Crop Bounty Spurs Construction Boom at Midwest Grain Elevators

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A construction boom has been under way at grain elevators across the Great Plains, where farmers have grown more corn and opted to keep more of the grain to meet the demand from ethanol plants.

Storage capacity at the nation’s federally licensed grain elevators is at an all-time high, but there’s still not enough in states like Kansas and Nebraska, where millions of bushels of grain have been piled up outside elevators at risk of damage from foul weather.

Low interest rates have made it less expensive to build elevators, and commodity markets have encouraged farmers to store crops during the harvest glut to wait for better prices later in the season. The result has been a busy year for construction, most of it at existing elevators that are expanding.

The work has created temporary jobs during the weeks it takes to build the storage, but the bigger impact for rural towns may be the boost in property taxes that will accompany the expansions. That could help schools and municipal services.

“You have the initial effect of the people employed temporarily to actually build the facility. That is an undeniable aspect of it and just shows the importance of the grain-handling industry in Kansas to the economy in the rural areas of the state and even to the urban areas, but particularly to the rural areas,” said Dan O’Brien, an agricultural economist at Kansas State University

Grain storage must be licensed, bonded and insured by the state or federal government to protect farmers if a facility becomes insolvent or suffers a disaster. Much of this year’s new construction has not yet been licensed and counted, but the U.S. Department of Agriculture reported earlier this year that federally licensed storage had reached a historical high of more than 4.5 billion bushels. That number does not include state-licensed elevators or the on-farm storage bins that are not licensed.

The new construction includes two 140-foot-tall concrete silos being built at the Pawnee County Co-op Association’s elevator in Larned, a central Kansas community of about 4,200 people. The concrete bins will add some 600,000 bushels in capacity — a welcomed addition given that the elevator now has a million bushels of corn piled on the ground a mile away, exposed to the weather, said Hugh Mounday, the co-op’s general manager.

The Great Bend Co-op Association has added concrete grain silos at three elevators in central Kansas over the past four years, building in Seward, Pawnee Rock and Ellinwood. Elevators make money by charging farmers to store their grain or by buying their harvest to sell later on commodity markets.

Storage rates have nearly doubled in Kansas in the past decade as growth of the ethanol industry created demand for corn and sorghum, and a need to store the grain until it’s turned into fuel. About 17 percent, or 142 million, of the bushels produced in Kansas go to ethanol production within the state.

“Storage rates have gone up tremendously in the last five years,” Great Bend general manager Frank Riedle said. “It is more lucrative to have storage, but mostly we just have to keep up with the farmers — they produce more grain.”

Kansas’ total production of major crops — wheat, corn, sorghum and soybeans — had been hovering under a billion bushels, according to USDA statistics. Last year, it was 1.4 billion bushels and it is estimated to be 1.3 billion bushels this year.

Woofter Construction and Irrigation Inc., based in Colby, built metal grain bins this year for nearly 5 million bushels in Kansas, Colorado, Oklahoma and Nebraska, salesman Larry McDonald said. The work that started this spring and continued through the fall probably provided 200 to 250 jobs if outside crews, millworkers, electricians and other contractors are counted, he said. His company employs about 60, and he needs to hire eight to ten millwrights now, he said.

“I’ve got probably more projects to bid on than I can physically get done,” McDonald said. “We could use more people.”

The nation harvested a record 13.1 billion bushels of corn last year and this season’s crop is forecast to total some 12.5 billion bushels. The strong harvests are due to a variety of factors, especially weather and seed improvements that allow farmers to grow more without expanding their operations.

Iowa, where corn has been a staple crop for years and the ethanol industry has been more established, is better able to handle the glut than places like Kansas, where less productive crops like wheat have been traditionally grown. Kansas is expected to harvest its second largest corn crop on record in 2010.

One measure of how much trouble elevators are having in keeping up with the growth is the number of licenses issued for temporary storage, such as bunkers where grain is stored on the ground and covered by tarps. Last month, Kansas alone had 132 million bushels of temporary storage — a significant amount given that the state has some 900 million bushels of permanent state and federally licensed commercial storage, said Tom Tunnel, executive director of the Kansas Feed and Grain Association, the industry trade group representing elevators.

At least 15 million bushels of permanent storage capacity was added in Kansas alone last year, Tunnell said.

“The price of commodities has risen, they can’t afford to store it in piles,” said Larry Endress, a salesman for Cornbelt Fabric Structures, based in Bradford, Ill. The company, which builds fabric-topped storage structures, has put in 3.5 million bushels of new storage capacity in Kansas, Nebraska, Illinois and Wisconsin in the past year.

But O’Brien warned that elevators might not always see such demand, particularly if another drought occurs.

“I don’t think they will be sitting empty by any stretch, but I do think that you will have some ups and downs,” he said. “Kansas is very cyclical in terms of its weather. Over time, I am sure we will have times when we won’t be busting at the seams as we are in some locations right now.”