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The Economics of Cover Crops

This year brought some clarity with new online tools for farmers and a sobering study by economists. That won’t end disagreement about cover crop returns, though. For example, an Indiana farmer with 14 years of cover crop experience insists farmers can gain financially from building soil carbon.

In March, Iowa State University released three downloadable worksheets for cover crops.

Two are for livestock farmers to evaluate grazing and forage harvesting. A third, “Cover Crops Budget,” helps estimate gains or losses on crop farms.

Each worksheet has preloaded average costs in Iowa. They’re not economic studies. Still, a glance at the Cover Crops Budget shows that even with cost share of $20 to $30 an acre, five example fields show results ranging from a $6-an-acre gain to a $19 loss.

William Edwards, a retired Iowa State University economist who built these worksheets, advises against relying on examples. “People need to run their own numbers,” he says. You can find the worksheets on Iowa State University’s Ag Decision Maker website.

The website’s “Economics of Cover Crops” page also links to the new study, “Economic Evaluation of Cover Crops in Midwest Row Crop Farming.” ISU Extension Economist Alejandro Plastina led the project. It gathered farmers’ experiences with a web-based survey of farms in 11 states and a questionnaire sent to 1,250 farmers in Iowa.

Its best news: Cover crops pay when used for grazing or forage. The corn and soybean results were more discouraging. In an ISU press release, Plastina called cost share payments critical, adding that “for most farmers, these payments are insufficient to cover all costs associated with cover crops.”

To see just how insufficient, click the link to Plastina’s 67-page report. The survey’s most complete results came from 440 farms in Iowa. They showed livestock farmers saving more than $30 an acre using cover crops with corn or soybeans. Crop farm losses averaged $26.41 per acre on corn following cover crops and $18.29 on soybeans. Without cost share, losses averaged $48.82 on the corn acres and $38.42 on soybean acres.

It’s hard to criticize one of the most thorough studies yet on cover crop economics, but it seems to have an important omission. It excludes farmers who plant all of their acres to cover crops. That’s because the study needed acres without cover crops on each farm to use for a comparison. 

Yet, farmers confident enough to plant every acre to cover crops likely are making them pay. They probably have used them longer, too, since no sensible producer would plunge a whole farm into cover crops in year one. The study is also voluntary, which could skew results.

years of experience

An experienced cover crop farmer critical of the study is Ken Rulon of Arcadia, Indiana. He’s one of five fifth-generation owners of a 6,100-acre family farm that’s part of Rulon Enterprises LLC. 

Since 1991, the Rulons have not tilled. They began trying cover crops 14 years ago. Today, most of their crops operation, about 6,100 acres with rented land, is in cover crops. A key farm goal is “to increase the organic matter content of the soil while still maximizing profits.”

They’re doing exactly that. Organic matter in one field has increased from a 2.47% average to 3.58%, a gain of 1.1 percentage points over 14 years. Their corn production costs are just over $3 a bushel. 

“We’re kind of past telling people what they ought to do and just show what we do,” Rulon says. He shared slides he used in an Iowa talk last winter.

Let’s look at his slide of return on investment (shown below). I confessed some skepticism to it, especially his Total Long-Term Benefit of $50.49 an acre. Wasn’t that double counting? 

Rulon Enterprises LLC Cover Crop Benefits, Fall 2017

Per Acre Acres Total Benefit
Fertilizer Saved: P&K (20 lbs. @ $.38 + 30 lbs. $.225) $14.35 5,200 $74,620
Fertilizer Saved: N (35 lbs./acre: 200 vs. 165) $7.35 2,600 $19,110
Corn Yield (4 years × 64 strips; plot data; 7.1 bu. @ $4) $28.40 2,600 $73,840
Soybean Yield Increase (1.95 bu. @ $10) $19.50 2,600 $50,700
Total Annual Benefit  $41.98 $218,270
Drought Tolerance (2004-2017: 30 bu. every 5th year = 6 bu. @ $4) $24.00 2,600 $62,400
Carbon Content (5.35 bu. per 0.1 pt. of organic matter × 50% = 2.7 bu. @ $4)  $10.80 5,200 $56,160
Erosion Reduction (2 tons/acre @ $4)  $8.00 5,200 $41,600
CSP Program Payment ($40,000) $7.69 5,200 $40,000
Total Long-Term Benefit $50.49 $200,160
Total Cover Crop Benefit  $418,430
Total Cover Crop Cost $118,071
Net Economic Return  $300,359
ROI = 254% Net Profit/Acre Planted = $57.76

Rulon insists it’s not. Higher organic matter, or carbon content, improves root growth, lowers summer soil temperatures, and conserves soil moisture. That benefit really shows up in a drought year. Five years ago, his corn planted after cover crops yielded 30 bushels an acre more than the acres without cover crops. He divided that by five years and multiplied those 6 bushels by $4 to calculate a $24-an-acre benefit of drought tolerance. 

Drought tolerance isn’t included in his 7-bushel-an-acre yield increase, an average of only the past four years (found in his Total Annual Benefit). The carbon content in his long-term benefits counts toward future expected yield gains, not the current average, he says.

We can quibble about the worth of erosion reduction. Rulon says it’s a conservative estimate of the value of topsoil saved.

Rulon’s short-term total annual benefits are harder to dispute. He spends less on P&K than university recommendations and finds no nutrient shortages in soil tests and tissue samples. This savings on P&K is a key difference between Rulon and the average of cover crop farms in Iowa. They reported virtually no fertilizer savings.

Rulon’s 7-bushel gain in corn yields is unusual, but this is from a 100-acre multiyear study with 67 reps each year. It’s the same as the top end of corn yields for some groups of Iowa farmers in Plastina’s study.   

Rulon also saves on cover crop costs. He spends $14.50 an acre on seed using a lower rate than some farms. Planting it costs another $8.20 an acre, for a total of $22.71 an acre. Spread over 5,200 acres, that’s a total cost of $118,071.

“If you are going to use cover crops and change nothing else, it will be hard to see benefits, except in added yield, which probably takes four years to start seeing,” Rulon says. “Just based on the reduced leaching and increasing availability in fields with well-managed cover crops, [farmers] should immediately reduce P/K applications, probably by 40%.” 

To some, all this may seem unconventional. Yet, much of Rulon’s data is from a decade-long standard comparison of control strips without covers to corn after oats and radishes and soybeans after rye. Rulon seems credible. He, too, has agricultural economics training, earning his bachelor’s degree from Purdue University. He did marketing for the Plastics Business Group of General Electric before returning to the farm. 

Rulon doesn’t claim cover crops are a panacea. His farm also relies on optimum economic yield and careful crop marketing. He believes farms are sustainable businesses only if they stop erosion and rebuild organic matter. 

“Ultimately, the point is that you cannot make [cover crops] a negative return on investment. On our farm, there’s a benefit,” he says.

Someone familiar with many sides of cover crops economics is Sarah Carlson, strategic initiatives director for Practical Farmers of Iowa, a farmer-run research group. Carlson assisted Plastina’s study and the ISU worksheets. She has heard Rulon’s presentation. 

“The study shows that top producers are realizing enough production savings like Rulon does to make cover crops part of the long game to build organic matter and to improve yield over time,” she says. 

“Yet, we don’t see an urgent response from Extension, ag retailers, or others to help coach farmers up. Farmers like Rulon and members of Practical Farmers again continue to do the lion’s share of the coaching,” Carlson says.

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