Many on-farm grain stores need investment – but what are the options after a tough year?
Scott McArthur explains
1. After a difficult harvest, why should a cash-strapped cereal grower consider investing in grain storage now rather than postponing it?
I think for many growers it makes sense to make do and see what happens over the next 12 months. Decisions should be made based on a long-term plan.
It is quite common for us to replace 40-year-old systems as part of a once in a generation type renewal of a grain storage infrastructure.
We also find that due to the challenges in the industry some growers are expanding their operation, and an efficient consolidated grain storage/drying plant is essential to manage operational costs.
Another reason growers might invest is if they are building a grain system to add value and potentially offer a service to others through crop cleaning.
I certainly believe the current challenges remind us of the importance of a robust and resilient business case. And if there is a robust, resilient business case then the sooner it is implemented the sooner the benefits are recognised.
2. What is the strongest financial case for owning more storage: lower drying costs, avoiding harvest movement, better marketing opportunities, or something else?
Every farm business is different in terms of cropping, staff, and the availability of local grain storage providers/processors. Needless to say, markets, transport and rainfall have a big impact on what you get paid but unfortunately none are easy to predict.
The strongest financial case for owning your own facilities is not to guarantee the highest turnover on a given year, but to remove some unpredictability by controlling costs This makes planning and future decision making much easier.
3. This year much of the crop has come off unusually dry. Has that changed the way farmers should think about drying capacity, or would it be a mistake to design a system around one exceptional harvest?
I think the only sensible way to approach it is to look at the past 10 years, take an average to determine requirements and then factor in any expansion plans.
We certainly don’t need to build the doomsday scenario but do need to plan how grain will be managed in wetter years when drying the grain takes longer. This would typically involve planning how wet grain can be tipped up and managed prior to drying.
In the meantime, I am hoping I can somehow earn £1 for every customer that asks if we have kit to fit to the driers to dampen the grain.
4. If capital is limited, where should farmers spend first: the building, drying capacity, ventilation, handling equipment or monitoring and automation?
Assuming there are some general-purpose buildings on the farm already then, I would say the grain drier. (I can almost hear people wondering what planet I’m on after this dry harvest). Firstly, grain driers are a lower capital outlay than storage, and a good-sized batch drier at least has some resale value if plans change. Secondly, no matter when is the best time to sell grain, it still needs to be dried and possibly cleaned up to avoid unwelcome penalties.
5. Can upgrading an existing grain store deliver most of the benefits of a completely new facility – and what improvements tend to give the quickest payback?
This depends on what the desired benefit is. Economic benefits are typically optimized by long service life. Spending significant money upgrading an old system might turn into a perpetual cycle of unplanned, unwelcome repair costs whilst trying to run the system long enough to get a return.
If the benefits sought are specific and time linked then a refurbishment or upgrade could deliver the best value. I say ‘time linked’ because you need to be certain that you will recognise profit from the upgrade within the time that the original system remains serviceable.
6. How should a farmer calculate whether a grain-storage investment genuinely stacks up? What should go into that calculation beyond the construction cost?
If you have the construction cost, I would start by suggesting adding a contingency to this. Ground conditions, and steel prices are repeat offenders for cost escalation.
The costs leading on from this are the operational costs. The biggest, other than depreciation are labour, power and fuel. But don’t forget servicing, repairs and insurance.
When comparing suppliers make sure to get these costs understood. Ask them to show their workings to back up the claims!!
Of course, the other cost to consider is the alternative to building your own storage. If you are lucky enough to be conveniently located near a competitively priced 3rd party storage facility that you trust, this might be the way to go.
7. Are farmers sometimes over-specifying grain stores and drying systems? Where can they reduce capital cost without compromising grain quality or future flexibility?
Sadly, I am not fortunate enough to come across these farmers very often! Honestly though, I tend to find the capital costs are focussed on intently and the costs of ownership gets a light touch. I would really encourage farmers to dig deeper on the running costs outlined in the previous answer. These will be much more significant to the lifetime cost of a system than the cost to build.
Despite the above there is a way that you might reduce capital costs without compromising spec. That is simply to pay for design work early, working with a company you trust, i.e. get the comparisons, specifications and quantities decided before obtaining competitive quotes. This will reduce cost escalation and reduce contingency built into quotations.
8. Energy is a major concern. What developments in dryer design, ventilation, heat recovery, automation or renewable energy are genuinely reducing the cost per tonne stored?
The margins are quite fine, features such as heat recovery and automation can deliver savings in certain cases but may have a downside. These need to be looked at on a case-by-case basis.
When taking these into account I would encourage farmers to insist that suppliers’ backup their claims with calculations and evidence.
The factor that definitely reduces the cost per tonne across the board is scale. This leads to more efficient systems but more significantly better buying power for fuel. Having enough scale can support the case for investment in cheaper fuel sources. This, combined with the challenges our industry is facing, leads me to believe there will be continued grain storage consolidation as farmers, one way or another, work together to build fewer, larger grain stores.
9. With increasingly volatile weather (very wet harvests followed by exceptionally dry ones) – how do you design a store and drying system capable of coping economically with both extremes?
Designing for the extremes would make a very expensive system. But we should certainly think about developing trends. As we move between extremes are we resetting the average over time?
The best we can do is make a system that is easy to add to. If fortunate enough to be designing from scratch, the most important thing is to keep the system simple. By keeping handling routes uncomplicated and keeping enough space around, it allows future additions to be made easily. Avoid hemming in the plant area. Try to keep a flexible space, at least to one side, that is not essential for other purposes.
10. Looking ahead 10 or 20 years, what will the successful UK farm grain store look like – and what infrastructure being installed today do you think will become obsolete?
I think the most noticeable change for large operations will be movement toward silo storage.
As grain stores grow larger though consolidation, the economic benefits of storing grain in silos as opposed to sheds will become more obtainable.
Sheds are great for flexible space but when it comes to cost per tonne, silos are hard to beat.
For small to medium farms I think fixed drying systems will give way to more flexible solutions such as mobile driers working alongside a general-purpose shed.
Scott McArthur is project division director for grain storage and processing specialists McArthur BDC. For more information, visit mcarthurbdc.co.uk