The Economics of Pasture Fertilization

Agricultural Economics - Extension No. 2005-06
Kenneth H. Burdine, Greg Schwab, RW Eldridge, and Richard Trimble
May 2005

This publication is intended to help address fertilization decisions for Kentucky hay and livestock producers from an economic perspective. Hay and pasture fertilization is crucial if the producer intends to maximize profit. However, less than 10% of the state’s forage land is soil tested. Of the forage land tested, 40% was found to be too acidic, 45% was low in phosphorous, and 35% was low in potassium according to University of Kentucky agronomists Jimmy Henning and Garry Lacefield. Clearly, hay production and/or carrying capacity could be increased through regular soil testing and fertilization. Generally, University of Kentucky agronomists recommend soils be tested every three to four years.

However, pasture fertilization is not without cost. Nitrogen, phosphorous, potassium, and lime constitute a real cash cost for forage producers. Therefore, many producers do not soil test and fertilize their soils regularly to avoid this expense. This publication will evaluate the costs of fertilization as compared to the production benefits to determine under what conditions pasture fertilization would likely increase the profitability of the hay operation.

A partial budget framework will be used to evaluate the pasture fertilization decision. In a partial budget framework, it is assumed that a change is being considered which will affect the operation in four possible ways: (1) increased revenues, (2) decreased costs, (3) increased costs, and / or (4) decreased revenues. Clearly, increased revenues and decreased costs have a positive effect on the forage producer's bottom line while increased costs and decreased revenues have a negative effect on the bottom line. The decision rule is quite simple; if the value of the positive impacts is greater than the value of the negative impacts, then the practice is worthwhile. On the other hand, if the negative impacts outweigh the positive impacts, it would not be in the best interest of the producer to implement the change in question.

Increased revenues –

Increased revenues associated with pasture fertilization primarily consist of increased production per acre. For the hay producer, this means additional hay to sell per acre. In the case of the cow-calf producer who feeds hay, this benefit is captured in the value of the hay that is produced.

Research has shown that dry matter yields can be increased from 1 ton per acre (no nitrogen) to 4 tons per acre with proper soil fertilization. For the purposes of this study, we will assume an increase in dry matter yields of 3 tons per acre. Assuming a hay value of $30 per ton, this additional dry matter yield would be worth $90 per acre.

Decreased costs –

Benefits of pasture fertilization will primarily be expressed in increased hay production per acre. Of course, in the case of the cow-calf producer who produces some hay and purchases additional hay, the increase in production can be thought of as cost decreasing in the sense that less hay has to be purchased. For the purposes of this analysis, we will value the additional production as though it was sold and direct decreased costs will not be considered.

Increased costs –

Increased costs from pasture fertilization include the cost of the nitrogen, lime, phosphorous, and potassium applied to the forage land. For the purposes of this analysis we will assume that all four of these nutrients are needed. Application of Lime is assumed to be included in its costs, while custom application of nitrogen, phosphorous, and potassium are assumed to be $5.00 per acre. The assumed nutrient needs, application rates, and costs are shown in Table 1 below. These figures will vary greatly with each situation. For example, pastures with greater than 25% legumes may not need any nitrogen at all. Producers are strongly encouraged to regularly test their pastures to determine specific nutrient needs.

Table 1. Nutrient Application Assumptions
NutrientQuantity AppliedCost per unitFrequency of ApplicationAnnual Cost per Acre
Lime2 tons per acre$12 per tonEvery 4 years$6.00
Nitrogen100 lbs. per acre$0.35 per lb.Annually$35.00
Phosphate30 lbs. per acre$0.25 per lb.Annually$7.50
Potash30 lbs. per acre$0.25 per lb.Annually$7.50
Total$56.00

Decreased revenues –

In the case of pasture fertilization, decreased revenues are not likely. Negatives will primarily consist of fertilization expenses.

The previously discussed impacts can be placed on a typical partial budget grid such as the one shown below.

Table 2: Partial Budget Framework

Increased Revenues

  • -3 additional tons of hay per acre @ $30 per ton
$90

Decreased Revenues

  • -none considered
$0

Decreased Expenses

  • -none considered
$0

Increased Expenses

  • -Purchase of Lime, nitrogen, phosphorous, and potassium @ $56
  • -Custom fertilizer application @ $5.00
$61.00
Positive Impact:$90
Negative Impact:($61.00)
Net Effect:$29.00

Based on scenario shown above, the positive impacts exceeded the negative impacts by $29 per acre. One would conclude that pasture fertilization would improve profitability based on that particular set of assumptions. However, it is extremely important that the hay producer understand that his situation will not be precisely as the one described above. In order to better enable the producer to evaluate a wider range of assumptions, and to analyze the sensitivity of results based on alternative assumptions, a sensitivity analysis is also included.

Table 3 depicts the net effect of fertilization when allowing total fertilizer expense and hay value per ton to vary. Hay value is permitted to range from $10 per ton up to $40 per ton, while total fertilizer expense per acre is permitted to range from $25 to $85 per year. Total fertilizer expense should include Lime, nitrogen, potassium, phosphorous and the application of each. The composition of the pasture can greatly affect both the value of the hay and the level of nitrogen needed per acre. In cases where the pasture consists of more than 25% legumes, no nitrogen may be needed, decreasing total fertilizer costs to the lower end of this range. In other extreme situations, fertilizer expense could be pushed to the upper end of this range if large applications of each nutrient are needed.

The use of the pasture can also affect nutrient needs. If cattle are being grazed on the pasture, considerable potassium is returned to the soil through manure. This lowers the potassium needs and consequently the total fertilizer expense for the operation. In situations where cattle are not grazing the pastures, considerably more potassium could be needed, which would increase fertilizer expenses per acre. The partial budget described in Table 2 was based upon an assumption that cattle are grazed on the pasture. Table 3 allows individual producers to relax this assumption by moving to an area on the table of higher fertilizer expenses.

In Table 3, hay value is depicted across the top while total fertilizer expense is shown down the left hand side. The value reported is the net effect of pasture fertilization per acre as calculated in Table 2, based on those two new assumptions, yet following the same partial budget framework.

Table 3: Net Effect of Pasture Fertilization per Acre (Sensitivity Analysis)
Fertilizer Expense per AcreHay Value per Ton
$10 per ton$20 per ton$30 per ton$40 per ton
$25 per acre$5.00$35.00$65.00$95.00
$40 per acre($10.00)$20.00$50.00$80.00
$55 per acre($25.00)$5.00$35.00$65.00
$70 per acre($40.00)($10.00)$20.00$50.00
$85 per acre($55.00)($25.00)$5.00$35.00

Table 3 clearly shows the impact of hay value and total fertilizer expense on the benefits of pasture fertilization. As stated before, farmers should obtain a soil sample to determine exactly what the needs are for their soils and where their operation would most likely fall in this table. They should then apply this same partial budget framework to their individual situation.

Although this question was examined from the perspective of a hay producer, it certainly has implications for the cow-calf and stocker operator as well. Increased dry matter yields per acre translate to higher stocking rates; this means additional revenues per acre which certainly affect the bottom line. As always, producers are encouraged to discuss this decision with their county extension agent for agriculture and natural resources.

For More Information

For additional information, please contact, Kenny Burdine or Richard Trimble.

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