High production costs persuade producers
Since 2007, irrigation has mushroomed in states such as Indiana, Illinois, Michigan, Ohio and, to a lesser extent, Iowa, tripling the growth rate from 1997 to 2007 in some cases. Increasingly, center pivots, pipelines and diesel engines used to power irrigation systems are emerging in areas that have historically relied on rains from above. Now, more farmers are tapping water that’s below.
It’s all about money and controlling the one important variable that is impossible to control: the weather. As such, irrigation has emerged as the latest and possibly the hottest new trend in the heartland.
"I don’t know where you can get the kind of return on investment that you get from irrigation," says Rex Ochs, a corn and soybean farmer in Grovertown, Ind. "My motivation to invest in irrigation? Push yield, get better income from the farm and boost my bottom line."
In the first phase of a long-term plan, Ochs irrigates 380 of his 1,400 acres. "I plan to irrigate more; I’m buying three more pivots," he says.
Though it seems almost too good to be true in hard-hit Indiana—near the epicenter of this year’s record-setting drought—Ochs averaged 220 bu. per acre corn inside the pivot overall, with yields on some of his best irrigated ground of 330 bu. to 340 bu. per acre. This compares to just 90 bu. per acre outside the pivot.
For first-time irrigators, Ochs advises buying from a dealership with an established track record of providing excellent service. "Talk with other irrigators in the area; it will prove to be valuable," he says.
"It costs about $800 per acre to grow a crop. That’s a large number to plant a crop and just hope for some rain."
Financials Make Sense. Cold, hard cash tells the story—nearly $1,000 per acre more income from Ochs’ irrigated fields in 2012. "I’m 43, and if ever there was a time to invest in irrigation it’s now," Ochs says.
He admits 2012 has been a highly unusual year, making the irrigationdryland yield spread incredibly dramatic. "In a typical year, I’ll get 70 bu. to 80 bu. per acre more from irrigation. Even using corn prices of a modest $5, that still comes to an extra $375 per acre. These are big numbers," Ochs says.
Assuming more normal years, it takes four to five years to pay for the roughly $1,000 per acre it takes to irrigate, factoring in all costs. However, if 2013 is another drought year, the irrigation unit will have paid for itself in two short years.
Underscoring Ochs’ experience are financials from all of the top four irrigation companies: Lindsay, Valley, Reinke and T-L Irrigation. All report brisk U.S. sales in 2012, a sizable share of it from states east of the Mississippi River.
For example, for the fourth quarter and fiscal year-end, Lindsay reported domestic irrigation revenues of $56.2 million, an 18% increase for the quarter. For fiscal year 2012, irrigation equipment revenues increased 28% from a year ago. Not all of this impressive double-digit growth is from the eastern Corn Belt, to be sure, but a significant share of it is.
Meanwhile, Valmont Industries reported a 4% increase in Valley equipment sales to $156.5 million in the third quarter (both domestic and international), exceeding 2011’s record third quarter.
"In reaction to the drought, we expect many dryland farmers with access to water to install irrigation systems to help mitigate the risk of future dry weather," Valmont says.
In response to demand for irrigation units, companies are adding dealers. For instance, John Wright, a John Deere dealer in southwest Indiana, had customers asking him to get into the irrigation business, and he did.
"This irrigation in the eastern Corn Belt is definitely a new trend," says Wright, owner of Wright Implement. "It’s not only about commodity prices. It’s about protecting your investment; it costs about $800 per acre to grow a crop. That’s a large number to plant a crop and just hope for some rain."
Behind the Boom. Why now? Why the rapid pace of irrigation in nontraditional irrigation states?
The explosion of irrigation in the Midwest is due to the combination of farmers investing in irrigation for the first time and producers who are already using irrigation and are expanding their use of center pivots or upgrading their systems. It’s paid off for both types of growers.
There are three key reasons for this, says Dave Smith of Smith Family Farms, an early irrigator in Rochester, Ind., with a current total of 90 pivots.
First, while irrigation doesn’t pencil out for many at $2.50 to $3 corn, it certainly does at prices double that, which is why irrigation took off in 2008 and the trend continues.
Second, and just as important, production costs have rapidly shot up and farmers are looking to irrigation to protect their investment.
Third, the weather appears to be changing, increasing crop growing risks. Producers say that irrigation not only gives them the opportunity to control the water their crops receive, it also provides the opportunity to reduce the impact of high heat during critical tasselling.
Smith, who isn’t alone in his assessment, estimates that 15% of Fulton County, Ind., is irrigated, and he only expects that number to grow. Overall, he saw a 150 bu. difference between irrigated and nonirrigated corn this year, with an extreme 200 bu. difference in some parts of the 11,000 acres he farms.
As producers look to manage the risk of skyrocketing inputs and high priced commodities, they’re discovering that irrigation systems pay back.
"It’s a whole new ball game since corn was $2," says Curt Potter of Cecil, Ohio. "I don’t think a lot of people realize what their yield potential is with pivots."