We've all seen farmland sell for more than ten thousand dollars an acre recently. We question why the prices are that high. We might also question the quality of a particular piece of ground and wonder if it's worth that much. If you're looking at growing your acres, I'm sure you're concerned.
With gross margins declining since last year, you may be looking for other ways to add profit to your operation besides buying land. Have you considered improving the ground you currently farm? Here are some questions you should ask:
- How can I increase production without adding land?
- What if am I ready to invest in something to improve my profitability, but I want to ease into it rather than make a large purchase up front?
- What types of investments are available that can help me manage my taxable income?
- Can I take advantage of low interest rates to help finance land improvement projects?
- Is there anything I can do to improve production on my cash rented or shared acres?
If these questions have crossed your mind, take a closer look at improving the land you currently farm.
Increasing your yields is the most compelling reason to add drainage. If a section of your farm is constantly under water but can be improved with drainage, it may make sense to consider this.
Let's say you have an 80 acre field that consistently yields 165 bushels of corn/acre. We'll estimate $5.00 corn for easy math. You review yield maps and determine that tiling would add 20 bushels/acre to this field. That's an extra $100/acre of revenue for a $500/acre investment. We also need to consider $20/acre/year for drying, fertilizer and hauling costs. That takes us down to additional net cash per year of $80/acre which means a payback period of only 6.25 years. This isn't even considering a yield increase or a commodity price increase over the 20-year life of the investment.
Equally important to increasing production on this theoretical farm is the factor that over time, your actual production history (APH) will improve. As your crop insurance agent has probably mentioned to you, it is critical to have adequate coverage levels especially with increasing crop values and associated costs projected over the next few years. Add volatile markets into this equation, and increasing the extra bushels to your APH could prove to be very valuable.