Encyclopedia farmer

Storage margin: Who builds elevators and how much it costs

The market decided an interesting trend: stationary elevators make up a small upgraded storage farms. The holdings also construct or purchase an industrial capacity to accommodate grain. They need to keep margins of the core business: to provide feed or meat production profitable to sell the harvest.

Irina Burda, Tatiana Kulistikova
Agroinvestor, August 2013

The article was published in the journal "Agroinvestor" No. 8 (67) August 2013

The market decided an interesting trend: stationary elevators make up a small upgraded storage farms. The holdings also construct or purchase an industrial capacity to accommodate grain. They need to keep margins of the core business: to provide feed or meat production profitable to sell the harvest.

Large-scale investments in agriculture and growth of agricultural production infrastructure has exacerbated problems in the industry: the country lacks modern storage capacities. Deficit alone line elevators in the season of 2008/2009 with a record harvest (108 million tons), according to the "Rus-agrotrans", amounted to 28 million tonnes In the grain sector, this leads to serious harvest losses, high prices for storage and, consequently, reduced profitability of production and seasonal price fluctuations on the domestic market. In addition, the lack of elevators limits the export potential. In 2010, the Ministry of agriculture has developed a departmental target program "Development of infrastructure and logistics for the agri-food market". During the two years of its implementation (2011-2012) planned to increase facilities for handling, storage and transshipment of grain at 6.1 million tonnes due to the investment subsidy for construction, reconstruction and modernization of elevators. For these purposes from the Federal budget it was planned to send about 3.6 billion rubles on conditions of co-financing the regional. By the time of the adoption of the programme, according to Rosstat, the capacity of storage of grain in the country was at the level of 118 million tons - more formally than volumes of harvests, including a record 2008. But 66 million tonnes of total capacity was accounted for by the capacity of the farmers, 70% of which, in turn, represent the warehouses and barns, built in the 1950-70-ies. In such conditions it is impossible high-quality storage - in particular, lost 10-20% placed in such containers of grain. And industrial facilities - Elevator - very worn. According to the Ministry of agriculture, depreciation of property and equipment is 70-80%, and energy - intensity of old enterprises 30-40% higher than at present. Conditioning and storage of grain on such outdated platforms as a rule, uneconomic farmers.
Volumes without quality

The main problem with storage is that the vast majority of silos - a legacy of Soviet times, they do not meet modern technological and logistical demands, said the Director of the Department of information and analytical support of the Russian grain Union (RGU) Rudolf Bulavin. Affects the specifics of the location of the storage orientation on the infrastructure of the planned economy. "It was assumed that the grain surplus regions will directly send the harvest to the place of consumption. In scarce - such as Moscow, St. Petersburg, Chelyabinsk region, Perm - created capacity to store grain for six months or a year, - says the expert. - So now in some areas with high yield and then there is the problem of lack of storage". According to RGU, is now formally available in country elevators enough: the average gross harvest in recent years is 85 million tons, and the rated capacity of industrial storage more than 100 million tons (more than 75% of the grain elevators and cereal receiving points, the rest is storage grain processing enterprises). Difficulty placing the grains are only in the very fruitful years, confirms the General Director "Russian grain" Alexey Verkhoturov, citing the experience of his company.

Statistics were fine, but we need to see how much capacity we actually work, said the first Deputy Chairman of the Committee on agrarian issues of the state Duma Airat Khairullin. According to him, in Russia only 38 million tonnes of silos capacities of existing warehouses plus in farms somewhere in 25 million tons, i.e. in total it is possible to place simultaneously only 63 million t. the Estimate is based on data regions, says Khairullin. Also be aware that the elevators are stored not only grain, and part of the tanks filled in other agricultures. "And in the winter of 2010 due to heavy snowfalls across the country hit a lot of farms and warehouses of the BRC Soviet buildings - mainly buildings built before the 1970s," he adds. 63 million tonnes -that's optimistic figures, I'm sure Khairullin, as the retirement of old capacity ahead of the commissioning of new. Given that, in addition to crops, you need to store and carry-over stock of seeds, the collection even 80-82 million tons of cereals could lead to the collapse of prices on the domestic market, he is worried. "To avoid this, we must do more to build the elevators, especially in crop-growing regions," says Khairullin. According to the agriculture Ministry, last year the capacity of simultaneous storage were increased by about 645 thousand tons "And in General for the last five years the growth rate has grown by 2.6 million tons, so the situation is not stagnant," says Bulavin. From the point of view of volumes, the existing storage infrastructure (about 100 million tons) is sufficient for storing the current yields, especially in the southern Federal district grain quickly shipped for export, said the head of the Department of analysis of markets "Rusagrotrans" Igor Pavensky. Another thing is that only about a third of capacity more or less meet modern requirements and able to provide quality storage, and the rest are in need of substantial updating, he adds. The group "agro-Belogorye" - a major consumer of grain - constantly feels lack of quality of tanks, supports the Pavensky Andrew Matveichuk, head of the Department of resource support of the Directorate for crops and livestock company. Holding out of the situation, optimizing logistics, he explains: "[Since harvest] until November we use temporary storage without the threat of loss of quality of grain". During this period, feed mills have time to process it and to release a place under new, which for several months is also recycled.
Someone that is profitable
If the agricultural company expects sustainable profitability, we must do their stores not to sell the entire crop at once, says Bulavin from RGU. "Of course, some barns there are in any economy, but we need designs that allow you to save grain for at least a year without serious loss of quality," he says. It is not necessary to invest in a classic Elevator with part time job and handling from the silo to the silo is quite the warehouses or mini-silos for short-term storage (up to four months), says the Pavensky. Just such objects are mostly farmers and build. In large silos with capacity from 200 thousand tons invested large producers and agro-holdings, attracts in the implementation of these projects from the Federal and regional budgets. According to the CEO of the company "Agrico" Alexey Ivanov, now the elevators are building those who wants to buy grain in the season at the lowest price, and then batch processed. Such a strategy, for example, a meat producer, with feed production. "Agro-BELOGORIYA" two of the plants produce food. Raw grain stored in private grain elevators, outdoor warehouses and storage facilities of agricultural companies of the group. All of these facilities can accommodate 280 kt, and 30 kt can be placed in temporary storage, transfers Matveichuk. "With a good harvest we close our own needs by 60-70%," he sums up. For the past three years, "agro-Belogorye" has created capacity for permanent storage of grain by more than 75 THD. MT In the experience of the Vice President of the holding company AUG (construction of silos) Sergey Tsallagov, in its own facilities primarily interested in the steadily developing agricultural holdings and large farms. Verkhoturov from "Russian grain" also says that a medium or small company will never pay for the Elevator, even if you find the funds for its construction. "The average cost of construction is $200 per ton of storage - he shares calculations. - The grain is stored for six months, at an average price of $2.5-3/t with VAT per month. That is, if stored on its capacity, then each tonne you can earn $12-15. Taking into account the discount rate, it is difficult to even imagine how much time investment in construction will pay off". Small and medium-sized players is more profitable to store grain in terms of outsourcing or collecting, immediately sell, support verkhoturova head of the processing of the Samara agricultural company "Cinco" Vyacheslav Surin. Large producers and traders are diversifying storage and shipment: some, not storing, selling, part - placed on the elevators. Some volumes, having bought early in the season, leave on a reliable third-party elevators, following a period of price highs. "Companies with high technological level of agricultural production get pure grain, do not require part-time work, - says Ivanov. - It can be directly put in plastic sleeves and maize - pre-air-drying". "Agroco" stores the wheat and corn and sunflower - covered warehouses with an area of 10 thousand m2.
Expensive and difficult
To build the Elevator, required not only significant financial resources but also the willingness of owner to a large number of approvals and other formalities. "We need to get the registration certificate of potentially dangerous industrial object, pass the procedure of confirmation of conformity to industrial safety act, requires a license on realization of activity on operation of explosive and flammable production facilities - lists Bulavin. - Of course, have to insure". All these expenditures amount to a few percent of the cost of purchases of equipment, says Bulavin, making it difficult to specify costs. The volume of private investments, says Tsallagov of AUG: it all depends on the wishes of the customer, geographical location of the Elevator, investments in infrastructure and the cost of materials. On average construction costs range from $200 to $250 per ton of storage. According to the calculations Bulavin, they are somewhat more - $240-300/t
Building from scratch a fully functional Elevator on 50 thousand t is not less than RUB 200 million, Surin knows of "Cinco". If the funds borrowed, 11% per annum (excluding subsidies) is 22 million rubles To the Elevator paid off in 20 years, the company must annually receive at least 10 million rubles of net profit. Thus, says a top Manager, minimum net income, excluding interest on the loan is expected to reach 32 million RUB/year. "For this - continues Surin, - gross revenue of Elevator with a capacity of 50 kt should be almost 160 million rubles, and the profit margin is 20%, which is almost never. In short, it is almost unrealistic figure given the current state of Affairs in the market and the price dynamics [on agriculture]". Even if the proceeds of the Elevator with tons of oilseeds per season will be an average of 3 thousand RUR, without VAT, and with a ton of grain - about 1.5 thousand rubles, it means the need to accept, post, once, empty and re-fill capacity of about 20 thousand tons of sunflower (60 million rubles) and 67 thousand tons of grain (about 100 million rubles). To execute such a business plan is almost impossible, total Surin. "We have seven silos with a total capacity of 600 thousand tons, for 10 years has paid off not all", says Verkhoturov from "Russian grain". The company did not build them, but invested in the purchase, reconstruction and modernization.
Investment in power will sooner or later return, says Bulavin from RGU: "From the point of view of common sense among the farming enterprise must be at least a mini-Elevator - given the market volatility is a reliable and long-term investment." Of course, it is necessary not only to use it as storage, but also to ensure turnover of product shipments, selling one and filling the other Elevator, he adds. Tsallagov notes that the payback depends on the location of the object (in the region that produces a lot of grain, the project will pay off much faster), the presence in the field / area of competing silos, development and condition of transport infrastructure. The opportunity to earn on the placement of grain from the intervention Fund can also significantly accelerate return on investment, he says. Subsidies also will reduce the payback period: the new state program is intended to increase the capacity of grain storage of 17 million tonnes and concessional lending to such projects. The Ministry of agriculture is planning that they will be involved annually in about of 91.8 billion rubles. investment. State support for the construction of an Elevator or granary to get quite real, I'm sure Bulavin - provided that the Bank considers the project to be liquid and will agree to lend. Verkhoturov recommends not to build and buy facilities for storage, and to look for options, which is based on ton capacity cheaper the construction of a new facility. But then almost certainly have to invest in reconstruction or modernization and the new owners, who bought cheap old asset, not always it is ready, says Bulavin. According to the CEO of the company "Melas" (part of the group of companies "Agrico") Vladimir Pogadaeva, now the market is at a tipping point: large, stationary elevators make up a small upgraded repositories. "First of all, farmers are interested in reducing storage costs of grain, and secondly, the grain elevators dehumanize and keep the class quite controversial," he says.

Alexey Ivanov General Director of "Agrico"
We have export-oriented regions, where the grain is faster and cheaper to deliver cars immediately after harvest, i.e. in this case, the Elevator manufacturer is not needed. In other areas delivery is possible by rail, but the cost is so significant that in recent times such meaningless logistics. To solve the problem of payback of the construction and the correct, cost-effective operation of elevators, it is necessary to route rail shipments. For example, in the USA it is impossible to shipment to less than 10 kt - so-planned infrastructure. Ship less - the rate will be such that it is cheaper to transport grain in bags on the plane. When routing traffic automatically leaves the market unclear of linear elevators, which loaded on three cars a day, plus dramatically will increase the turnover of car fleet. In the U.S., the Elevator capacity of 100 thousand tons per season makes 15-20 turns, shipping 1.5-2 million so There are low flat rate shipping - $1-2/t But due to the large volume elevators earn well. We have different model: the elevators are cashing in on the farmers, taking with them money for services - cleaning, drying etc. In this model, conditionally successful may be the only elevators in the regions, where the grain get wet, because the drying and storage they require almost 40% of its market value. The idea is that the Railways should be interested in increasing the turnover of the car fleet, and it needs to get rid of the multiple nodal stations. At such stations the required elevators is able to receive and ship 10-15 tonnes of grain per day. Then they will work as an effective tool for delivery of large volumes to rail for delivery to the port. And at such loading of the service price will be much lower. And to take, as it is now, 5% of the value of grain only to open the valve, and strode down it by gravity in the car is nonsense.

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