Grain Storage: Considerations - Report

Figure 1. Alberta Crop Production and Crop Stocks as of July 31, all figures in '000

Source: Statistics Canada

History

As grain production in the early 20^th century was developing in Western Canada the need for grain storage was essential. The iconic grain elevator began to dot the countryside. Alberta’s first grain elevator was built in 1895. As there was very little on farm storage and farmers relied on grain elevators to store and hold their grain until it was shipped by rail. In 1934, the highest number of elevators were recorded. Alberta had 1,781 elevators and Western Canada had 5,758 elevators. In the 1940’s and 50’s additional temporary and permanent storage was built in or near existing elevators. The minimal on farm storage producers did have, were wooden buildings that were susceptible to rodents and weather damage. In 1926, Western Steel Products Limited (now known as West Steel) designed the first corrugated steel weatherproof granary, which began to dot the western Canadian prairies.

In the late 1950’s the consolidation of delivery points started to occur and larger wood elevator facilities were built. In the 1990’s grain companies concentrated on building large concrete silos that were designed as high capacity, high throughput terminals. The larger elevators serviced larger areas and more farmers. The availability of commercial elevator storage became limited. Many wooden elevators were sold to producers for personal storage, adapted for bulk fertilizer storage, torn down or turned into a museum.

By 2017, there were only 352 operational country elevators in Western Canada and 79 in Alberta. Despite the reduction in elevator numbers these elevators become increasingly more efficient. As of 2012, the average western Canadian elevator turnover rate was six turns a year, in 1999 it was less than five turns. As grain elevator storage became more limited, farms were getting larger, yields were increasing and on farm storage facilities were deteriorating. Farms needed to invest in more efficient on farm grain storage.

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Grain Storage Today

Grain bin prices have been climbing over the last 10 years. Figure 2 shows that prices have increased from $2.50 a bushel in 2004 to over $4.00 a bushel in 2011. Prices have decreased in 2012 but have been trending higher in late 2017, bins values matched the 2011 prices. Steel (both corrugated or smooth walled) grain bin prices are driven by demand and steel prices. Producers are looking at other permanent and temporary alternatives to grain bins for reasons of cost and portability.

Figure 2. Alberta Grain Bin Prices

Source: Alberta Agriculture and Rural Development, Competitiveness and Market Analysis Branch

According to Statistics Canada March 2017 survey, Alberta has approximately 27 million metric tonnes of permanent on farm storage capacity and approximately 9% of the total grain was in temporary on farm storage (Figure 3). This shows that producers are using both temporary and permanent storage options on their farm.

Figure 3. Permanent and Temporary Storage in Canada as of March, 2017

Source: Statistics Canada, Grain Storage Capacity, March, 2017

Importance of Grain Storage for Marketing

Generally in years of normal production, prices are seasonally lowest at harvest. This is due to a large supply of newly harvested crop putting pressure on the grain handling system. Grain, oilseed and pulse users require crop over the whole year. Storing grain over a short-term following harvest (three to four months) can improve returns and provide product at times when deliveries are slow.

The longer grain is held, the more expensive storage becomes. Only in the event that there is a general price rise throughout the crop year does long-term storage pay. Deciding on a storage option depends on the financial situation of the farm. Things to consider are the cost of the buildings, maintenance of the system, the opportunity costs of receiving sales proceeds from the crop, using the money to pay debt or invest, storage payments offered by the grain handling company and the impact of the changing basis levels on cash prices. Farm storage is used as a marketing tool and can increase farmers’ net returns, however if stored too long or sold at the wrong time storage can be costly. .

Grain Storage Decisions

Making the decision of what system to invest in begins with assessing the needs of the entire operation. Factors to consider are:

Maintenance for grain bins is minimal. They should be cleaned when empty, inspected for insects and repairs made when needed. Some things to look for are corrosion, loose bolts, foundation cracks and seals. Any mechanical equipment should have the dust removed regularly and electrical equipment should be inspected for damage. If using smooth walled bins for both fertilizer and grain, the bin should be pressure washed on the inside after fertilizer use, to remove the dust. With proper maintenance, there will be minimal wear and tear and an increase in the lifespan of the bin.

Grain operations would look at investing in steel bins if:

• They owned the majority of the land farmed
• Land was located close to the bin system(s)
• Existing bin and auger system that is easy to add onto
• Reliant on aeration to maintain quality
• There is a need to closely monitor grain for quality
• The operation has plans to be in business for a long time
• A need for long term grain storage (over 8-12 months)
• Storing high quality crops (malt barley, milling wheat, durum, canola, human consumption pulses)
• Use of storage as an investment
• Want peace of mind that grain is relatively safe from pests, wildlife, weather and theft
• There is a need for flexibility to store fertilizer or seed is important

Advantages	Disadvantages
Readily available in times of excess production	Reduced ability to provide moisture and heat management (aeration)
Usually have minimal investment	Creates waste – wasted grain and materials waste
Portable (can be placed in the location of choice)	Limited resale value
	Risk of pest, wildlife, moisture and contamination damage
	Challenging loading and unloading
	Short storage period (6-8 months)

Grain baggers and extractors require yearly and seasonal maintenance. The bagger and extractor have hydraulics, moving parts, augers and tires; regular inspection and greasing of all the parts should be done. With wear and tear on baggers and extractors, parts may break and need to be replaced. Equipment in good working order will capture a good resale value but as the equipment ages and new technology comes on the market equipment can become obsolete.

Disposing of the plastic once the grain has been removed can be an issue. Few municipalities have recycling programs in place and if so, require the plastic be clean and rolled. Some extractors have built in rollers but others do not. Rolling the plastic is time consuming and difficult to roll tightly. For municipalities that do not have recycling programs they may not accept plastic or charge a tipping fee. Burning plastic is not recommended as it is hazardous for human health and the environment.

Grain operations would look at using a bagging system if:

• The operation has a large amount of rented or leased land with no other storage options
• There is a need for short term storage
• The operator plans to exit the business in the near future (equipment is easier to sell than physical bins)
• Limited available trucking during harvest
• The operation has land located a long distance away from grain bin storage sites
• Storing low quality crops (feed wheat and barley, sample canola)
• Grain is dry and does not need to be dried or aerated or can be stored at higher moisture
• Recycling options are available for the plastic
• Large volume storage is needed

	Grain ring & tarp		Corrugated hopper	Corrugated flat bottom	Smooth walled hopper	Grain Bagging System
	Wood	Steel				Bagger	Extractor	Bag
Cost/bushel or machine $ (approx.)	0.18 – 0.50	0.22 - 0.8	2.50 - 3.50	1.25 – 3.00	3.50 – 4.50	20,000 -50,000	40,000 – 50,000 0.06 -0.08 Rent	0.07
Set up costs	Labor	Labor	Gravel base 1.00 – 2.00	Concrete base 2.00 – 3.00	Gravel base 1.00 – 2.00	Minimal labor
Common Size Range (bushels)	1,500 – 12,000	3,500 – 120,000	1,500 – 9,500	1,500 – 55,000	1,000 – 6,000	Bag holds approximately 10,000 bushels, number of bags are unlimited
Lifespan (years)	5	20	40+	40+	40+	15-20
Maintenance	High	High	Low	Low	Low	Medium	Medium	High
Resale value	Low	Low	High	Medium	High	Medium	Medium
Options	Out-load and aeration ports		Aeration, handling systems, monitors, canola floors, bin sweeps			Bag covers, bag rollers, sealers

• Trucks ability to maneuver for loading and unloading
• Size of trucks and handling equipment
• Distance from field to storage
• Auger movement and positioning
• Drying and aeration needs
• Accessibility to storage all year round
• Potential damage risks (trees, wind etc.)
• Ease of monitoring
• Theft risk and security

Along with the purchase price, other factors such as setup costs, site prep, labour and type of physical storage system needs to be considered for the total project cost.

Depreciation is an important aspect when determining costs. Depreciation is generally considered to be the result of aging, wear and tear, and obsolescence. It represents a decrease in the potential economic benefits that can be generated by the capital asset. This is very important in determining which system is the best for an operation.

Repairs and maintenance are also key to the decision, since some storage systems are relatively maintenance free while others require a lot more upkeep. Even if the option chosen has the most economical purchase price, it may have the highest maintenance and repair costs.

Financing interest is also important to consider. If the investment in a storage system has a high upfront cost and money needs to be borrowed, a substantial amount of cash can be lost to interest. The high cost of interest on a system may not make sense for some operations. As well, the lost opportunity of using that money for an alternative investment needs to be considered.

Certain storage systems are more prone to spoil grain, while others, if managed properly, will provide relatively unspoiled product. Expected loss should be calculated into the total cost of the system.

Figure 14 is a comparison of five different storage options, based on the following assumptions.

• This example assumes the operation needs to add 25,000 bushels of storage.
• The grain bin and ring and tarp held a capacity of 25,000 bushels while grain baggers have unlimited storage capacity by adding more bags.
• The bins are five, 5000 bushel steel bins with corrugated hoppers, corrugated flat bottom and smooth walled bins with hoppers either on a gravel or concrete base.
• Insurance, energy, labor and tractor requirements were equal for all storage options.
• Augers are already an asset on the farm and require no additional investment.
• Aeration systems have not been installed for any of the options.
• The years’ of use was calculated using an estimated life expectancy. Grain bins can expect a 30-40 year life span with proper maintenance.
• Depreciation was calculated using Canadian Revenue Agency classes of depreciable property.

Figure 14. Storage Options Estimated Price Comparison Example (Based on above assumptions)