Fertilizer prices are going up, so how can farmers keep costs down?

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By STU ELLIS

Get your checkbook out and plan to write a bigger check in 2011 if you will be buying any fertilizer. Various nutrients are either domestic or global commodities and both will be going up in price for a variety of reasons.

Dilemma

So what can you do to help your bottom line, in the wake of higher fertilizer prices?

Fall weather was quite accommodating to get fertilizer spread for the 2011 crop, but if your cropping plans have changed and you are going to buy fertilizer in the spring, the financial pain could sting more than it did in the fall.

University of Nebraska fertility specialist Gary Hergert says global urea prices have returned to the 2007 level of $400 where it rocketed to over $800 in 2008. But urea inventories are high, natural gas prices are flat and margins are profitable for fertilizer producers.

As a benchmark, Hergert says urea is priced at $400 to $520 per ton in Illinois, and prices are expected to move to $580 by spring, which is 63 per lb. for nitrogen. Ammonia prices continue to rise with current prices at $625 and expected to be $750 by spring.

Factors

Hergert says there is increased global demand for nitrogen and some international plants have shut down to keep prices going upward. DAP prices (diammonium phosphate) are approaching $600, but are $640 to $710 around the Corn Belt and expected to reach $760 this spring. The domestic DAP inventory is down because of world demand.

Potash prices are rising with an average of $525 to $600 around the Corn Belt. North American inventories have increased, but European potash makers are raising prices, with farm level prices expected to be above $730 this spring. With that good news, what can be done to help your bottom line?

Hergert has some ideas about that as well. With higher fertilizer production costs in the spring, he says that is a function of higher commodity prices and more farmers around the world wanting to grow corn, beans, wheat and other crops that need fertilizer.

To manage your price risk, Hergert says take advantage of crop pricing opportunities that will offset your higher cost of production. However, he says there is still a chance for some profitability for 2011, even with the higher fertility costs.

Tips

And he offers these tips:

1. Follow a good soil testing program to know macro and micronutrient levels.

2. Use the most efficient methods to apply phosphorus (starter or strip-till application) and timing options/methods/sources for nitrogen.

3. Take deep soil samples for residual nitrate to fine-tune N rates.

4. Set realistic yield goals. Expected yield is the major factor in determining the nitrogen rate for corn. Use a proven five-year average corn yield plus 5 percent (to account for hybrid and management improvements).

5. Credit N from previous crop residue or legume crops. Soil tests will not show legume or crop residue credits as the residue or nodules must break down during the growing season. Credit N for corn after soybean, sugar beet, alfalfa and dry beans.

6. Value and use manure sources properly. Manure is an excellent nutrient source for nitrogen, phosphorus and micronutrients.

7. Not all fertilizer recommendations are the same. UNL fertilizer recommendations may seem conservative compared to some commercial labs. UNL suggestions are based on research and on-farm verification. They are generally the most economical rates, even for high yield situations.

8. Consider replicated strip trials to determine the effect of lower or higher rates on yield. Fine-tuning fertilizer use needs to be an on-going process.

9. Comparison shop. Look at different products and do your “fertilizer arithmetic” to compare the actual cost per pound of nutrients.

10. Work with a reputable dealer who can provide quality product, price assurances, timely delivery, and well-maintained equipment. Remember, service after the sale is also important.

Calculator

Along with the tips suggested by Hergert from Nebraska, use the Web-based nitrogen calculator created by Iowa State University, which calculates your return to nitrogen, based on prices of nitrogen and price of corn. The corn nitrogen calculator will provide advice for Iowa, Ilinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin farmers.

Just enter the source of the nitrogen, its price per ton or pound, and the corn price. You will be provided with a profitability range of pounds per acre of nitrogen to apply, along with a target application rate that will give the Maximum Return to Nitrogen.

Summary

Prices will be rising for various crop nutrients in the coming year, partly from higher production costs, partly from supply shortages and partly because of greater global demand due to more crops being produced in the wake of higher commodity prices.

To balance your budget, ensure that you have a good working knowledge of your fertility needs, set realistic production goals and comparison shop. Also, use the theory of getting a return on your fertilizer investment.

(Stu Ellis, formerly with University of Illinois Extension and the American Soybean Association, owns and manages a governmental relations firm in Decatur, Ill., focused on agriculture and energy.)

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