Rising corn yields, continued rail issues contribute to increased storage capacity

FARGO, N.D. - Derrick Rauen of Summit, S.D., is on the front lines of what industry experts say is another year in the region’s bin-building binge.

Rauen is a foreman for his father’s company, V.R. Construction Inc. of Goodwin, S.D. Rauen’s five-man crew is a subcontractor for Gateway Building Systems of West Fargo, N.D.

“Your typical farmer isn’t running to the elevator anymore during harvest time,” Rauen explains of the ongoing bin boom. “They don’t want to wait behind 25 to 30 semis when they’re trying to pull crop from the ground. They’ll put up the 50,000-, 70,000-, or 100,000-bushel bins, where 10 years ago that was unheard of.”

The Rauens have been constructing bins for four years and have been installing aeration systems for nine years. About 85 percent of their business is coming from the Red River Valley area in eastern North Dakota and western Minnesota, but they work in western North Dakota, too.

Rauen says bin orders started out slowly this spring, but excitement grew as the corn grew taller. The company started with a single crew in May and is now adding a second crew.

Historic storage increases

The region’s push toward more on-farm grain bin capacity is historic and epic - spurred by increased corn acres and higher yields. The building binge is continuing this year, despite lower commodity prices.

The numbers are impressive, especially in areas of expanded corn production. North Dakota commercial grain storage in 2013 totaled 380 million bushels - up 61 percent and 144.6 million bushels from 2003, according to the National Agricultural Statistics Service. On-farm capacity was up another 170 million bushels to 880 million bushels in 2013, a 25 percent increase in a decade, says Darin Jantzi, NASS North Dakota state statistician.

Similarly, South Dakota commercial capacity increased by 150 million bushels to 310 million bushels - up a whopping 93 percent since 2003.

On-farm South Dakota storage capacity increased by 115 million bushels - up 20 percent, to 690 million bushels.

In Minnesota, where high-bushel corn has been stronger longer, the commercial storage capacity increased by 180 million bushels to 690 million bushels - up 35 percent from 10 years ago. Minnesota’s on-farm storage increased 16 percent - up 200 million bushels to 1.45 billion bushels.

Montana, where corn is not yet prevalent, saw an 18 percent increase in commercial grain storage, while farm bin storage increased only 4.5 percent.

Investment equation

Ken Hellevang, a North Dakota State University Extension Service agricultural engineer and expert on grain storage issues, says farmers are continuing to add storage for their grain so they can market it in an orderly, profitable way.

“They have to ask whether they think they can recover their costs,” Hellevang says.

Acknowledging he’s an engineer, not an economist, Hellevang says research indicates storage investments affect net income, regardless of the current price of grain.

“People may have more disposable income when corn is $7 a bushel, but the importance is still going to be there when the price of corn is $4,” he says.

Hellevang says he has been getting fewer calls regarding the size of aeration fans, which indicates farmers might be waiting until they see what the crop is going to look like before making the final decision. But delaying can make it a challenge to get a bin erected in time for the coming crop.

Hellevang is getting more calls from farmers wanting to sit on last year’s crop.

Fewer, but bigger

Trever Meier, director of sales and marketing for Superior Manufacturing LLC in Kindred, N.D., says the year in bin-building started out slow with low commodity prices, and winter sales were relatively quiet. He expected the delayed rail shipments to pick things up, but it didn’t as much as expected.

“It had some effect, but I think they were basing (bin-building interest) off of the commodity prices,” Meier says. “A lot of them told us, ‘Once the corn hits that $5 range, give us a call.’ We’re not slow by any means - still having a great year, with 200 bin orders on the books - but it hasn’t been quite what we projected.”

Superior’s biggest year for bin numbers was 2011, but 2013 was the best year financially, because bin size was larger. From 2010 to 2012, the company was selling mostly 30,000-bushel bins. Bin sizes jumped to 40,000 to 45,000 bushels in 2013.

“This year we’re selling 50,000- 60,000- and 70,000-bushel bins,” Meier says.

Meier says Superior will have plenty of bin inventory, if farmers can only find someone to put them up. That’s become a problem because of increasing demand that has jumped in mid-July.

Problems on the rails

Meier thinks the ongoing rail issues will have a larger effect on 2015 bin purchases.

“When the elevators are still full with 2013 grain this fall, that’s when it’s really going to hit them.”

Dave Erbes, sales and project manager of Gateway Building Systems, agrees the rail issues will affect business.

Erbes says typically farmers can store 70 to 80 percent of a crop, with some as low as 30 to 40 percent.

“Some haul everything into the elevator at harvest time, but with this railroad issue and the basis not being that good, we’re going to see not only farm storage, but storage at the elevators to handle the harvest time.”

In Hunter, N.D., for example, Erbes’ company is installing 90-foot diameter bins, for about 400,000 bushels each. The biggest bins on the market hold about 1.2 million to 1.4 million bushels. His company is building a couple of 700,000-bushel bins in Spiritwood, N.D., for an ethanol plant.

With corn prices coming down, and a wet spring, farmers planted a bit less corn, Erbes says. Those with 200 to 500 acres of corn hadn’t invested in as much equipment and some hopped out of the crop when prices declined. Farmers who had invested in the crop and its equipment probably stayed with it.

The market basis on grains hasn’t been good, another result of the delays in rail service.

“I don’t foresee that changing in the short term,” Erbes says. “I see rail being an issue for the next five years. Most of the elevator managers I talk to say they think it’s going to be a little better through the summer.”

Newer North Dakota corn growers north of Grand Forks and west to the Minot area put in a lot of storage in the past year.

Steel prices have gone up about 3 to 5 percent in the past year, but the bin prices have been relatively constant.

Brian Shuck, division manager for Gateway’s branch in Fergus Falls, Minn., says the growth in on-farm storage has extended to the Canadian border, spurred by the increased corn acres and improved technology and yields.

“The ethanol plants that have been built here have increased the demand, locally. There has been a big increase in storage,” he says.

The accessibility of rail cars and the ability of grain elevators to get rid of the grain to make space is “creating an awful lot of talk among the farmers as to whether they should put some more storage on their farms - even guys who never thought they’d put more storage in,” Shuck says. He says that kind of building will take place in the next couple of years.