What are the options for grain storage in large-crop years?
The options are: buy new bins, store on the ground, or rent some storage space from someone with excess. Bin rental can be a logical choice if it's available.
What is the "going rate" for grain storage rental?
There is no official survey in Saskatchewan to establish a "going rate." Communication with producers seems to indicate a range of 10 to 12 cents per bushel per year for a flat bottom bin. If the bin has aeration or a hopper bottom, the price would go up accordingly. Electrical use by an air fan or other equipment would be charged separately.
How do I calculate the annual cost of grain storage?
First, you need to know the following:
- Original cost or replacement cost of building
- Investment rate of return (per cent)
- Expected years of life
- Salvage value
- Repair rate (per cent)
Example of how to calculate your "full cost" of a building
The following example is based on rough estimates and is not intended to take the place of your values.The bin in the example has a 3,300 bushel capacity, a replacement cost of $6,000 and an investment rate of return of six per cent. Salvage value is estimated at 10 per cent of original value and the repair rate used is one per cent of original value. Expected life is difficult to estimate, as many factors influence durability. This example uses a 30 year useful life.
|(A) Return on Investment|
|(original cost (repair cost)) +(salvage value)|
|x||(investment rate of return)||= $_________|
|(6,000) + (600)|
|x|| .06||= $198|
|(original cost (repair cost)) - (salvage value)|
Expected years of life
(6,000) - (600)
|Annual insurance premiums (one per cent)||= $___________|
|(6,000 x .01) ||= $60|
|(D) Repair charge|
|Original cost x annual per cent repair rate||= $___________|
|(6,000 x 0.01)||= $60|
|(E) TOTAL|| |
|A + B + C + D||= $___________|
|(A + B + C + D from our example) ||= $498|
|Rate per bushel|| |
| Total |
number of bushels
| 498 |
|= 15.1 cents|
The important factors are the investment rate of return and the repair rate which is reflected by the activity going on in the building. Such as the storage of machinery, will not prompt a significant amount of wear and tear on the building, therefore the depreciation rate and repair rate would be lower.
What factors influence what I can charge?
Many cost components have an impact on the value of the storage. Supply and demand for storage are the main determinates. Location and access are key components, as well. Other considerations, such as condition of the bin and ease of loading and unloading, are important. The size of the bin will also affect its usability. With large harvesting equipment, a small bin will be less attractive to a large operator. In some cases, storage is included in the land rental arrangement.
What if the rent is not enough to cover all my costs?
Some maintenance costs will occur whether the bin is used or not. If the alternative is to leave the bin empty, you may be better to accept a lower price. Remember, some cash flow is better than none. In the long run, you would hope to cover all your costs. Often, arrangements between neighbours and friends will be below "full cost."
Do I need a contract?
Many bins are rented on a handshake, but it is advisable to put the agreement in writing. Specify things like: who does the repairs and maintenance? who checks the grain? when is payment made?, etc. Going through the process of writing out the agreement helps clarify the agreement. Some careful planning in advance can save a lot of trouble later. If any disagreements arise, a contract can be very helpful.
Repairs due to damage by the renter would be the responsibility of the renter. Repairs required for normal maintenance may be done by the bin owner or, in some cases, the landlord will supply the materials and the renter supplies the labour. This sort of situation needs to be negotiated in advance and specified in the agreement.
Other questions might include: if the bins are located in the yard you reside in, what time of day will the trucks be loaded? who is responsible for grain spills? who is responsible to fill ruts if the yard is muddy? These details should be specified - don't underestimate these irritants.
Who cleans the bin after use?
Typically, the renter will clean the bin, but that should be specified in the contract. It is a good idea to hold a deposit until the bin is emptied and cleaned. The contract should specify a final date by which the grain is to be removed.
For more information, contact:
Saskatchewan Agriculture and Food
Agriculture Knowledge Centre
Cornhusker Economics, Department of Agriculture Economics, University of Nebraska - Lincoln
Farm Building Leases, Troy Dumler and Kevin Dhuyvetter, Kansas State University