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  AGRONOMIC NEWS ITEMS
From Agronomists of the
Potash & Phosphate Institute
655 Engineering Drive, Suite 110
Norcross, Georgia 30092-2837
Phone (770) 447-0335

Spring 2000, No. 7

FERTILIZATION AND CROP PRICES

The current crop price situation has generated many questions about the economics of fertilization. Some producers are asking: “If I reduce fertilizer rates to save on costs, what effect will that have on profit?” 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. In this sense, yield level is a controllable factor influencing profit. Once a decision has been made to plant a certain crop, it becomes a matter of making the most of the opportunity. This requires planning an efficient program designed to produce maximum returns per acre... in other words, to produce yields that maximize profit.

Greater profits come from higher yields since costs are spread over more 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. A long-term irrigated corn study conducted in western Kansas has demonstrated the relationships among yield, cost per unit of production, and profit. In this study several nitrogen fertilizer rates were evaluated with (40 pounds P2O5 per acre) and without phosphorus fertilization. When averaged over 30 years, the profit maximizing nitrogen rate, or economic optimum nitrogen rate, where phosphorus was applied was approximately 160 pounds nitrogen per acre (assumes $0.15 per pound nitrogen and $2.30 per bushel corn). The yield produced at this level of fertilization was slightly lower than the maximum yield that required 170 pound nitrogen per acre. At the optimum nitrogen rate, phosphate fertilizer increased profit by almost $120 per acre. Production cost was near minimum at the optimum nitrogen rate where phosphate fertilizer reduced cost by 55 cents per bushel.

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. The Kansas study has demonstrated this effect. The profit-maximizing nitrogen rate (with phosphate) at $0.15 per pound nitrogen varied less than 10 pounds per acre when corn price ranged from $1.50 to 3.50 per bushel. Similarly, the optimum nitrogen rate changed by only 7 pounds per acre when nitrogen price ranged from $0.15 to 0.25 per pound ($2.30 per bushel corn).

Adequate and balanced fertility may also produce non-yield profit benefits. For example, in the Kansas study phosphate fertilizer hastened corn maturity and lowered grain moisture at harvest. This resulted in greater profit due to lower drying cost. Based on drying costs of $0.02 per bushel for each percent of moisture above 15.5, phosphate fertilizer reduced drying costs by an average of $0.10 per bushel. Other benefits of phosphate that are related to faster maturity include timeliness of field operations, reduced lodging, and increased marketing flexibility.

As we prepare for another year of production, remember.

—WMS—

For more information, contact Dr. W.M. (Mike) Stewart, Great Plains Director, PPI, P.O. Box 6827, Lubbock, TX 79493. Phone: (806) 795-3252. E-mail: mstewart@ppi-far.org.
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