Finding the Right Balance

Fertilization and crop prices

Published in the February 2014 Issue Published online: Feb 20, 2014
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Changes in crop prices often generate questions about the economics of fertilization. Prices for many crops have recently fallen considerably from the highs of the past few years. This shift has some asking questions such as “Should I reduce fertilizer rates in response to lower prices?” A detailed answer for a specific situation will depend on several factors, but a review of some fundamental principles can give us a foundation for addressing such questions.

There are four primary factors affecting profitability: crop price, production costs, yield level and crop quality (as it affects price). Now, which of these factors does the grower have significant control over? Typically, producers are price takers and thus have little control over prices. However, they do have control over variable costs, which directly impact yield and quality. Thus, in this sense yield level is a controllable factor determining profit. Once a decision has been made to plant a certain crop, then it becomes a simple matter of making the most of the opportunity. This requires planning a program designed to optimize efficiency and produce maximum returns per acre—in other words, to produce yields that maximize profit while exercising responsible environmental stewardship.

Greater profits come from higher yields (to a point) since costs are spread over more production units (bushels, bales, pounds, etc.), resulting in lower cost per unit of production. Efficient and profitable production involves lowering unit cost to a point of maximum net return. This MEY (maximum economic yield) concept was popular decades ago, and is as valid and legitimate today as it was then.

Crop and fertilizer prices have relatively little effect on optimum levels of fertilization. This is because in determining profitability, yield level has an overshadowing effect on crop and fertilizer price. Economists at Kansas State University have published an online Excel tool that helps demonstrate the impact of crop and fertilizer prices on estimated economic optimum rates of both nitrogen (N) and phosphorus (P) application. Using this tool, they found that while shifts in crop prices do have an impact on optimal rates of application, that impact may not be nearly as great as one would first expect. Therefore, the tendency to react to crop price declines by deeply cutting inputs should be closely scrutinized.

Adequate and balanced fertility may also produce non-yield profit-affecting benefits. For example, in a KSU irrigated corn study, P fertilizer hastened maturity, lowered grain moisture at harvest, and resulted in greater profit due to lower drying cost. This work showed that P fertilizer reduced drying costs by an average of $0.10/bu.

Farmers and their advisers are more than ever operating in a fluid global environment. Adaptation to massive swings and changes is necessary for survival; however, even in the face of change certain principles endure. One of these is the MEY principle discussed above; another is the principle of 4R Nutrient Stewardship. This brief piece has discussed the effect of crop price on estimated optimum fertilizer rate. But none of the four Rs (fertilizer rate, source, time and place) stands alone; all are interconnected, each affecting the other. An MEY program requires not only the right rate, but also source, time and place factors that collectively assure efficient and effective nutrient use.