First Aid For Fertilizer Sticker Shock

By Jane Fyksen, Crops Editor
Thursday, March 13, 2008 9:13 AM CDT

Farmers have always gambled large sums of money at spring planting. The stakes are higher this year with fertilizer, fuel and other inputs continuing to climb in price.

According to University of Nebraska soil specialist Gary Hergert and ag economist Paul Bergener, natural gas accounts for up to 90 percent of the cost of producing anhydrous ammonia n the base material for all other nitrogen fertilizers. After Hurricane Katrina in 2005, natural gas prices spiked near $15 per million BTU (MMBTU), but returned to pre-Katrina levels around $7 per MMBTU, though prices do rise with winter demand. (However, according to the U.S. Department of Energy’s latest report, natural gas was at $9.37 per MMBTU last week, the highest since January 2006. Boosted by record-high crude oil prices and declining working gas in storage, the price of natural gas futures contracts increased on the week, reaching levels not seen in the market in more than two years. The price of the futures contract for April 2008 delivery went up 68 cents per MMBTU last week to around $9.74.)

Increases in fertilizer prices often are blamed on increasing natural gas prices, but that doesn’t tell the whole story, these two say. World prices for natural gas are much lower and range from less than $1 per MMBTU in parts of the Middle East to only $2 to $3 per MMBTU in Russia. They list the major reasons for the increasing N costs as:

- The closure of 25 ammonia plants in the US since 1999 (New production facilities are being built in China, the Middle East and the Caribbean.)

- A 14 percent increase in world-wide demand for fertilizer mainly in China, India and Brazil (2001 to 2006)

- Failure of the U.S. to build major ports and unloading facilities for liquefied natural gas

- A weak U.S. dollar

- High domestic demand driven primarily by ethanol mandates.

With fertilizer being a worldwide commodity, the U.S. must compete with other buyers. The weak dollar makes fertilizer more expensive for U.S. producers. The U.S. imports 75 percent of its urea N fertilizer.

Reasons aside, farmers must still pay the bills. With the dramatic increase in nitrogen fertilizer prices over the past year, they may be wondering if such large investments in fertilizer are worth it. Current crop prices make applying recommended rates of N profitable, contend University of Nebraska soil scientists Richard Ferguson and Charles Shapiro. In fact, they say recommended N rates may even be slightly higher for 2008 than 2007 due to the increase in value of corn and other grain crops.

“However, the thought of investing $100 or more per acre in nitrogen fertilizer may cause producers to think about how to protect that investment,” they say, suggesting several management options to do just that:

- Delay application - The longer N is in the soil, the more likely that some of it will be lost n either by leaching, denitrification, or ammonia volatilization. However, multiple applications will require more trips over the field, and those costs need to be considered against the cost of other options.

- Inject fertilizer below the soil surface - Broadcast applications can increase the potential for ammonia volatilization (primarily for fertilizers containing urea) or for runoff. Immobilization of N in decomposing residue is also a concern with broadcast application. Placing N below the soil surface minimizes the potential for volatilization or runoff. If injecting isn’t an option, surface banding instead of broadcasting can help increase efficiency, though not to the degree of injection.

- Use a urease inhibitor - Agrotain is the only product currently on the market labeled as a urease inhibitor, which protects urea-based fertilizer from ammonia volatilization. Agrotain is applied to fertilizer, so the cost per acre depends on the rate of fertilizer applied. Currently, the cost of using Agrotain with urea is 4 to 6 cents per pound of N. To protect 150 pounds of N per acre as urea with Agrotain the cost will be $6 to $9 an acre.

- Use a nitrification inhibitor - N-Serve is the only product labeled as a nitrification inhibitor. However, dicyandiamide (DCD) is also an effective nitrification inhibitor; it’s sold as a slow release fertilizer or fertilizer additive. Both products protect N from leaching and denitrification losses. N-Serve is applied at the rate of one quart per acre, which, Ferguson and Shapiro report, currently costs $7.18 ($28.73 a gallon).

- Use a slow or controlled release formulation - There are a number of slow or controlled release fertilizer formulations on the market. These products delay the release of N compared to more traditional fertilizers such as urea or UAN solution, with the intent to match nutrient availability with crop demand. These products can help protect N from loss due to leaching, denitrification, or ammonia volatilization. One controlled release product is ESN, a polymer-coated urea fertilizer from Agrium, which costs 10 to 12 cents per pound of N. Using ESN to protect 150 pounds of N per acre will cost $15 to $18 an acre.

The Nebraska soil scientists say these options should be considered “insurance,” rather than yield boosters. If the proper rate of N is applied and weather conditions are such that the potential for N loss is minimal, there will not be any benefit from using these practices. Normally, though, there’ll be some potential for one or more N loss mechanisms to influence fertilizer availability, resulting in some yield protection from the use of these practices.

They say the cost of most of these practices has changed little over the last couple of years, while the cost of fertilizer has more than doubled. If a practice can help protect against losing 20 percent of the N applied, for example, that may save $20 an acre worth of fertilizer, and perhaps 5 to 10 bushels of yield potential worth $25 to $50 an acre (if the N fertilizer rate is near economic optimum).

“With a potential investment of $10,000 to $14,000 for N fertilizer alone for a typical irrigated quarter-section field, adding $800 to $2,500 to insure that investment seems worthwhile,” maintain Ferguson and Shapiro.

Nutrient accounting important

With the higher stakes facing farmers this spring, using the proper fertilizer rate is more important than ever. Applying too much n or too little n can result in substantial economic loss.

“One place to not cut back this year is soil sampling,” Ferguson and Shapiro continue. “Because of increased fertilizer cost, the relative cost of accurate fertilizer recommendations based on soil tests is actually less than in previous years.” Since fertilizer costs and grain value have both increased, it is still profitable to apply recommended rates of fertilizer - even though the up-front investment is higher, they add.

The cost of soil sampling hasn’t increased much, if any. Thus the cost of doing a good job of soil testing a field is still relatively inexpensive, particularly when compared to the investment in fertilizer and the value of the crop. They run through an example, assuming soil testing cost of 61 cents an acre two years ago and 67 cents this year. Expressed differently, the soil testing cost was 88 cents per $100 of fertilizer investment two years ago, but only 52 cents today.

In this example, soil testing cost 61 cents an acre in 2006 and 67 cents an acre in 2008. Expressed another way, soil testing will cost 88 cents per $100 fertilizer investment in 2006, but only 52 cents per $100 fertilizer investment in 2008.

As noted, with current crop and fertilizer prices, it’s more important than ever that fertilizer rates be based on good soil test information. Table 1 illustrates this by comparing current prices to those two years ago. In this example, a fertilizer recommendation is made for corn on a 140-acre, center-pivot irrigated field. A soil test for the field indicates that, on average, soil organic matter is 2.2 percent, and Bray-1 phosphorus is 13 parts per million (ppm). Residual nitrate levels are low, at 5 ppm.

Currently, corn is selling for over $5 a bushel. Two years ago, the price was closer to $2.25. At the same time, fertilizer prices have almost doubled in some cases. Currently, nitrogen costs 40 to 70 cents per pound, and phosphate (P2O5) costs 40 to 65 cents. Two years ago, nitrogen was around 32 cents a pound and phosphate was 27 cents.

With the same soil test information and current economics, Ferguson and Shapiro recommend that a nitrogen rate for corn will likely be the same or even higher for 2008 than 2006. Table 1 illustrates this point. With a corn:N price ratio of 7:1 in 2006, compared to a corn:N price ratio of 10:1 in 2008, the recommended rate is 28 pounds of N acre higher in 2008, or 210 pounds of N per acre compared to 182 pounds in 2006. The nitrogen fertilizer cost per acre is $105 in 2008, substantially higher than $58.24 in 2006.

Phosphorus fertilizer recommendations don’t vary with the cost of fertilizer or value of the crop, at least with current prices, so the recommended rate is unchanged n 40 pounds of phosphate per acre. The cost per acre for phosphorus, in this example, is more than doubled, from $10.80 to $23.20, since the price of phosphorus fertilizer has more than doubled from 2006 to 2008.

The total cost of fertilizer for this hypothetical field has increased by 85 percent n from $9,666 to $17,948. The economic risk of using the wrong fertilizer recommendation also has increased. For example, applying 30 pounds of N per acre too much fertilizer may cost $5 to $15 an acre, or $700 to $2,100 for a 140-acre field, assuming rates are at or above the point where the yield increase pays for additional fertilizer. On the other hand, applying 50 pounds of N per acre below the economic optimum rate could reduce yield by 15 to 20 bushels, reducing income on this field by $10,500 to $14,000.

It’s also crucial this year that growers properly credit legumes and manure, as well as irrigation water. If fertilizer prices have doubled in the last couple of years, so has the value of credits from these sources.

In the example above, the previous crop was corn. If the previous crop had been soybeans, the standard N credit for corn following soybean would be 45 pounds per acre or $22.50. The cost to collect and analyze water samples for nitrate content, or manure samples for a range of nutrients, has increased little, while the value of the nutrients these resources contain has gone up substantially.

“The thought of investing $15,000 or more in a single field for fertilizer can be intimidating. However, with current crop prices, such an investment can be profitable,” these Nebraska soils specialists say. “It is critical, though, that investments of this size be made with the best information possible, based on careful soil testing, and after accounting for all sources of nutrients.”

Manure should also be tested for nutrient content with today’s high fertility costs. The old ballpark figure of 10 pounds of N and 5 pounds of phosphate per ton can be inaccurate for today’s manure produced with corn byproducts, says Hergert. N availability in composted manure also varies, because N must be converted from organic to usable inorganic forms. The crop should be monitored mid-summer to see if additional inorganic N may be required to reach yield expectations.

Greater savings for precision ag

Some growers have questioned the economic value of GPS-based technology. Does precision ag pay? John Barker, Ohio State University Extension educator in Knox County, says today’s higher fertilizer prices show even greater savings for precision ag, specifically variable application rates of crop inputs.

GIS software allows various field data such as soil test results, crop scouting data and yield data to be analyzed and incorporated into the decision making process. Theoretically, combining field-based data with the ability to vary input usage at specific points within a field should increase input efficiency. Increased efficiency should improve profit margin and result in the adoption of more environmentally sound practices. But does it pay?

To answer that question, Barker says data was analyzed from a 45-acre field on a central Ohio Farm. Seven years of accurate and calibrated yield data is available utilizing a GPS based yield monitor. This field was in a strict corn-bean rotation. Fertilizer recommendations were developed utilizing the four following scenarios.

- Scenario 1: Fertilizer recommendations were made according to the farmer’s normal production practices. Variable rate technology wasn’t utilized.

- Scenario 2: The field was divided into 2.5 acre grids. Soil samples were collected and sent to a lab for analysis. The fertilizer application data was developed for this field utilizing variable rate technology based upon the results from the soil test data.

- Scenario 3: The field was divided into management zones based upon soil type. Soil samples were then collected from each soil type. Each sample size was approximately 2.5 acres or less. The fertilizer application data was developed for this field utilizing variable rate technology based upon the results from the soil test data.

- Scenario 4: GIS software was used to divide the field into management zones. These zones were based upon actual, historic crop removal data from this field. Fertilizer recommendations were based upon the actual crop removal in each of these management zones. Fertilizer applications were made utilizing variable rate technology.

Table 2 contains data from this analysis. Overall fertilizer use was the highest using the farmer’s normal production practices (Scenario 1). Utilizing grid soil sampling and variable rate applications (Scenario 2), fertilizer use was reduced by 3,420 pounds. Soil sampling using management zones based upon soil type and utilizing variable rate fertilizer applications (Scenario 3) reduced overall fertilizer use by more than 3.5 tons. Scenario 4 which utilized GIS software to divide the field into management zones based upon crop removal and utilizing variable rate fertilizer applications produced the most efficient fertilizer use. This scenario, which is based on the actual field production, shows phosphorus recommendations were reduced by almost 1.5 tons and the potash recommendations were cut in half.

Fertilizer prices of $650a ton for potash and $850a ton for DAP were used for this analysis. Soil testing charges and variable rate fertilizer application charges were included where appropriate. Scenario 4 fertilizer recommendations based upon crop removal produced the greatest savings. This scenario which had the lowest fertilizer use and no soil testing charges resulted in a savings of $88.04 per acre when compared to the farmer’s normal production plans. Soil sampling by soil type (Scenario 3) and 2.5 acre grid sampling (Scenario 2) resulted in savings of $84.91 per acre and $36.36 per acre respectively, when compared to the normal production practices for this farm.

So, does it pay? Yes, says Barker. Each scenario involving variable rate fertilizer applications resulted in lower fertilizer use and a greater net return. “With today's soaring fertilizer prices, savings of $36 to more than $88 per acre can have a significant impact” on most farms, he notes.

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