May pay off in the long, long run, after all. [More about the Platinum Grain Bin here] My Cargill rep forwarded an article (it's in the Spring 08 issue of Grain and Feed Manager that is not posted on their website, so I'm reluctant post it in its entirety here) Written by Glen Ludwig for grain merchandisers, he looks at grain handling from a new angle - theirs. He makes several good points, but I have excerpted the ones that struck me.
- The most highly valued service provided to producers by the country elevator is fast turn around of grain transportation vehicles at harvest, a service from which most elevators
generate no direct revenue. There's a disconnect between value to the customer and revenue generated for the service provider. In many cases investment in grain receiving capability has been short changed by elevators in the last 5 years, as focus has been on increasing storage capacity. Until demand subsides the cost to build and operate grain storage and receiving capacity is likely to continue to escalate.
- Elevators provide a large percentage of the grain storage in Illinois and to a lesser extent in the other states CAS serves. As production agriculture continues to consolidate and cash rented acres increase, grain producers are likely to be less interested in building on-farm grain storage. This is particularly true if a fast unload is being provided at the elevator. Elevators with strong profits and solid balance sheets may well have the
opportunity to increase the percentage of the crop stored at the elevator. [My emphasis]
Voila - ladies and gentlemen, a positive feedback consolidation loop!
While I have groused about not having a range of ethanol plants and river terminals within 4 miles to choose from, maybe I should count myself lucky to be living in relative backwater without development pressure or easy grain disposal.
There are many factors contributing to grain farm consolidation and the rise of BTO's. As noted below in the comments, more than a few of us struggle to pinpoint exactly why this is so unsettling. I will try to explore the reasons in a later post, but like this example, I suddenly see (or imagine I do) more subtle influences leading grain farming down this path to a very few operations. Not unlike animal agriculture, I might add.
From the need to equalize bargaining power on the input side (it takes a UAW to bargain with a GM), high commodity prices, increased risk, apparent economies of scale, and technology fallout, the range of causal factors is wide and interrelated. It appears rental land will be increasingly controlled by ambitious, aggressive and result-oriented businesses. So far, I have seen no evidence outraged competitors have developed viable counter-strategies to slow the trend. As for government policy saving the day, farmers won't even support any meaningful limit on payments, so why should elected officials care about farm size?
Discovering exactly why the tide is flowing one way may take more time than some of us have, but the consequences have been laid out more sharply this year than ever before.
And I suspect 2009 will be even more shocking to too many middle-sized farmers.