Is grain storage a wasteful frill or a key strategic asset?
That’s a question I’ve pondered lately, and it’s been coming up all pver as the post Canadian Wheat Board mono-poly world looms.
I recently moderated a panel discussion about the post-monopoly world, and the question of who would store the grain came up. It seems no one had yet reached a conclusion.
Would prairie farmers store less in the future, leaving storage to grain companies? That’s a theory many have held about a non-monopoly world in which farmers would presumably be able to more quickly clear their crops off the farm.
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Many have thought that without the wheat board quota system, which prevented farmers from moving all their wheat quickly, a lot more might begin pouring toward port terminals early in the crop year.
“No one can store as much as we can in Western Canada,” said one of the panel participants, who predicted less on-farm storage in the new environment.
“Maybe being a bin salesman isn’t the best thing going forward.”
But even though that’s a common view, I found its polar opposite at the Grainworld conference last week from a learned economist who has worked with farmers in Canada, the United States, Australia and Russia.
“The most strategic thing a farmer can do is have storage,” North Dakota State University agricultural economist Bill Wilson said in an interview.
“It’s not a dumb thing.”
To Wilson, who is a keen observer of agricultural markets and risk management, prairie farmers’ storage facilities aren’t as much of a freakish aberration as prairie farmers think. North Dakota farmers have enough on-farm storage to store two years worth of crop, he said. And farmers in other countries such as Australia are starting to build storage.
Having enough bins to hold a crop allows a farmer to plan his marketing and avoid pressure to sell at the worst time of the year.
A farming consultant in Winnipeg, who does a lot of work in Russia,said that farms in the former Soviet Union don’t have much on-farm storage. Mountains of grain are dumped in piles during harvest, and fleets of trucks owned by global grain companies haul it away.
The companies can afford to do this because they pay farmers half of what the grain is worth on the world market. Farmers accept this lower price because they have no way to get the grain to market, no way to store it and are grateful to move it before it spoils.
I understand the objections to farmers investing in storage and holding crops:
- if the farmer has debt, not paying it down fast can lead to interest costs that nullify any gain from holding onto crops
- crops can deteriorate in the bin if not managed well
- the capital cost of buying expensive on-farm storage can be a lasting drag on a farm’s profitability
However, Wilson’s view draws light to an issue that is dear to many producers’ hearts: farmer control.
Perhaps on-farm storage is the last real way a farmer can have power and control within the grain system. It didn’t survive with the prairie wheat pools and the Canadian Wheat Board, but it might survive on a farm-by-farm basis, with bin space being a crucial protection against forced selling.
Perhaps there’s some truth to the adage that “crop in the bin is money in the bank.” Crop in the bin isn’t money itself, but it could represent a lot of money that isn’t thrown away because it had to be sold too soon.
Maybe farmers haven’t been that dumb building all that storage.
