High prices for nitrogen this spring may spook some corn growers, but don't look for any panic. Unlike during the last large nitrogen price hike, in 2001, corn prices now are holding strong and steady. As a result, total U.S. corn acreage for 2004 is expected to remain stable and possibly even increase in some areas.
“We expect it to be a pretty good year for corn,” says Betsy Croker, director of public policy and production and stewardship team leader for The National Corn Growers Association (NCGA). Strong prices are key to the positive outlook, she says, adding that one NCGA economist predicts a $3.25/bu. July futures market.
“We don't anticipate any significant shift in corn acreage this year [due to higher nitrogen prices],” agrees Rod Schroeder, vice president of the Heartland Business Unit for Agriliance. The Minneapolis-based company is a wholesale distributor that markets nitrogen to corn producers through local cooperatives.
Higher nitrogen prices
Schroeder says growers will pay more for nitrogen this spring for several reasons. The primary one is the volatility of the price of natural gas (methane). This is important because the cost of natural gas accounts for about 75% of the total cost of producing anhydrous ammonia, which is used to make urea and urea-ammonium nitrate (UAN) solutions (28 and 32%). Manufacturing just 1 ton of anhydrous ammonia fertilizer requires 33,500 cu. ft. of natural gas.
The January 8, 2004, Natural Gas Weekly Update, published by the U.S. Energy Information Administration, reports that the natural gas price volatility began with lower-than-normal storage inventories last summer. Thin domestic profit margins resulted in plant shutdowns in 2003 and tightened the marketplace. Increased imports, which have transportation and other costs tacked onto them, also have contributed to price increases. One suspected contribution to the volatility that has not been confirmed is market manipulation. Senator Orrin Hatch, R-Utah, chairman of the U.S. Senate Judiciary Committee, said this past December that he will hold hearings to determine if recent increases in natural gas prices were caused by market manipulation.
All factors combined have resulted in ammonia prices that are about $100/ton higher now than they were at this time a year ago. Schroeder anticipates that ammonia retail prices will fluctuate between $350 and $400/ton through the 2004 planting season.
However, not all corn growers are affected by the current high prices for nitrogen. Many corn growers contracted their fertilizer needs last fall, via prepay arrangements with their local retail dealers, and sidestepped the price hikes.
“We need to remember that nitrogen is produced and sold all year long, so we don't want to overplay the higher prices,” Schroeder cautions.
Tom Bradford echoes Schroeder's positive outlook for this spring. “We could see a 5 to 8% acreage increase in our area,” says Bradford, general manager of Crop Production Services, Bloomington, IL. The company offers full retail services to farmers in Illinois and Indiana. He says farmers realize that continued strong prices will offset the higher nitrogen prices, making corn a financially attractive crop.
Poor soybean crop
Bradford also cites last year's less-than-stellar soybean crop as another reason most growers will stick with corn this year. He says poor weather conditions at crucial times prevented soybeans from reaching their full potential. That, combined with an onslaught of soybean aphids, wreaked havoc on the soybean crop across many Midwestern states and is fresh on growers' minds.
“Farmers here will stay the course with corn, and they won't cut back on nitrogen use,” he says. “They know it's necessary for optimum yields.”
Soil testing can help corn growers pinpoint nutrient needs. Schroeder says that, depending on soil-test results, those growers looking for efficiencies may want to consider side dressing to essentially spoon feed their corn crop and hold down fertility costs.
This spring, Bradford will offer growers a new nitrogen option: ESN. The product is a temperature-controlled-release fertilizer with a thin polymer coating that encapsulates urea granules. ESN is manufactured and distributed by Agrium, a Calgary, Alberta, manufacturing company.
The polymer coating makes ESN less susceptible to nitrate leaching, keeping nitrogen in the crop's root zone where it is needed and out of water sources, according to Murray Hasinoff, marketing manager for Agrium. He says farmers can anticipate harvesting 10 to 12 bu. more per acre by using ESN than by using standard urea, anhydrous ammonia or UAN. ESN also stores well, is easy to handle and requires no unusual or large equipment for application.
ESN is the first polymer-coated nitrogen introduced in the United States for the corn market. Hasinoff adds that ESN will be priced competitively. Growers can contact their local retailer for more information.
Shifts in the marketplace
Schroeder notes that shifts are occurring in the nitrogen marketplace, with many corn growers moving away from using anhydrous ammonia and urea toward using more ammonium nitrate, both the 28 and 32% solutions. “We're seeing a 5 to 7% shift per year, over the past five years or so, and we look for that to continue,” he says.
Schroeder explains that the shifts are occurring primarily because costs are narrowing between the various nitrogen products. In addition, anhydrous ammonia continues to face increased government regulation as well as liability, storage and safety concerns at the dealer/grower level. However, Schroeder says he expects some segments of agriculture to continue using anhydrous, such as in heavy no-till areas, where it fits the cultural practices. Likewise, he says, urea will continue to have a good fit in the Dakotas and Kansas where both corn and wheat are grown.
Agriliance is offering a new service to corn and soybean growers this year, via cooperatives, called the Commodity Nutrient Exchange (CNE) program. The online purchasing program enables retailers to help growers by locking in prices for many input products for up to 15 months ahead. Growers should check with their local cooperative for more details.
A small percentage of growers may opt out of purchasing nitrogen altogether this year. According to University of Minnesota research, livestock manure can work as an alternative to meet all or part of the nitrogen needs for corn. Liquid hog manure from a pit contains up to 40 lbs. of nitrogen/1,000 gal. If the manure is incorporated or injected, approximately two-thirds of the nitrogen is available to the crop the first year. University extension encourages growers to test the manure before application so they know the exact nutrient content and can adjust application rates accordingly. Growers also should consult their nutrient management plans.