More Ways to Improve Productivity
Marketing mindset with or without on-farm storage
There has been a boom in new on-farm grain storage facilities in recent years. As grain operations grow in size, the improved efficiencies of being able to avoid harvest time line-ups at the local elevator become larger. But the main driver for on-farm storage is the perceived improvement in pricing options and flexibility.
Corn ethanol plants and industrial buyers often want just-in-time delivery and offer a premium to growers who can deliver throughout the year. Spot bids for on-farm grain can also be higher than elevator prices when there is a local spike in demand for corn, soybeans or wheat.
Grain marketing with or without on-farm storage requires a plan and discipline. For those with storage, the issue that can arise is defaulting to a “hold and hope” strategy where the grower puts the crop in the bin and sits on it waiting for better prices. In a worst case scenario, those price rallies do not occur and the grain sits in storage for a year until it has to be moved to make room for the next crop. This is not a marketing plan. Just because you have storage does not mean you have to use it for very bushel! If forward contracting opportunities are attractive, those prices should be locked in. On-farm storage is not free….there is shrink, labour, aeration costs and the risk of grain quality problems over time, not to mention the cost of the facilities themselves.
Pros/Cons of Marketing With On-farm Storage
- No waiting in elevator line-ups at harvest (more efficient harvest)
- Lower drying costs (better margins)
- Allows capture of price premiums through attractive spot bids, deferred delivery for just-in-time buyers, and avoids expensive elevator storage costs
- Maintains marketing flexibility. Can sell to any buyer and any location when it’s in your bin
- Can enable a reactive marketing plan versus a proactive one. Tend to wait to sell grain in hand out of storage. Can miss attractive forward pricing opportunities
- Assume all risk and cost related to grain spoilage, handling and labour
- Holding and waiting can cause cash flow challenges
- Drying/storage facilities require maintenance and management
For grain growers without on-farm storage, the marketing plan has to be a proactive one to minimize expensive storage costs at the elevator. Most years, selling everything at harvest does not capture the best pricing opportunities. Paying storage fees at the elevator for an extended period of time can quickly offset any gains in price that occur post-harvest. Forward contracting one and two years out is an excellent approach to avoiding harvest lows, providing cash flow and avoiding storage costs. There are other tools that can be used to control elevator storage costs. Depending on the elevator, things like basis contracts, deferred payment contracts and other tools can be used to reduce or eliminate storage costs.
Some growers are averse to pricing crop that they don’t have yet. Crop insurance can reduce some of the risk of not being able to fulfill a forward contract. For example, for spring seeded crops like corn and soybeans a float coverage crop insurance program covers any shortfall in guaranteed production. The value is determined by the crop price over a specific interval at harvest. Forward contracting up to the guaranteed level of production from crop insurance is a legitimate way to reduce the risk of not having enough crop to fulfill a commitment.
Every grower has to find their comfort level with how much forward contracting or price taking to do before harvesting or even planting the crop. Growers with no on-farm storage should be vigilant for price taking opportunities for the crop in hand, the crop in the field and the next 2 crop years into the future.
Pros/Cons of Marketing Without on-farm Storage
- hand off all risk of grain spoilage to the elevator
- forward contracting generates cash flow when crop is delivered to elevator at harvest
- less labour and management required compared to storing and monitoring grain in on-farm storage
- motivates grower to be proactive in taking good prices well before delivery
- can experience harvest delays if there are line-ups at elevator
- drying and storage costs can be significantly higher than on-farm storage facilities
- once in storage at elevator, they are the only buyer
- can’t participate in local basis rallies or just in time delivery options
- Return on Investment Calculator for Grain Storage:
Crunch the numbers to see the potential benefits of on-farm storage.
- On-farm Storage as a Marketing Problem
- Making Your On-Farm Storage Pay
“We want to know our cost of production per bushel or tonne so we can understand and know what price we need to cover variable costs. If you wait until harvest you will know the exact cost of production per bushel, but this limits informed marketing in advance of harvest.”
– Peter Gredig, Grower
“Grain marketing with or without on-farm storage requires a plan and discipline. For those with storage, the issue that can arise is defaulting to a “hold and hope” strategy where the grower puts the crop in the bin and sits on it waiting for better prices. Every grower has to find their comfort level with how much forward contracting or price taking to do before harvesting or even planting the crop.”
– Peter Gredig, Grower
OMAFRA Field Crop Budgets:
These budget sheets allow for a more detailed look at your cost of production for various crops.
AgriStability Towards Improved Profits (TIP)
Farmers who participate in the AgriStability program can request a management analysis report that looks at the information submitted for AgriStability. The TIP report compares current year performance with the farm’s 5 year average. It also provides industry benchmarks for each line item based on the type of farm and income range. It is an excellent resource to help spot outlier costs that need to be addressed.
http://www.omafra.gov.on.ca/english/busdev/facts/tipreport.htm or call 1-877-424-1300