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Nipping at nitrogen prices

Here are 6 tips to help you slow galloping costs.

While many farmers fret over price spikes in nitrogen (N) this winter, Gerald and Anthony Bly will rest easy.

The father-son duo from Garretson, SD, booked 28% N last October for $135/ton. Though more expensive than 1999's price of $102/ton, the purchase was still a good buy.

“We bought it mainly out of the fear that prices would go even higher,” Anthony says.

A good point, since N prices have zipped upward in recent months. By spring, retail anhydrous ammonia prices may reach $400/ton, a 100% increase over last spring, says Al Giese, co-president of Agriliance, a St. Paul, MN, fertilizer retailer.

Prices have exploded because of a reduction in supply. Last year manufacturers closed several fertilizer plants, slicing annual production of anhydrous ammonia from 19.3 million to 11.8 million tons by mid-December 2000. Manufacturers use natural gas to make anhydrous ammonia, and because the price of natural gas is now at an all-time high, it is more profitable for them to close fertilizer plants and sell the natural gas, which they bought last year at a lower rate, on the open market.

“Nitrogen producers are in the squeeze of their lives because they have astronomically high input costs,” Giese says. “Eighty to ninety percent of the cost of N is related to natural gas. It's cheaper to shut down plants than to keep them running. The fertilizer producer will catch some flak for it, but it's truly not a case of price gouging. It's all related to the cost of natural gas.”

Giese adds that because dry and liquid N originate from anhydrous ammonia, prices for those products also have risen.

Come spring, N retailers may be in a logistical nightmare, says Boyd Brodie, agronomy manager for Heart of Iowa, Roland, IA.

“We will have some troubles with supplies, due to plant shutdowns,” Brodie explains. “We expect to receive about 80% of the fertilizer that we've ordered. But there are lots of smaller cooperatives and independent dealers who had their tonnage cut 50% if they didn't buy from a reliable source.”

Other industry analysts aren't as gloomy. Much depends on how much winter temperatures affect energy prices, says Roger Norem, senior analyst with AgriVision, a Bloomington, IL, marketing firm.

“If overall energy usage flattens out and declines, energy prices may correspond accordingly and help drop fertilizer prices, too,” Norem says.

Regardless of what N prices do this spring, now is a good time to rethink your N purchase and management plan. Here are six steps from the experts to help you do it.

1 Lock it up

If you haven't already done so, book fertilizer now. “Lots of anhydrous ammonia was sold on prepay programs this fall and winter,” Giese says. “If a dealer took advantage of prepay programs, he can avoid those high spring prices because he locked it in early. But if he wasn't able to prepay, he could be facing $400/ton costs this spring.”

Because supplies are short, booking fertilizer early isn't an absolute guarantee you'll obtain the desired fertilizer type.

“We contract with fertilizer suppliers before we contract with growers,” says Russell Dukeman, sales manager for United Prairie, Ivesdale, IL. “We're finding out that some of these contracts may not be honored. One of the things we have a great deal of concern about is that fertilizer may not be there when farmers need it.”

That's a valid concern, Giese says.

“It depends on who their supplier might be,” he adds. “It shouldn't happen if it's a legitimate dealer with a long history of living up to commitments to producers. We recommend that dealers don't sell beyond their current positions so that they can meet their commitment to farmers. Farmers and their dealers need to stay very close on the situation as they work their way through this winter.”

Booking ahead is still your best bet to receive N. However, it is important to remain flexible among N sources, Giese says.

“All N sources will not be available to farmers simultaneously,” Giese says. “It will be a take-what-you-can-get situation.”

Last October, Team FIN members Jack and Gary Appleby, Atwood, IL, booked their spring's anhydrous ammonia supply at $265/ton. By doing so, they protected themselves when anhydrous ammonia prices shot into the $300/ton range a few months later.

However, they're also willing to switch to a different N source if anhydrous ammonia shortages develop. “We like to apply anhydrous ammonia, but we also have considered applying dry urea over the top of the ground,” Jack says.

Fertilizer dealers also may have one form of N in greater supply than another. For example, Brodie reports his firm is facing a tight supply of anhydrous ammonia because it has limited storage space. But because the firm has sufficient storage for dry 46% urea, it will have a sufficient supply.

Some retailers also will be able to offer more options than others. “My co-op gave me the choice of buying either liquid 28% N or anhydrous ammonia at the fall price,” says Charles Myers, a Team FIN member from Lyons, NE. “And if the price goes down at the co-op from fall to spring, it will let me take the lower price.” For this growing season, he locked in anhydrous ammonia at $296/ton, and 28% liquid N at $159/ton.

Farmers who were able to book fertilizer early and take delivery are the best prepared to weather the current situation. That's what Gerald and Anthony Bly did. They house their 28% N in tanks in a vacant livestock barn on their farm.

2 Give yourself credit

“This situation may be the impetus we've needed for a long time to do a better job of N management,” says Mike Duffy, an Iowa State University extension economist.

For example, farmers may be applying excessive N rates because they do not properly credit their fields for previous legume crops or manure. A 1999 Minnesota Department of Agriculture survey found that many of the 600 farmers interviewed applied 30 lbs./acre more N than the University of Minnesota recommended.

In most of these cases, farmers did not give the proper N credit for manure and legumes. Such credits can be substantial. For example, the U of M gives a 150-lb./acre N credit for corn planted on top-notch alfalfa ground.

3 Examine alternate N sources

If you live in areas with prolific livestock production, you have a built-in N source — manure. Corn particularly prizes hog manure. A 1997-98 University of Minnesota trial showed corn yields responded at five out of seven sites when researchers applied manure on soybeans the previous year. Yield responses ranged from 7 to 82 bu./acre, depending upon site and manure rate.

Don't forget about other types of manure, too. Last fall, Team FIN member Daryl Bridenbaugh, Pandora, OH, applied chicken manure that he bought for $2/ton to finish up a 10-acre patch on a field to which he had applied hog manure.

At a rate of 3 tons/acre, Bridenbaugh gleaned more than 47 lbs. of actual N/acre. “That was a great buy,” he says. “What wasn't such a great buy was the $10/ton trucking cost.”

Other alternate N sources that Bridenbaugh uses include N-Viro Soil, a lime/sludge mixture that he bought from a Toledo, OH, firm. He applied 4 tons/acre of the substance at a cost of $7/ton. The application added 40 lbs./acre of actual N to the soil.

He also has applied sludge from a nearby municipality for free at a rate of 5 dry tons/acre. The sludge contains from 75 to 150 lbs. of actual N/acre.

The payoff? “I raised my best corn — more than 200 bu./acre — where I applied sludge,” Bridenbaugh says.

4 Shift to less N-intensive crops

If increased N costs blow your corn expenses out of the water, consider a shift to soybeans. “Moving to beans is a good way to lower some of your input costs,” Giese says.

“Nitrogen producers are in the squeeze of their lives because they have astronomically high input costs. Eighty to ninety percent of the cost of N is related to natural gas. It's cheaper to shut down plants than to keep them running. The fertilizer producer will catch some flak for it, but it's truly not a case of price gouging.”
Al Giese, co-president, Agriliance

However, growers should not grow soybeans on soybeans, Norem says. “We have enough disease and insect problems in Illinois so that farmers won't grow beans on beans. Soybean cyst nematode and all of those things are just too prevalent.”

Farmers on the western fringes of the Corn Belt may be the ones most likely to shift away from corn. “I talked to one farm manger in Kansas who expects break-even prices of $400/acre on corn to occur,” Norem says. “Unless corn prices rise, you'll probably see a shift to sorghum.”

5 Cut N rates

If high N costs limit your purchase, stretch out the N you do have across your entire farm. “The biggest yield response comes from the first units of N that are applied,” says Bob Hoeft, University of Illinois extension soil scientist. “The higher you go on the application curve, the less in yield you get back. If farmers can apply 80% of the N that's normally recommended for a field, yield losses won't be substantial.”

If your farm is in a droughty area, residual N could cut your N requirements this year. For example, a late-season drought in South Dakota last year may have created sufficient residual N to allow farmers to decrease N rates by 25 to 50 lbs./acre with no yield reductions, says Jim Gerwing, South Dakota State University extension soil specialist.

High prices may also curtail the use of “insurance N” that some farmers use to pump yields, Gerwing says.

“In eastern South Dakota, a lot of farmers apply 150 to 160 lbs./acre of N for 160-bu. corn, but we have good evidence that 110 lbs. of N is enough to reach that yield in most years,” Gerwing says. “In one or two years out of 10, you will need the higher N rate due to exceptional environmental conditions to achieve the highest yields. But in eight or nine out of 10 years, you don't need it.”

Remember to soil test for phosphorus and potassium levels, Giese says. If these levels are sufficient, target fertilizer dollars toward N instead.

6 Sidedress N

Compared to preplant applications, sidedressed N gives you more bang for your buck because it more closely matches the corn's growth rate.

However, sidedressing N is not a foolproof option. Rainy weather can prevent application just at the moment corn requires vital N.

“I can remember farms in western Michigan getting caught by weather and flying on urea instead of sidedressing,” says Randy Harmon, Halderman Farm Management, West Lafayette, IN. “That's a tremendously expensive way to apply nitrogen.”

You'll also want to work with your dealer to ensure N will be available later in the season. “We know we will have more sidedressing than in years past,” Dukeman says. “N applications will go on and on this year, so we will have to string N supplies out further to refill tanks during sidedressing.”

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