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Abstract Yeboah, Osei-Agyeman, T. Thomas, V. Ofori-Boadu, P. E. Faulkner. 2008. Fuel prices and substitution of nitrogen fertilizer input in irrigated corn production. JEMREST 5:00-00 Rising fuel prices has already started playing a crucial role in various production decisions and the present paper examines potential effects on fertilizer use through substitution between fuel and other inputs in a major US agricultural product, corn. Crude oil prices have risen from around $35 per barrel in June $2004 to over $97 in January 2008. Natural gas prices, a large component of nitrogen fertilizer, have risen from $5.25 per mmbtu in March 2004 to over $13.25 mmbtu today. The share for fuel expense has almost doubled in most agricultural regions in the country since 2004. Fertilizer expense share has increased by an average of 6.8%. Outcomes of energy policy hinge on energy substitution but there is little consensus on substitution between energy and other inputs. This paper uses translog cost functions to estimates the related cross price elasticities of substitution between input pairs. Historical data from 1975 to 2004 on price, quantity produced, labor, fertilizer, and energy input in corn production are from the United States Department of Agriculture Economic Research Service (USDA/ERS) online database. Results indicate that the fertilizer share especially increases as does the energy share. However, higher fertilizer prices have elastic own effect with enough substitution that fertilizer spending falls with a higher price. A 10% increase in fertilizer prices reduces the application rate by more than 20%. This result is contrary to studies in the 1990s that the demand for nitrogen fertilizer is inelastic.

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