August 9, 2000 | By: Laura Skillman

With low grain prices, farmers are looking for ways to potentially increase their profits. Adding on-farm grain storage may be one option farmers consider to have better marketing flexibility.

Russ Morgan, Purchase Area farm management specialist with the University of Kentucky Cooperative Extension Service, said a farmer's decision whether to add storage is purely an economic one.

"Can the producer expect to gain enough in grain price to offset the total cost of owning the facility," he said. "If they can do that, then it is a worthwhile investment."

Grain prices at harvest are generally lower than other times and having the ability to store their crops offers farmers more flexibility in when to market.

A new U.S. Department of Agriculture program offers low interest money for farmers wanting to add grain storage capacity on their farms. The seven-year loans are administered through the Farm Service Agency.

The interest rate charged on the USDA loans will be the same as the rate charged on comparable Treasury securities in effect during the month the loan is approved. The rate will remain in effect for the term of the loan. The maximum loan amount is $100,000.

The loan rate is between 6 and 7 percent, an excellent rate, Morgan said. But one drawback for many farmers may be the provision requiring them to provide first mortgage to the USDA for the tract of land where the bin sits if the loan is above $50,000.

A large bin or two or three smaller ones can be built for that amount.

Storage historically has been profitable, Morgan said. But with the low prices, farmers today are reluctant to invest large amounts of capital.

Farmers who've had adequate rain think about adding grain storage this time of year, said Sam McNeill, Extension agricultural engineer at the University of Kentucky Research and Education Center in Princeton.

In deciding whether to add on-farm storage, the farmer also needs to decide if he wants to take on the responsibility for storing and maintaining the quality of the grain until it is sold, McNeill said.

The new loan program may be something farmers want to look at who are expanding their storage capacity, whether building a new bin or adding rings to an existing bin, McNeill said. And he is also encouraging farmers to look at systems that monitor grain temperature as a valuable management tool. Temperature readings help to protect grain quality during storage.

While some farmers may be segregating the grain crops to preserve the identity of each variety, that has not yet become a large issue in western Kentucky, Morgan said. But, Morgan said he looks for that to change in the coming years as demand increases for specific traits in grains.

"The loan is an excellent opportunity for folks who want to go into specialty grains and need smaller bins," McNeill said.

In the past, large bins have been preferred but for new construction today some farmers are installing smaller bins so grains can be segregated, he said.

"The loan has come at a good time for folks that needed that flexibility in their operations," McNeill said.

Farmers could not begin filing loan applications until May 30, 2000. That may mean many farmers will wait until next year to consider the program. Grain bins need to already be ordered to ensure they will be ready for this year's harvest. Those farmers who bought or built storage facilities between February 2, and May 30, can also apply for a loan.

The program provides seven-year financing for on-farm storage, drying and handling of corn, soybeans, wheat, grain sorghum, oats, and barley as well as other crops.

McNeill said he believes interest in additional storage next year will be regional and will primarily follow where farmers had good weather for this year's crop.


Sam McNeill, (270) 365-7541; Russ Morgan (270) 443-6634