Fertilizer Demand for Biofuel and Cereal crop Production in the United States

The emergence of biofuel production has impacted almost all sectors of the agricultural industry and the general economy and has produced a large body of research into how increased production of biofuels will impact the agricultural sector and the general economy. All research is in agreement that total biomass production will be required to increase to meet food and fuel demands. The increase in biomass will, of necessity, require increased use of fertilizers. Research on fertilizer demand has been scarce over the last decade. Because of the recent increase in the demand for grain crops and livestock in an era with little excess capacity in commodity production, the pressure to increase output will fall to increased use of fertilizers. In addition, there is some evidence of increasing scarcity in the principle macro nutrients (eg phosphorus, nitrogen and potassium). Thus, there is an urgent need to initiate research into the demand for fertilizers to determine the economic implications of expanded crop and livestock production. This analysis can provide crop producers and policy makers with important information on the role of nutrients in the economics of expanding uses for the major grain and forage crops. Most researchers have focused on total fertilizer (N.P.K) demand for total crop production which does not capture the effects of individual fertilizers on the individual crops. This study focuses on nitrogen demand for biofuel and cereal crop production and the impact on crop prices in the United States using the method of feasible generalized least squares (FGLS) estimation by weighted least squares regression. The results show that nitrogen fertilizer is very much responsive to corn price, wheat price, nitrogen price, phosphate price, and potash price. Results also indicate that increase in nitrogen price decreases nitrogen demand while increases in the price of corn, wheat, and other fertilizers increases the demand for nitrogen fertilizer.