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FEFO 09-16
October 21, 2009

DRYING COSTS AND SHRINK LOSSES ARE LARGE IN 2009

 

Moisture levels on corn are much higher this year than in recent year, with some farmers harvesting corn with moisture levels in the high 20% range. These high moisture levels will result in shrink and drying costs for grain delivered to elevators and processors that could be near $100 per acre. Higher drying costs will further increase costs in a year in which per acre costs will be significantly above costs in any other year. Moreover, these drying charges may not have been built into budgets as the above average moisture levels were not anticipated at the time of budgeting. Hence, cash flows could be tighter than anticipated.

Shrink Losses and Drying Charges

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Table 1 shows per acre shrink losses and drying costs given that corn yield equals 190 bushels per acre at a 15% moisture level, a typical moisture level corn is shrunk to at commercial elevators (see Appendix Tables for different per acre production levels). Calculations in this table are illustrated for 25% moisture corn. At 25% moisture, 190 bushels of 15% moisture corn will equal 216 bushels of corn as 25% moisture (see Table 1). The 216 bushels accounts for weight losses that will occur when reducing moisture down to 15%. It also includes a .25% handling shrink to account for general drying and handling losses. The .25% handling shrink is applied to total wet bushels.

The 216 bushels of 25% moisture will yield 186 bushels at delivery given that corn is shrunk to 15% moisture and a 1.4 per point shrink factor is used (see Table 1). The 1.4 shrink factor is typical for ones used by elevators in central Illinois. The 186 bushels is below the 190 bushels of grain production because the 1.4 shrink factor is over the shrink factor for normal moisture losses (1.176) plus assume handling losses (.25%). This results in shrink losses equal to 4 bushels per acre (190 bushels 186 bushels). The 4 bushels of lost grain is valued a $3.50 per bushel, representative of current cash prices for corn, resulting in $15 of shrink losses per acre (see Table 1).

Drying charges for the 25% moisture grain total $76 per acre (see Table 1). This charge is based on drying grain to 15% moisture and a $.035 per point drying charge. The $.035 is representative of drying charges at central Illinois elevators, although many elevators have sliding schedules with decreasing per point drying charges as moisture levels increase.

Given these charges, total shrink losses and drying costs are $91 per acre. These are much higher than in recent years because of higher moisture levels. A more typical moisture level in recent years is 21%, resulting in $51 of per acre shrink and drying losses. The $91 charge at 28% moisture is $40 higher than charges for a moisture level more typical moisture level.

Drying in Field

Some farmers are considering waiting to harvest grain to allow for more in field dry down. Shrink losses and drying costs will decline as moisture levels decline. A reduction from 32% moisture down to 31% moisture will reduce per acre costs by $13 per acre ($172 per acre costs at 32% moisture minus $159 per acre costs at 31% moisture (see Table 1)). Costs are reduced by $10 per acre when moisture is reduced from 21% to 20% ($51 per acre minus $41 per acre (see Table 1)).

Reductions in shrink losses and drying costs should be weighed against in field losses of grain that may occur by leaving corn standing in the field.

Grain Delivery Model

Elevators have differing ways of calculating drying charges and shrink. Shrink factors can vary across elevators. Moisture levels grain is shrunk to will vary across elevators. Some elevators will use a different moisture level for immediate sale and storage. Some elevators have drying schedules that vary rates given different moisture levels. Other elevators charge the same per point drying charges no matter the moisture level. Some elevators base drying charges on wet bushels while other elevators base drying charges on drying bushels.

The FAST series of Microsoft Excel spreadsheets contains a Grain Delivery program that calculators drying, storage, and transportation charges for different elevators. Each elevators drying charges, shrink factors, storage charges, and moisture levels can be entered. Then the program calculates costs at each delivery point.

Summary

Drying charges and shrink losses will be much higher in 2009 than in recent years due to high moisture levels of harvested grain. In addition, low test weights and grain quality issues may result in further grain discounts. There is not much farmers can do to reduce these costs. However, farmers may wish to consider these higher costs when planning cash flows and determining operating credit needs.

 

Submitted by: Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois

 

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Department of Agricultural and Consumer Economics    College of Agricultural, Consumer and Environmental Sciences
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