The Perfect Time to Book Inputs: Butter First, Then Bullets

Published on: 12:03PM May 24, 2013

Last fall, Pro Farmer advised selling corn out of the field as fast as it could be picked. That turned out to be good advice, and many growers sold down to gambling stocks at around $7.40. Corn futures are $2 per bushel less than that now and struggling to find interest. Corn just hasn't done much this spring, but it is early. The first determinant driving nutrient purchases is cash on-hand. Seems pretty simple.

If I need to go to Wal-Mart and pick up some butter and bullets, I know to bring my wallet. The Mrs. wants to bake cookies for the church potluck and I want to load on Sunday and shoot all week. I base my decision on how much butter mama needs and I spend the change on bullets. I've got a pretty good supply of ammo in the basement and if my wife doesn't bring a double batch of snickerdoodles to the potluck, the ladies will talk. So if I only have enough left over for one box of shells, at least I've got the butter covered, and I can plink from my existing supply.

Growers have been banking P&K for the last two years as returns at harvest have been generous. Soil testing, yield calculations and dead reckoning will guide projected NPK needs. Think of the nitrogen as the wife's cookie butter -- its a 'gotta have' item. The P&K here is the stock of bullets I already have. I'd like to get a few more boxes of shells, but I'm in pretty good shape either way.

18% of expected new-crop revenue is the sweet spot for growers when budgeting nutrient. But that is a floating figure, based on the price of December corn. Nitrogen pricing has slid in the past few months like butter dripping off a hot biscuit , but as a percentage of $4.50 corn, that biscuit might not look so tasty. However, if you bump your budgeted NPK percentage up to 20% when corn is low, the math will work out in your favor once corn rallies.

At hypothetical $4.50 corn, 20% of expected new-crop revenue adds up to $136.00 per acre for NPK. That seems like a pretty big chunk of a $680.00 per acre return. But take that same $136.00 per acre of NPK booked when corn was slumping and apply a rally.

The clouds open up and corn finds its way to $6.50. Now that $136.00/acre spent on NPK makes you look like a genius. $6.50 corn fetches $1000.00 per acre and the 20% of expected new-crop revenue spent on NPK at $4.50 slides to 13.6%. Not too shabby.

Let's work it backwards. Lets say you wait for corn to rally before making inputs purchases. We start at $6.50 corn. 18% of that leaves $180.00/acre for NPK. But the market falters and you wind up selling corn at $4.50, and are glad to get it -- it could happen. The comfortable 18% you spent booking nutrient when corn prices were good, has ballooned to 26.5% at a $4.50 selling price.

That kind of return is going to make it tough for me pay for both butter and bullets, and yes, my plinking time would take a hit. Mama could only bring one dozen of her famous snickerdoodles to the church potluck, Sally needs a new pair of shoes -- on it goes.

I have met with lots of growers over the past year and many of our conversations have started the same way. "Fertilizer guy, huh? So when should I book inputs?" The truth is I cannot tell you what level of risk is acceptable for your personal program.

I can tell you that fertilizer pricing has shown a tendency -- and a strong one -- to follow corn. Your barometer is December corn futures. If you have plenty of P&K in the soil, consider forward booking nitrogen based on the price of corn. When corn is low, book essentials -- again, consider your appetite for risk. But nitrogen booked at 20% of expected new-crop revenue when corn is low leads to strong profitability if December corn rallies. If there is no rally, you can base P&K purchases on how much you have banked in the soil -- like a hedge -- and how much you have to spend, but this way, your N is covered.

We have seen some strength in December corn in the past few days, opening today -- Friday -- at $5.33. That adds up to $812.80 per acre in expected new-crop revenue. 18% of that is $146.30/acre for fertilizer. With anhydrous at its current 53 cents per pound of N, a 170 lb/acre application would run in the neighborhood of $90.00 per acre, leaving $56.30 for P&K. Not too shabby.

DAP is running at 68 cents per pound of P2O5 right now. Potash is currently at 48 cents per pound of K. Divide the remainder of $146.30 by two and that leaves room for 19lbs/acre DAP and 13lbs/acre K. The table below lays out our three scenarios.

December corn price
Expected new-crop revenue/acre
NH3/$.53/lbN @ 170lbs/acre
Remaining budget for P&K
$5.33 (Friday's open)


If you expect a rally in corn futures, now is a great time to book nitrogen. Supply and demand forces hint at some downside room for nutrient, but prices are very reasonable at present. If you are bearish on corn futures, and your appetite for risk allows you to hold off, wait to book nutrient until December corn falls into your personal "go-zone". If you expect a $4 handle on corn, nutrient may or may not follow corn to the low -- on the flip side, if you expect a $6 handle, nutrient pricing has shown it WILL respond to upside action and will follow corn. If the uncertainty of the wait makes you nervous, take care of your nitrogen first and plan to lean on your banked P&K if inputs follow corn to the upside through a rally later on.

Determine your appetite for risk. Read Pro Farmer and follow December corn futures closely. If you play it just right, you can have your bullets and eat cookies too.