Friday, July 15, 2011
You Will Spend More For 2012 Fertilizer
If you are watching the grain market in an effort to increase your profitability for 2011, you might want to watch a bit closer because your 2012 profitability could be challenged by fertilizer prices. To no one’s surprise they are increasing. And when you pencil out your crop budget for the coming year, your fertilizer expense will be closer to the 2009 highs than the 2010 lows.
Early in the spring Purdue agricultural economist Mike Boehlje identified fertilizer as a resource as important as land (and maybe water), and whomever controls those resources will have an upper hand in agricultural production. You remember the skyrocketing prices of 2009 that went and down about as fast and left some farmers paying high prices and others paying much lower prices. It was blamed on currency values, transportation, and some overseas problems where much of our fertilizer originates.
University of Illinois agricultural economist Gary Schnitkey says current prices, as reflected in forward contracts researched by USDA’s Agricultural Marketing Service, will push fertilizer costs over the $162 per acre mark for 2012. His calculations are based on fall delivery prices of $814 for anhydrous ammonia, $688 per ton for DAP, and $627 per ton for potash. Depending on your level of application, the calculation could be different. Schnitkey was using 180 pounds of N, 170 pounds of phosphate and 85 pounds of potash, which he said were recommended rates for 195 bushel per acre corn.
Fertilizer costs have been rising over time, and Schnitkey’s per acre estimate of $162 was $50 per acre back in 2000. In addition to price increases, US farmers have been applying more fertilizer in many cases. Please review the June 3rd edition of Farmgateblog.com which details the changes over the past 50 years in fertilizer application in the US. The major change is in nitrogen application: “Interestingly, nitrogen has risen from 37% of nutrient application in 1960 to more than 64% in 2009. Phosphate has fallen to an 18% share and potash is just over 17% of nutrient application, with both on a flat to lower trend.”
However there is another dynamic at work which may make a major difference in the way you look at fertilizer costs. Premium Subscribers to Cornbelt Update learned in late June that the relationship between nitrogen application and corn yield had been undergoing a significant change, specifically with more yield and less nitrogen. Those items indicated:
• With N rates steady and corn yields rising, NE agronomists reporting that nitrogen use efficiency is rising. It was 0.84 lb of N per bushel of corn in 2010, compared to 1.5 lb of N in the 1970’s. They say it does not indicate a bushel only needs 0.84 lb, since there are other sources of N, such as mineralized soil organic matter, residuals from prior fertilization, plus credits for legumes and manure, which contribute to the total need 1.1 to 1.2 lb per bu.
• Even though N prices are high, NE soil specialist Richard Ferguson says, “In 2010, the value of the crop was even higher, resulting in a price ratio of 17:1. To avoid either deficient or excessive rates of N application, the price ratio range recommendations for corn is confined between 4:1 and 10:1. 2011 N rates should have been slightly higher than in recent years.”
If you are a nitrogen “junkie” Schnitkey says to watch the changes in the delivery price for nitrogen, and particularly the April price for nitrogen. He says, “The contract price in July 2010 for fall delivery was $215 higher than the April 2011 cash price. Over these three years (2008, 2009 & 2010), the contract price was $500 higher, $120 lower, and $215 lower than the April price.”
And he says fertilizer prices are not expected to be rolled back very much. “At this point, contract fertilizer contract prices point to higher per acre fertilizer costs. While fertilizer prices have changed over time, it is not likely that fertilizer price declines will lead to per acre costs below 2010 and 2011 levels. Higher fertilizer costs continue the trend of higher production costs for corn, leading to higher break-even corn prices necessary to cover costs.”
Summary:
Since you are getting more for your crops, prepare to pay more for fertilizer in the coming season. Prices are moving higher for a number of reasons, but the bottom line is a likely fertilizer price over $160 per acre for many highly productive soils in the Cornbelt. In the meantime, evaluate your specific fertility needs and measure your yield increases against your fertility program to help refine your actual needs.
Posted by Stu Ellis on 07/15 at 12:00 AM | Permalink