A stochastic economic analysis of nitrogen application rates to corn in Indiana: Decision-making in an environment of increased volatility

This study examined the effect that decision-maker risk preferences may have on the rate of nitrogen application to corn in Indiana. Previous studies have found that uncertainty increases the rate at which farmers apply nitrogen fertilizer. With current economic conditions, as well as the increased volatility in crop and input prices since the Energy Policy Act of 2005, it is important to reexamine the effect of uncertainty on nitrogen application rates. This study finds that the distributions of potential input prices, as well as of net gains/losses per acre and break-even per bushel corn prices, differ in the five years prior to 2005 versus the five years after 2005. This study also finds that this modification in price distributions has caused optimal strategies for nitrogen application to change. The increased volatility of input and output prices has provided an incentive for producers to increase their nitrogen application rate.