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How decline in fertilizer prices impacts corn, soybean budgets

How decline in fertilizer prices impacts corn, soybean budgets
Farm Business: Lower fertilizer prices will be significant in 2017 crop budgets.

Fertilizer prices have dropped substantially since last fall. Using information from the USDA-Illinois Department of Agriculture Market News, nitrogen prices dropped about 25%, phosphorus 23% and potash about 26% from September 2015 to September 2016.

BUY INPUTS FOR LESS: Lower prices for nitrogen and other fertilizer inputs should be a positive for 2017, ag economists suggest.

This discussion focuses on the impact of these fertilizer price declines on expected production costs for rotation corn and soybeans for the 2017 crop year. Using Purdue University cost and return information for average-productivity soil and looking at rotation corn, the reduction in fertilizer prices results in a $32-per-acre decrease in fertilizer costs from 2016 to 2017 budget projections. That also represents a 20-cent-per-bushel reduction, and an overall 24% decline in fertilizer costs.

Last year, as people prepared 2016 crop budgets, fertilizer costs on average-productivity ground for rotation corn were $135 per acre, or 82 cents per bushel. This year, 2017 crop budget projected fertilizer costs are $103 per acre, or 62 cents per bushel.

For rotation soybeans, the decrease in fertilizer costs from last year’s budget is $16 per acre, or 32 cents per bushel. This decline represents a 30% drop in fertilizer costs. Budgeted fertilizer costs were $54 per acre in 2016 for soybeans in a corn-soybean rotation. That translated into $1.08 per bushel. Fertilizer costs in the 2017 budget for rotation soybeans are $38 per acre, or 76 cents per bushel.

For both corn and soybeans, those are significant reductions on the expense side of the crop production budget for 2017 compared to 2016.

Further implications

The reduction in fertilizer costs, along with the anticipated reduction in cash rent, has a large positive impact on breakeven prices for corn and soybeans for 2017. Breakeven prices are computed using budget expense and revenue information.

For rotation corn for 2016 vs. 2017, the breakeven price to cover total costs on average-productivity ground has declined from $4.61 to $4.41 per bushel. For rotation soybeans for 2017, the breakeven cost to cover total cost of production has declined from $10.96 to $10.70 per bushel.

Perhaps you grow continuous corn on part of your acres. That impacts breakeven prices because of different input requirements. More information pertaining to corn, soybeans and wheat can be found on the website for the Center for Commercial Agriculture at Purdue University. 

Langemeier is associate director of the Purdue University Center for Commercial Agriculture. He writes from West Lafayette.

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