Risky Inputs

October 30, 2008 07:00 PM
Be nimble and act early to make sure you get the fertilizer your crops need for 2009. Right now is a good time to sit down with your dealer and map out your strategy, if you haven't already done so.

You already know the fertilizer outlook. Supplies: tight. Prices: sky-high. How you deal with this situation could determine just how successful you will be next year.

The fertilizer news got worse, rather than better, as summer came to a close. On Aug. 7, United Steelworkers laborers at three Potash Corporation of Saskatchewan mines went on strike, putting about 6% of the world potash supply at risk. Hurricane Ike hit Texas Sept. 13, damaging the 600,000-ton yearly capacity Agrifos phosphate plant on the ship channel in Pasadena, near Houston. Agrifos managers cleaning the flooded plant say they don't know when it will be back online.

These problems make the already troublesome supply situation even tougher, at least for now. Fertilizer demand in India, China and Brazil continues to climb and is unlikely to moderate soon. In the U.S., booming corn acres keep demand high. It all makes for a tense, expensive predicament.

"Fertilizer prices are at an all-time high. The farm price was up 113% in August 2008 from August 2007. There's been a huge spike in world fertilizer demand. It's grown 14% overall, worldwide. That's the equivalent of a new U.S. market,” says Kathy Mathers, Fertilizer Institute vice president.

"A big part of the price run-up has been driven by increased prices for grains and oil seeds. As those prices flatten out and get in a more narrow range, we'll see inputs flatten, also. The price situation has been the result of a little bit of a lot of things,” says Tim Crislip, director of product supply for CHS Crop Nutrients.

After many years of mining nutrients from fields, India is pushing to rebuild fertility, Mathers says, subsidizing fertilizer to its farmers. For example, Indian farmers are paying $150 per ton for urea, Crislip says.

"Looking at the tender of today, that's a $700 market for urea. I'd like to see the subsidy bill India is paying. I don't think this will continue over a long period of time. It usually comes back to some economic relationship over time,” Crislip says.

China, a large exporter of nitrogen (N) and phosphate products, now aims to increase food production and wants to keep more of its own fertilizer output. As a result, the Chinese government slapped a 135% tariff on all fertilizer exports.

"This started in the spring with China. They've gone from being the largest exporter to almost a complete shutdown. This has been kind of a quiet thing. It isn't common knowledge yet,” Mathers says.

In the U.S., it's clearer than ever that farmers are part of a global supply and demand market. Jim Camberato, Purdue Extension soil fertility and plant nutrition specialist, says Purdue ag economists expect potash prices to hit more than $900 per ton, anhydrous ammonia around $1,000 per ton and monoamonnium phosphate and di-amonnium phosphate at $1,100 or more.

With prices like that, you should focus on soil testing to closely monitor nutrient levels. Even though the situation may tempt some farmers to cut back on fertilizer, be careful.

"Some of our cotton farmers think they can get by without putting anything on soybean fields, but the second year soybeans are out there, you'd better add something or you're going to mine the soil,” says Tom Barber,
Arkansas Extension cotton specialist.
A number of urea and phosphate plants are being built around the world in response to increased demand for fertilizer, says Tim Crislip, director of product supply for CHS Crop Nutrients. That could be good news for farmers.

"Over time we're going to see more assets come into play,” Crislip says. "Prices will either react accordingly or older assets will shut down.

"Nitrogen plants will come on quickest. We should see some within a couple of years.”

However, continued environmental concerns could throw roadblocks in front of some of the new plants. For one xample, Agrium Inc. and its partners invested more than $500 million in a new nitrogen facility at the port of amietta, Egypt. In June, the Egyptian government voted to recommend
relocating the nearly half-completed plant. Agrium responded with a statement saying "that is not a viable option.”

High fertilizer prices also make management decisions more critical. "There's still money to be made applying phosphorus [P] and potassium [K] to low-testing soils. One thing we're seeing, though, is that many Midwest farmers like to have high-testing soils, and some are still trying to build them up. We think that they need to look at that and change,” explains Antonio Mallarino, an Iowa Extension nutrient management specialist.

"If they're applying excess fertilizer, they're wasting money and affecting water quality. The cost of that insurance is much higher than it used to be. With today's variable-rate technology, they can just put the fertilizer where it's needed across a field. Farmers need to use all the available technology to help them make decisions,” Mallarino says.

Some university specialists say spring-applied N fertilizer might be a cost-cutting answer since it reduces the chances of leaching or volatilization. However, there are other considerations. Mallarino says N tends to be more expensive in the spring, the dealer infrastructure may not be set up to handle massive spring deliveries and cold, wet weather can create application problems.

"Spring application is a hot issue, especially in Iowa. Yes, it can be good, but it doesn't mean you always can reduce the application rate. People have to understand that if there's a lot of rain from April through June, lots of N may be lost anyway,” Malla-rino explains.

Fertilizer markets will continue to be volatile during the next year, CHS's Crislip says, but there will be adequate supplies and some price leveling, as well. Farmers should be most concerned about getting fertilizer deliveries on time for the crop year.

"There is a definite risk to the grower, with more than 50% of our fertilizer inputs being produced overseas. There's a long supply chain. It can take 45 days or 60 days to get it here. The grower can't wait until March to order it and expect it to be there on time. My advice is to talk to dealers early. Visit about intentions and needs,” Crislip says.

"This is going to be more of an issue with urea coming out of the Arab Gulf than with potash out of Canada. Potash is going to be tight, but N is a legitimate concern. It comes from the same places our crude oil comes from. That's what we're worried about. Farmers should worry about N. Yes, there's price risk, but there's also supply risk. Talk to your dealer so neither of you is surprised.”

Dealers now operate in a tricky financial world, says Cheryl Schmura, CHS vice president for crop nutrients.

"Just think about what the credit market crisis has done to dealers. As much as it's painful for farmers, it's also painful for dealers. Credit is very tight everywhere. We're encouraging partnerships. We're partnering with suppliers, we need dealers to partner with us, and farmers to partner with dealers and sit down and discuss what's going on. This is stuff we should have done all along. As long as you can run your operation loose and do OK, that's fine, but there usually comes a point where you have to change. For farmers, it's changed. We've reached that point,” Schmura says.


Manure Can Truly Smell Like Money

The earthy smell of manure is often jokingly called the smell of money. With skyrocketing fertilizer prices that is now literally true.

Once a break-even proposition whose value barely covered application costs, manure is now considered a potential profit center for livestock producers. It can be used to offset commercial fertilizer purchases or as a sales opportunity to crop-farming neighbors.

During the past decade, fertilizer prices have continually ratcheted up. But they exploded this past year as oil shot well past $140 per barrel and as a hungry world drove demand for nitrogen (N), phosphorus (P) and potassium (K) through the roof.

Hog manure is particularly beneficial. Research by the University of Minnesota in the late 1990s shows a 6 bu. to 15 bu. per acre corn yield bump when hog manure was applied to land that received commercial fertilizer for several years.

"In the two studies where manure was applied in both the fall and spring, yields increased 7.5 bu. per acre with the fall application and 15 bu. per acre with spring application,” says Gyles Randall, a soils specialist with the University of Minnesota (U of M) Southern Experiment Station in Waseca.

Randall did not find the same consistent yield boost from dairy manure. "Hog manure has more nitrogen available the first year, so corn gets off to a faster start and seems to maintain that advantage through the growing season,” he says. "Dairy manure has more organic nitrogen, and it takes longer for that to become available.”

The U of M has an easy-to-use spreadsheet that can help you determine the value of manure. It allows you to enter your own values for the amounts of N, P and K you want to apply per acre. It also allows you to plug in current fertilizer prices.

This fall, Bob Koehler, U of M Extension specialist who is part of the team that developed the manure spreadsheet, worked up a swine finishing example for Farm Journal. He plugged in current fertilizer prices. The scenario assumes that the ground will be planted to corn and needs 140 lb. of N, 45 lb. of P and 40 lb. of K.

With a manure test of 50 lb. N per 1,000 gal. and 80% of that available the first year from sweep application, the spreadsheet calculated that Koehler needed to apply about 3,500 gal. per acre.

He also plugged in anhydrous ammonia at $945 per ton (58¢ per unit), diammonium phosphate at $1,085 per ton (95¢ per unit after subtracting N value) and potash at $875 per ton (73¢ per unit), plus an additional $15.50 per acre to physically apply these nutrients. Manure application costs were pegged at 1.25¢ per gallon. A yield increase from manure application of $20 per acre was also assumed.

The spreadsheet shows that using manure, rather than commercial fertilizer, nets $41.40 per 1,000 gal. of manure, or $145 per acre. "A pit with 300,000 gal. of manure would net $12,420 while covering 86 acres,” Koehler says.

One of the keys to using the spreadsheet, though, is plugging in the actual nutrient analysis of your manure. "The variation between hog buildings is very large,” Koehler says. In Minnesota studies of liquid hog manure, nitrogen values ranged from 20 lb. of N per 1,000 gal. to 80 lb. And dry matter ranged from less than 1% to more than 10%.

Application accuracy is also critical. You don't want to underapply and short crops and yields. But you also don't want to overapply, which usually increases per-acre application costs and also wastes manure—now a precious resource. —Jim Dickrell

You can e-mail Charles Johnson at cjohnson@farmjournal.com.

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