Storage WarsPosted in: Business By Tracy Tjaden June 23 2015
Farmers are wrestling back control over the major decisions that impact their bottom line — i.e., when they sell their grain and when they purchase crop inputs —
by ramping up storage capacity on their farms.
Kevin Hruska’s massive 44,000-acre Saskatchewan farm runs like a well-oiled machine.
Until it doesn’t.
One slight misstep and the complex logistics required to efficiently manage Hruska’s sprawling operation can go quickly awry. When that happens, it doesn’t take long before a seemingly small hiccup could result in hundreds of thousands in losses, missed opportunities and frustrated staff.
During harvest, Hruska’s team will combine 18,000 bushels of wheat and canola in an hour using 12 combines.
He says the need to control the timing of his major buying and selling decisions prompted him to begin investing in storage facilities early on. Today, Hruska’s storage capacity includes a 6,000-tonne storage shed for blended fertilizer, a 5,000-tonne liquid fertilizer facility and an actual grain terminal with storage capacity of three million bushels.
“Everything has to be like clockwork, and you also have to be nimble enough to redirect when you have weather issues,” says Hruska, whose Gerald, Saskatchewan operation includes a farm equipment manufacturing facility, Bridgeview Manufacturing, and 100 employees in total. “People might think we’re kind of anal, but as soon as you bunch up those little things that don’t fall into place, they get bigger. The time crunch is crazy.”
Hruska’s team will seed 44,000 acres in 18 days. “You can’t cause us a delay,” he says. “We need independence,
control over the product, control over our logistics.”
This is especially true during harvest, when his team takes off three million bushels of wheat and canola.
“That’s about 3,000 truckloads of grain a year,” says Hruska. “If you are hauling 200 days a year that means
we have to deliver 15 semi-loads per day year round to the terminals to export our grain.”
The ability to store his crop on the farm allows Hruska to focus all of his marketing decisions on pricing.
“I tell the guy who helps market our grain not to worry about our cash flow, you sell the grain when you can get the best price,” says Hruska. “A lot of people end up selling when the crop leaves the field, the grain companies know this. Having storage gives me an advantage.”
Storage Means Control Over Marketing
Hruska is not alone. Agriculture industry watchers have noticed a trend in recent years in which more growers — especially those running larger operations — are investing heavily in on-farm storage capacity.
“If your financial position permits, investing in on-farm storage makes sense,” says Lyndon Carlson, Senior Vice-President of Marketing with Farm Credit Corporation. “Whether your crop is one of our mainstays, like wheat or canola, or one of the smaller crops that can experience a big depression in pricing, it makes a big difference if you can hold onto it for a month or even a year to allow prices to normalize.”
Carlson said the FCC’s chief economist, J.P. Gervais, recently reported that Canadian farmers have on average about 90 percent capacity to store one year’s crop on their farms.
“This is a much higher percentage than in the U.S., and much higher than a decade ago,” says Carlson, noting that the trend toward on-farm storage is tied to the increase in growers doing more hands-on grain marketing. “Having a marketing strategy has become one of the most impactful parts of your business plan, in terms of overall profitability.”
Investment in on-farm storage spiked after the 2013 bumper crop and strong prices.
“For 2015, this year’s prices are still profitable but not blockbuster,” says Carlson. “It’s an opportune time to make those investments in a good year.”
Denis Tétrault concurs. The Winnipeg-based Business Manager, North America, with Canadian steel storage manufacturer Westeel says 2014 was a record year in sales for most of the industry.
“It was a perfect storm,” says Tetrault. “With the lack of storage space in elevators, the train movements being brutally slow and record high yields, last year was tremendous.”
He anticipates 2015 will end with “more normalized” numbers, “but certainly the on-farm market continues to grow. Producers are monitoring their costs and they figured out long ago that if you don’t have on-farm storage, you’re at the mercy of others — and you’re probably selling your product at the worst time possible, right off the combine.”
Westeel’s hot sellers are their larger, flat-bottom bins with aeration systems, as well as the 10,000 to 15,000-bushel bins.
On-Farm Fertilizer Storage Trending Up
While on-farm grain storage gives growers more control over selling, on-farm fertilizer storage empowers their buying decisions.
“Logistics are a big deal in fertilizer, so we typically fill the shed in mid-summer when prices are good, if they have inventory left over,” says Hruska.
The ROI in some cases can be massive: “It can swing from a winter purchase to an out-of-season purchase by as much as $200-$300 a tonne,” says Hruska. “We use 6,000 tonnes a year so alone, that’s $1.2 million.”
Westeel’s Tetrault agrees that fertilizer bins are becoming more popular among growers. (They have an interior coating and are welded together, to prevent damage.)
“There are two reasons, one is that there have been shortages of fertilizer in the past. Also, there are times of year when the large manufacturers might offer better pricing on large volumes, so producers are buying more storage to take advantage of these cost reductions,” he notes.
This year, Hruska discovered first-hand how essential it is to have adequate storage on the farm. He couldn’t quite store all of his fertilizer, so ended up storing it at a custom facility for nine months at $30 a tonne.
“We were reminded again of the importance of storage,” he recalls. “We were held hostage to their hours of work. We can’t afford to have someone else with their hand on the crank.”
In addition to added storage for grain and fertilizer, farmers are also investing in fuel tanks.
Tetrault says Westeel is now ramping up its production of petroleum storage tanks, especially the popular on-farm tanks that hold 10,000 gallons.
comments powered by Disqus