elevator grain bins Willie Vogt
RISK CONTROL: Investing in on-farm storage is not an easy choice — but given the volatility of the market, having that “holding capacity” can add money to your bottom line.

Storage allows a market waiting game

Investing in on-farm holding capacity gives Western farmers a range of options.

Raising commodity crops can be a solid business, but as price takers in the market, more are investing in storage to have market options. During the height of the last grain price rise, plenty of steel went up across the country, but Western farmers have long known the value of grain storage — especially on-farm.

In Montana, there’s enough on-farm storage to store the state’s entire wheat harvest. “This creates an interesting market dynamic,” says Anton Bekkerman, associate professor in the Department of Agricultural Economics and Economics at Montana State University. “The elevators here traditionally have smaller capacity. The producers have more market power, because they can store a lot of their grain and wait for markets to change in their favor.”

In 2017, there were 72 million bushels of wheat stored on the farm in Montana, and over more than 35 million bushels in off-farm storage, according to USDA’s Natural Agricultural Statistics Service. This fell to 51 million bushels in on-farm storage, and almost 30 million bushels stored off the farm in 2018.

“Farmers are really smart about the market power they have with storage,” Bekkerman says, “especially in Montana, Wyoming and western North Dakota. They have to order to be competitive, because their yields are not as high as in other regions.”

The markets in Washington, Oregon and, to some extent, Idaho are the first to export wheat. Once their wheat supply is shipped to export facilities in the Pacific Northwest, the demand is picked up by Montana and North Dakota. On-farm storage enables farmers to store their wheat without elevator fees until the market is low on wheat.

Grain storage boosts profits
With China removed from the data, the U.S. stores 25% of the global wheat supply. U.S. farmers may benefit if wheat yields decrease, because the country holds most stored wheat.

“If you store grain,” Bekkerman says, “you can really play the market. Obviously, there are potential quality reductions with storage. But those are the costs you incur in storage that — in some years — it’s valuable to incur, because markets really go up in your favor.

“It’s really hard to predict, because the global situation in wheat supply and demand changes each year. But if you have storage, you’re able to take advantage of demand increases or supply shortages.”

Canola is growing in popularity as a rotation with pulse crops and wheat in Montana (1 million cwt of canola grown in the state in 2017). This oilseed crop is gaining acres in Idaho and Washington state, too. During harvest, there is a high supply of canola, and that is when grain buyer Pacific Coast Canola reports the lowest market prices.

“Typically the further out from harvest, the price of canola increases,” explains Daniel Stenbakken, Pacific Coast Canola agronomist and buyer. “Storing canola is valuable; to wait for higher prices, generally, you can make a couple dollars per cwt by storing canola.”

Store by grain use
The U.S. consumer demand for human-edible pulse crops has increased, and many Montana farmers now grow pulses to meet the domestic market. In 2017, Montana produced 4.3 million cwt of lentils, 2.5 million cwt of dry edible beans and 3.8 million cwt of dry edible peas.

When humans consume pulse crops, the visual quality is more important than when pulses are fed to livestock. Storing pulse crops for long periods of time often creates discoloration.

“When you market lentils or peas for human consumption,” Bekkerman explains, “they have to be uniform, and resemble what consumers think a lentil or pea should look like. Storage only changes aesthetic quality, but the ability to market discolored pulse crops for human consumption lowers.”

Along with pulses, very little corn is stored in Montana. This is mainly because of the small amount grown: 4.5 million bushels of grain and 500,000 tons of silage in 2017. “Corn is a specialty crop here,” Bekkerman jokes. “It stays local and goes to small feedlots around the state.”

For grain storage, consider your price goals and how the crop will be used. To increase profit, Bekkerman advises farmers to watch markets closely and monitor nearby elevators. “You need to track how long they will keep pricing at the old marketing year prices, and when they switch to the new marketing year prices,” he says.

Digging into storage value, options
There are a range of ways to look at the value of on-farm grain storage. One key is that it gives farms more options. Here’s a rundown of key benefits for making a storage investment:

Store for quality demand. The poor growing conditions last year in Montana caused wheat to contain low protein. Grain buyers now pay a premium to farmers with stored high-protein wheat from 2016.

“Storing a certain quality of grain may receive higher prices later,” says Bekkerman. “A lot of farmers are taking out their 1-year-old, and even 2-year-old, high-protein wheat to sell this year.”

This has caused some concern that there’s not enough spring wheat in storage for seeding in Montana. “Most farmers use their own seed to replant,” Bekkerman explains. “In years like 2018, where there is such a premium on high-protein spring wheat, farmers sold a lot on the market. Now there’s some potential that there might be shortages of available seed.”

Match the harvest season. In Washington state, winter canola is harvested before the high-production areas in North Dakota or Canada. This provides an opportunity for Washington farmers to sell their canola at the old-crop price on the futures value, versus the new-crop.

“Farmers can get a pretty competitive price delivering their winter canola early,” Stenbakken recommends. “But when you get past July, into August and September, that’s where it starts to turn. We receive a lot of canola deliveries, and we’re fairly full in late summer. When we’ve got a lot in, our price drops. That’s when it I would store low-moisture canola, and wait for prices to rise.”

Consider blending options. Elevators discount some wheat and give premiums to other wheat, and then blend to meet their contracts’ specifications. Farmers can potentially raise profit by blending wheat of different protein levels on the farm, before delivery to buyers.

“If you have one field that produces a low-protein wheat,” Bekkerman explains, “and another field of high-protein wheat, you can blend grain from both fields to a certain level to avoid a high discount at the elevator.”

Farmers need sufficient storage to segregate wheat by protein level or other quality characteristics to blend on the farm. But doing so provides another opportunity to increase market power.

“By blending, not only can they wait until crop prices go up in their favor,” Bekkerman says, “but they can also take advantage of protein premiums.”

Bekkerman has assigned a Montana State University graduate student to research how much profit is gained by on-farm blending. He wants to find out if the amount of increased return on blended wheat will cover the cost of additional augers and increased storage capacity.

Hemken writes from Lander, Wyo.

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