Increases In Grain Production To Trigger Substantial Investment In New Storage Facilities
Monday, June 25th, 2012
With U.S. grain supplies expected to increase substantially during the next decade, the grain handling industry will need to invest billions of dollars in new storage capacity to accommodate the increased volumes. According to a new report issued by CoBank, grain-storage facilities in the Corn Belt will have to be expanded to handle an estimated 2.3 billion bushels of additional grain storage capacity by the end of the decade. Moreover, more than half of the new capacity is expected to be built off-farm.
Written by Dan Kowalski, lead analyst in the bank's Knowledge Exchange Division, the report, entitled "Change on the Rural Horizon: Managing the Expansion of Grain Storage in the Corn Belt" estimates that the total cost of constructing the new off-farm storage facilities will amount to about $3.8 billion.
The report suggests that meeting the evolving needs of producers will be critical to the future survival and success of grain handling firms. The average size of grain storage facilities has grown by 30 percent since 2005, and many elevator operators are shifting their business model from one that serves a small local region to one that covers much larger regions encompassing several counties or even states. Their success will depend on the ability to offer sufficient storage in optimal locations, faster/newer technology, and competitive rates.
Much of new construction of storage facilities will take place in Nebraska, Illinois and Iowa as the grain supply accelerates in these key production states. The grain handling companies that benefit from this next phase of industry expansion will be characterized by strong financial and strategic leadership as they manage their growth in an increasingly competitive and volatile marketplace.
"Planning today for tomorrow's infrastructure needs has never been easy," said Amy Gales, executive vice president of CoBank's Regional Agribusiness Banking Group. "CoBank has been serving the grain handling industry for decades, so we understand the challenges our customers are facing. We hope that this new research study will be a useful tool as the industry works to make the best possible decisions for their business and customer-owners."