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Soybean Storage Profitability and Marketing Strategies

Soybean markets tend to vary cyclically during the period from harvest in the current season to harvest in the following season. Soybean prices are typically higher in spring and summer than at or just following harvest. This increases the premium for marketing beans in spring and summer.

A producer’s ability to take advantage of higher prices for soybeans that are forward-contracted for spring or summer delivery requires that soybeans be stored until the intended delivery time. This can be done using one of two options.

First, the crop can be stored under agreement with a local elevator for a set monthly fee. The accumulation of these monthly fees can potentially erode the increased profits that might be gained from forward contracting, especially if the grain is stored for several months. For example, an average monthly charge of $0.055/bu for six months of storage will compute to a $0.33/bu charge for that period. Other charges such as loading out for delivery may also be added.

Second, Mississippi soybean producers can take advantage of market cycles by storing harvested grain in on-farm facilities. In this case, storage costs are internalized to the operation.

The MSPB funded a just-completed project entitled “Soybean storage profitability and marketing strategies for Mississippi soybean growers”. The project was conducted under the direction of Dr. Brian Williams and Dr. Bryon Parmon of MSU’s Dept. of Agricultural Economics. The objectives of this project were to 1) examine the marketing advantages associated with on-farm soybean storage and drying, and 2) estimate the costs associated with storing and drying soybeans in on-farm facilities.

The results from this project are contained in a final report. The high points of that report are presented here.

    Marketing alternatives both with and without storage were evaluated to determine how much more income a producer could receive when compared to selling at harvest time.

    Data were collected on the impact of storage facilities on land values.

    Storage configurations included loop, conveyor, and moveable auger systems; storage volume options and scale savings; and multiple drying options that included rapid drying systems, dryer bins, and stirring systems. Drying power options included natural gas and electricity.

    Volume scenarios used in the study with estimated costs included:

A single 27-ft grain bin with 10,000 bu capacity (can store grain from 218 acres of soybean with 45 bu/acre yield) with a cost of $0.57/bu per year when spread over 10 years with 6% interest.

A single 48-ft grain bin with 31,000 bu capacity (can store grain from 689 acres of soybean with 45 bu/acre yield) with a cost of $0.48/bu per year when spread over 10 years with 6% interest.

Three 48-ft grain bins with 150,000 bu capacity (can store grain from 3,333 acres of soybean with 45 bu/acre yield) with a cost of $0.38/bu per year when spread over 10 years with 6% interest.

Four 48-ft grain bins with 286,600 bu capacity (can store grain from 6,355 acres of soybean with 45 bu/acre yield) with a cost of $0.16/bu per year when spread over 10 years with 6% interest.

Two 54-ft grain bins and a 33-ft wet bin with a total capacity of 260,000 bu capacity (can store grain from 5,777 acres of soybean with 45 bu/acre yield). This system also included a 2,200 bu/hour dryer bin, a 12-inch loop system, and two legs to transfer grain to and from the dryer. This system has an estimated cost of $0.37/bu per year when spread over 10 years at 6% interest.

    Each volume scenario included a low-end cost configuration of moveable augers, an intermediation cost configuration of a loop system, and a high-end cost option with a conveyor system.

Based on the results from this study, the following summary points are provided.

    The addition of an on-farm grain storage system does not add any value to the land itself. Rather, the value of the storage system must be recaptured by gaining a marketing advantage.

    The calculated estimates in this study indicate that all of the above systems will pay for themselves over a 10-year period if used in conjunction with a proper marketing plan.

    In this study, storing soybeans and marketing them at a later date gained an average of $1.35/bu when stored until the following summer and an additional $0.50/bu when stored until the following April and sold on the cash market compared to selling on the cash market at harvest time.

    These results indicate that the additional revenue realized from on-farm soybean grain storage will pay for the entire construction cost in 3 years or less if grain is stored until the following June and sold on the cash market. These payoff times might be shortened by using a more aggressive marketing plan.

    Finally, the results from this study indicate that construction of an on-farm grain storage facility is a potentially sound investment for Mississippi soybean producers who combine it with a marketing plan that utilizes the later marketing opportunities enabled by the storage system.

Composed by Larry G. Heatherly, Aug. 2016, larryheatherly@bellsouth.net