Economic thresholds for fertilizer use depend on grain price and yield. Producers can’t do much about the price and they can buy only two elements of production that provide significant returns toward yield: seed and fertilizer.
“In a year when margins are this thin, or even worse, may not even provide a positive return on the cash investment of planting a crop, farmers need to consider how to get the biggest bang for their buck,” said Rigas Karamanos of Western Co-operative Fertilizers in Calgary.
“The best (crop) varieties and the most cost-effective fertilization strategies are key to success this year.”
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Fertilizer prices have nearly doubled over the past decade while commodity grain prices have remained static. This has affected the tried and, until recently, mostly true scenario of “fertilize to 80 percent of the maximum yield and reap the biggest margins from your crop.”
Keith Mills of Agricore United in Lethbridge suggests that farm operating costs can be separated into four categories: essential (seed); enhancement (fertilizer and seed; maintenance (fertilizer and herbicide); protection (pesticides and fertilizer).
While each of these may deliver improved results, those results are not necessarily cumulative. Poor seed will not achieve outstanding yields despite the maintenance of herbicides and micronutrients and the insurance of fungicide and insecticide.
Good seed without enough nitrogen and phosphate won’t yield well. Without high yields there is no point incurring any of the other costs. If cost cutting is going to take place, maintenance and protection areas do the least damage to returns because they deliver the least return on investment.
Karamanos said the costs of additional products beyond seed and basic fertilizer must be covered by the operating costs that create the bulk of the returns from a crop.
“Balanced nutrition is important to a crop, but that doesn’t mean that producers have to put that balance in the ground along with their seed every year,” he said.
“In most cases the soil has enough of those extra elements in it to grow a crop. A soil test can determine if the minor nutrients are in short supply, but in most cases they aren’t and when money is tight this kind of maintenance of the soil might not be affordable.”
Using 133 site-years of data, Westco has found that fertilizing barley to optimum recommended levels of nitrogen produced an average 2.2:1 return on investment, phosphorus 2.6:1 and potassium and sulfur about a 1:1 return. Micronutrient applications based on recommendations lost money.
Beyond certain points, the ratio of a crop’s increased financial return to the cost of fertilizer drops as the quantity and the cost of fertilizer rises.
Karamanos estimated that one bushel of wheat would have bought 18 pounds of nitrogen in 1990, but only 10 lb. in the spring of 2006. A bushel of canola would buy 23 lb. of nitrogen in 1990 but only 13 lb. by 2006. Barley has half the buying power it had in 1990 when a bushel could buy 10 lb. of nitrogen versus five lb. today. Phosporus returns are similar.
Multiplying the grain price by the expected yield increase and then subtracting the nitrogen price multiplied by the nitrogen rate can calculate net returns from fertilizer applications.
Westco has developed a spreadsheet that allows producers to estimate what fertilizer may return to their bottom lines for wheat, canola and barley. It’s based on tests from 279 sites in Western Canada over a five-year period.
Canola for 2006-07 crop is a case in point. Recent research has shown that the economic upper threshold for nitrogen application has dropped by 25 to 30 lb. per acre because of high nitrogen prices and lower values for canola.
The Westco spreadsheet calculator shows that additional applications of nitrogen over a certain point on a hybrid canola crop with a farmgate price of $5.50 per bu. and 47 cent per lb. nitrogen price begin to cost producers money above 90 lb. application rates. While yields continue to increase as nitrogen is added above that rate, this gain cannot overcome the rising expense of the fertilizer.
The rate of application falls below what in previous years might have been considered ideal to maximize production or a recommended rate through soil testing.
At that rate, Westco estimates that the return on the crop over the cost of nitrogen is $51.48.
“Producers have to decide if that is enough to warrant planting that crop as well,” Karamanos said.
In wheat, Westco determined that reductions in nitrogen application from recommended rates based on a soil test reduced net returns to the producer, despite high prices for the fertilizer.
Using the Westco calculator and applications of nitrogen on a Canadian Western Red Spring wheat crop, a return of $71.58 after nitrogen costs are deducted is achieved when 88 lb. of nitrogen are applied, with a $4 per bu. wheat price. Barley that earns $2 per bushel with a 90 lb. nitrogen requirement delivers $65.26 after nitrogen expenses.
Mills said that while no commodity crops are expected to pencil out well for producers this season, maximizing their returns by controlling costs will be critical to success.
The Westco nitrogen calculator, and a comparison calculator for hybrid versus conventional canola and a phosphorus estimator, can be found here, or click on the calculator graphic below:
