Determining the Economic Cost for Drying and Storing Corn this Season
By Jordan Shockley
Loretto Grain
Corn harvest has started in some parts of the state, and USDA National Agricultural Statistics Service estimates that 215,460,000 bushels of corn will be produced in Kentucky this year. Historically, about 50% of the harvested corn will be dried and go into storage. Almost 25% of the corn harvested in Kentucky will be sold in January, the largest of any month. Therefore, it is important to know the cost for drying and storing corn to ensure the cash price received will cover the costs.
The economic costs to consider are both operating and ownership costs. Operating costs include energy (electric and fuel), repairs and maintenance, shrinkage, additional hauling, interest, and moisture discounts. Energy costs represent the largest portion for drying and storing corn. According to the U.S. Energy Information Administration, current energy prices are higher than last year at $0.0963 /kWh for electric and $2.11/gal for propane. Due to energy demands, the cost of drying corn will depend on the type of dryer. Natural air dryers will have significantly less cost than high-temperature dryer systems. Table 1 estimates the energy costs ($ per bushel point) for drying corn based on dryer systems for this year and compares that to the costs in 2016. For example, if the average harvest moisture of corn is 20% and dried with a high-temperature, no air recirculation dryer to 16%, then the estimated energy cost would be $0.192/bu ($0.048 x 4 points).
Additional operating costs include repairs and maintenance, which is roughly 3% of the dryers purchase price. To determine the cost per bushel, divided 3% of the dryers purchase price by the total bushels of corn dried this season. Corn shrink will also occur from both drying and additional handling. Previous research estimates corn shrink at 1.25% from mechanical drying (Edwards, 2014; Hicks, 2001). Therefore, to determine the shrinkage cost, multiply 1.25% by the future cash price for corn. Additional hauling costs may exist from delivering corn to the storage and drying system are $0.015/bu/mile. Interest also exists on stored corn since the corn sold at harvest can earn interest or paying off current short-term loans. Therefore, a short-term interest rate of 5% is appropriate to determine interest costs. Finally, any moisture discount that occurs when delivering stored corn to market.
In addition to operating costs of drying and storing corn, ownership costs exists. Ownership costs will vary based on the size and total investment in storage systems. Ownership costs include depreciation, interest, taxes, and insurance. In 2016, data was collected on the investment cost of storage systems from dealers serving Kentucky. Figure 1 illustrates the annual ownership cost ($/bu) of on-farm storage systems in Kentucky based on bushel capacity. These annual costs exclude the addition of upgraded dryer systems. As a reference, if a 100,000-bushel storage system were to upgrade to a high-temperature dryer that costs $50,000, the annual ownership cost would be $0.10/bu (see Figure 1) plus an additional $0.04/bu for the dryer upgrade, totaling $0.14/bu.
Determining the economic cost for drying corn will aid in marketing to ensure the cash priced received for the corn in the bin will cover the additional costs of drying. To determine whether to store and for how long, current corn prices must be discounted and compared. First, discount the cash prices at harvest by any anticipated costs, such as moisture penalties. Next, discount the future cash price (including local basis) by the additional costs for drying and storing discussed above. If needed, resources such as DTN provide current and historical local basis for select corn markets in Kentucky. If the discounted future cash price is greater than the discounted harvest price, drying and storing is an optimal decision. Below is a worksheet with an example of determining the cost of stored corn, as well as an area to personalize drying and storage costs. Replicate this worksheet with different storage durations and future cash prices to determine the optimal length to store to maximize returns. Utilizing the estimated drying costs coupled with the marketing resources available in the monthly “Crops Marketing and Management Update” will aid in maximizing returns to storing corn this cropping season (Crops and Marketing and Management Update available online: http://www.uky.edu/Ag/AgEcon/davis_todd_pubs.php)
References
Edwards, W. 2014. “A2-31: Estimating the Cost for Drying Corn”. Iowa State University. Available online: https://www.extension.iastate.edu/agdm/crops/html/a2-31.html
Edwards, W. 2014. “A2-32: Corn Drying and Shrink Comparison”. Iowa State University. Available online: https://www.extension.iastate.edu/agdm/crops/html/a2-32.html
Hicks, D.R. and H.A. Cloud. 2001. “Calculating Grain Weight Shrinkage in Corn Due to Mechanical Drying.” National Corn Handbook Fact Sheet NCH 61. Iowa State University. Available Online: http://store.extension.iastate.edu/Product/nch61-pdf
U.S. Department of Agriculture-National Agricultural Statistics Service. 2017. Acreage. ISSN: 1949-1522. Washington, DC: USDA.
Sources: U.S. Energy Information Administration average monthly prices and Iowa State University Extension “Corn Drying and Shrink Comparison”
Figure 1. Estimated annual ownership costs for on-farm storage systems in Kentucky
- 20 year economic life, 4.25% interest rate, and 0.5% tax & insurance rate
- Quotes came from dealers serving Kentucky for GSI, Conrad and VALCo (April 2016)
- Excludes dryer systems
Example Scenario (PDF)