How to calculate a fair price for grain bin rentals

Depreciation is an obvious cost, but there are four other factors that go into the DIRTI 5

Before renting or renting out bin space, get the dirt — or rather, the DIRTI 5 — on all the cost components that go into this type of grain storage.

DIRTI 5 stands for depreciation, return on investment, repairs, taxes, and insurance, and are the most significant ownership costs of grain storage, says farm business management specialist Dean Dyck.

Depreciation is the loss in value of the asset over its lifetime due to wear and tear and obsolescence.

“Typically, flat or hopper bottom bins depreciate at four per cent per year over a 25-year lifetime,” said Dyck.

Return on investment is a calculation of the interest on money tied up in the storage facility. The rate of return on investment can be the rate at which money is borrowed.

“This is multiplied by one-half of the original purchase price because over the life of the bin, its average value is only half of its purchase price.”

For the annual cost of the final three items — repairs, taxes, and insurance — take one per cent of the original purchase price.

Use these numbers to determine the minimum rent, said Dyck.

“Flat bottom bins, with a lower purchase cost per bushel, generally rent between one and 1.5 cents per bushel per month, or 12 to 18 cents per bushel per year. More expensive hopper bottom bins generally rent between 1.5 and two cents per bushel per month, or 18 to 25 cents per bushel per year.”

But these are just guidelines — producers should calculate their own rate based on their costs, he added.

Another option is grain rings and grain bags.

“Grain rings are the most economical solution for grain storage at 10 cents per bushel per year, but are temporary solutions with a high risk of pest, wildlife, and moisture damage and loss,” said Dyck. “On the other hand, grain bagging systems have a high investment for the bagger and extractor; high spoilage and depreciation costs; and low salvage values.”

An Alberta Agriculture study estimated the cost at 53 cents per bushel per year.

Finally, if you are holding grain in the bin for later sale, interest is a significant cost. The actual interest cost depends on the producer’s cash flow. To calculate the monthly interest cost, a general guideline is to use your operating loan interest rate times the value of grain per tonne divided by 12.

“For example, if the cash price of No. 1 CWRS 13.5 is $216 per tonne and with a five per cent operating loan, the interest cost of holding that grain equates to $0.90 per tonne per month,” said Dyck. “This cost can become significant if grain is held for a long period of time.”

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