Editor’s Note: In an article summarizing yesterday’s crop report, a story by AP ag writers (click here) indicated that emphasis on storage would be an outcome of the need for farmers to take control over grain marketing.
 
The AP report said farmers are seeking more control over grain marketing by storing it until prices pushed lower by the large harvest improve. "By being able to store it, if a farmer can keep the grain off of a glut of supply, he may be able to sell it in December at a much better deal," said Chip Nellinger, a futures market specialist at Blue Reef Agri-Marketing Inc., a risk management and agricultural product marketing firm in Morton, Illinois.

Here’s an archived article from 2008 (from Farm Equipment’s popular “How to Sell Series”) that examined the opportunities for farm equipment dealers in offering flexible grain storage equipment and supplies to their farm customers.


 

HowToSellGrain_1b-2.jpg

Dealers ‘Bagging’ Temporary Grain Storage Sales

Relatively new to America, grain bagging and unloading implements are billed as pieces of iron that help farmers market for profit. Three dealers explain how they’ve approached this new equipment niche.

There aren’t too many times a farm equipment salesman can point to a piece of iron and claim (at least with a straight-face) that “it’s guaranteed to make you money.” Yet grain bagging technology proven in South America and now making its way north just may be one that fits the bill.

A convergence of factors is helping dealers introduce this new equipment. There’s high commodity prices, scarce grain storage in areas where corn is a newcomer (particularly in the south), larger acre-eating harvesting equipment that’s taxing farmers’ on-site infrastructure and high fuel prices that make lengthy trips to the elevator more irritating, particularly when more crop is waiting to be harvested.

Enter grain bagging systems, where grain-filled polyethylene bags are stored wherever and whenever the grower likes, while offering the ability to sell when the time is right. Dealers are finding that they can sell it as a financial instrument as well as a piece of productive machinery.

Started in Argentina

The motherland of grain bagging systems is Argentina, whose agricultural and climate range is similar to North America. When grain production in the country began to grow 10% per year in the mid-1990s, the industry faced a dearth of the already-tight grain storage and handling facilities.

During this time, the use of temporary grain bag storage took flight. In 2007, about one-third of the nation’s 97 million tons of grain storage (or 30 million tons) was stored in bags. A 200-foot-long bag that’s 9-feet in diameter has a storage capacity of about 7,700 bushels for wheat and about 7,500 bushels for corn.

Adoption has been slower in North America, due largely to ample grain storage. However, as corn fever increases, storage concerns are rising. Further, temporary storage offers farmers a market-pricing advantage that many can capitalize on.

How it Works

When harvest arrives, the crop can be bagged as soon as the farmer hauls it in from the field, and can be stored wherever convenient. The bags are filled by a specially designed implement that can be filled from a grain cart. The pressure exerted on the bag is produced by the weight of the grain and the bagging machine’s auger, which gradually pushes the grain against the bag walls for a uniformly stretched bag with a constant diameter, expelling the greatest amount of air possible. Because its air-tight environment is low in oxygen and rich in carbon dioxide, risks surrounding insects and fungal diseases are virtually eliminated.

Moisture levels are a variable that must be monitored. Manufacturers advise that grain stored in bags be no greater than any other base moisture standard. Through monitoring, farmers can identify grain with higher moisture contents and sell it off first, while keeping the dry, clean grain for sale at a later date.

The bagging capacity of the machine is typically around 9,000 bushels per hour, offering a quick and efficient process.

After filling, the bag is sealed air-tight, preventing the development and reproduction of fungus and insects. Bags can be tagged to show grain variety, quality, area harvested, moisture content, and other information to make the best decisions when marketing. Crops bagged at optimal moisture can be stored up to 18 months, though 6-12 month periods pose less risk.

When the farmer is ready to market, a separate unloading system is used. The grain bag is emptied by a machine that rolls the bag up as it augers the grain out at up to 7,000 bushels per hour.

Dealers’ Experiences

Farm Equipment interviewed three dealers who’ve had success in grain bagging equipment. These include:

  • Tyler Perkins, owner, Perkins Sales, Bernie, Mo. In its second year selling grain bag equipment, Perkins Sales has moved about 40 units of the Richiger units, including a surprising number of baggers and unloaders packaged together. “We’re known for handling exotic equipment; some things that the normal implement dealer wouldn’t touch,” says Perkins. “Now that we’ve broken ground with it, there are a dozen new dealers within 100 miles.”
  • James Hendrix, Tri-County Farmers Equipment, Newburn, Tenn. After selling 4 Richiger units late in 2007, the dealership has been busy moving 28 baggers and 13 unloaders.
  • Kelly Miller, sales, Heritage Tractor, Topeka, Kan. After doing its first demos for established corn growers last fall, Heritage Tractor has sold 4 Grain Bag System units. “Most are buying the bagger now and will likely buy the extractor next year,” he says.

Communicating the Benefits

Despite the fact that the baggers and unloaders were being used for the first time, Hendrix says communicating the benefits has been easy. “Last fall, all the granaries were filling up and farmers couldn’t get unloaded. Those with the baggers just kept on going.


“When farmers understand you can sell grain 50-70 cents higher by storing it and delivering in December or January, it isn’t a complex sales process at all.”


“It’s good insurance to keep one around, just to keep the combine running. You’ve got to get the crop out before bad weather sets in.”

The economics were equally as easy, he says. “When farmers understand you can sell grain 50-70 cents higher by storing it and delivering in December or January, it isn’t a complex sales process at all.”

Miller adds that pushing the button of “anywhere you want” storage is key to the farmers in his area. “You can place it in the field at your home, or on the landlord’s property. That way, there’s never any question about whose crop it is, and it never gets mixed up.” He also talks about the tax benefits of solving the storage issue without putting up fixed facilities that trigger a property enhancement and resulting tax hit.

Because Perkins used it on his own land, testing out several brands and bag thicknesses, farmers tend to have a receptive ear, he says.

Who’s Buying Them?

For Perkins and Hendrix, most sales were to cotton farmers who converted to corn and desperately needed storage for their new crop. “The first ones sold were to farmers who didn’t have grain bins,” says Hendrix.

Instead of hurrying to the elevator during harvest, producers can unload their stored bags whenever it makes the most sense for their workload and pricing strategy.

Second, he says, were the guys who wanted to keep their combines running. “If they only had one truck, they’d end up standing in line for 3-4 hours at the elevator when they needed to be working in the field. With these baggers, you just put it in bags and keep going, so they didn’t need as many trucks.”

But the main reason they’re buying now, he says, is the higher prices they can realize by delivering later.

In his part of Missouri, Miller’s sales were all to corn growers seeking additional, cheap storage. “Some already had the bins, but needed more storage. The biggest benefit these farmers see is better timing the market with an inexpensive tool that stores grain vs. a stationary bin that can cost upward of $70,000 when erected.”

While Perkins didn’t do a lot of customer profiling (“farmers saw it work and then there was no question,” he says), a good pre-qualifier is the farmer who lives quite a distance from the nearest elevator. “A lot of my customers had more than enough storage but had an 80-mile run to the elevator and a combine that’s harvesting more than their hauling capacity. Some customers might only store the grain for 2 weeks — they use it just to get over the initial push.”

He recalls one customer that was short on storage and trucking power but hesitated to pull the trigger on the purchase last fall. Perkins says a storm came in and took down 800 acres, losing corn that he otherwise could’ve saved. “He came back in and bought a unit this winter,” he says. He adds that some farmers took to the field with their bagging equipment as soon as storm warnings came following the hurricanes last summer. “They had to bag it wet, too wet for long-term storage, but it was better than losing the whole thing,” he says.

Miller suggests approaching the progressive farmer who is a student of rising input costs and is looking to pinch pennies any way he can. But like his counterparts in the south, he says the low-hanging fruit is the farmer who doesn’t have any storage.

Although Perkins is selling baggers and unloaders as package deals, each of the dealers has sold significantly more baggers than unloaders, as some farmers are opting to share the unloader with their neighbors, since they won’t all deliver at the same time.

Surprisingly, none of the dealers had to do any real cost-justifications with their customers. Rather, they know the price of fixed storage, and know that they can buy the bagger and unloader for $45,000 and the 7,000-bushel bags for $600 each.

Perkins recalled a customer who had ample storage, but watched where the markets were headed and figured he could make a buck by forward-contracting the soybeans that he’d normally sell at harvest. “He pulled corn out of bins, loaded them into bags, put beans in his bins and bought a 3-week option. He paid $42,000 for the equipment, and at the end of the day, put another $12,000 in his pocket. “He sold a couple more machines for us based on telling that story alone.”

Overcoming Objections

Miller says that the sales process has been difficult in his area only because grain bags are so new to the U.S. But people are recognizing that it’s a product that works, and it’s catching on.

According the dealers, the bulk of the objections focus on damage to the bags — from wild hogs, deer, coyotes, dogs and rodents. Hendrix says chemicals can be spread on the ground to eliminate rodents. “We can overcome that one by having them talk to other farmers using it,” he says. “Generally, there haven’t been any problems.”


“With the larger combines, farmers are going to need short-term storage to get through the crunch at harvest...”


Dealers point out that if farmers take care not to spill grain, there shouldn’t be concerns over animal predators. Animals can’t smell what’s in the bag nor see into it.

Perkins has seen some damage from the claws of coyotes, but says that if the bag is stretched tight, the water will run off and not into the bag if there is a tear. The biggest culprits are “deer corn rustlers,” presumably hunters stealing grain to bait deer near their tree stands.

To Miller, the contamination argument is the same whether grain bags or fixed storage is used. “All someone needs to do with permanent storage is open the door. There isn’t much you can do to ease the mind of the customer who has that concern. It’s always a gamble when you’re storing your own grain.”

With one full harvest and storage season under growers’ belts, Perkins says that any problems were attributed to operator error, including a farmer last year that placed his bag in a low-lying field. After the hurricane dropped 18 inches of water that stood against the bag for days, he lost 30 feet of his bag. He understood that bags should be stored on higher ground, but admitted he bagged on low ground as he raced to get to the next field.

But when performed properly, the technology proved itself, he says, with no loss due to spoilage and success in extreme bagging conditions, including 100-degree weather.

Promotion & Demos

Despite the fact that the technology is new to North America, the dealers agree that the equipment really can sell itself. Demos haven’t even been a key part of the sales process. Hendrix hasn’t emphasized demos at all, and Perkins did only one to capture some video.

Miller has demonstrated the bagger several times for corn-growing customers. “Once the customer sees how easy it is to store the grain, and that there’s no cleanup or maintenance like there is on permanent facilities, that’s big. When they’re empty, they’re empty.”

Heritage Tractor demonstrated the bagging system last fall, and then opened the bag for customers again in the spring. “The elevator was anxious about grain that was being bagged, and said at first it didn’t want to take it,” Miller says. “But after researching that the technology was proven and after inspecting the grain, there hasn’t been any other doubts about it.”

Word of mouth is the main promotional tool, as is stocking units that salespeople can “walk” a customer by. “We try to talk with just about every customer about it,” says Miller. “We ask how the crops are looking and how they’re getting through the storage issue. Then we can walk them over to the grain baggers and tell them how they can put a 200-foot-long bag anywhere they want.”

While storage wasn’t something the dealership would have routinely asked about in the past, Heritage Tractor finds that it opens up another meaningful dialog with the farmer. “Getting the crops out of the field, sold and stored is a big issue in this part of the country,” says Miller. “The guys don’t like loading up the truck at night and sitting in line for hours at a time waiting to dump a load of grain. This uses their time a lot better, and gives them more avenues to sell.”

Big Potential for Dealers

Hendrix expects dramatic sales in his area, particularly if the trend to more corn continues. “I think every farmer — unless he has a lot of bins and permanent storage — is going to have one.”

Perkins, who can sell both to corn growers to the north and cotton growers to his south, believes grain bag adoption is going to be huge in the years ahead. “Look at the larger harvesting machines in places like Illinois. Farmers are going to need short-term storage to get through the crunch at harvest, at least to feed the grain bagger until the line at the elevator settles down. Every farmer has more work than he can handle right now, and this capacity helps keep him going.”

He expects a slower progression in the North, but says the sales hook with established corn growers may simply be the marketing benefits. “There’s a lot of sales opportunity just as a marketing tool,” he says, noting that ethanol production will continue to drive temporary grain storage.

Miller agrees that it’s just getting started. “This equipment is going to explode. Once farmers see it out there and working, it’s going to be everywhere,” he says, also pointing out that grain elevators are buying the system, too. “We haven’t touched the tip of the iceberg yet on grain bag storage. It will bring big revenue for dealers in the years to come.”