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Good Buying Habits: Irrigation

Think Long-term When Investing in Irrigation

Published on 9/7/2016

Editor’s Note: This is the first in a series on “Good Buying Habits” for your operation.

When you want to improve your farmland and its value? Irrigation provides immediate benefits that can increase yield and offers attractive long-term returns on your overall land values. Other farmland investments, like soil nutrients, are simple and inexpensive with relatively quick benefits, but returns from irrigation can span over generations.

Considering initial costs as part of a long-term land management strategy is important when weighing the pros and cons of installing permanent irrigation or enhancing existing systems on your land. That means investment decisions should in many cases account for total costs and the returns the investments generate not just in terms of years, but decades. Water and power availability, land management and drainage are all components of the initial investment equation.

“With irrigation, producers don’t buy and expect 100% ROI the very first year,” says Michigan-based AgDirect Territory Manager Scott Welden. “Irrigation is a multi-year investment with long-term benefits. You’re developing that farmland and sometimes that investment is also for the next generation. Irrigation can really generate dividends once the investment is paid for.”

Justifying the Investment

When viewed in a shorter time frame, installing a center-pivot system – the most common type of irrigation in row crop and small grain production in the U.S. today – can take planning and large amounts of capital. The costs required to develop farmland may equal or be greater than the actual cost of the center-pivot system.  AgDirect offers a variety of flexible multi-year financing options for irrigation.

Mother Nature has a lot to do with how quickly ROI is achieved. It may take five to 10 years to recoup total investment, but in the context of the entire lifespan of a farm, irrigation can be invaluable in its role of helping maximize crop yield potential by consistently minimizing the moisture deficit variable. 

“You’re installing a water supply, bringing a reliable power source to the well site, installing adequate drainage and making sure the added irrigation system will provide benefit for many years to come” Welden says. “There are operating costs associated with running irrigation. The expense of actually running a modern irrigation system is reasonable. Today’s pumps and motors can run more efficiently, especially with smart designing and programmable variable frequency drives.

He adds: “Irrigation costs you if you have it or if you don’t. If you don’t have it during a drought, you can incur significant loss. And in other years, farmers use their irrigation less often than normal because of above-average rainfall. The question of whether to apply half an inch or an inch of water isn’t driven by the cost of putting the water on your field, but by the growing season cycle and ultimately what those plants demand for water at that specific point in time.”

Making It Cash Flow

Ultimately, these investments can be a way to bolster long-term farmland revenue potential, making “prioritizing where the best return exists” a key buying habit for irrigation, Welden says.

Part of that prioritizing process is identifying the right land on which to establish a new irrigation system. Your most productive farmland may not be the best place to install irrigation. Many times, the biggest yield increase from irrigation is generated from adding water to the marginal and less productive soils.

“If a landowner can invest $1,000 to $2,000 per acre in irrigation, the land value will increase more than that investment in the long-run.” Weldon adds. “Attractive financing options through AgDirect allow the irrigation to generate the needed capital required to pay for the investment over time. If the financing payment is $100/acre and irrigation yields an additional $300/acre in yield or rental income, it can easily cash flow. AgDirect offers installment financing and refinancing on new or used center pivot systems, as well as terms up to 10 years to help manage the costs of developing your farmland.”

Technology’s Growing Role

As with almost anything in crop production today, new technology is a big component of irrigation. Keeping up with what’s new and what it can do for your overall management is another good buying habit. It’s good to consider new tools like automatic remote center pivot controls and what the technology can do to boost overall efficiency. Devices like these can sometimes enable farm owners and operators to manage more acres and cut labor costs, helping offset the initial expense.

“Technology like remote start can allow a family farm to operate 5,000 acres today, when just 15 to 20 years ago, that family could only operate and manage 2,000 acres,” Welden says. “All of these modern tech tools require a new skill set, but I would argue things like network telemetry and remote start are game-changers. The technology replaces a full-time position and vehicle for three to four months out of the year.

“Buying habits with irrigation are tied to optimization and being as efficient as possible,” he adds.

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Agriculture is constantly evolving, which is why AgDirect works to help you make the right decision for your operation when it comes to financing ag equipment.

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