Tile can be good investment, but must be analyzed
Jean Caspers-Simmet
Date Modified: 12/01/2009 11:36 AM
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Agri News staff writer
NASHUA, Iowa -- Tiling can be a good investment but farmers need to look at their individual situations to see if it will pay for them, says Iowa State University Extension farm and ag business management field specialist Kelvin Leibold.
Leibold offered farmers several tools they can use to answer the question, "Does tiling pay?" at a fall meeting at the Borlaug Learning Center at the Northeast Research Farm at Nashua.
Leibold said how someone measures "pay" has a lot to do with the answer. How soon a farmer gets into the field after a rain, yield, cost, profit, how the crop looks, or a tax deduction may be considerations.
Tile drainage has advantages.
"Tiling provides an aerated root zone, more timely field operations, better crop establishment, increased nitrogen efficiency, lower machine cost and more efficient labor," Leibold said.
Partial budgeting will help in making a decision.
Farmers need to look at how their income will change if they tile, Leibold said. They should calculate the area of improved production, how many more bushels they will have to sell and a long-term price they will receive. They need to look at what will change from a cost standpoint. The tile will cost something and there will be changes in input costs.
The yield advantage from tiling depends on how well drained a piece of ground is. Tiling very poor to poorly drained ground can mean an increase of 54 bushels per acre for corn and 18 bushels per acre for soybeans. That drops to 30 bushels per acre for corn and 12 bushels per acre for soybeans on somewhat poorly drained ground. Tiling moderately well to somewhat poorly drained ground would result in a 12 bushel per acre increase for corn and five bushels for soybeans.
Leibold suggests farmers check their yield monitors comparing yield on well-drained vs. poorly drained ground. In addition, Iowa State University has a geographic information system web site that shows satellite imagery of all fields from 2002 to the present.
"Estimate the yield advantage of tiling," he said.
Next determine the cost of tile by talking to several contractors, Leibold said. His estimate shows trenching and tile for 3-inch tile will be 60 cents per foot, 4-inch tile is 80 cents per foot, 5-inch, $1 per foot; 6-inch, $1.65 per foot and 8-inch, $2.40 per foot.
"But there is a lot of variability in costs," Leibold said. "The more tiling that you do, the better price per foot you'll get. Tile can be "plowed in" at half the cost of using a wheel machine, especially for smaller-size tile. Also, be sure to get accurate costs for a specific area because costs varies with location."
If yields increase, there may be additional costs for seed, fertilizer, interest, hauling, drying and handling, and tile repair. Leibold has put together a tile drainage worksheet that allows farmers to calculate drainage costs per acre, and then complete a partial budget which shows added income, added expanses and what the average net increase in farm income will be per acre.
The worksheet has tables for determining break-even increase in average net farm income by tile cost and interest rate as well as the internal rate of return by tile cost per acre and increased average net farm income per acre.
The tables assume the investment is depreciated over 15 years using the straight-line method and half-year convention, that the marginal tax rate is 38 percent (federal, state, Social Security) and that the useful life of the tile is 50 years.
In an example, Leibold calculated total drainage cost at $520 per acre. The added variable costs would be $16.10 per acre for corn and $3.60 per acre for soybeans. The increased net income from a 20 bushel per acre increase in corn and a 5 bushel increase in soybeans in a 50/50 corn-soybean rotation would be $45.15 per acre.
The break-even increase in net farm income by tile cost and an interest rate of 6 percent would be $41. The internal rate of return by tile cost per acre and increased average net farm income per acre would be 6.6 percent.