If the land will be sold in the future, the advantages listed above will be capitalized into the value of the land. Subsurface drainage is a long-term investment. The investment is made up-front but the benefits are spread over many future years.
So the investment decision should be made with the time-lag in mind. The most difficult part of computing a tile investment analysis is estimating the yield response from the improved drainage. The size of the expected yield improvement dramatically impacts the economic feasibility of installing tile drainage, as shown in the example below. If the yield responses are 20 bushels for corn and 8 bushels for soybeans, the returns are double.
There are additional annual costs associated with these higher yield levels. For example, more fertilizer may be required to support these higher yields. Also, more hauling, drying and storage is required. In addition, there may be costs associated with the maintenance of the drainage system. Estimating future returns In the analysis above we assumed that the annual income stream will stay constant throughout the entire life of the tile.
However, this may not be the case. Corn and soybean yields have increased over recent decades as shown in Figure 3. Corn yields have increased by 2. Most experts expect this trend to continue, if not increase.
The impact of trend yield increases over the life of the tile drainage can be substantial. Investment analysis methods Below are two ways of computing the economic returns from investing in subsurface drainage. It is computed as the number of years required to repay the original investment in tile drainage. If money is borrowed to install the tile, the debt payment interest and principle is subtracted from the annual cash return and only the equity portion of the investment is used to compute the payback period.
If money is borrowed to install the tile, the debt payment interest and principle is subtracted from the annual cash return and only the equity portion of the investment is used in the computation. The IRR takes into account the time period between the time of the investment and the future years in which the annual returns are received.
However, income taxes have a significant impact on the returns that can be expected from an investment in tile drainage. Combining your marginal tax rates for federal and state income taxes, along with self-employment tax when appropriate , provides an estimate of the how much of your returns will be paid to the government. In general, the additional revenue e. In addition, the annual depreciation of the tile investment is tax deductible.
The government allows land owners to depreciate tile over a period of 16 years on a fixed schedule. In situations where the investor is activity involved in the farming operation e. A variety of investment strategies have emerged for the installation of tile drainage. Some of these are based on installations over a period of time. Others are investment arrangements between tenants and landlords on rented land.
Investment timing strategies 1 Install subsurface drainage on the entire field With this strategy, the decision is made to install drainage tile on the entire field or farm. Bids and designs are obtained from various tilers, and the decision is made to move forward with tiling the entire field or farm.
However, the actual investment and installation of tile drainage is spread over a period of years, often as income becomes available. The system is then designed to get the most drainage benefit from the limited amount of money.
Because the landlord makes none of the investment, the cash rental rate does not increase due to the increase in productivity. The additional net returns go to the tenant as compensation for the tiling investment. One approach is to enter into a long-term lease between the two parties.
However, individuals often do not want to lock themselves into a lease for this length of time. In Iowa, farm leases of five or more years in length must be recorded and multiple-year leases may not exceed 20 years. This is typically done along the natural contours of a field. It also includes the sizing for the lines, as well as the size, location and capacity of drains. Designing these plans in SMS allows you to visualize the field from different perspectives, as well as overlay with other layers such as yield or soil type maps.
The right equipment and know-how can help ensure the end result is a system that effectively drains otherwise waterlogged soils. Just like GPS can help create a more comprehensive picture of field topography in the planning phase, precision agriculture tools can help with analysis that can help ensure drainage tile systems are having an ongoing benefit to both field conditions and crop yields.
The ability to track specific variables that influence yield can help manage both the initial cost of a system and any changes important to sustaining stronger crop yields. View more pictures of the tile intallation here! Media Center. Contact Us. Here's a look at two proposed solutions that look to mitigate the tiling discharge, while still taking advantage of the benefits for crops:. What is Iowa doing? The state adopted the Iowa Nutrient Reduction Strategy, a plan designed to reduce nitrogen and phosphorus losses by 45 percent for all sources.
The voluntary plan has been criticized for having no deadline to meet goals. Read more: Pilot project tests wetland vs. Des Moines Water Works filed a lawsuit in March against drainage districts in Sac, Calhoun and Buena Vista counties, charging that drainage tiles there act as a conduit, carrying high levels of nitrates into the Raccoon River, one of two sources of drinking water for , central Iowa residents.
The utility seeks federal regulations that would treat drainage districts much like factories and city wastewater treatment plants. Agricultural runoff is now exempted from the federal Clean Water Act.
The case is expected to be heard next year. Read more: How do we fix Iowa's nitrate problem? Facebook Twitter Email. Farming What you need to know about tiling runoff.
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