[00:00] Introduction: Arkansas Row Crops Radio providing up to date information and timely recommendations on row crop production in Arkansas.

[00:12] John Anderson: Hello, this is John Anderson, director of the Fryar Center for Excellence in Price Risk Management at the University of Arkansas, here with another Relevant Risk podcast. And today is kind of a special podcast. I think we would call this a crossover episode because we are collaborating with our colleagues from Row Crop Radio today to talk about an important production economics topic. And joining us today we've got Trent Roberts, who is a University of Arkansas Division of Agriculture researcher and extension soil fertility specialist.  Trent, how are you today? 

[00:47] Trent Roberts: I’m doing great. Thanks for the invitation.

[00:48] John Anderson: Did I get your title right; is that close enough?

[00:50] Trent Roberts: That’s close enough. Perfect.

[00:51] John Anderson: And Mike Pop, faculty member in the Department of Agricultural Economics and Agribusiness and production economist. Mike, how are you today?

[01:00] Mike Popp: Oh, fantastic. Glad to be here.

[01:02] John Anderson: All right. Well, gentlemen, I appreciate you both being here. I think we've got -- as we sit here recording this, it's February 10th just for reference for people listening to this.  And we are just now seeing the last of last week's snow clear up out in the parking lots. But we are thinking ahead to the production decisions that our crop farmers are making. And, Trent, there's a lot, a lot for folks to think about as we approach planting season.

[01:32] Trent Roberts: There definitely is, and we've done several, you know, county meetings so far this spring in January, and the resounding sentiment is rising input costs.

[01:42] John Anderson: Right.

[01:43] Trent Roberts: And when you think about that, you know, coupled with uncertainty of availability, there's a lot of angst out there among producers just going into this next planting season.

[01:53] John Anderson: So we've been talking about rising input costs a lot since last fall, I would say. And primarily, we're talking about fertilizer here. Fertilizer prices have really taken off on most items. I would say last summer they really took off and really that continued throughout the fall. And even in the spring, we’re maintaining pretty high levels on these fertilizers.

[02:15] Trent Roberts: And there's a lot of compounding factors. But when you just step back and look, you know, the majority of our primary fertilizer sources, the costs have more than doubled in the last twelve to 18 months.

[02:26] John Anderson: So I'm sitting here looking at a list of of prices from USDA Ag Marketing Service. And fertilizer price is actually a little bit difficult to to get as good of information or as frequent of information on prices, at least publicly, as a lot of our other products. But AMS does a couple of different cost of production reports on a bi-weekly basis, and they do one for Illinois, which is pretty complete in terms of the information they produce, so I kind of use that as a benchmark? Urea prices first couple of weeks -- well for the month of January -- which we have data for through AMS. We're looking at right at $900 a ton and that's the price FOB the distributor. You know, somebody might be getting the wholesale price that would beat that a little bit. But again, as a benchmark, $900 a ton. A year ago, it was just under 400 a ton.  DAP, 850-875 a ton right now. A year ago, it was about 500 a ton; so not quite double, but close. And then potash, which we're going to talk quite a bit about today, a little over $800 a ton in January, and it was sitting about 375 this time of year ago. So pretty dramatic increases.

[03:42] Trent Roberts: Big increases. And I think one of the other compounding issues is people don't know where it's headed, right? So a lot of times we can see a trend of, you know, plateau or maybe a decrease or an increase. But when you think about, you know, ag production markets, they're truly a global type of economy or trade system. And what happens in other countries half the world away impacts our prices right here at home, right? And it's definitely that uncertainty with where fertilizers are traded is causing more and more problems.

[04:21] John Anderson: So, Mike, I want to bring you into the conversation here. You know, Trent is a soil fertility specialist, and he approaches fertility and the use of fertilizer from an agronomic standpoint. You know, what, what does it do to crop yields and how do we how do we how do we get the most out of our crop with fertilizers that we apply? Mike, you're an economist. I'm an economist. You know, we tend to think in terms of profitability: how do we get the highest profit out of what we apply? Those aren't necessarily the same issue, are they?

[04:49] Mike Popp: Well, in general, when you think about yield maximum, you think about, well, where is the yield top or where's the where are we close to the yield potential? And that is usually not the profit maximizing point that you want to get to. And so you can build your soils. And the other approach is to is to use a sufficiency approach. This is a term that I got taught from Dr. Slaton and Dr. Roberts, both. And the intent there is to back off of fertilizer use to not reach yield maximum, but to reach the profit maximum. And the profit maximum is driven not only by agronomic response to the to the fertilizers, but also the price of the crop and the cost of the fertilizer.

[05:36] John Anderson: The old, the old profit maximizing condition, from the production side, where the value of the marginal product equals the price of the input.

[05:43] Mike Popp: Yeah, or just putting enough fertilizer on until it's value that it creates is just the same as the cost that it costs…

[05:50] John Anderson: Right, 

[05:51] Mike Popp: …for that extra unit. 

[05:51] John Anderson: Right. So and usually down from yield max. And why that's relevant for this conversation, obviously, is as prices have gone up -- as the price of fertilizer has gone up -- we would expect the profit maximizing use of that fertilizer to come back.

[06:08] Mike Popp: That's exactly right.

[06:09] John Anderson: But that and that that relies on the old assumption that we use all the time as economists, right, the old ceteris paribus assumption: all else being equal. So all else being equal, if the price of fertilizer is going up, the profit maximizing decision is to use less of it.

[06:23] Mike Popp: That's correct. But the question I would always get from producers and the question I raised for myself as a as a girl or some time back. Yes. Well, how much should I back up, right? You know, and that is really a function of what the price of the crop is because that affects the revenue side, but it also affects the yield response and the cost of the fertilizer. And to that end, I've developed together with Dr. Roberts and Dr. Slayton, Dr. Drescher and others, a tool -- an online tool -- called the Potash Rate Calculator. And what it does is it allows you to put in the crop price and then you put in the costs of the fertilizer. You put in what you think the yield potential of the field is if everything was just perfect; and then you go ahead -- in terms of nutrient availability -- and then you put it in what your existing soil test K [potassium] value is. And depending on all of those factors, it spits out a recommendation in terms of pounds of K2O [potash] per acre.

[07:28] John Anderson: A profit maximizing level per acre.

[07:30] Mike Popp: Profit maximizing. Yes. And then you can look at the current VRT recommendations, and then you can also put in what you think you want to put in. And then it tells you what the difference in profitability between the profit maximizing rate, the VRT rate or your own specific rate is.

[07:49] John Anderson: So I want to, I want to get to the results of the decision tool in just a second, and we certainly want to make producers aware of that of that tool because there are a lot of really important decisions being made right now about this year's crop. But I want to pick up just a second on something you said, Mike. You know, we haven't just seen input prices go up, right? Our ceteris paribus, all else equal, assumption has kind of fallen apart because crop prices have also gone up. And so that really does complicate the decision with fertilizers higher. So maybe we want to use less of it. But crop values are also quite a bit higher, and that needs to factor into the decision as the value that the value, the marginal value, that that fertilizer provides is also higher.

[08:33] Mike Popp: That's right. And so making sense of that and figuring out what that profit maximizing rate is is not necessarily a straightforward thing to do. And that is why we've developed this PRC or potash rate calculator tool, which Dr. Roberts has been, you know, popularizing or popularizing over the, over Extension meetings and people are aware of it. But, you know, if I were a producer right now, I would definitely want to sit down with this tool one more time, even if I have already bought my fertilizer, to determine, well, maybe should I get some more or what do I have available and that kind of thing. 

[09:16] John Anderson: How should I allocate that fertilizer among the various crops I’m planting? That sort of thing.

[09:21] Mike Popp: Yes. And an interesting thing about the potash rate calculator. Just this week, we've added a newer version PRC version 1.2. And that tool allows you to not only look at soybeans and rice for this decision, but also for corn and cotton. And so that that is really one of the reasons why I thought it would be good to have a conversation today.

[09:47] John Anderson: And let me set the table just a little bit more and talk about these crop prices a second. We are toward the end of the price discovery period for for crop insurance, which is significant because that that is one particular price expectation that through the crop insurance program people actually have a means to get a piece of.  It doesn't mean that that's where prices are going to be when we get to harvest, but it is a pretty good, a pretty good benchmark to look at. As of now, there's two or three more trading days left before these plant, these projected prices, are set, but they're going to be pretty close. Corn is sitting at 570 a bushel; cotton, a dollar and one cent per pound. Long grain rice 1460 a hundred; soybeans 1352 a bushel. These are the best projected prices we've seen -- and that projected price period is the middle of January to the middle of February, by the way. So these are the best prices through that period of time that we've seen on corn and rice since 2013, on cotton and soybeans since 2011. So, Trent, folks are looking at potentially the best market we've had in in ten years, really? What are you hearing people say about that side of things?

[11:08] Trent Roberts: Well, it's it's one of those situations where that's obviously tempered, you know, some of their concerns, but it's still, you know, their thoughts are everything's going up, right? So they feel like there's no end to the increase in input costs. And so it just comes down to, are crop prices going to maintain pace with those increased input costs? But I think you know where if producers are starting to get frustrated, not necessarily in the fertilizer sector, but we'll just say the Ag chemical sector is availability.

[11:42] John Anderson: Right.

[11:43] Trent Roberts: So we've got increased input costs, but we don't know if we can even get them.

[11:48] John Anderson: Even at the higher prices.

[11:49] Trent Roberts: Even at the higher prices. And so it becomes a situation where, well, yeah, my my value of my corn crops or my soybean crops are going up. But if I can't get my herbicide, I can't produce a crop. Or you know where my yields aren't going to be near what what they should be?

[12:05] John Anderson: Well, and I will say again, this is the Relevant Risk podcast. So, yeah, I'd like to highlight based on what you're saying, I think you're making some really good points that becomes a really difficult environment to make good risk management decisions in. Because we see these good prices, what looked like good prices to us now that are that are on the table. Yesterday, a producer could have booked new crop corn -- next year's crop corn -- at Helena at the Helena elevator quoted prices 5.96 and a half. Soybean price there was 14.72 and a half. So good prices on the table. But if I'm not sure how high my input prices are going to go, I may be reluctant to book. I may be, I might be reluctant to take that risk management option. If I'm not sure that I can make a crop, I'm really reluctant to overbook and price too much. And so the situation you're describing really makes the risk management decisions much more difficult.

[13:03] Trent Roberts: It certainly does. And I think, you know, my message to producers would be, you know, we all have to calculate our risk and determine what you know, what we can manage and what we can't. But this is one of those environments where we really have to promote our tools, right? We've got a lot of great information out there on, you know, how to use fertilizer, where to put it, where we're going to get the best return on that investment. And so to me, this is a situation where, you know, there are things we can and can't control. But let's go look at these tools that have been developed to determine how to manage that risk. And you know, we can’t determine if the herbicides are going to be available, but we can tell you what potash rate is going to maximize your profitability.

[13:50] John Anderson: Right, and that's a great point. And because I think this is the kind of year again, at this point in the season, the best prices that we've seen in ten years on most of our major crops. This is the year when you want to get things as right as you can. And so, Mike, that that'll bring us back to you. So you've got the potash rate calculator, and I know you've done some work with this thing lately with updated prices on both the inputs and outputs. Give us a sense of of what this calculator tells us about about the decisions farmers need to be making or at least thinking about.

[14:23] Mike Popp: Well, as it so happens, I have my spreadsheet tool right in front of me, so I'm going to go ahead and go through an example. The soybean price, we said, was 1475 to be optimistic. The potash rate fertilizer price for muriate of potash 0-0-60 is, let's say, $820 per ton. And then let’s say, because we're not sure we're going to get all the inputs purchased, let's take our yield prediction down to maybe 55 bushel an acre on irrigated soybeans, and let's go ahead and use an STK of 85 parts per million.

[14:59] John Anderson: Soil test potassium? So that would be what you're soil -- the amount of potassium that the soil test says is in the soil right now.

[15:07] Mike Popp: That's right. And so the recommendation that the tool determines is 81 pounds of K2O per acre for that yield potential at that soil test K value. And if you were to decide, well, you know, I haven't bought fertilizer yet, and so should I go and buy potash fertilizer? Well, what if I couldn't get potash fertilizer? You compare that profit maximizing rate with a $7.50 – seven dollar and 50 cent per acre application fee -- if you compare that to putting no potash fertilizer out there at all, the profit impact is $26.25 per acre.

[15:47] John Anderson: So the, based on the prices, the current level of soil fertility, the profit maximizing right of of fertilization is about 80 pounds.

[15:59] Mike Popp: That's right.

[16:00] John Anderson: And if if a farmer looks at the situation and says, you know what, fertilizer is really expensive and I'm looking for ways to economize and I know I've got I've got potassium out there in the soil. I'm just not going to fertilize this year. That's basically leaving a little over $25 an acre on the table.

[16:18] Mike Popp: That is correct. And the current VRT recommendation for those conditions is 100 pounds an acre, and compared to the 81, that's a profit difference of a dollar 80. But if you then said, OK, well, you know, I only have so much cash available. Let's say I only want to put 50 pounds out, then the profit difference between the profit maximizing rate and that 50 pound rate is $5 an acre.

[16:45] John Anderson: OK, so your tool basically allows you to say, all right, if I if I want to cut back and just mine the soil for potash, what's it going to cost me? It's going to cost me about 25 an acre. But you know, maybe I've got my fertilizer bought and I've got to decide how to allocate it among these crops. What if I go to a 50 pound rate? Then I'm only leaving $5 on the table versus the the optimal, or profit maximizing

[17:08] Mike Popp: Yes. And the thing is that is not only for soybeans. You can now do the same thing for rice, corn and cotton. And you saw how long it took me to figure out an answer. It's about two minutes once you know what you're doing, and that's a nice, that's a nice thing to be able to have.

[17:26] John Anderson: Right. So with a lot of different scenarios, the producer can run through really quickly in terms of evaluating how to get the most bang for their fertilizer buck, at least with respect to potash.

[17:38] Mike Popp: Yes. Now, if your soil test, K value was in the optimum range, and let's say that's 130 parts per million, then the economic recommendation on soybean is to actually go ahead and put no fertilizer out there. OK. The VRT recommendation right now is 50 pounds. Profit difference is $18.50.

[18:03] John Anderson: So Trent, one of the things I'm hearing in this is the real value -- particularly this year, when this decision is fairly complicated and the stakes are pretty high -- of knowing what's in the soil now?

[18:15] Trent Roberts: Exactly. Soil testing has always been a solid foundation of of any fertilization program. And as, you know, Dr. Popp and others have developed these tools, you know, they're built on that foundation, right?

[18:27] John Anderson: That's right.

[18:28] Trent Roberts: You know, up to date, accurate soil test information is going to be critical to utilize this tool. And even if your your data is a few years old, you know, let's say you couldn't get out in the fall and sample all your fields. You know, being able to go back and look at a history of soil test information is beneficial. But with anything else, you know, I love to use the term garbage in, garbage out. And whether we're using this tool or we're using soil test information, you know, all these downstream decisions I'm going to make ultimately hinge on my ability to collect a quality soil sample. And so when we start with that, then we can use this data to plug in to these tools. And you know, one thing that that I would really like to emphasize is the use of this tool being as specific as, you know, an individual field setting all the way up to a farm scale, right? So the scalability of the tool is what's, you know, another big benefit for producers because you can drill down to individual fields where you've got grid soil sample data or you can pull back and say, OK, you know, I want to look at, you know, this 500 acre block of soybean or rice or whatever. And so that scalability, I think, is is very useful.

[19:47] John Anderson: OK, good point. And I like your point about information. And again, that's a that's a key risk management principle of a key management principle. You know, it's really difficult to manage what you don't have information on. And that soil test information here. This this situation we're in that really highlights the value of that for sure.

[20:06] Trent Roberts: Well, exactly. And it's like anything else, the more data we have, you know, obviously the better we can make informed decisions, but quality of data is also very, very important.

[20:18] John Anderson: Very good. So Mike, if somebody wants to get this decision to play around with it and then evaluate scenarios on their own farm with their own crops. Where would they find this?

[20:29] Mike Popp: Well, one thing to remember is that you need to have a Windows compatible laptop or something like that, and you want to have Excel available to you and then you can go out on the internet and Google Michael Pop and potash rate calculator, and that will take you to a site where there are a number of decision tools. And one of the logos on there is the potash rate calculator. You click on it, it gives you a tutorial on how to use it. It gives you a way to download that spreadsheet. I recommend closing other spreadsheets before you open that one. And then then it's as simple as plugging in those prices, like we just did in the demonstration and looking at the graphic output to see how well the observed data points that are shown on the graph fit the curve -- the yield response curve -- and then reading the information off and making your decision.

[21:28] John Anderson: Very good. And we'll put a link to that decision support page where this, where this tool is located on the Fryar Center website as well.  So that’ll be another way people can get to it.

[21:37] Mike Popp: You know, look for a logo that says potash rate calculator. It's got a chemical beaker on it and it says, 0-0-60 in in a circle. So that that's really easy to to think about and and find that way.

[21:51] John Anderson: Very good. Trent, it won't be long before planters are rolling.  Any last thoughts on on the decision priorities as we get close to planting.

[22:02] Trent Roberts: Well, one thing I will say just to follow up on the comment of locating the potash rate calculator, all of our row crop specialists, as well as our county Extension agents, have been trained in how to use the tool. So if you're a producer or consultant that, you know, needs some help, you know, figuring out how to use the tool or locating it, you know your county extension agent or your county extension office is a great first place to to reach out and get get help with that particular tool. But to answer your question; you know, my piece of advice is, you know, there's a lot going on. There's a lot of moving parts. And I think the biggest message that I would give producers is, you know, don't make an emotional decision, right? And so this is that that situation the perfect storm where you know, you feel overwhelmed with prices and uncertainty. And I think the worst thing we can possibly do is is make an emotional decision, you know, and I'm going to talk about fertilizer in particular. You know, I can't afford to put it out, you know, so I'm just not going to buy it, you know. Just just things like that. And I think, you know, my message would be sit down, you know, look at your data, you know, look at your cost and make well-informed decisions. Use the tools that are available and don't let emotion dictate, you know, what you're doing this growing season.

[23:26] John Anderson: All right, good advice. Trent Roberts, soil fertility specialist; Mike Popp, Ag economist, both with the University of Arkansas System Division of Ag. Thank you both for being here. This is John Anderson with the Relevant Risk podcast, and we look forward to catching up with you next time.

[23:44] Conclusion: Arkansas Row Crops Radio is a production of the University of Arkansas System Division of Agriculture. For more information, please contact your local county extension agent or visit uaex.uada.edu.