FERTILISER cost and profitability are different - while the first is obvious, the latter is rarely assessed.
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With fertiliser prices climbing, many growers are taking a hard look at their fertiliser expenditure and there is a lot of discussion about tightening margins and cutting rates, yet little focus on the core issue of fertiliser profitability.
In budgets and profit and loss (P&L) statements, fertiliser is typically the biggest cost, yet its return on investment (ROI) is rarely measured.
Inefficient and unprofitable fertiliser use can be concealed by good seasonal conditions, management and grain prices.
Equii fertiliser and soils consultant Wayne Pluske said assessing fertiliser profitability needed yield response data for each incremental unit of fertiliser.
"This comes from a fertiliser response curve, generated from at least four fertiliser rates including a nil rate" Mr Pluske said.
"When a crop is responsive to fertiliser, there are diminishing marginal returns as fertiliser rate increases.
"The first dollar invested gives the biggest ROI then ROI gradually diminishes until there is not enough justification to invest more.
Many growers aim for a 100 per cent return on their fertiliser investment - spending $1 to get $2 back, making $1 margin or profit for $1 cost.
In an example, Mr Pluske said if the aim was at least 100pc ROI, investing less than 24 kilograms per hectare would mean yield and margin increases were not realised, but applying more than 24 kg/ha meant a lower ROI compared to investing it elsewhere.
While such precise application of fertiliser rates is impossible in practice, an understanding of fertiliser responsiveness can shift practical rates to substantially improve returns.
In that sense, applying 20-30kg/ha would be a good result, whereas applying an extra 10kg/ha (30-40kg/ha) would represent additional cost and a poor rate of return on it.
Using 70kg/ha to get close to maximising yield would mean outlaying an extra $48/ha, compared to using 30kg/ha, a $25/ha reduction in margin and negative rates of return on each kilogram applied from 35-70kg/ha.
Mr Pluske said sometimes fertiliser profitability was roughly gauged by looking at yields from a higher fertiliser rate strip in a paddock.
"If the yield in the strip is the same as that around it, the fertiliser rate in the paddock is too high, but we don't know by how much," he said.
"If there is more yield in the higher rate strip, the paddock rate is insufficient, but again we don't know by how much.
"A basic economic analysis - revenue vs cost - that ignores diminishing returns cannot determine the optimum fertiliser rate and can make the whole step up in fertiliser rate appear more profitable than it is."
Fertiliser response and ROI curves are used to gauge the fertiliser rate that corresponds with the minimum acceptable ROI for a grower's situation.
The graph, right, shows three scenarios with the same maximum yield but different response curves.
The green scenario responds to most fertiliser - 100pc ROI was at 54kg/ha.
In the blue scenario, 100pc ROI was at 28kg/ha, while the red scenario was largely unresponsive with 100pc ROI at 8kg/ha and fertiliser was unprofitable above 16kg/ha.
Mr Pluske said like farmers, most advisers have enough experience to have some gut feel for where fertiliser rates can go up or down.
"Ranking how responsive your paddocks, and even parts of paddocks, are to fertiliser - based on factors like soil type, production capacity, soil test results - is a good starting point for adjusting rates," he said.
"Start with a basic ranking system such as - very responsive (less risky to keep fertiliser rates high), moderately responsive (fertiliser investments somewhat risky) and non-responsive (use nil or lower rate of fertiliser).
"However growers need to remember that fertiliser responsiveness of a paddock is not the same as its grain productiveness."
Mr Pluske said with that in mind, if growers couldn't rate their paddocks for fertiliser responsiveness and profitability, it was an indicator they needed to start measuring and critically thinking about fertiliser responsiveness.
"Using the variable rate application capacity of your machinery, apply at least four fertiliser rates, including a nil, and yield map the results," he said.
"Generate a response curve from the results and calculate the incremental ROI.
"With a few years of data you will be able to gauge whether there is no response to fertiliser, big responses, or somewhere in the middle."
By doing that, growers will also have their own metrics around the riskiness of their fertiliser investments across a range of seasons.
- The information was compiled for growers by Wayne and paper co-author Alisa Bryce as part of a Grains Research and Development Corporation (GRDC) Soil Constraints West project.
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