: The growing trend to on-farm grain storage

Monday, January 2, 2012

For some farmers, it's simply something they've always wanted to do and now can afford. For others, there are clear advantages in cost and ability to time the market

by MIKE MULHERN

When Dave Brock built his first grain storage bins at the family farm in the southwestern corner of Perth County in 1978, he was starting something that is still a work in progress more than 30 years later.

Brock began with two, 10,000-bushel bins, one of them a drying bin. Now, with his son Mark and Mark's wife Sandi running their 1,500-acre cash crop operation, they are at 90,000 bushels of storage and counting. "We seem to be updating every five to 10 years," Mark says, "by adding storage or changing how our drying system works."

This year, for example, they considered adding storage, but didn't in the end. They are still deciding what to do about drying – should they adapt or replace? – because they have an opportunity to switch from propane to natural gas.

The column dryer they bought in 2008 was state of the art then and cost about $75,000.

That sounds like a lot, but Mark points out that drying costs on the farm are half what they would be in town. In the early season, Brock was taking off corn at 27 per cent moisture. "In town it's 55 cents a bushel" to dry corn "I can do it for half that."

"Town" for the Brocks, is Hensall, just across the Huron County line and five miles away.

Hensall bills itself as Canada's "largest inland granary," with three large elevators there; Parrish & Heimbecker Ltd., Hensall District Co-operative and Thompsons Limited.

Being close to Hensall, Mark says, they have plenty of places to take their grain if they wanted to, but the numbers don't change from one elevator to another.

The Brocks have taken to on-farm storage for the same reasons more and more farmers are doing it. "We can get a higher price for our product because we're storing it on the farm," Mark says. "Even when we're paying for our dryer and have the capital cost, we're still making money off it."

Mark says their per-bushel increase "can be anywhere from 15 to 50 cents on top of the savings in drying." Most of their storage is for corn, he says, although they sometimes store beans for about a month after harvest.

"We'll throw them (beans) in the bin for maybe a month to get through the harvest period," he says, avoiding a temporary drop in the price that often happens during harvest. "That's another nice thing about having on-farm storage," Mark says. "It means you can condition your crop at home without having to take it to town and you can usually get a higher price about a month after harvest." 

Jim Allison, territory manager for Eastern Canada for Ag Growth International in Exeter, sells a bin product in Ontario called Grain Guard. He says business has been good. "I would say the last five years have just been a boon for on-farm storage," Allison says. "This year, at the Woodstock farm show, of all the leads we took, more than half of them were for grain bins."

He's a fan of on-farm storage and he makes some good points. "You get to market your own grain when you want to market it and you don't have to deal with long lines at the elevator."

Allison says bin size has also been going up. "Twenty years ago, the average size bin was a 21- or 24-foot bin. I think the average in Ontario this year would be 36 or 42 feet. We're getting more and more calls for 48-foot diameter bins."

Everyone in the business says the bigger the bin, the lower the cost per bushel of storage. Allison looks at the list price on a bin that's 48 feet in diameter and 12 rings high, or about 44 feet to the eaves and 56 feet to the top of the cap. It will hold 73,000 bushels. The cost is about $88,500, but that's just for the bin which, he says, is about the half the actual cost, although final cost is really between the farmer and the dealer. "When you get into the actual cost," Allison says, "the dealer is going to discount this significantly."

Additional costs
You need a building permit to erect a grain bin and there are additional costs for concrete forming and pouring, erecting or jacking the bin, electrical work, transportation to the site, drying – a separate and hefty cost – and aeration, which can add three or four thousand dollars to the price, depending on the type of fan. These days, Allison says, people are investing in low-speed centrifugal fans for aeration because they are a lot quieter. Depending on the proximity to your neighbours, quieter fans may be a requirement.

While there are a number of drying options, including batch and in-bin drying, Allison says larger operations have moved to continuous flow dryers, which are more efficient though they can be costly. "Some of the dryers might be $100,000," he says.

Another industry player in Ontario is John Ernewein, part owner of John Ernewein Ltd. of Walkerton. Ernewein has been distributing Westeel storage bins in Ontario since 1973 and he says the last two years have been good for business. He thinks the reason more farmers are going to on-farm storage is about the economics of the time. "They have some cash in their pockets; they can do this."

Ernewein is reluctant to put a dollar-per-bushel price on bins, because "if you put a figure in there, it's gonna be wrong." One of the things he has noticed, however, is that most buyers are not new to on-farm storage. There are some first-time buyers, he says, but most are adding to existing systems.

Rick Couture, district manager for eastern Canada for Brock Grain Systems, says business has been up 10 per cent in each of the last two years. His territory includes Ontario, Quebec, New Brunswick, Prince Edward Island and Nova Scotia. Couture, who operates out of Quebec, says the bulk of the increase in sales has been in Ontario. He says bins cost from $1.50 to $3.50 per bushel capacity, depending on the size and the number of options.

Couture has been with Brock for 10 years and he says the bins he sells are getting bigger. "Ten years ago, a good-sized tank was 33-foot diameter, which would be 15,000 to 20,000 bushels. Now, we are seeing more and more of the 35,000-50,000 bushel units or larger." He believes the increase in yields and higher commodity prices have a lot to do with the increased interest in on-farm storage.

"A lot of people were selling directly off the field," he says, "so now, when they get a chance to store, they get a better price because they can sell it during the peak."

Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) engineer Helmut Spieser has done on-farm storage workshops. He believes more storage on site is a reflection of good commodity prices, a reduction in some local elevator options and an opportunity for some farmers to do something they have always wanted to do. "It shows progress and it shows confidence in agriculture," he says. "As to why the systems are going up, if you talk to 20 different guys, you'll get 20 different reasons."

The economics of on-farm storage, he says, also depend on your point of view. Once, at a grain drying workshop where numbers showed on-farm drying charges on new systems were high when all costs were factored in, a farmer in the room said it didn't matter. "I don't make apologies for it," he said. "Yes, the numbers are high but I've always wanted a system, I can afford it and, I'll be honest, my son will probably benefit more than I will."

Henry Van Ankum, vice-chair of the Grain Farmers of Ontario (GFO), has 35,000 bushels of on-farm storage. He says he has noticed the trend to more on-farm storage over the last five years. "I doubt if we're going to see any change in that trend for a little while," he says.

Van Ankum says advantages include not having to pay commercial rates at the elevator and "you don't have to haul grain away to the elevator during combining time. You can quickly unload at home."

He says a big factor on his farm is the lower cost of drying. "My best guess," he says, "is that we can dry it at home for probably 60 per cent of what it would cost us at a commercial elevator."

On the other hand, Van Ankum, who farms 1,200 acres near Alma north of Guelph, says keeping grain on the farm is a little more work. "We have to monitor the quality of the crop and the condition of it in our bins. We've got to aerate it and keep a good handle on it." The payback, he says, "is when we can store the grain and sell it to a premium market or direct to a processor, and eliminate one hand in the middle."

Expanded yields
One man in the middle is Rick Ingram, manager of Thompsons Limited in Hensall. According to its website, the Hensall facility has a capacity of two million bushels and Ingram says 240,000 bushels of capacity are being added this year. He says the increase in on-farm storage represents the reality that there is more product out there because "technology has expanded yields."

Ingram, who says he's neither for nor against on-farm storage, says drying costs at his facility have not changed from last year. The biggest crop for drying is corn, he says. "Everything else, the growers expect to get to us as dry."

Early harvested corn, he says, was running in the 22 to 25 per cent moisture range. To meet Grade 2 corn standard, it has to be dried down to 15.5 per cent moisture.

Drying down 22 per cent moisture corn costs $15 a tonne. Drying 25 per cent moisture corn costs about $19 a tonne. That works out to roughly 38 and 48 cents per bushel. Storage at the elevator, Ingram says, comes to between six and seven cents per bushel per month.

Contrary to Brock and Van Ankum's assertions, Jerry Groot, grain marketing manager at the Hensall District Co-operative, says some farmers are bringing wet corn to his elevator to be dried because the elevator can do it cheaper than they can at home. "We haven't increased our drying rates since 2003," he says. Groot also says that, when a producer builds storage, he is significantly changing his business model.

"As soon as a producer builds a bin on the farm," Groot says, "he's no different than an elevator. He's got to prepare himself to be treated like that. He's suddenly a businessman. He's not just delivering corn at harvest. Now, he's got to contract with firm dates and firm grades. All that has to be hit."

Whether to store on-farm is a business decision like any other, says Dave Buttenham, CEO of the Ontario Agri Business Association.

"It comes down to the cash position of farmers and the investment and expenditure of money in a given fiscal year," he says. He warns, however, that there is more to it than putting beans in a bin.

Because of the Internet, he says, there's more information out there. "But transferring that information into a market strategy is more than just information and that's the value added the elevator industry can provide to a grower," he says.

Mark Brock sells a good deal of his crop to the broiler hatching egg part of the family business that his father, Dave Brock, runs. Henry Van Ankum also has a weaner pig operation. Both Brock and Van Ankum took some of their crops to commercial elevators this fall for drying. The harvest proceeded too fast for their on-farm dryers to keep up.

As for how much on-farm storage there is in Ontario, that's something of a mystery.

OMAFRA doesn't have data on it, nor does Grain Farmers of Ontario. However, that's going to change. Erin Fletcher, GFO's manager of public affairs and communications, says they plan to survey their members about the amount of on-farm storage out there.

"We have been looking at the potential of doing a number of surveys and studies just to find out what's available as far as on-farm storage goes and then running some numbers to see what the benefits are and when it's to a farmer's advantage." BF