Readying your operation for several seasons of high fertilizer prices

by Brynna Sentel
5 minute read
fertilizer application in soybean field

Farmers are seasoned at navigating unexpected changes. That resilience, resourcefulness and ability to pivot will once again help them combat (and learn from) today’s high fertilizer prices.

According to USDA’s Agricultural Marketing Service, the average price of anhydrous ammonia in Illinois in late February stood at $1,504 per ton – a 271% ($950) year-over-year increase. That’s one of the reasons farmers cited rising input prices as their No. 1 concern heading into 2022, in the December Ag Economy Barometer from Purdue University and CME Group.

A chart showing prices for Anhydrous Ammonia, Henry Hub Natural Gas, and Corn

A report from Texas A&M University and the Agricultural and Food Policy Center (AFPC) indicates these concerns are certainly founded; its projections point to an 81% spike in nitrogen prices for 2022. Another economic impact report by AFPC and Texas A&M found feedgrain farms would be hardest hit. The spike in fertilizer costs across all farms equated to an added production cost of $42 an acre.

Economist Dan Basse, president of AgResource Company, expects fertilizer price increases to linger for the “foreseeable future.” He says prices will likely remain elevated for three to four years, largely because prices are embedded in energy prices. The new commodity super-cycle is driven by raw material prices and scarcity of supply around the world, as well as underinvestment in the farm and transport sector during the pandemic, according to Basse.

Given these outlooks, building in flexibility and making contingency plans for lofty prices and shortages is smart risk management. Here are some ways farmers can manage high fertilizer costs:

Cover risk and maximize yield potential on any added bean acres

If nitrogen is not available or fertilizer costs are prohibitive, a farmer might weigh shifting some acres to soybeans. If so, he or she could consider covering any downside price risk on added acres with hedges.

A producer might consider shifts in soybean management practices, such as planting soybeans before corn or using a foliar insecticide and/or fungicide to maximize yields, according to a multistate, checkoff-funded study benchmarking soybean production systems in the north-central U.S.

“In some geographic regions in the Midwest, each additional day growers provide soybeans can give them up to a half bushel per acre yield increase,” says Shawn Conley, University of Wisconsin Extension soybean agronomist. Recent advances in seed packaging, conditioning, and genetics have made this a more viable option, though frost damage and germination issues due to cold soils are still risks.

Split nitrogen applications on corn acres, if possible

Another option for limiting fertilizer costs is to split applications of fertilizer to corn acres. Doing so can optimize the efficiency of any nitrogen applied and provide more opportunities to price the fertilizer.

Of course, the window has passed for a fall/spring split this season. But it may be worth considering applying 75% of the maximum return to nitrogen (MRTN) rate in the spring before planting and then any remaining nitrogen after planting if you didn’t apply nitrogen last fall, according to a Nov. 30, 2021, farmdoc daily report.

Doing so enables pricing at two different times, and it allows for adjustments to the post-plant application depending upon the weather and any fluctuations in input or market prices. “Split applications may also reduce the risk of leaching, volatilization and denitrification,” says Abigail Peterson, director of agronomy at Illinois Soybean Association. This method also allows the use of more anhydrous ammonia versus pricier UAN 28% solution.

Weather and field conditions are a risk with this strategy, but a new, supplemental insurance option announced by USDA could limit that risk. The Post Application Coverage Endorsement provides payments to non-irrigated corn producers who make multiple fertilizer applications during the growing season “for the projected yield lost when producers are unable to apply the post nitrogen application during the V3-V10 corn growth stages due to field conditions created by weather.”

This may also be the year to consider alternative nutrient sources, like manure or biologics, to reduce nitrogen use. The same can be said for nitrogen stabilizers. Basse expects the high-input environment to result in better farmer understanding of the benefits of manure – both organically and in terms of the nitrogen it provides. 

Optimize your nitrogen use

Operators may need to lower nitrogen application rates, especially if they normally apply at rates above the MRTN. Tools like the Corn N Rate Calculator can help them figure out MRTN for various nitrogen sources, product prices and corn prices. Economically optimal rates are far different this season than in years past.

Farmers should also make sure to use best practices for placement, source and timing to boost the efficiency of any nitrogen applied. For instance, when applying UAN solution, a producer might consider using a urease inhibitor when broadcast spraying the fertilizer or applying it in a band to reduce volatilization.

Know your farm and the market

Current fertilizer prices are also necessitating a shift in focus from yield to profitability, a shift that requires closer management. That includes watching fertilizer price trends, making realistic assessments of your farm’s likely economics and using a more targeted nutrient strategy.

Soil testing can help producers prioritize which fields should receive the most nitrogen and which can be spoon-fed nutrients. Applying fertilizer to a field that’s already nutrient-heavy equates to washing money down the drain. Basse expects farmers to pay more attention on nutrient application rates and soil testing moving forward “to make sure we get it just right.”

Those test results can also shed light on the pH, structure and overall health of your soil, all of which can influence yields. For example, correct soil pH can optimize plants’ ability to utilize fertilizer. In some instances when soil pH is subpar, it may make more sense to apply lime versus fertilizer.

If you’ve been considering trying out a precision agriculture-based fertility program like variable rate fertilizer (VRF) application, this may very well be the year to pull the trigger.

Preparing your farming operation for the future

Keep detailed, farm-by-farm records of what you did to manage the fertilizer price spike and your results. That data can help prepare your operation for lean times.

And if supply shortages do force you to cut back on application rates, make sure to build back soil nutrients when the supply-side disruptions ease. Doing so will help give you a buffer for any short-term spikes. Working to build organic matter and improve soil structure can also better prepare your farm for adverse weather and help you reduce the need for fertilizer.

“Adapting practices like reduced tillage, cover crops, and in-season nutrient management can all help to create a soil health system that works for you in the long run. Finding best management practices that strive to keep soil and nutrients in the field will be better both economically and agronomically,” says Illinois Soybean Association’s Peterson. 

Finally, keep an open mind about what you might do to better prepare your soils for price and supply disruptions. The industry is forever evolving, bringing new and improved tools and methods. Take advantage of resources like ILSoyAdvisor, webinars, extension field days, etc. This will keep you abreast of new developments and connect you with others who can share what has and has not worked for them.

Big-picture takeaways

The current fertilizer supply crunch and price spike has shone a light on some broader issues. Fertilizer companies say the problems are largely supply chain-based. Corey Rosenbusch, president and CEO of The Fertilizer Institute, in a November House Ag Committee hearing said the biggest contributors have been:

  1. Global demand for fertilizer
  2. Recent weather events that disrupted domestic production
  3. COVID-19 related deferral of facility maintenance that’s now being undertaken
  4. International actions, including in Belarus and China
  5. Transportation costs
  6. The supply and cost of natural gas

Others, including the authors of the aforementioned AFPC and Texas A&M reports, lay more of the blame on industry consolidation and the resulting market power of the four largest fertilizer companies that control 75% of the market.

Both the report authors and the fertilizer executives acknowledge the globally integrated nature of the fertilizer industry contributed to the shortages and price hikes. This seems to drive home the need for more domestic production of fertilizer and/or viable alternatives to nitrogen. Both tasks would require major investment and overcoming major regulatory hurdles.

Major investment in U.S. ag sector is needed

“There’s not been enough investment during the pandemic,” says Basse of AgResource. He explains, “If you look back to 2019, investment slowed or halted.

We’re no longer building ocean freight liners or bulk carriers. We’re no longer stepping up rail car availability. We’re no longer bringing more U.S. farmland back into production. It’s the underinvestment in assets that will keep commodity and energy prices high as we move toward what I call electrification and greener fuel.”

“There are potash and other investment opportunities to bring into production in the United States,” says Basse, adding there are some large lake beds in Utah that could be put into production. But doing so takes substantial capital – well over $1 billion for each project.

He hopes that the rise in fertilizer, grain and livestock markets makes investment more feasible going forward. But he also comments that investors are reluctant to invest in fossil fuels, which are viewed as a “mature, old industry.”

We’d love to hear how you are being innovative as you deal with the fertilizer predicament. Comment below.

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