No. 23 Article 13/October 7, 2005

Responding to Increasing Nitrogen Cost

Corn producers are facing unprecedented N costs this fall, while corn prices continue to languish. N prices are in the $450 range (per ton of anhydrous ammonia, which contains 1,640 lb of actual N), but the futures price of natural gas, from which N fertilizer is produced, suggests that N prices will rise further, particularly if a cold winter results in use of more natural gas than normal. Imports of ammonia and solid N forms such as urea might hold down domestic N prices some, but there are real concerns about how to manage N in the face of such increases.

The price of $450 per ton of ammonia is about 27 cents per lb of N. If we use this cost and a corn price of $2 per bushel in the calculations determined by our recent work on calculating suggested N rate (see the previous article), the rate that maximizes return to N for corn following soybean in Illinois is 147 lb N per acre. The return to N (RTN) is within $1 of this maximum over the range of 127 to 169 lb N per acre; we suggest this as the range over which RTN is expected to be high.

In the discussion that follows, maximum return to N (MRTN) numbers calculated from our Illinois database will be given. But in each case, this "maximum" is near the middle of a range that extends about 15 to 20 lb of N on either side of the maximum. These 30- to 40-lb ranges are expected to form the basis for the new rate suggestions that we will make for corn in Illinois. We will need over time to learn to think in terms of ranges rather than exact numbers, but for now we can consider the midpoints of these ranges as representing "optimum" N rates, where the net RTN is maximized.

As N price increases and corn price stays low, the ratio between them increases, causing a drop in the N rate needed to maximize return to N. For N prices of $550, $650, $750, and $850 per ton of ammonia, MRTN occurs at 134, 123, 114, and 106 lb N per acre, respectively. Does it really make sense to cut rates by so much as N prices increase? According to our database, yields decrease relatively slowly as we reduce N rate over this rangethe yield at 147 lb N was 172 bu per acre, while at 106 lb of N it was 165 bu per acre. Profit from using N drops quickly as N price increases; however, with $450 and $850 ammonia prices, RTN is estimated at $89 and $59 per acre, respectively. While rate reductions are indeed an appropriate response as N costs increase, there is no avoiding the loss in profits when input costs increase sharply.

As we've seen, an increase in the ratio of an input cost (N) to the output price (corn) is a signal to reduce the use rate of the input. What happens when we ignore that signal in the case of N? Leaving the rate high at 147 lb per acre as price increases from $450 to $850 per ton decreases the profit from N, from $59 per acre (at the "best" rate of 106 lb N per acre) to about $54 per acre. The extra 41 lb of N in this example costs more than $20 yet increases yield by only about 7 bu per acre and gross return by only about $15 per acre, reducing profit from N by about $5 per acre. Keeping N rates high as N costs increase reduces profits even further, after the loss in profit from paying more for the N we use.

Net return to nitrogen is usually higher when corn follows corn than when corn follows soybean, mostly because the yield of corn following corn without N fertilizer (the baseline for the return to N calculation) is much less than the yield of unfertilized corn following soybean. Using our new method to estimate RTN, we find that for corn following corn, MRTN when corn is $2 and N is $450, $500, $650, $750, and $850 per ton of ammonia comes at N rates of 159, 148, 138, 130, and 122 lb N per acre, respectively. Over this range, net RTN drops from about $110 per acre with N at $450 per ton to about $77 per acre with N at $850 per ton. Keeping the N rate at 159 lb per acre (the best rate for corn following corn when N costs $450 per ton) when N costs rise to $850 per ton decreases the profit from N by $6 per acre, from $77 to about $71 per acre.

The suggested adjustments to N rate and changes in net returns are thus similar for corn following corn and corn following soybean. In both, increasing the N cost by $100 per ton of ammonia (about 6 cents per lb of N) should cause us to decrease N rate by about 10 lb of N per acre. The size of this adjustment changes some depending on where we are on the scale of prices and costs, but it is clear that we cannot maintain profits without cutting N rates when N prices increase as they are now.

Note that N rates suggested here for corn following corn are only about 20 lb per acre more than for corn following soybean. What happened to the 40 lb N "credit" from having soybean as the previous crop? In trials where we directly compare N response for corn following corn and corn following soybean in the same field, the difference in optimum rate between the two averages about 40 lb. The large database we are using to support the present approach also includes data from trials that were not done in the same field, so differences in N responses are influenced by other factors in addition to rotation. It is possible that corn following corn tends to occupy more productive soils that supply more N and so may need slightly less fertilizer N. But we also find a slight positive correlation between yield and optimum N rate for corn following corn, suggesting that, unlike corn following soybean, higher yields of corn following corn need more N than lower yields. It therefore might be appropriate to adjust N rate for corn following corn toward the higher end of the recommended range, or 15 to 20 lb more than the numbers given previously, especially if the previous corn crop had high yields (so more residue to tie up N) and yields in the field are expected to be high.

If corn in 2006 will follow corn in fields where 2005 yields were reduced by dry weather, we should be able to take some credit for N left over after the short crop. The increasing N price makes such leftover N more valuable, which might induce some to shift corn acres onto these fields for 2006. While we have noted that corn following a low-yielding corn crop usually benefits from reduced residue and from more residual N in the soil, we need to take care not to overestimate the value of these benefits. Optimum N rates for corn following soybean are lower than for corn following corn, so unless the leftover N is estimated to exceed 30 to 40 lb per acre, it might be false economy to try to capture the value of that N by using corn as the next crop. Putting it another way, unless corn yields in 2005 were more than 50 or 60 bu less than expected, corn in 2006 may be better off following soybean than following corn, even if that means we don't capture the economic value of the N left after the 2005 corn crop. The soybean crop will take up much of the leftover N but will simply fix less "free" N in that case and so will not capture the "paid-for" value of leftover N.

It may be optimistic, but the surest way to reverse the decrease in profit as N costs increase is to have corn prices increase. If the corn price increases to $2.50 per bushel when N costs $850 per ton, MRTN occurs at an N rate of 120 lb per acre for corn following soybean and 135 lb N per acre for corn following corn. These rates are 27 and 24 lb N per acre less, respectively, than when corn is $2 per bushel and N costs $450 per ton. Under the higher corn price, net profit from using N that costs $850 per ton bounces back to $89 and $112 per acre, respectively, for corn following soybean and corn following corn. These returns to N are slightly higher than under the $2 corn/$450 N scenario.

How can a 25% increase in corn price restore the net return to N if N costs increase by 90%? Remember that N is only one input, and the RTN we are dealing with is only to this single input. Under our original scenario of $2 per bushel of corn, $450 per ton of ammonia, 147 lb N per acre, and a yield of 172 bu per acre, N costs make up about 12% of the gross value of the crop. This rises to only about 17% of gross crop value with the same corn price but with the N cost increasing to $850 per ton, following appropriate decreases on both N rate and yield. Such an increase in N cost will put a serious dent in profits, but by itself it may not often wipe out profits altogether.

Even under higher corn prices, the N rate should decrease when its cost goes up in order to maximize profit, though the loss in profits for keeping N rates high decreases when the corn price is high. For example, keeping the rate at 147 lb N per acre (the best rate when corn is at $2 and N costs $450 per ton) when corn is at $2.50 and N is at $850 per ton decreases profit by a little more than $2 per acre. So higher corn prices let us reduce N rate and increase profit at the same time even under high N prices, thus providing a real benefit. Higher corn prices with low-cost N would be even better, of course, but N prices are likely to stay high as long as fuel prices do, which could be for a very long time.

While adjusting N rate is the most important consideration as N costs rise, we need to do other things to ensure we are getting all we can from expensive N fertilizer. To maximize availability to next year's crop, wait until soil temperatures are low enough at the time of application this fall to reduce the biological activity that converts N from the ammonium to the nitrate form. Using an N stabilizer will help ensure this. So for fall application, wait until soil temperature is below 50°F, and use N-Serve. The common practice of "replacing" N-Serve with extra N to guard against loss is less justified when N costs rise because replacing N-Serve dollar for dollar with more N fertilizer now "buys" so much less N.

Even with these precautions, warm, wet weather over the winter and spring might still produce more conversion to the prone-to-loss (by leaching or denitrification) nitrate form than we would like. When N rates are reduced due to rising N costs, such loss would be expected to be more noticeable in next year's crop. Moving N application to the spring helps delay such conversion, but it also means an spring extra operation, with associated dangers of compaction, planting delays, and ammonia injury. Sidedress application will also decrease the danger of loss of N, but it too requires a spring trip, often with a fairly short window of opportunity. The addition of auto-steer might allow N application between the rows before emergence or even before planting, to help spread timing risk.

Expensive N reinforces the need to count in the total all of the forms of N applied to the field at different times, including DAP or MAP in the fall, herbicide carrier N, starter N, and manure. If corn in 2006 follows corn with yields lowered by drought in 2005, give credit for half the difference between applied N rate in 2005 and the yield (in bushels) taken off the field in 2005.--Emerson Nafziger and Bob Hoeft

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