Corn price fluctuations on potential nitrogen application by farmers in the Midwestern U.S.: A survey approach

Abstract

Research has linked increased fertilizer usage in the past twenty years to large zones of hypoxia and algal blooms in Lake Erie, the northern Gulf of Mexico and other water bodies across the U.S. Given the nature and the scale of these impacts, researchers and policymakers benefit by understanding the drivers behind the increased demand for fertilizer and fertilizer management to help develop strategies to reduce nonpoint source pollution associated with excessive fertilizer applications. The purpose of this paper is to examine the impact of crop price, specifically for corn, on expected demand for nitrogen fertilizer at the farm level. Using survey data, we examine the impact that an increase in expected corn prices could have on potential demand for nitrogen fertilizer given farm characteristics, farm demographics, and farmer behavior, holding land area and fertilizer price fixed. Results indicate that the marginal probability of a farmer increasing nitrogen fertilizer rates when crop prices increase is positive and statistically significant. In addition, we find that this marginal probability increases at a decreasing rate with moderate increases in corn price (up to around 20%) and then decreases at an increasing rate afterwards, while remaining positive. Thus, farmers are likely to increase nitrogen fertilizer applications to corn with future corn price increases.