When winter wheat was planted, 46-0-0 cost about $1.06 per pound of nitrogen applied. In mid-December, 46-0-0 cost about 45 cents per pound of nitrogen applied. At planting, some producers applied sufficient nitrogen to produce average yields. They are now questioning their decision.
Some wheat producers applied just enough nitrogen to get the wheat up and need to apply top-dress nitrogen. These producers are glad they waited.
A rule of thumb is that it takes 2 pounds of nitrogen to produce a bushel of wheat. Soil type, weather conditions, and other factors will cause deviations from this thumb rule. It is recommended that producers take soil tests or use enriched strips to determine nitrogen needs.
Some producers purchased Crop Revenue Coverage (CRC) or Revenue Assurance (RA) crop insurance. These crop insurance policies guarantee a minimum return per acre based on $8.77 per bushel wheat.
If the proven yield is 32 bushels and CRC insurance was purchased at the 70 percent level, the minimum return per acre is $196 (32 bu. x $8.77 x 0.70). Low yields, low prices, or both can trigger an insurance payment.
There is talk that producers who have CRC or RA insurance and who have not applied nitrogen would be better off by not applying nitrogen. There may be several problems with this logic.
There is a clause in each crop insurance contract that says that “good farming practices” must be used. For example, if the wheat becomes infested with army worms and a producer loses yield because the wheat was not sprayed, the insurance payoff will probably be reduced because the producer did not use “good farming practices.”
The same thing could happen if a producer does not apply “good farming practices” relative to fertilizer use. Insurance adjustors say that when evaluating payoffs with below average yields, they evaluate the “history of farming practices.” If 70 pounds of nitrogen is normally applied, they may request information about fertilizer application.
Producers with a loss that have applied less nitrogen than normal may be asked for soil test or enriched strip results to support the fertilizer decision. Reasons for deviating from normal farming practices need to be documented.
Another risk associated with insufficient nitrogen application is wheat quality. Insufficient nitrogen applications may result in relatively low test weight and protein levels. Both of these could result in a lower cash price that may not be covered by the insurance policy.
Last January, producers in southern Oklahoma expected below average yields and fertilized accordingly. Southern Oklahoma experienced almost perfect weather for wheat production and harvested nearly record yields.
Protein levels averaged below 10 percent in some areas compared to a normal state average of 11.5 percent. Wheat prices in southern Oklahoma may be 20 cents less than if additional nitrogen had been applied and protein levels were higher.
What if the weather is conducive to produce above average yields and there is insufficient nitrogen? In this case yields may be high enough to offset any chance for collecting insurance and returns would have been higher if nitrogen had been applied.
At this writing, the Kansas City Board of Trade July wheat contract is $6.01. This implies that the market thinks that Oklahoma and Texas panhandle cash prices will be near $5.25. I think that June 2009 wheat prices will be closer to $6.
Irrespective of what yields and prices are in June 2009, today’s question relative to fertilizer top-dress application is, “How much nitrogen is needed to produce high milling quality wheat?”
A few extra dollars may be made with the 2009 wheat crop by “harvesting” the government subsidized crop insurance program. Long-term prices depend on wheat exports.
Buyers are creatures of habit. We want foreign buyers to know that the U.S. has a consistent supply of high quality milling wheat.