Don’t look for price breaks on nitrogen fertilizers as long as global demand for corn remains strong and nitrogen-based fertilizer supplies are tight. Globally, 67 new nitrogen manufacturing facilities will be up and running by 2015.
Plan ahead to stabilize your profit margin
Remember the seed and fertilizer days held at local elevators every February? They’ve gone by the wayside like steam engines.
Before harvest ended this year, farmers were putting pencil to paper to figure out how to come out on top in 2012—and for good reason. With the current global uncertainty driving volatility in the grain markets and continued dry conditions in much of the U.S., smart planning and input purchases might determine your profit potential in the next year.
Most university 2012 crop input guides are already available, so now is the time to focus on input categories and set your grain production goals.
"Costs and land uses are uniquely specific for each farm, so you have to watch how you use those guides," says Chris Barron, director of operations and vice president of Carson & Barron Farms Inc. in Rowley, Iowa.
As a Certified Crop Adviser, Barron is a big believer in getting profit priorities straight.
"Determine what you need to make ahead of time to determine your margins. Look at the cost of your profitability," he advises.
Steve Johnson, farm management specialist with Iowa State University Extension, agrees. "The old adage of ‘buy low and sell high’ still dominates farmer thinking," he says. "This primarily means buying inputs before their price significantly increases, but often fails to capture the profit margin available in selling 2012 crops at the same time. Producers often wait for even higher futures prices without a profit goal. Having a net profit per acre goal for 2012 is the first step to tying together both potential production costs and output price."
Once production goals are established for each crop and forwarded prices per bushel are set, it’s time to fill in the blanks for your variable costs.
Unfortunately, the sum total of producing a crop is trending up. "We’re seeing costs approach the $900 per acre range in northeast Iowa," Barron says.
Fertilizer frenzy. According to USDA, the U.S. imports at least 55% of the nitrogen and 81% of the potash farmers use, so any increase in demand will have to be met by imports. That means we are in competition with the rest of the world with a devalued dollar and increased transportation costs. Under the current import model, it’s unlikely farmers will ever get a break in the cost of nitrogen forms of fertilizer.
|It takes a team to shell corn, haul grain and contract inputs for Carson & Barron Farms in northeast Iowa. From left: Jason Franck, Keith Smith, TJ Matthiesen, Chris Barron and Dave Blin think bulk fertilizer storage might be in their future.
The International Fertilizer Industry Association’s (IFA) 2011 global capacity survey says ammonia capacity is projected to grow 19% this year, with 67 new nitrogen fertilizer plants under construction and expected to be in operation by 2015. The increased capacity will be met by more demand.
According to IFA’s May forecast, global fertilizer demand is projected to expand at an average annual rate of 2.4% by 2015.
A Farm Journal survey conducted online at AgWeb.com yields some interesting insights. Of the 100 respondents, 28% said they expect to spend up to $50 more per acre this year on their total fertilizer costs and 40% expect to spend $51 to $125 more per acre. For nitrogen-based fertilizer only, 29% expect to pay between $51 and $100 more per ton this year, 20% expect to pay between $100 and $150 more per ton and another 20% expect to pay up to $50 more per ton.
- Mid-November 2011