New data released by Gary Schnitkey at the University of Illinois examines cost of production data for corn on high productivity farmland in central Illinois (more). These values are based on averages, and may not reflect every growers experience, but there are a few nuggets we can pull from these numbers.
The first nugget is the percentage of crop revenue spent on fertilizer. We have 18% of expected new-crop revenue as our signpost of resistance when it comes to booking inputs. We found a range of percentages from 2006 to projected 2013 from 10.8% to 26.6%. 2009 was a rough year as fertilizer prices too their own sweet time correcting from corn's late season spike in 2008 and our range high of 26.6% for NPK occurred as a result in 2009. The lowest percentage of corn revenue spent on NPK was, ironically, in 2007 when fertilizer accounted for just 10% of expected new crop revenue.
The chart below tracks the average annual corn price along with the average percent of that revenue spent on NPK. The average of all the data puts NPK expenses at 17.23% of corn revenue 2006-2013F. But this has not been a stable number.
The chart below demonstrates the effect of government payments and crop insurance on these same figures. After revenue adjustments, the average of 17.23% drops a percentage point and a half to 15.78% with the biggest influence from a $295.00/acre average insurance payment in 2012 figured in. Prior to that year, crop insurance accounted for an average of $14/acre. That $295.00 lowered a 24.03% NPK bill to a more manageable 17.37%.
The expectation is for yields to improve year-over in Illinois and in most of the Corn Belt. Unusual rains have made it difficult to see through to a healthy crop, and Schnitkey's projection of a 195 bu. average yield may be optimistic. However, fertilizer pricing has been on a general slide for about a year now, and declining fertilizer prices will go a long way toward securing growers' bottom line.
Projections out of Gary Schnitkey's office are for a 195 bu. crop with the average grower spending $170.00 on NPK in 2013. That promises a percentage of 17.38% of expected new-crop revenue. If insurance is figured in, we could see a reduction of that percentage to roughly 15.5%, but time will tell. A jump in corn prices would also help out, but that has raised fertilizer pricing in years past, making it vital for growers to watch the market, and book NPK with profit in mind.