Bigger Crops Pose Big Challenges

Around the industry, many elevators not only are adding space, but they are also tackling the issue of what their business really needs for the future. The trigger may be discovering that a land lease cost will rise dramatically if the elevator can’t load unit-train sizes. In one area the lease cost for a single-car loading facility was quoted recently at 16 times the cost if they could load shuttles. This is a direct cost, but the additional cost is the higher per-bushel cost on the actual freight rates for small shippers. Another trigger may be growth of on-farm bins and dryer setups. As farms get larger, producers don’t want to wait to unload at harvest, or deal with inefficient operations with poor traffic flow and other “disruptions.”

To put that in perspective, one implement company says their smallest combine today is the size of their largest, top-of-the-line combine a decade ago. They may have been exaggerating — but perhaps not — and the story clearly shows that farmers value speed and efficiency. And time is a factor: Renovation and expansion won’t happen overnight. Elevator managers report that it takes six to nine months before a new bin can be up once it’s ordered.

From OSHA to EPA, a third challenge is the rising regulatory burden facing these entities. Multiple grain-engulfment deaths, for example, have soundly driven this point home in recent months, fueling growth in safety consultant programs, individual training programs, acquiring safety equipment, and in some cases — capital improvements. Compliance will be costly, but noncompliance may be more so.

The big picture

Dave and Gary are correct to evaluate their business path and formulate a strategic plan, but this can be a daunting undertaking for a small business. The starting place for an owner-operator such as Dave needs to be where they want the business to be in five years. Are they running the business to sell it eventually, or is Gary planning to take over down the road? Major capital investments may not be justified if the objective is to sell within a few years. In that case it may be prudent to focus on smaller, affordable changes and let a future buyer make major changes.

One place where Dave could start is to bring in someone to objectively review his facility and operations. This could be as simple as evaluating the physical location — studying on-site traffic flow for trucks and people, the location of scales and dumps, as well as more complex issues. Dave and Gary may not be able to afford an expensive consultant, but they could talk to industry acquaintances and see if someone will help them.

Agribusiness leaders see the growth ahead in U.S. crops and are expanding to accommodate the future. This will be a costly transition for the elevator sector, but staying small carries its own costs. Smaller elevators such as Dave’s will always play an integral role in agriculture, but they’ll need to keep their facility efficient and well-financed to stay in the game.