Farm Progress

Tile: Will It Pay For Itself, And How Can The Cost Be Covered?Tile: Will It Pay For Itself, And How Can The Cost Be Covered?

July 21, 2010

4 Min Read

For many Corn Belt farmers this is the third year of excessive moisture, or at least too much to expect a crop of optimum yield. Wet soils not only delay planting, but cause root deterioration of crops where water prevents uptake of essential oxygen. While the problems with moisture stem from excessive rainfall are there some tactics you can use to better manage the ponds in your fields? After all, three years of ponds cuts the yield average substantially.

Iowa State University Economist Don Hofstrand has created a Drainage Economics newsletter, which suggests that tile drainage be designed so the water table between the tile lines can be lowered within 24 hours after a rain to prevent crop injury. Agronomists report that after 48 hours in water corn roots will begin to die, and needless to say, that is a fatal development. Hofstrand says on the second day after a rain, the water table should be lowered a foot below the soil surface, and day three should bring the water table to 1.5 ft. below the surface.

While there are numerous patterns for drainage tile fields, Hofstrand says your investment should be based on whether higher crop returns will justify it. While secondary reasons include quicker drydown for fieldwork and a longer fieldwork window, he says consistent yields should be the top priority, because that allows for more efficient use of resources and reduces your financial risk. Beyond those economic conditions, there are numerous agronomic factors. But one of the major considerations is the fact that a good drainage system will increase the value of the land and drainage can be capitalized into the value of the land.

He says the most difficult decision is computing the yield benefit, and then weighing it against the cost of the tile. A 10-bu. response for corn and a 4-bu. response from beans will both add about $35 revenue/acre, and that revenue amortized over a number of years will determine the value of tiling. Once an annual return is computed, consider the fact that yields and prices may both increase over time, so correcting the problem today will accelerate the payback. If the cost of tiling is $500/acre, Hofstrand says the payback period would be five years, if the increased yield has a $100 value. In addition to the cost of the tile, there will also be marginal increases in cost for more fertilizer, drying and storage, hauling and the maintenance of the drainage system.

If the cost is too high to tile your farm, or even an 80-acre field, Hofstrand suggests several alternatives to reduce the outlay. In addition to taking bids on the cost of tiling an entire field, he says the drainage can be designed at once, but installed in sections as funds are available. Also, determine how much money you can spend, and have a drainage system installed that will provide the most benefit for that amount of money.

If the operator is separate from the owner, Hofstrand says the landowner typically pays for the tiling cost, since it increases the value of the land asset. However, that could justify a slightly higher rental rate charged to the operator. The incremental increase for cash rent could reflect that portion of a higher net income anticipated from the improved drainage, or a small percent of the cost of the tiling.

If the operator pays for the tiling, there would be no justification for any rental increase, but the operator should be concerned that his investment will not be recouped, should he lose the lease on the farmland. Either a long-term lease could be negotiated, or have a series of one year leases, with a separate agreement that covers the cost of the tiling. The agreement buyout would decline over time as the cost of the tiling is paid off.

A shared strategy could also be developed with the use of a crop share lease, which would give a share of the additional yield to both the owner and the operator. The lease might also include a buyout, should the operator leave the farm earlier than the amortization period.

Drainage tile can more than pay for itself in short order with springs like the past several. It not only allows more timely fieldwork, but also helps an operator strive toward an optimum yield. Paying for the drainage tile is done with the increase in yield and the additional revenue generated. Typically landowners pay for tiling since it enhances the value of the land. Operators may be charged slightly higher cash rent in return for the improvements to the land. If operators have to pay for the tile themselves, agreements should be negotiated with the owner for a buyout, should the leasing period not cover the amortization period of the tile.

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