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Prairie Farmer - October 2006

Run the Numbers for Storing vs. Selling

Travis Farley
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign

What are your plans for this harvest's production? Are you selling it out of the field or placing it in storage? If you're storing it, how long will it stay there?

Addressing these important questions involves comparing the benefits of selling grain at harvest to selling grain sometime after harvest. The analysis boils down to determining the sales price needed to make storing grain profitable. That is, what's the break-even price that justifies storing grain? If you are confident of receiving this price in the future, then storing may be worthwhile. If not, perhaps selling out of the field deserves some consideration.

In either case, identifying the break-even price is the first step to making a profitable decision.

To help farmers assess their grain storage options, the farmdoc team at the University of Illinois has developed a FAST tool that looks at the details of calculating the costs to stored corn and soybeans.

The Crop Storage Analysis program evaluates the decision to sell grain at harvest or to sell grain one to 12 months after harvest. The program also computes the likelihood of receiving the prices needed to make storing worthwhile.

The Crop Storage Analysis tool utilizes grain-storage information — such as minimum and monthly storage charges, shrinkage factors and interest on inventory — to calculate storage costs. The program emphasizes the importance of recognizing the hidden costs of storing grain, such as the interest cost of having money tied up in grain sitting in storage. For instance, the proceeds from selling grain at harvest could be used to pay off debt, such as an operating loan charging 7% interest, thereby reducing interest expense. Storing grain, on the other hand, relinquishes the opportunity to repay the loan; therefore, interest expense continues. Hence, the additional interest expense is a cost of storing grain.

Based on the time grain is held in storage and the harvest sales price, the tool computes the break-even sales price, which is the price needed for storing to pay off. Suppose the cash price at harvest is $2.18 and assume typical storage charges for an Illinois elevator. The Break-even Price table displays the future grain prices needed to make returns from storing equivalent to the returns from selling at harvest. The far left column lists end-of-month sales dates, while the column headings represent three different interest rates to account for the interest on the grain inventory.

Looking at the example, storing grain from Sept. 15, 2006 , to Jan. 31, 2007 , with a 7% interest rate, requires a sales price of $2.45 to break even. If the selling price on Jan. 31 is greater than the break-even price, storing grain should be profitable.

You can download the Crop Storage Analysis tool free of charge at www.farmdoc.uiuc.edu/fasttools/.