Input costs continue to be the story of interest for the year. Fertilizer in particular is grabbing headlines in both agricultural media and popular press. What do costs look like as we move through planting seasons and develop plans for the remainder of the summer? 
Dates & Deadlines
5/25/22 – Oldham County Lunch & Learn, Livestock Drought Management
5/26/22- Small grains field plot tour, Bushland
6/15/22 – Drought Management: Culling Decisions, Online
6/21/22 – Range Management Program, Pampa
6/22/22 – I40 Beef Seminar, Location TBD
DATE CHANGE 6/20/22 – Direct to Consumer Beef Sales Workshop, Amarillo
8/1-8/3/22 – Beef Cattle Short Course
What We’re Reading
The science behind Texas barbecue – AgriLife Today
New AgriLife Extension programs to address direct beef sales – AgriLife Today
Small grains field plot tour set May 26 at Bushland – AgriLife Today
Analysis Finds Meat Shoppers Seek Cooking Inspiration from Digital Sources – FMI
Drought Pulling Cattle Forward in 2022 – Feedstuffs
Inside Washington from a Beef Industry Perspective – Feedstuffs
US accuses Russia of weaponizing food in Ukraine war – Morning Ag Clips
Analyzing Fertilizer Expenditures
The idiom of beating a dead horse comes to mind when bringing up fertilizer prices in 2022. However, the high fertilizer prices may be what had the horse on its last leg in the first place. As production expenses remain high and, in some cases, continue to increase it is worth revisiting fertilizer expenditures to develop a sense of break even application and to mention cost-saving tips.
Change in Prices
How much have fertilizer prices risen in the last year? Data provided by DTN suggests a rapid and steady increase in expenses from a year ago, though the values presented here will not account for the even larger jump from prior years. As of May 13 10-34-0 was 46% more expensive, MAP was 54% higher, DAP was 68% more expensive, UAN28 was 76% higher, UAN32 was 80% more expensive, urea was 94% is higher, potash was 102% higher and anhydrous was 114% more expensive compared to last year. Across the board, these components averaged 79% more than a year ago.
Budgets and Expense Cutting
The question we must ask ourselves is whether or not the increasing value of commodities offsets the increasing expenditures for, in this case, fertilizer, though of course we must review expenditures at a whole at some point. If the return from fertilizer is not enough to offset fertilizer expenditures, how do we go about strategically cutting? Let’s revisit our rules of thumb from a post earlier this year.
- Visit with your agronomist. We can evaluate expense changes and estimate the impact of those changes on yield, but our agronomists and crop consultants can provide more concrete expectations. If we get yield response wrong, we may face severe problems later in the year.
- Focus on large expense categories first. With fertilizer representing 15-25% of the expenses for growing corn, cotton, and sorghum on the Texas High Plains in a given year, reviewing our fertilizer decisions throughout the year follows Rule 2.
- Balance marginal revenue and marginal cost. We will spend the next section analyzing data to follow Rule 3.
Revenue and Cost of Nitrogen Application
Let’s review the basic rules of marginal revenue and marginal cost.
MR > MC –> Profitable
MR = MC –> Profit Maximizing Point
MR < MC –> Losing Profit
Essentially what we are doing is determining whether the rate of growth in expenditures is outpacing the rate of growth in revenue from those expenditures. Since marginal revenue is a function of prices and yield, we need to update the values regularly to incorporate price changes. When developing estimates in the fall, the forecast price of most commodities was lower than they are now. That means that marginal revenue increased from the fall to now, with every bushel or pound of commodity grown generating more revenue through higher prices. How much revenue is dependent upon yield responses, which vary by crop and by amount applied. The three graphs below show yield response curves to a pound of nitrogen from different pieces of literature in green.
Cotton Yield F(Nitrogen) & MR, MC/LB., Nitrogen
Corn Yield F(Nitrogen) & MR, MC/LB., Weighted Nitrogen and Phosphorus
Sorghum Yield F(Nitrogen) & MR, MC/LB., Nitrogen
To calculate marginal revenue, we take the change in revenue divided by the change in inputs applied to determine the value of each pound applied. You can see that the marginal revenue curve (in yellow) is downward sloping. That’s because the initial nitrogen application is the minimum requirement to grow a crop and so the revenue from the first pounds of nitrogen application are the highest. By the time we get out to the limits of the plant’s growth potential, every pound of nitrogen applied generates little to no value, so marginal revenue dips below marginal cost (the blue line). In the case of sorghum we can see that by applying 300 pounds of nitrogen per acre we actually lose money.
Where is break even?
Again, we want to find the break even level of nitrogen where profit from nitrogen application is maximized. That point occurs where marginal revenue (the yellow line) crosses marginal cost (the blue line). The break even application rates are 135 pounds per acre, 275 pounds per acre, 275 pounds per acre for cotton, corn, and sorghum, respectively. That means, to apply more than those amounts per acre is to lose money on that input.
This analysis takes into account higher component prices, but the choice is complicated by the combination of components in fertilizer. This is where an agronomist and additional soil testing can work in your favor. Keep in mind that these amounts can, and likely will, change as the ratio of fertilizer prices to crop prices varies throughout the year.