Protect Yourself from High N Fertilizer Costs
Natural gas has many uses in industry in the United States they range from heating homes to the manufacturing of products we use daily. In agriculture, it is the main ingredient in the production of nitrogen (N) fertilizer. It takes approximately 33,500 cubic feet of natural gas to produce one ton of anhydrous ammonia (82-0-0). Anhydrous ammonia is then used to manufacture dry N fertilizers, such as ammonium nitrate (34-0-0) and urea (46-0-0).
There is a direct relationship between the cost of natural gas and the price of N fertilizer. As the price of natural gas increases, so does the cost of N fertilizer production. This results in higher N fertilizer prices from the dealer. It is a simple supply and demand relationship. Typically, there is a lull in N fertilizer price through the summer months after the spring rush. This summer, however, a report was issued concerning a shortage of natural gas in the United States. Domestic production was low and imports were slow. As a result, N fertilizer prices have remained high throughout the summer.
Now that you have a general idea of what N fertilizer is composed of and what affects price, you are probably curious as to how this will impact your cost of production on the farm. This fall, the price of natural gas will not change much, and therefore N fertilizer prices will not be impacted. However, next spring it may. Several long-term weather forecasts are predicting a long, cold, wet winter in the northeast United States. If this happens, there will be a huge demand for natural gas to heat homes. This will further shorten natural gas supplies. As a result, N fertilizer prices next spring may be extremely high.
How can you protect yourself? One way is to consider booking your N fertilizer this fall for next spring's use. If cash flow allows prepaying this fall, you may be able to save $0.06 to $0.12 per unit N ($6.00 to $12.00/ac. at a 100 lb. N rate). Another option is to consider switching to a different N fertilizer source. More often than not, when N fertilizer prices are high, the difference in cost per unit N among fertilizer sources will increase. For example, compare ammonium nitrate at $220/ton to urea at $250/ton. At first glance, ammonium nitrate appears favorable due to the cost per ton. However, after figuring the cost per unit N, urea is the better buy at $0.27 (compared to ammonium nitrate at $0.32). This is a difference of $5.00/ac. at a 100 lb./ac. N rate. Even though urea is the better buy, there is still a risk of urea volatilization (N loss) when surface applying urea in the spring. Due to cold soil temperatures, there is little threat of N loss using urea to topdress winter pasture in February. The chart in Figure 1 was developed by Dr. Gordon Johnson, Regents' Professor of soil science at Oklahoma State University. It can be used as a tool in deciding between ammonium nitrate and urea at varying prices. It also tells how much N you can afford to lose from urea and still equal the amount of N present if ammonium nitrate were purchased.
In summary, these comments are to inform you of both the uncertainty and volatility of N fertilizer prices going into winter. You should expect higher N fertilizer prices next spring. Since N fertilizer makes up a large portion of the production cost in a beef cattle operation on introduced pasture, anything you can do to protect yourself against higher N prices next spring will lower costs of production.
Values in the body of the table (figure 1) may be used to help decide which fertilizer material to use when environmental conditions are likely to result in some loss of N from the use of urea (e.g. broadcast application to wet bermudagrass sod on a warm, humid day). For example, if urea costs$180/ton and ammonium nitrate $165/ton, you would get 19.4% more N from urea if the same amount of money was spent for each material. Another way of saying it is that if you spent the same amount of money per acre, you could afford to lose 19% of the urea N and still get the same response as from ammonium nitrate.