In response to the ethanol industry, U.S. corn acreage has jumped. Currently, some 25 percent of the U.S. corn crop is being processed into ethanol.
“Typically, we've had a 10 billion to 11 billion bushel corn crop,” said Jeffrey Berg at the recent American Society of Farm Managers and Rural Appraisers annual meeting in San Antonio (where he was named the organization's “2008 Appraisal Specialist of the Year.”). “Since so much corn was needed for ethanol, we're looking at producing (up to a) 14 billion bushel corn crop.”
If the nation increased acreage from 11 billion to 13 billion acres where did the extra acreage come from?
“It came, generally, at the expense of soybeans and wheat,” said Berg, who has helmed the Minnesota-based agriculture appraisal company, Crown Appraisals, Inc., for the last 15 years. “Those crops yield, say, 50 bushels per acre.”
The same acres, growing corn, “yield 150 to 200 bushels per acre.” That means a net storage deficit of approximately 1.5 billion bushels.
The farmers and all the elevators have been building storage “like crazy” for the last four or five years. When Berg travels to Midwest trade dealer shows in the winter and talks to exhibitors, “I'm hearing incredible stories. They can't get enough manpower, are bringing in labor from Mexico — all kinds of creative things to get this storage built.
“It's interesting that for a lot of the concrete elevators, crews of Hispanic workers do nothing but slip-form the elevators. They work 24-7, specialize in pouring concrete for a week and then go to the next job.”
A new concrete annex, “a big 500,000-bushel tube, will cost in the neighborhood of $5 — a very rough number depending on how they're equipped, aeration, etc — per bushel. Steel will cost about $3.50 or $4. Concrete is still considerably more expensive.”
Flat storage can be built for $1.25 to $1.50 per bushel.
Berg sees a lot of tent storage going up with “agri-lime or asphalt as a base. Then, there is a two million-bushel pile with a tent, or hoop roof, over it.”
Berg's brother-in-law is an English professor in China. When he came home last fall, Berg said, “In the U.S., we're blaming all the increased cement and steel prices on China. We hear they're building for the Olympics. He said, ‘Jeff, you can't believe the infrastructure the Chinese are building. They're building coal-fired electric plants, super interstate highways, railroad tracks spanning that country. The infrastructure going in is unbelievable.’”
A lot of the scrap iron shipped out of the United States goes to China not only for processing to be shipped back as finished steel, but also to be utilized there. China is one of the causative factors for higher prices and a dearth of steel in the United States.
“To give you an idea how much steel prices have gone up, last February, depending on the grain bin manufacturer you speak with, there was a 15 to 20 percent price increase. They had another of the same magnitude in July and another this past fall. So, steel prices used in a bin have gone up 45 to 60 percent just in the last year.”
In the Midwest, over the past year, a lot of the concrete prices have been above $100 to $115 per cubic yard. Berg said there's talk that concrete will cost $150 per cubic yard next spring.
“We've seen increased demand for on-farm storage and for what used to be commercial storage. Some of the smaller elevators across the Midwest that aren't very efficient are being bought up by farmers. They're paying anywhere from 35 cents to $1 per bushel of one-time storage capacity for those facilities.”
Many of them “are steel cans with legs on the outside or are wood-cribs with some steel bins standing alongside. But farmers are buying those older, less efficient facilities just for storage.”
It may cost $2 per bushel to build new steel storage on the farm. “Or you can buy an old elevator for 75 cents, that's a pretty easy choice. Several years ago, (one elevator operation) — which has 25 or 30 facilities — sold several of their older facilities to farmers.”