On-farm storage opens door to market opportunities
By Lynn Clarkson, Clarkson Grain Co.
Markets look for organic farmers who can offer high quality crops, domestic production, and scattered shipments with minimal variation. For farmers, the incentives include better prices and better sales opportunities. The key to access these incentives is well-managed farm storage.
Storage links you to the market. Whether provided by you or third parties, it is an essential factor in the supply chain running from your fields to the ultimate consumer of your crops. Its functions are well understood and analyzed by universities, government agencies, bankers, equipment suppliers and many farmers. Those functions include: efficiently embracing crops coming from fields at harvest; protecting and enhancing crop quality; segregating crops by identity, which is determined by variety/hybrid, culture, or biological characteristic; timing market delivery for optimal pricing; and, linking supply to logistics for an efficient mesh with client needs and freight costs. Costs and benefits attach to each function.
I’ll be presenting a workshop at the MOSES Organic Farming Conference next month that examines the particular risks and incentives for farmers to store organic crops on farm and addresses the goal of good storage management. The presentation also will compare fixed and variable costs by using current information from three suppliers for steel bins of various sizes, plus recent market information from commercial, rented, and temporary storage.
While that presentation provides a much more thorough examination, this article provides a broader view to get you thinking about your options for storing your crops.
The factors involved in determining crop storage are similar between conventional and organic. But the organic farmer has some wrinkles to consider—wrinkles that favor farm storage.
Conventional markets for grain and oilseed face surplus domestic production and a constant struggle to find export demand for billions of bushels. Domestic prices are too competitive, too low to attract significant imports, and, too low to support more than marginal or negative returns to farmers.
In contrast, the demand in the U.S. for organic grain and oilseed overwhelms domestic production. High prices for organic feed crops are bringing a flood of imports that change the pricing picture and the time value of deferred delivery.
The U.S. market for food quality grain seeks higher standards of quality and purity and is not yet so challenged by imports. Such food markets offer price incentives for preferred, reliable domestic supply with scattered shipments throughout the year.
Commercial storage for conventional crops is ubiquitous and conveniently accessible. It can absorb a huge harvest and move massive quantities of crop 24 hours per day, 365 days per year. It is scaled for huge volumes of fungible product, but is not so good at handling the growing demand for identity-preserved crops. It is competitively priced.
On the other hand, commercial organic storage is still hard to find. There is some, but not a lot.
A few grain facilities are trying to grow along with the organic market while minimizing risks. They struggle to avoid contamination issues while offering greater purity than found in the conventional world and high quality throughout the year without petroleum-based insecticides. They struggle to match economies of scale to limited and scattered production.
Farm storage is very well suited for linking personal responsibility to identity preservation and tight quality tolerances, for avoiding contamination, for addressing good segregations by genetics, and, for paying attention to rules that prohibit toxic chemicals—good for clients who reject trucks with a single live insect.
Given the lack of adequate commercial storage, farm storage is the element that allows the growing-but-still-small organic market to absorb the harvest throughout the year. That can be reflected in enhanced diversity, quality and variety of buyers competing not just for a product but for a service. It provides the organic farmer an opportunity to sell not only his crop but also his management service.
The storage alternatives for organic crops are essentially the same as those for conventional crops. Their costs are well documented and easily available. The common alternatives include:
• Steel bins with appropriate aeration and handling attributes that are either owned by the farmer or rented from others (generally conventional farmers who find it more convenient or economical to use commercial storage)
• Commercial storage at licensed warehouses
• Temporary storage, such as ag bags or ground piles
• Miscellaneous flat storage options
The risk of farm storage lies mostly in retaining responsibility for grain quality. With modern technology, farmers can significantly reduce quality risk while securing the potential to reduce corn shrink and enjoy positive soybean shrink worth perhaps .50/bu. The tools available include computerized fan controllers, beneficial insects, chilling of bins and controlled atmospheres.
Benefits of Farm Storage
For organic producers, the benefits include:
• Seasonal price incentive—the rule of thumb for conventional crops suggests a seasonal bump in prices that tends to cover variable costs but not the total costs of newly constructed steel farm storage. The recent rule of thumb for organic feed grains suggests the danger of loss by holding unpriced crop. But market dynamics suggest the potential to negotiate a better contract that covers costs or contracts that pay for storage until the buyer calls the product for delivery.
• More flexibility in harvest timing and quality decisions
• Reduced handling and better control of quality and segregation
• Direct lines of control without dilution by commingling crops from various farms, creating a tighter supply chain with better quality—the foundation for a better market reputation
• Ready availability for on-farm feeding
• Reduction of variable costs to less than those for commercial storage
• Increased market flexibility—some buyers require farm storage for quality considerations and risk distribution
• Support for better contracts for scattered shipment and regular rather than spot client involvement
• Lower priced loans for farm storage construction or improvements than for commercial projects
• Very favorable tax treatment—depreciation and Section 179 treatment
Related considerations include other factors linked to quality and to meshing with the market. Low temperature drying and gentle handling contribute to better quality and greater consistency in products. Sourcing from a single farm with identity preserved by variety and production culture reduces product variation and contributes to the consistency needed by the best markets. Homogeneity is a critical factor in almost any buyer’s definition of good quality. Well-managed farm storage allows the farmer to offer both high quality and minimal variation, full-fledged market pluses.
Drying systems of some sort are almost essential. In terms of buyer preferences for better quality grains, the first choice goes to low-temperature drying in bin followed by dryeration, in-bin higher temperature drying, non-screen drying, and finally stand-alone screen dryers both heating and cooling the crop on its way into storage. Vent placement is critical. The seal between side wall and roof determines how well the bin can be sealed to control the storage environment. There are lots of details to be considered—enough to challenge even farmers very familiar with farm storage.
Handling equipment should favor gentle treatment. First choice from a quality standpoint would be conveyor belts followed by en-masse and paddle conveyors, grain pumps, and lastly augers and pneumatic systems.
Storage placement should be determined with an eye to logistics flexibility and convenient farm access. If you could incorporate year-round access to both heavy trucks and rail, that would be fantastic. If not, then at least consider how to optimize a compound truck/rail supply connection. Shipping cost analysis favors water over rail, rail over truck, and heavy truck over lighter truck, with containers a competitive factor into both domestic and international markets.
Lynn Clarkson is chairman of Clarkson Grain Co.
From the January | February 2017 Issue