Fertilizer prices have been on a steady incline since the summer of 2020, but so have grain prices. You may be asking yourself is fertilizer still a good value?
The answer is going to be different for every operation, but the question of value can be simplified by looking at historic fertilizer and grain prices. Comparing corn price to fertilizer price is a common ratio to gauge fertilizer cost efficiency and affordability. This ratio is unique. It levels the playing field whether corn is $6 or $3, and you can compare how much per acre you are spending on fertilizer given the current corn price.
The chart illustrates the ratio of fertilizer price compared to the December corn futures price that this fertilizer will raise. The fertilizer rate in the chart is 100 pounds of product, which makes it easy to multiply to your individual situation. For example, if you use 200 pounds of DAP per acre, you are using 13.88 (6.94 x 2) bushels of corn to fertilize that acre.
To apply this concept to planning and decision-making, the chart recognizes that you are paying in bushels, and as fertilizer prices have risen, so has the value of currency (the bushel). To put this methodology into practice, you would need to sell forward grain to finance the fertilizer purchase in the ratio. The 10-year history on the chart shows you are currently paying an average number of bushels for NH3. Potash has risen above $125 since September, but in terms of bushels, you are paying less than the 10-year average. Even with grain prices up nearly $1 since September, phosphates are near the highest bushel costs in the last 10 years.
In planning for next year, for ease of calculating, let’s assume you are applying 100 pounds of each – NH3, DAP and potash. Prepaying for fertilizer in early fall 2020 was 4 bushels cheaper than buying today’s spring prices. Buying fall prepay with bushels has a benefit in seven out of the last 10 years, with an average benefit in those seven years of more than 2 bushels. In three out of the last 10 years, the March spring price shows an average benefit of 1.5 bushels. There is no guarantee buying fall fertilizer will be better than buying spring fertilizer, but the ratio history favors fall purchases.
Fertilizers are a commodity, and like all commodities, price fluctuates based on supply and demand. The price of grain is just one factor affecting the fertilizer market and it gives you a good gauge on value.