There are many advantages to drying grain on the farm. For example, you don't have to wait for the grain center to be available, and you don't have to coordinate with your forwarder and transporters. This greatly facilitates harvest logistics and can result in substantial savings.
But beware! A multitude of dryers exist, each as good as the next, and it's not always easy to navigate through all these options. Given that this is a major, multi-year investment, it's best to carry out a thorough financial exercise before embarking on such a project.
In this article, we'll outline the key points to consider when choosing a dryer if you want to maximize the return on your investment in such a project.
As they say, the math is worth the work!
Selection criteria for choosing your dryer
You're thinking of building yourself a grain center and you've been offered the 8th wonder of the world? Ask yourself some serious questions! After so many years, if there are still so many types of dryers on the market, it's because each one has its place. Each company has its own specific needs, and each can find something to suit its needs through the diversity of dryers available on the market. Here are 5 financial criteria to help you decide which type of equipment is right for your business.
Budget
And yes! The budget is the mother of all things! After all, it's a strategic investment to improve your business, make it more profitable and, above all, sustainable in the long term. Why else add another unnecessary workload?
The sum of the economic benefits will enable you to achieve a realistic and viable return on investment for this type of project. In fact, given the nature of the investment, we're aiming for a return on investment over a period of 20 or 30 years. The main savings will be in :
reduced drying and storage costs
improved quality and value of your harvest
a better selling price
securing your harvest by harvesting at the “right-time”
the volume of grain to be handled
Reducing drying and storage costs
Generally speaking, drying and storage costs are relatively similar from one grain center to another. The table below summarizes the costs, with an average cost of $45/Mt for drying a ton of corn at 25%, storage for 3 months and entry and exit fees of $6/Mt. Note that you will be credited with the entry and exit fees if you sell your grain to the grain center. Your reference cost will therefore be between $39 and $45/Mt. For soybeans and cereals, drying costs are generally between $15 and $20/Mt.
Comparative - Grain Center | ||
Corn moisture - Dry (%) | 14.50 | % |
Corn moisture - Wet (%) | 25.00 | % |
Shrinkage (%) | 1.25 | % |
Decrease | 0.87719 | |
Shrink factor (Decrease + shrinkage) (%) | 1.1240 | |
Tonne stored (Mt) | 0.89 | Mt |
Drying cost ($/Mt) | 1.2464 | $/% |
Storage costs ($/Mt) | 3 | $/Mt |
Storage time (months) | 3 | month |
Entry fee | 3 | $/Mt |
Exit fee | 3 | $/Mt |
Total | 45.17 | $/Mt |
So if you have a project and your cost of production is $39/Mt, does it make sense to add a job in the fall? Need more manpower? Add a tax burden to your business? Take on additional risk on the farm?
A business case is more than necessary if you want to make the most of your investment. For some businesses, the savings can be substantial. Particularly when you can have a cost price of $25/Mt, saving $20/Mt (45 - 25) on a volume of 5,000 Mt. The savings of $100,000 over 20-30 years will quickly justify the decision to invest in such a project.
A good advice: do your homework first! There's a long list of criteria to check:
Drying cost = Energy (electricity + gas)
+ labor + decrease
Costs (fixed, variable) = Interest + maintenance
Discount = Grade + weight (kg/hl) + CCFM + Moisture + Damage (%) + Heated (%)
Savings/Gains = Moisture mix
+ reclassification (Grade) + weight (kg/hl)
Improving the quality and value of your harvest
Did you know? Gentle drying done right can improve the quality of your grain! Especially in the case of corn. By drying your grain gently, you can increase its density (specific weight) and reclassify it. By going from grade #3 to grade #2, you'll increase the value of your harvest by $5/Mt. This is one of the most important factors in the profitability of a grain center project.
The higher the quality of your grain, the easier it will be to market your crop. You'll also have easier access to certain outlets, and a greater number of buyers will be interested in your crop. This aspect becomes all the more important when the year is particularly difficult and the quality of the grain is rather average. What's more, an average grain will tend to lose quality if your dryer is too aggressive. This is why it's so important to have a good drying process, and to pay particular attention to dryer adjustment.
A better selling price, notably through access to specialized markets or stock market appreciation
It's not unusual for corn prices to rise in the months following harvest. Firstly, because the price of grain at harvest falls (-$5 to -$15/Mt) due to the over-abundance of sellers at that time, and secondly, because the market gives you a premium (+$2/month) to keep it “in the meantime”. In essence, you're the baker's attic, waiting until he needs it.
In reality, the global market is much more complex, but everyone agrees that prices normally rise over time. However, it's important to bear in mind that investing in a drying and storage project will require you to follow the stock market and have a good strategy for marketing your grains. That's why we strongly recommend that you contact an expert to help you set up a marketing strategy for your grain.
As for niche markets, such as seed and IP (Identity Preserved) soybeans, companies will also give you a premium ($10 to $15/Mt) to keep your grain on the farm. These premiums can vary, in the case of IP soybeans, or be fixed in the case of seed ($70/ Mt).
Secure your harvest with “ right-time ” harvesting
Why leave your harvest in the field and risk losing quality? Or harvest your grain after heavy rain and risk damaging your fields? This last point is more difficult to quantify, but a loss of grain quality can easily reduce the value of your harvest by $50 to $70 when you lose premiums (bread wheat or seed). Not to mention the fact that soil compaction will reduce the productivity of your fields over the next 3 years. Imagine a 5% yield reduction over 3 years. Clearly, there's a lot to think about.
Volume of grain to be handled
Depending on the volume of grain to be dried and stored, it's clear that you won't be choosing the same options. As mentioned at the start of this blog, if you're producing 100, 1,000 or 10,000 tonnes of grain, you won't choose the same dryer. And that's why there are so many options. There's no right or wrong dryer, just different solutions for different needs.
What will greatly influence your choice is the volume of grain to be dried. The greater the volume, the more likely you are to choose an energy-efficient dryer, as the additional savings will help pay for your dryer - but everything has a cost! Remember, the more steel, and the more complex the assembly and installation, the more expensive it will be.
Below, we've grouped together the types of dryer you're most likely to buy, depending on the quantity of grain you need to dry. It's always best to have a play of around 15-20% on the drying capacity of your dryer and the quantity of grain you'll be producing. This way, you won't have to change your dryer when you have a larger crop, or when you buy new land.
For small grain volumes (300 to 1,500 Mt), batch dryers are a good option:
For small to medium volumes (2,000 to 3,000 Mt), small continuous dryers are preferred:
Horizontal dryer: Alvan Blanch, Oakland Products
Continuous flow dryers: Shivvers
For medium to large volumes (4,000 to 8,000 Mt), 2-stage continuous dryers are preferred:
Mixflow dryers: GSI, SUKUP, Brock, Neco (AGI), Grain Handler
And finally, for very large volumes (10,000 Mt and more), industrial dryers are the best choice:
Conclusion
On first glance, having your own on-farm grain center can be very advantageous in terms of financial savings and crop security. But as everything comes at a price, it's wise to carry out a serious and rigorous financial evaluation to ensure that such an investment will be profitable for the business.
Many criteria need to be taken into account to correctly measure the possible financial gains, but also the additional costs and risks to be anticipated. These include labor costs, the risk of quality loss, and the risk of not drying grain properly.
Additional cost and risk of loss
• Over-drying leads to a loss in the weight of grain sold
Corn moisture content: 14.5% vs 13.5% => 1% at $250/Mt = $2.5/Mt
• If you damage your grain and downgrade it, you'll lose a lot.
Loss of quality: $5/Mt
• Don't forget to calculate the labor time (receiving, drying, handling, shipping, maintenance, etc.) required for your operations! These days, no one works for free.
Labor: about $4 to $10/Mt
Why such a comprehensive analysis? Because more often than not, it's still more advantageous to deliver your grain directly to the grain center than to build your own. Particularly if your volume is low, you're short on manpower, you have little knowledge of drying and storage, or you're not familiar with the grain market.
If, after reading this blog, you're still confused and want to discuss it, contact us!
We'd be delighted to help you sort things out.