Hello

Hope all is well as we settle into another cold spell this winter. We finally saw a few inches of snowfall last weekend to help freshen things up. With only one foot of moisture in the ground, we’ll a need moisture fix by next spring. I’m hoping it comes in the next few months. Have a great week.

Agronomist Notes

This week’s newsletter will focus on the economics of applying compost. I know, we’ve heard how wonderful compost can be, but does the cost outweigh the benefit? We’ll run the numbers. I was able to sit down and discuss the costs of applying compost with a gentleman who sells and applies it for a living. Also, recent headlines around the country have Greenpeace pointing the finger at agriculture as the main culprit of global warming. I’ve included a full report on greenhouse gas emissions from cropping systems to help us understand the issue, lest we are asked any questions. Finally, we’ll talk market news. Did you know ethanol production in the states can still turn a profit at $5.75 corn? Read more to find out. 

Agronomy

Compost: A Worthy Investment

One of the first things to happen during times of plenty is the desire to upgrade equipment. Although upgrading equipment may allow for a greater expense through higher depreciation allowance and gains in efficiency, the fact still remains the investment will lose money over time. If given the opportunity, how many producers would invest in the health and productivity of their land? I recently interviewed Neil Wiens of Bio-Cycle Nutrient Solutions near Calgary, and he may have the option we’ve been looking for- compost. We’ve heard it before, but this time it’s different.

The benefits of compost are numerous. It provides stable supplies of N, P, K, S micronutrients, organic matter, soil microbes, increased cation exchange capacity, improved water holding capacity and reduced fertilizer costs. There’s really no comparison among the nutrient values in fertilizer to that in compost. Composted nutrients release slowly throughout the growing season while fertilizers are either tied up or released to soon, well before the crop has the ability to use it. Let’s run the numbers.

Remember, not all compost is equal. Bio-Cycle’s compost is amended with liquid hog manure and gypsum calcium sulphate, an excellent combination. This example is for producers within a 10-mile radius of the compost pile.

Compost Value Compared to Fertilizer

Value of Nutrient Composition in Compost

Year 1 
Compost cost: $75.00 per acre
Nutrient value applied at 5 tonne per acre = $205.25 per acre
Fertilizer recommended: 20 lbs of starter nitrogen = $12.00 per acre
Cost in the first year = $75.00 + $12.00 = $87.00 per acre
Typical fertilizer cost is $50.00 per acre

Year 2
Compost cost: $55.00 per acre
Nutrient value applied at 3 tonne per acre = $123.15 per acre
Fertilizer recommended: 20 lbs of starter nitrogen = $12.00 per acre
Cost in the second year = $55.00 + $12.00 = $67.00 per acre
Typical fertilizer cost is $50.00 per acre

Year 3
Compost cost: $55.00 per acre
Nutrient value applied at 3 tonne per acre = $123.15 per acre
Fertilizer recommended: zero
Cost in the third year = $55.00 per acre
Typical fertilizer cost is $50 per acre

The Bottom Line
After three years of compost we’ll have spent $197 per acre including starter fertilizer. In comparison, the cost of fertilizer applications over three years is $150 and the soil nutrient levels remain the same. On the other hand, compost has added $385 worth of stable soil nutrients like N,P,K,S micronutrients and organic matter. So, we’ve spent $197.00 an acre in compost and starter fertilizer, taken off three crops and we’re left with $235.00 worth of nutrients in the soil. The fertilizer has netted a handy return of zero after three years and the compost has provided a 19% return on our investment. It also includes significant dividends each year until the day you sell that land. Who knows, maybe we’ll start buying and selling land based on organic matter content and production potential. Then you would get your initial investment back and have earned dividends along the way.

One thing I didn’t mention was the improvement in application efficiencies. Remember, all that is required in year one and two is twenty pounds of starter nitrogen. On a 430 bushel tank that works out to 360 acres per fill! Year three, with no fertilizer required, if seeding wheat at 120 lbs an acre, you’ll get you 217 acres per fill with no fertilizer to worry about. How would you like to fill once or twice a day? SL

Source: Neil Wiens, Bio-Cycle Nutrient Solutions, www.bio-cycle.ca

Full Report on Greenhouse Gas Emissions from Cropping Systems

A firm scientific understanding is needed about fertilizer nitrogen (N) use effects on the emissions of the three gases (carbon dioxide, nitrous oxide, and methane) considered to be the major agricultural contributors to what is often referred to as "the greenhouse effect". Scientific staff of the International Plant Nutrition Institute (IPNI) have prepared a literature review to extend information that will lead to a better understanding of fertilizer N management practices that minimize global warming potential. The document contains over 30 pages of text, data, and a listing of more than 130 references on this topic.
Full report: http://www.ipni.net/ghgreview

Market News

Grain Prices to Peak in Next 90 Days
Both corn and soybean prices continue to rise almost daily, but where and when they might stop nobody knows. Yet, if last year is any indicator, grain markets will likely reach their optimum price points just prior to planting season. Grain prices will probably peak sometime in the next 90 days, from mid-February until mid-May. However, that forecast assumes no major yield reductions will develop in either South America or the U.S. in 2008 due to dry weather.
Source: Corn & Soybean Digest

La Nina to Affect South America and US Production
Argentina is already dry and could turn drier if the current La Niña weather pattern continues to hold. The US crop could also face drier-than-normal conditions this summer. With a La Niña, the odds for drought conditions are higher for both Argentina and the US, but the market may have already factored that into the current prices. The bottom line is that we can't skip a beat on yield in 2008 without grain market prices going higher. The world needs grain yields to be higher this year to meet demand.
Source: John Pocock

US Ethanol Still Turns Profit at $5.75 Corn
Three competing sectors are currently driving the recent surge in demand for corn. The first sector is the domestic ethanol industry, the second demand sector comes from foreign buyers and the third sector is the domestic livestock industry. Right now, the ethanol industry can probably afford to pay more for corn than the other two sectors. They can probably pay between $5.25 and $5.75/bu. and still return a profit. The foreign sector may be slower to adjust to higher prices due to the weak US dollar, but the domestic livestock industry is likely to react with the largest and quickest cutbacks in use for corn.
Source: Corn & Soybean Digest

Not Enough Acres – Price Must Ration Demand
For 2008, unless an above average yield outcome occurs there is not enough land to properly supply all commodities to preclude a demand rationing outcome in at least some. There’s still a segment of users who are inadequately covered. IMPORTANT - The one-two-three punch of (a) strong global food demand, (b) evolving U.S. energy demand commitment and (c) inadequate speed of global supply growth will keep upward pressure on all commodities until these are fixed.
Source: Greg Kostal

Tight Fertilizer Supply Could Leave Producers Short
Supplies of nitrogen fertilizer, as well as phosphorus and potassium are tight throughout the US It is currently difficult to buy fertilizer N for winter wheat topdressing and/or this spring's row crops unless the supply has already been lined up, regardless of what the posted prices are. The tight supply situation applies to all the main N fertilizer sources (UAN solution, urea and ammonia) as well as P and K fertilizers. Fertilizer prices are continuing to increase and supplies will likely remain very tight for the foreseeable future. The last I heard, eight out of 10 trucks in Alberta are hauling fertilizer to the US Secure your supply now if you haven’t, regardless of whether the price goes up or remains flat. SL 
Source: Kansas State University Research & Extension

The Race to Buy Acres Continues
Right now, the market has to bid higher for corn to compete with soybeans for more acres. Prior to last week's USDA reports, the numbers were showing $10-20/acre higher returns for planting soybeans than for corn in Indiana and much of the Midwest. The direct costs for growing soybeans are about half those typically spent to grow corn. So, corn really needs to out-bid soybeans by about $10-20/acre to pick up the acres it needs, but there's really not enough corn, soybeans or wheat, so the completion for acres is intensifying.
Source: John Pocock

Drought to Continue in Southern US
The odds favor drought expansion by the end of April into central Texas and Oklahoma, with additional expansion from western Kansas into eastern New Mexico. To the north, some improvement is likely for most of the northern Plains from the Dakotas into central Montana, with the exception of north-central North Dakota, while more significant improvement is expected across the remaining drought areas in the interior Northwest and Great Basin.
Drought Map: http://www.agweb.com/images/content/season_drought011708.gif

Global Effects of US Farm Bill
Extra energy demand will reduce US ability to participate in export market, which means that the rest of the world is going to need to produce more grain to fill global food/feed needs. Until yield growth accelerates, that can only happen with more crop land which can only happen with profitable prices for growers – a situation that is sustainable for a few years – or until demand is moderately rationed. The US needs a higher corn acreage base which means soybean growth needs to accelerate in South America. Today’s economics (never mind politics of tearing up virgin land and or logistical growth) isn’t even close for soybeans to accomplish that fast enough today – which fits into a fundamental observation that soybeans appear headed to an upward blow-off sometime in 2008.
Source: Kostal Ag Consulting

Local Feed Barley and Feed Wheat Prices
The price for feed wheat in the Calgary and Red Deer area increased to $220 to $225 a tonne for January delivery. Feed barley prices range from $200 to $205 a tonne for January delivery. There was 2,000 tonnes of corn booked into Calgary for March-April delivery at $238 a tonne. SL
Source: Cash Market Value Newsletter

Bullish Prairie Land Prices
The situation is bullish for land prices, inputs & infrastructure. It took seven years for Iowa land prices to double. In Summer ‘06, I stated that decent Saskatchewan agriculture land is ripe for a 50% increase within five years. That may be low. This is an unprecedented shift in demand (food and energy), so expect unprecedented and unpredictable ripple effects everywhere along the chain. Consider 40 ct/lb nitrogen fertilizer the new floor where two or more years ago it was the roof.
Source: Greg Kostal

World Weather Summary

• Soil moisture conditions throughout the US winter wheat belt are fair to poor. Crop ratings going into winter dormancy were rated as poor. They will desperately need spring rains.
• Moisture conditions throughout India’s wheat belt are poor and have received 50% of their normal rainfall since October 1st. Wheat moves through heading stage in January and February. Yield prospects are declining rapidly.
• Brazil has received needed rain in the last week but further rains are needed in the southern regions to improve crop conditions there. The very well drained soils in Brazil need constant moisture replenishment to avoid drought conditions.
• Argentina is experiencing dry weather during their wheat harvest but the dryness is a growing concern with the developing corn and soybeans. Rain is needed to reduce stress and replenish the soil moisture reserves.
• Australia is beginning to receive moisture now that the wheat crop is harvested. This will help the summer sorghum crop and possibly increase irrigation allocations.

CWB World Weather: http://www.cwb.ca/wcm/wps/wcm/connect/cwb/root/en/farmers/Weather/Weather+highlights+detail
Source: Ray Garnett, CWB