NGFA Wants Condo Storage Included

June 28, 2000

The National Grain and Feed Association wants USDA allow construction of new storage at commercial elevators under so-called "condominium" arrangements with producers to qualify for subsidized loans under USDA's subsidized storage loan program. USDA has issued an interim rule for the program which provides government-subsidized loans for construction of on-farm storage bins and related equipment.

But when doing so, USDA sought comments on whether "alternative storage arrangements," such as condominium storage, should also qualify for such loans. Condominium storage refers to a variety of financing arrangements -- including purchase agreements, limited partnerships or long-term leases -- under which new storage is constructed at commercial elevators under written agreements with producers who in return receive guaranteed occupancy of a portion of the new space.

While opposing USDA's decision to reinstate the storage subsidy program, the NGFA cited several "persuasive reasons" why USDA -- since it had decided to proceed – also should extend such loans to condominium storage at commercial facilities under the same loan terms and conditions that would apply to on-farm bins:

--It would encourage grain to be stored at locations where it will be in commercial market channels, and where it has increased value to the producer and to the market. "Such grain is in position to be sold and transported quickly when a sale is made to a buyer without delays that could result if the commodity is stored on the farm and the producer is unable or unavailable to transport it to the commercial facility in a timely manner," the NGFA said.

--It would enhance quality-control of the grain, since commercial elevators are better able to manage grain on a daily basis and assume liability and responsibility under federal and state warehouse laws and regulations to maintain the quality of stocks -- a requirement that protects the financial interests of the producer. The NGFA noted that maintaining grain quality will become even more challenging in the future given the Environmental Protection Agency's continued actions to reduce the number of fumigants available to protect stored grain.

--It would enhance marketing opportunities for producers, allowing storage of multiple commodities and multiple qualities that might not be able to be segregated as efficiently in individual farm bins.

--It would be more cost-effective, since the cost of building larger bins is much less on a per-bushel basis than for smaller bins.

--It would enable producers to haul grain directly off the combine at harvest to storage, reducing shrinkage and subsequent transportation and handling costs.

--It would permit tenant farmers to have access to off-farm storage facilities under a purchase or lease arrangement without building a structure on a landlord's property.

--It likely is more financially secure from USDA's lending standpoint, because such structures would have greater value at commercial locations than on the farm.

However, in its statement, the NGFA cited several reasons that reinstating the subsidized storage loan program was "bad policy" and represented an unwise and unwelcome intrusion into the marketing system. Among the reasons it cited:

--It could encourage construction of inappropriate, unjustified or out-of-position farm storage.

--It provides a government-induced economic incentive to encourage producers to store larger quantities of stocks for longer periods of time than may be justified by the market, simply out of a "desire" to use the space. This, in turn, can prolong depressed grain prices through increased carryover stocks.

--Independent research studies have shown that managing stored grain quality is more difficult on the farm than at commercial facilities.

--Such a program penalizes producers and commercial warehouse operators who already have invested in storage to meet legitimate market needs.

The NGFA also encouraged USDA to conduct a new survey of on-farm storage capacity to update "stale, outdated" data currently being relied upon by the department to base its decision to reinstate the subsidized storage loan program.