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ARS Home » Plains Area » Sidney, Montana » Northern Plains Agricultural Research Laboratory » Agricultural Systems Research » Research » Publications at this Location » Publication #212383
Title: Impact of fuel and nitrogen prices on profitability of selected crops: A case study

Author
item SKALSKY, SARA - UNIVERSITY OF WYOMING
item JACOBS, JIM - UNIVERSITY OF WYOMING
item MENKAHAUS, DALE - UNIVERSITY OF WYOMING
item Stevens, William - Bart

Submitted to: Agronomy Journal
Publication Type: Peer Reviewed Journal
Publication Acceptance Date: 2/1/2008
Publication Date: 7/1/2008
Citation: Skalsky, S., Jacobs, J.J., Menkahaus, D., Stevens, W.B. 2008. Impact of fuel and nitrogen prices on profitability of selected crops: A case study. Agronomy Journal. 100:1161-1165.

Interpretive Summary: The impact of increasing nitrogen and fuel costs on the profitable level of N use, economic returns and optimal crop mix was determined for predominant NW Wyoming crops using N response models, enterprise budgets, and a linear programming model. Results show rising prices of N fertilizer and fuel have a major effect on production decisions and profitability. For individual crops, case study results illustrate that impacts of increasing fuel and N prices are quite different by crop. In this study, corn silage was most sensitive to the increased price of N. The optimal level of nitrogen applied decreased by 85 kg ha-1 when price of fuel was increased $0.26 L-1 and price of N was increased $0.22 kg-1. When fuel price was increased $0.53 L-1 and N price was increased $0.22 kg-1, profit for corn silage was a negative ($54.99) ha-1 compared to $157.51 ha-1 in the base budget. For these same increases in fuel and N prices, profit for dry beans was $133.78 ha-1 compared to $232.77 ha-1 for the base budget. Under scenario 1, the profitability analysis for the 243 ha irrigated farm showed profit decreasing by 37% and 72% with fuel price increases of $0.26 and $0.56 L-1, respectively, compared to the base budgets. Combining the $0.26 L-1 increase in fuel price with a N price increase of $0.22 kg-1 resulted in profitability decreasing by 51% compared to the base budgets under scenario one. The profitability analysis indicates that impacts of rising fuel and N prices can be substantially reduced by making adjustments in the crop mix. Under scenario 2, where hectares of the three most profitable crops were increased, profit increased 10% when fuel price was increased $0.26 L-1 and decreased 30% when fuel price was increased $0.53 L-1, compared to the base budgets for scenario 1. In addition, adding seed crops to the crop mix reduced the impacts of increasing fuel and N prices. This means producers must adjust production practices on individual crops and also analyze their crop mix when faced with rising fuel and N prices if they are to minimize impacts.

Technical Abstract: Increasing prices for fuel and nitrogen (N) fertilizer affect crop production decisions and profitability. Nitrogen response functions were estimated for corn (Zea mays L.), sugar beets (Beta vulgaris L.), dry beans (Phaseolus vulgaris L.), and malt barley (Hordeum vulgare L.) using data from studies conducted in the Big Horn Basin of Wyoming. These N response functions were used to evaluate the impact of increases in N and fuel prices on the profitable level of N use. Enterprise budgets were developed for seven selected crops to determine the return to management (Return to Management = Return – Total Cost (Pre-plant, plant, growing, harvest, land and other)) under increased prices for fuel and N. Finally, a linear programming model was used to determine the impacts of increased prices for fuel and N on farm profit and crop mix. Results illustrate that impacts of increasing fuel and N prices on individual crops are quite different and also vary with the overall crop mix. In particular, adding alfalfa (Medicago sativa L.) and perennial ryegrass (Lolium ssp.) seed production to the crop mix reduced the impacts of increasing fuel and N prices. This suggests producers should adjust production practices on individual crops and also analyze their crop mix when faced with rising fuel and N prices if they are to minimize impacts on profitability.