Each month in Wallaces Farmer magazine, the Timely Tips panel answers questions sent by readers. The panel includes Alejandro Plastina and Wendong Zhang, Extension economists, Iowa State University; Leslie Miller, Iowa State Savings Bank, Knoxville; and Rob Stout, Master Farmer, Washington, Iowa.

We sold our small beef cattle herd last year to concentrate on crops. We have 40 acres that’s best used as permanent grass pasture. A neighbor wants to rent the acreage. He wants to trade fixing the fence for free pasture this year. The fence is in bad shape. I suggest he prepare an estimate of the time and materials needed to complete the job to his satisfaction. This would help put a true value on the work and make a fair assessment of the deal for both parties. What does the Timely Tips panel think? How would you handle this?

Stout: Your idea is sound, but I think it would be very difficult to make an estimate. You state that the fence is in bad shape, so it’s probably going to take more than a few steel posts and tightening up a barbwire to get it cattle tight. It depends on what type of fence (barbed wire, woven with barbs, high tensile, etc.) and whether there are also water gaps to repair. Are you providing the fencing materials and the neighbor providing the labor?

If it needs major repair and he is also supplying materials, then swapping for a free year’s rent might not be such a bad deal. If that is the path you choose, then you need a trusting relationship with the neighbor and believe he will do a good enough job so only normal maintenance is needed for the future. If he is willing to give you an estimate, then see how that compares to normal pasture rent in your area and work out a deal.

Plastina: I think your approach is right. Having an estimate in writing of all the work that will be done to fix the fence is a good first step. A second step would involve putting a value to the pasture. Typically, a negotiation would follow, and a written contract should be signed. The contract should describe the penalties for failing to complete the agreed work in time to protect you against that risk. You could use Iowa State University’s Custom Rate and Cash Rent surveys (Ag Decision Maker Files A3-10 and C2-10, respectively) to benchmark fencing costs, and the rental rate for permanent grass pastures.  

Miller: It is a good idea for you to set a “per head, per day” rental rate on the pasture, and for your tenant to charge you for mutually agreed upon fence repairs. Then check at a few points during the season. That way you won’t have your pasture overgrazed because the tenant wants to “get his money’s worth,” and you won’t feel shorted because the promised fencing repairs never got done.

Chances are you will have some fencing repairs done before the livestock ever set foot in the pasture — if the fence is as bad as you imply. However, I have seen some situations where that is all the work that gets done because the tenant gets busy elsewhere. I have also seen some pastures grubbed into the ground because tenants feel like they paid too much for pasture rent. That is why the “per head, per day” arrangement seems fairer to both tenants and landlords.

Is installing tile even smarter today?

Investing in tile paid off handsomely five years ago when crop profits were strong. I believe weather extremes playing havoc with spring planting make tile an even better buy today. With low corn and bean prices, you need to keep generating more bushels and be timely with planting. With low grain prices, should we continue to pattern-tile our fields, or go back to just putting it where it's needed most?

Stout: If you can continue to pattern-tile your land and not endanger your working capital by doing it, I think it is one of the best investments a farmer can make. Not only can you get earlier and more timely planting, but you usually end up with better plant stands, less compaction and fewer seedling diseases, in most cases. Add that to more timely harvest, and you have a winning combination. We spent money 30 to 40 years ago just trying to dry up wet spots, and in recent years have gone to pattern-tiling with a much better return. If you install with a tile plow, the costs per acre can be reduced significantly.

Zhang: It depends. Sorry for the cliché answer, but I do think it depends on how you evaluate the trade-offs among different options. As you noted correctly about the low grain prices, many producers are experiencing financial challenges, especially regarding working capital. So you may want to consider the impacts of pattern-tiling all your fields on your working capital, and that may suggest you want to prioritize on the most needed fields or even subfields.

That said, it also depends on the regional and local climate and soil conditions of your fields. Tile is not necessarily needed in west-central Iowa, but it’s often critical in the Des Moines lobe area. If you have fields that have poor drainage, the tile installed will essentially yield a dollar-for-dollar return, meaning that for every dollar you put in tile drainage, you will see an increase of about $500 to $1,000 per acre in land value.

Miller: Let’s think about how economics have changed. On owned land, during the fall of 2012, there was $350 to $450 profit after all expenses were paid. If someone had spent $1,000 per acre on tile and set repayment up for 10 years, they would have paid about $130 per year on the tile loan. If the improved drainage resulted in an extra 15 bushels of corn, sold at $7.50 per bushel, it would generate $112.50 toward the payment. It comes close to covering the cost.

Fast-forward to today. We are looking at fall prices of $3.85 on corn and $9.90 on beans. The profits on owned land have dwindled to about $180 per acre, and higher interest rates have pushed up the payment on the tile loan to $135 per year.

Even if the tile allowed you to plant early enough that you increase yields by 7%; that might only increase income $39 to $54 per acre. That return level would not even cover half the loan payment.

In summary, I think it becomes hard to justify pattern tiling with today’s prices.