As fertilizer prices climb, it's important to size up the agronomic potential of each corn field and run the numbers for that ground to see what the per bushel return is for inputs invested in the crop.
The rules for fertilizer just keep changing. Even though fertilizer prices increased dramatically from 2001 until 2008, it still required about the same number of bushels of corn—the real cost of fertilizer—to pay for nitrogen (N) and removal rates of phosphorus (P) and potassium (K). Now, with fertilizer prices taking another quantum leap in 2009, the real cost climbs.
Farm Journal Field Agronomist Ken Ferrie relates the cost right back to the bushels the fertilizer helps produce.
"To determine the real cost of fertilizer, look at your yield history,” Ferrie says. "For example, say you are averaging 180 bu. of corn per acre. Calculate the amount of phosphorus and potassium that is removed by that yield.”
Then, translate the cost of that fertilizer into bushels of corn. "If the fertilizer required by crop removal cost $50 per acre a few years ago, when the price of corn was $2 per bushel, it required 25 bu. of corn.”
The general ratio in that equation has held true for the past eight years, whether corn sold for $2.38 a bushel or $4.75. To walk through the numbers, see the "Cost of Fertilizer in Bushels” table compiled by Mark Baer of Sun Ag Supply in Tremont, Ill., on page 26.
You can see the same thing in budgets prepared by University of Illinois ag economists Gary Schnitkey and Dale Lattz, based on data from Illinois Farm Business Farm Management records, at www.farmdoc.uiuc.edu/manage/index.asp. Scroll down to "Per Acre Revenue and Costs for Illinois Crops.”
Those budgets show it was possible to net significantly more income, even with higher input prices—as long as you maintain yield. That's an argument for not cutting back on fertilizer.
But look what's happening to fertilizer prices in 2009 (as if you hadn't already noticed). In early September, early prepay prices at Sun Ag were $1,160 a ton—up $864—for mono-ammonium phosphate and $970 a ton—up $470—for 0-0-60 (potash). Anhydrous ammonia jumped from $560 per ton to $1,080 per ton. Those prices appeared to be pretty typical for central Illinois.
Between 2008 and 2009, the cost of N, P and K removal rose from $110 to $249.50—an increase of $139.50 per acre. At $6 per bushel, it takes 41.6 bu. of corn to pay for the fertilizer, compared with 23.2 bu. in 2008.
Using budgets on the farmdoc Web site, for land in continuous corn yielding 173 bu. per acre with $160 per acre land cost, increasing fertilizer cost from $110 per acre to $249.50 slashes net profit from $344 to $204.50 per acre.
"Depending on your costs and yields, there's still money to be made, even at 2009 fertilizer prices,” Ferrie says. "But now you have to do your homework. Yield and other costs like land really come into play.”
As an example, using the farmdoc budget, if you can grow 180-bu. continuous corn worth $6 a bushel, even with $249.50 fertilizer cost, you can net $362.50. But if 140 bu. per acre is the best you can do, profit falls to $122.50 per acre. It could fall farther if your land prices increase or if you wind up netting less than $6 for your corn. In those cases, a rotation with soybeans, which requires less fertilizer, might be more profitable.
The only way to know what to do is to run your own figures.
If your budgeting shows a reasonable profit using 2009 prices for fertilizer and other inputs, and you're not planning to quit farming in the next few years, it doesn't make sense to cut back on fertilizer. Drawing down fertility levels at the wrong time can come back to haunt you, Ferrie says. There are several reasons for that.
"We don't know how long current prices will last,” Ferrie says. "A year from now, today's prices could seem either high or low.”
Grain and fertilizer prices don't always move together, Ferrie points out. "In the short term, corn prices could crash while fertilizer prices remain high. During the current run-up, corn prices escalated two years before fertilizer prices rose. If corn prices tank but fertilizer prices stay high, that's the time to cut back on fertilizer.
"But if you cut back on fertilizer now, if corn prices go down in the future and your yield falls because of lower fertility, you'll be hit with a double whammy.”
Here's another way to look at the question. "Yields have been on a steady upward trend,” Ferrie says. "You want to keep your yields climbing at the same rate. The higher yields of the future will require more fertilizer.
"For example, say the technology and genetics of five years ago were giving you 170 bu. per acre, and today you're getting 190 bu. per acre because of improvements in seed and technology. In five more years, you could be at 210 bu. But that will take more nutrients.
"If you keep soil in top shape, you can ride out some storms,” Ferrie says. "But if fields fall into the low end of the optimum range, it can be expensive to bring them back. Building up depleted fertility in fields can easily take four or five years.”
That's something to keep in mind when taking on new land. "Ask the seller or owner to stipulate where the fertility level is,” Ferrie says. "Shy away if he won't provide a current soil test, yield maps and a yield history. If he provides only soil type and soil index information, that's a red flag.”
If you do cut back.
|Using grain and fertilizer prices from his own customers and Illinois Farm Business Farm Management records, Mark Baer of Sun Ag Supply, Tremont, Ill., found that from 2001 through 2008, removal rates of fertilizer, measured in bushels, will increase dramatically for the 2009 crop.
With 2009 fertilizer prices, you may find you have to cut back on fertilizer to maintain short-term profitability. A decision to cut back on fertilizer must be based on a good soil test, Ferrie advises. Testing every other year is best, but you should test at least every three or four years.
In addition to looking at the amount of fertilizer you apply, watch fertilizer efficiency. That requires maintaining optimum soil pH.
"Lime is often the first thing growers want to cut back on,” Ferrie says. "But pH must be maintained in order to make P and K available. P is held organically in the soil and is released by microbial activity, which will be reduced if pH falls.”
If soil pH is low, it may take four or five years to get it back up, Ferrie adds. Then, even though pH has been built up, it may take another one to three years to raise the yield back to its former level.
If you apply less fertilizer, you can increase its efficiency through timing and placement. "Banding fertilizer as you strip-till improves efficiency through placement,” Ferrie says. "Applying it as starter improves efficiency through placement and timing. Either way, you'll be less likely to see a yield reduction from the lower rate of fertilizer.”
But remember, anytime you fertilize at less than removal rates, you lower the pool of fertility in the soil. "It's a short-term fix,” Ferrie says. "For example, if you are removing 75 lb. of phosphorus, but only apply 30 lb., putting the 30 lb. in a band will be a lot more efficient. But the amount of phosphorus in the nutrient pool will go down. There will come a time when the nutrient pool falls below the optimum level, and then yield will fall.”
Note: If you're farming alkaline soils, which fix P and make it unavailable to plants, you should always band your P application. "On those soils, you'll get more response to 30 lb. of phosphorus banded than to 90 lb. broadcast,” Ferrie says. You might consider applying fertilizer every year (for one crop) instead of every other year (for two crops), Ferrie adds. "Whether this will pay will depend on application fees and where fertilizer prices are headed,” he says. "If you think fertilizer prices are going down, you might want to apply enough for only one year. But in the past, prices have kept rising.”
Using less N.
With N, you can reduce a large amount of risk by moving fall anhydrous ammonia applications to spring preplant or sidedress.
"I'm not too fond of fall ammonia application anyway because of the risk of loss,” Ferrie says. "If you do apply in the fall, be sure to let the soil temperature go down to 50°, and use a nitrogen stabilizer. A safer scenario is to move some of your N application to spring, and sidedress the rest after planting.”
If you haven't sidedressed N before, it will be a big change to your operation, so work into it gradually. "Be sure you have a relationship with your dealer, so a sidedress bar will be available on time,” Ferrie says. "And make sure you have a source of labor. Don't go to all-sidedressing at once.”
Another way to reduce input costs is to adopt variable-rate technology. No matter what you're measuring, though, the cost is always in bushels.
Prepaying for fertilizer six to eight months, or even a year, in advance may let you lock in a good price—but you're tying up a lot more money than you would have just a few years ago. "That raises some questions,” says Farm Journal Field Agronomist Ken Ferrie. "If your fertilizer dealer goes bankrupt after you have prepaid for fertilizer, do you still own the fertilizer? And will your banker accept prepaid fertilizer as collateral if you go to him for an operating loan?
"To resolve those issues, you could ask your dealer to write a contract giving you title to the fertilizer and stating that he's storing it for you for a future date of application,” Ferrie advises. "It would be similar to a stored-grain contract.”
Buying only from reputable dealers can help ensure your prepaid fertilizer—and the dealer—are there when you're ready to apply. Sizing up a fertilizer dealer is much like evaluating a good grain elevator, says Gary Rabideau of Ritchie Grain Elevator in Wilmington, Ill.
Signs of a stable fertilizer operation include: a neat, clean facility; well-maintained, up-to-date application equipment; use of progressive application technology; low rate of turnover among employees; long-term ownership; and a good program of agronomic advice for customers.
"That program should include a comprehensive soil testing program, which pays special attention to pH and lime applications in conjunction with nitrogen, phosphorus and potassium needs,” Rabideau says. "A good dealer always has inventory to cover prepaid fertilizer sales. If he doesn't, be suspicious about the soundness of his business.
"A good dealer will ask you to bring in field maps well before the application season, so he can set up your program and be ready to go,” Rabideau continues. "Ask yourself these questions: Is your dealer so unorganized that he always seems to do your custom application in super-windy conditions or always seems to show up at 9 p.m.? Or is he organized enough to work around adverse conditions and get the job done right?
"Are your dealer's prepay programs consistent? In other words, does he offer a money-saving discount program in August, for example, for fall inputs and a January program for spring? Or do his salesmen seem to show up with offers all year long, with that too-good-to-be-true deal? This type of sales pressure, from a dealer who always is a lot cheaper than his competitors, could be a red flag that his cash flow is always in trouble.”
You can e-mail Darrell Smith at email@example.com