WASHINGTON, June 27, 2012 -Off-farm grain storage capacity grew twice as fast as on-farm storage since 2005, according to a CoBank report indicating that the grain handling industry’s business model is shifting. The report predicts the Corn Belt region will need 2.3 billion bushels of additional capacity by 2020, of which 1.3 billion is expected to be built off-farm.
“Growth rates are really going to drive this picture and the uncertainty is really high,” said Dan Kowalski, lead anaylyst for CoBank’s Knowledge Exchange Division. “It makes it difficult to project what storage needs will be by 2020.” He said that agricultural yield predictions for corn and soybeans, which have the greatest impact on storage estimates, widely range among forecasters.
According to the report, if actual yields across the grain belt trend five percent above or below the assumed rates, the estimates of additional storage needs would then range from 1.5 to 3.2 billion bushels and construction costs would range from $2.5-$5.1 billion.
“So who’s right? It depends on what your position is, and that’s why we came up with such a large range,” Kowalski said.
Despite yield uncertainty, he said the grain handling industry is shifting to larger facilities serving larger regions. CoBank found that the average size of grain storage facilities has grown by 30 percent since 2005.
“Elevator operators are shifting their business model from one that serves a small local region to one that covers much larger regions encompassing several counties or even states,” the CoBank report states. “Their success will depend on the ability to offer sufficient storage in optimal locations, faster/newer technology, and competitive rates.”
Kowalski said biofuel policies hugely impacted the growth in storage facilities, noting that the increase in demand for grain production “really caused an increase for just about everybody that’s involved from producer to handler.”
Montana Wheat & Barley Committee Executive Vice President Kim Falcon said her state is “seeing a move into a much larger facilities” that are “very efficient both in storage and shipping.” Falcon noted that this trend can be good for producers because competitiveness drives down price and increases efficiency.
“However larger elevators are looking to ship large volumes, so they’ll be looking for very specific grains to fill those orders,” she said, noting that the industry shift can restrict the producers’ ability to move into other commodities.
When it comes to the future, CoBank states in its report that “the industry will be defined by larger storage bins, but fewer total facilities, and fewer grain handling firms. Shuttle loading capabilities will grow increasingly important in the western Corn Belt states.”
“These strategically located facilities will thrive, while small country elevators will struggle to keep pace, perpetuating industry consolidation and the closure of older facilities,” concludes the report.
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