Category: Farm Management

According to the latest national agricultural census (2017), minority farmers account for 9% of the country’s population of beginning farmers.  Asian and Hispanic Americans register the two largest shares of beginning farmers at 40.23 and 36.33 percent, respectively, of their group’s population.  Compared to other minority farmers and their White peers, farmers of Asian and Hispanic origins are usually 5 years younger than the average 60-year old American farmer and operate significantly much larger and more profitable businesses.   

The need for more new entrepreneurial activities in farming is well known, as the sector confronts an aging farmer population and business succession issues.  External financing is crucial to beginning operations, and access to credit has been a perennial concern among budding entrepreneurs unable to compete well with established firms in their loan applications.  After all, regular lenders’ loan approval decisions are not primarily based on business potentials but instead rely more heavily on concrete historical indicators, such as business and credit track records that start-up firms naturally do not have.

Beginning minority farmers can find financial support from USDA’s Farm Service Agency (FSA) through its loan programs designed to cater to their situations – one targeted towards the socially disadvantaged and another for beginning farmers. Consistent with its overriding mission to be the “lender of first opportunity”, FSA’s credit risk assessment policies deviate from commercial/private lending industry norms and may resolve the start-up borrowers’ otherwise limited access to credit.  Notably, FSA’s lending policy explicitly excludes the following in ascertaining “unacceptable credit history:” (1) any foreclosure, judgment, bankruptcy, or delinquent payment caused by temporary circumstances and beyond borrower’s control; (2) isolated instances of late payments that do not indicate an overall delinquency pattern; and (3) lack or absence of a history of credit transactions. Thus, as FSA opens its doors with such provisions, farms operated by beginning minorities can have a greater chance at overcoming start-up hurdles and building flourishing businesses.

Selected Revenue and Income Statistics, By Farmers’ Ethnic/Racial Group

Escalante, Cesar L. . “Alternate FSA’s Lending Programs for Beginning Minority Farmers“. Southern Ag Today 2(9.3). February 23, 2022. Permalink

According to USDA-NASS, the southern region accounts for over 75% of the broiler production in the United States.  This provides an excellent opportunity for row crop producers to utilize broiler litter as an alternative to commercial fertilizer.  With commercial fertilizers reaching record prices and broiler litter abundantly available, understanding the economic value of broiler litter going into the 2022 growing season is critical for making nutrient management decisions.  The value of broiler litter will vary greatly depending on management practices (when applied, how it is applied, and to what crop), nutrient content of the litter, soil test data, and commercial fertilizer prices. 

Spring application right before a light rain or incorporating after application maximizes plant-available nutrients resulting in the maximum economic value of broiler litter.  However, buyers who do not measure litter for nutrient content before an application can face economic and environmental risks.  Unlike commercial fertilizer, broiler litter will vary in nutrient content depending on the timing and length between cleanout, type of cleanout (de-crusting or full), in-house litter management, bedding material, and feed mix differences between broiler companies.  Over 700 broiler litter samples submitted for analysis were evaluated to look at the range of nutrient content.  Like soil samples, broiler litter samples are sent to labs for nutrient analysis and, in this case, the University of Kentucky Regulatory Services for analysis.  Table 1 provides the statistics for the broiler litter samples that were assessed.   The average nutrient content of broiler litter was 50 lbs of nitrogen (N), 56 lbs of phosphorous (P₂O₅), and 47 lbs of potassium (K₂O) per ton of broiler litter.  For spring application of broiler litter, 50% N, 80% P₂O₅, and 100% K₂O of the nutrients are plant available.  Therefore, the nutrients available to the crop from an average ton of broiler litter would be 20 lbs of N, 45 lbs of P₂O₅, and 47 lbs of K₂O.  

With current fertilizer prices of $899/ton for Urea ($0.98/lb N), $834/ton for DAP ($0.52/lb P₂O₅), and $800/ton for potash ($0.67/lb K₂O), the average expected value of broiler litter is $80/ton.  Therefore, if you can buy broiler litter and have it delivered and spread for less than $80/ton this Spring, broiler litter is a better economic option than commercial fertilizer.  Last year, with lower fertilizer prices, the nutrient value of an average ton of broiler litter was $48/ton.  But remember, broiler litter nutrient content will vary (see max and min values in Table 1).  Figure 1 applies current fertilizer prices to each broiler litter sample submitted for analysis to illustrate the range and frequency in the value of a ton of broiler litter.  Given the wide range in value, make sure you measure broiler litter for nutrient content to understand what you are receiving and avoid the risk of overpaying for broiler litter. 

Table 1. Sample statistics for the nutrient content of broiler litter samples (n=740)

	N (lbs/ton of litter)	P2O5 (lbs/ton of litter)	K2O (lbs/ton litter)
Average	50	56	47
Minimum	7	4	2
Maximum	186	124	109

Figure 1. Variation in value of broiler litter samples given current commercial fertilizer prices and 50% N, 80%P2O5, and 100% K2O plant available nutrients (n=740)

Shockley, Jordan. “What is the Current Nutrient Value of Broiler Litter?“. Southern Ag Today 2(8.3). February 16, 2022. Permalink

The last couple of weeks, we have focused on the rise in fertilizer prices.  Today, we are highlighting nitrogen price trends in the context of relative prices.  Historical highs for nitrogen at $1,000/ton were reached in the summer of 2008.  Of course, those levels have been reached and even surpassed recently.  Other nitrogen price peaks occurred in 2011, 2012, and again in 2014.  But are these the “most expensive” fertilizer prices farmers have paid?  The answer depends on the crop you are producing. 

Figure 1 below illustrates how fertilizer (nitrogen) typically follows corn price.  Nitrogen and corn prices dating back to January 2000 are converted to an index of the respective series average (series average = 100%).  The green line is the monthly index for the nearby Dec Corn Contract, while the red line represents a monthly spot price index for nitrogen.  The black area shows the relative value of fertilizer measured in bushels of corn.  For a corn producer, fertilizer is most expensive when it takes more corn to pay for it.  Examining the relative price history, the fertilizer highs back in 2001, 2003, and 2005 were far more significant than they might first appear.  Driven more by natural gas prices in that era, rising fertilizer coincided with flat or even falling corn prices.  In November of 2005, a ton of nitrogen fertilizer was worth a series high of almost 250 bushels of corn.  High nominal prices in 2011 and 2012 were accompanied by higher corn and the relative fertilizer value was closer to the more affordable 20-year average of 110 bushels per ton of nitrogen.  In 2014 corn price fell quickly, while nitrogen held steady resulting in a relative value increase to almost 200 bushels.  

Figure 1. Relative Prices (Nitrogen / Corn) 

Cotton producers have faced a slightly different history because fertilizer is less connected to cotton price.  Figure 2 illustrates the cotton and nitrogen price relationship.  The relative value of nitrogen, measured in pounds of cotton, most often follows the nominal price of nitrogen.  For the 20-year series, the average value of nitrogen was roughly equal to 620 pounds of cotton.  While short-lived, the 2008 nominal price peak for fertilizer also represents the most expensive fertilizer value measured by equivalent pounds of cotton at almost 2,000 pounds.  With all prices riding the same wave in 2010-11, the relative nitrogen value held steady at around 500 pounds of cotton per ton of nitrogen.  Cotton prices retreated over the next 5-6 years, translating into a sustained period of relatively expensive fertilizer value which twice rose above the mark of 1,000 pounds of cotton per ton nitrogen.  

Figure 2. Relative Prices (Nitrogen / Cotton) 

The chart data stops in December of 2021, so where do relative values stand today?  Since 2000, only twice has the relative value of nitrogen exceeded 200 bushels of corn.  With corn at $5.75/bu. and nitrogen around $1,200/ton, the relative nitrogen value is 208 bushels.  Similarly, a ton of nitrogen has rarely been valued at over 1,000 pounds of cotton, and today the value is closer to 1,200 pounds of cotton assuming a $1.00/lb. cotton price.  Yes, commodity prices are higher and may offset some of the increased fertilizer prices.  However, even relative nitrogen values are approaching all-time highs in this incredibly challenging environment.  

Reference: 

Outlaw, et al. Economic Impact of Higher Fertilizer Prices on AFPC’s Representative Crop Farms.  Texas A&M University System, Agricultural and Food Policy Center Briefing Paper 22-01. January 2022.  

Sources: 

AFPC Briefing Paper 22-01, nitrogen prices compiled from DTN spot market price data for the last trading day of each month. The markets include New Orleans, Corn Belt, Southern Plains, South Central, Southeast and Florida.   Corn and Cotton prices are author compiled of monthly futures prices of nearby harvest month contracts. 

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Klose, Steven, and J. Marc Raulston. “Relative Price of Nitrogen.” Southern Ag Today 2(7.3). February 9, 2022. Permalink

Last week we looked at the basic supply/demand factors contributing to the surge in fertilizer prices.  The abnormally high fertilizer market prompts the question:  How much of a financial burden do these prices represent for producers?  Today we are highlighting a study attempting to address that very question.  The Agricultural & Food Policy Center (AFPC) at Texas A&M maintains data on 64 representative crop farms across the U.S.  The data, provided by the consensus of local producer groups, describes the capital structure and operating parameters necessary to forecast a financial outlook for each representative farm.  The basic idea of the study was to impose higher fertilizer expense on each farm and compare the bottom-line results for a 2022 outlook with that of a baseline scenario (a fertilizer market without the current surge in prices expected in 2022).  Here’s the link to the full paper:  Economic Impacts of Higher Fertilizer Prices on AFPC’s Representative Crop Farms.

As a baseline, the study assumes the market outlook as described by the Food and Agricultural Policy Research Institute (FAPRI) August 2021 Baseline for commodity prices and cost inflation.  In the baseline, fertilizer price inflation estimates in 2022 were 9.9% for Nitrogen (N) and 13.6% for Phosphorous and Potash (P & K).  Based on estimates of spot prices observed at the time of the study, the alternative higher cost scenario assumed inflation factors of 55.4% for N and 50.8% for P&K.  Results outline the total impact to each farm’s NPK costs for 2022.  Alternative inflation assumptions result in an approximate 37% higher fertilizer bill for all farms.  For 25 feed grain farms, the average increase in fertilizer cost for 2022 was $128,000 (or almost $40/acre over the baseline scenario).  Rice farms saw the highest per acre increase with an average across 15 farms of roughly $62/acre.   Both cotton and wheat farms would experience near $100,000 higher total NPK costs on average or approximately $30/acre and $20/acre, respectively.

Summary Results of AFPC Study on Fertilizer Price Impact

Type (# of Farms)	Avg. Planted Acres	NPK CostsBase($1,000)	NPK CostsAlternative ($1,000)	NPK CostsDifference ($1,000)	NPK CostsDifference ($/Acre)
Feed Grain (25)	3,178	350	478	128	39.55
Wheat (11)	4,319	249	343	94	19.64
Cotton (13)	4,199	303	417	114	29.72
Rice (15)	2,512	337	463	126	62.04

While the study illustrates a significant cost increase, two important factors suggest the results are somewhat conservative in measuring the impact of recent fertilizer trends.  First, the study only measures an estimated change in 2022 costs.  Fertilizer prices started their recent trend well before 2022.  Fertilizer had already seen significant increases in 2021 (17% for N and 26% for P&K relative to 2020).  Combining the two years, even the baseline in the study reflects 2022 prices that are 29% (N) and 43% (P&K) higher compared to 2020.  Second, the approximate 50% increase for 2022 may not be high enough.  Since the study was completed, spot prices this year have approached triple the prices from 2020.  On the other hand, it is important to note that current commodity future prices indicate an improved revenue in 2022 for most producers, which will offset some of the sting of increased costs of production.  In that vein, next week we will look at current and past fertilizer trends relative to commodity prices.

Monthly Average Fertilizer Nutrient Prices, January 2000 to October 2021

Reference: 

Outlaw, et al. Economic Impact of Higher Fertilizer Prices on AFPC’s Representative Crop Farms.  Texas A&M University System, Agricultural and Food Policy Center Briefing Paper 22-01. January 2022.  

Klose, Steven, and J. Marc Raulston. “Financial Impacts of Higher Fertilizer“. Southern Ag Today 2(6.3). February 2, 2022. Permalink

Sky-rocketing fertilizer prices have dominated ag industry discussions over the last year, and for good reason.  By now, the peaks & valleys of the price chart below should be familiar, and most of you remember living through these price cycles.  The price climb that began in late summer 2020 is the most dramatic since 2008 and we are now seeing spot prices more than double and even triple the average prices seen over the 4-5 years preceding 2020.  The discussion generally starts with: what is causing these kinds of prices?  In this particular case, there does not seem to be any one culprit.  Instead, it might be best described as a perfect storm of factors that are all creating upward price pressure.  

Demand:  An increase in commodity prices (particularly corn price) is expected to lead to an increased demand for fertilizer.  Corn rose above $7.00/bu in the summer of 2008; fertilizer prices spiked soon after.  Again in 2021, corn broke through $7.00/bu, and we have seen what has followed with fertilizer.  There is an obvious connection.  What about residential fertilizer demand?  We know the Covid Era of increased work from home created higher demand for landscaping, lawn equipment, etc.  People were home more often, therefore paying more attention to the lawn and garden.  Without finding the specific data, it is a safe bet we are collectively demanding/using more residential fertilizer, as well.

Supply:  Often times, demand is met by ramping up supply to satisfy the increased need and moderate upward price pressure.  However, we find the fertilizer market (along with so many other industries) currently overwhelmed with supply struggles.  Global natural gas prices have increased the cost of fertilizer production, some traditional exporting countries are shipping less to ensure their own domestic supply, and the geo-political landscape of trade battles and imposed tariffs have further slowed supply.  Finally, physical supply chain disruptions and increased cost of product transportation have slowed supply to the point of questionable availability at given times/locations.  

The challenge moving forward is that we have yet to see a light at the end of the tunnel.  History would suggest prices will eventually ease, but no evidence today indicates any relief throughout the 2022 production season.  Next week, we will examine the farm level financial impacts of producers enduring higher input costs.  Tomorrow (Southern Ag Today, Jan 27, 2022), Dr. Andrew Muhammad will dig a little deeper into the trade/import markets for specific fertilizer products.   

Monthly Average Fertilizer Nutrient Prices, January 2000 to October 2021

Reference: 

Outlaw, et al. Economic Impact of Higher Fertilizer Prices on AFPC’s Representative Crop Farms.  Texas A&M University System, Agricultural and Food Policy Center Briefing Paper 22-01. January 2022.  

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Klose, Steven, and J. Marc Welch. “The Perfect Fertilizer Storm.” Southern Ag Today 2(5.3). January 26, 2022. Permalink