Capture Savings on Inputs While Corn Futures Doze

September 4, 2013 08:31 AM

New-crop corn futures continue to struggle for some respect in this market. It has been a great summer in Chicago with mild, balmy temps leading traders to believe conditions are more favorable for crop development than they really are. That attitude started late in the spring of this year when early rains started to fall. Plants need sunshine and rain to grow, so strong rains after last year's drought followed by an arid late summer season look like a formula for at-or-above trendline yield. No strength for corn futures here...corn progress 010 (2)

Prices are not likely to elevate at harvest either. The best yields will be observed in 'on-schedule' fields, and their numbers will come in first. Earlier planted corn that did not get washed or ponded out stands a very good chance at posting a great bpa, and strong numbers at the front end of harvest may make it difficult to break traders' impression that all is as it should be with this corn crop, keeping pressure on new-crop futures.

All is not as it should be with this crop -- at least, not everywhere. The bright spot for this year's crop is the accompanying slide in nutrient pricing. December corn is currently ranging around $4.70. Take that and figure in Pro Farmer's projected yield of 154.1 b/acre based on Midwest Crop Tour samples, and new-crop revenue adds up to $724.27 per acre. 18 percent of expected new-crop revenue is our guidepost, but I have worked it backward this time to show how lower fertilizer costs will allow strong applications without breaking the bank.

The table below calculates current fertilizer pricing as recorded by your Inputs Monitor for the week ended August 30. Local prices may vary.

Current retail price
$737.36/ton = $0.45/lbN
170 lbsN/acre
$565.58/ton = $0.59/lbP2O5
70 lbsP2O5/acre
$519.06/ton = $0.57/lbK
70 lbsK/acre


$157.70 works out to 21% of expected new-crop revenue at $4.70 Dec corn. That allows for 170 lbsN/acre as anhydrous, 70lbsP/acre from DAP and 70lbsK/acre.

That is a little above our usual 18%, but as corn runs with the bears, nutrient is seeking its own floor, falling well below year-ago pricing. Its a good thing, too. From a strategic perspective, pressure on corn during fertilizer booking will make those purchases a better and better deal with each point corn rallies. Additionally, if corn finds post harvest strength, the amount you have spent on fertilizer shrinks proportionally, and the budget will make more room for sidedressed nitrogen on next year's crop if need be.

Look at it this way... If I expect to make $100.00 on my corn crop this year, I will book $21.00 per acre worth of fertilizer (21% of expected new-crop revenue, as in the table above). But let's say half the U.S. crop is eaten by locusts and corn prices double. Now I'm making $200.00 on my crop from the same $21.00 worth of fertilizer.

Fertilizer pricing is dictated right now by oversupply as much as by December corn and new-crop speculation, and nutrient is expected to stay where it is at and probably move lower through the first of the new year. If you have not yet booked your nutrient for fall -- most are still on the sidelines -- do not let low corn pricing scare you. Nutrient pricing is right in the ballpark and is positioned to help your savings increase. A rally in corn -- not out of the question at $4.70 -- will effectively shrink your fertilizer bill as a percentage of new-crop returns, but only if you buy-in while corn is the last thing on traders' minds.

Photo credit: D. Michaelsen, Inputs Monitor

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