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Falling corn prices = cheaper fertilizer

If there is a silver lining in today’s storm clouds of lower crop prices and shrinking margins, it’s fertilizer. Prices are falling and could continue to fall – especially for nitrogen – as the global marketplace becomes slightly more competitive. Due to the breakup of a potash cartel between Russia and Belarus, producers are getting a modest windfall in the cost of that input. Changes in production of nitrogen (the product that usually accounts for half or more of a farm’s nitrogen, phosphate, and potash (NPK) costs are even more significant. Cheap and abundant natural gas from the U.S. fracking boom could bring four or five large-scale nitrogen plants to the Midwest, say some in the industry. One being built in southeast Iowa by the Egyptian company Orascom Construction Industries is set to begin production in 2015.

Cheap natural gas in the interior of the U.S. is shifting fertilizer production from the Gulf Coast to the Midwest, says Jeff MacKenzie, a Chicago-area economist who consults for Orascom, which is building a $1.8 billion nitrogen fertilizer plant near Wever, Iowa, a small town near the Mississippi River city of Burlington.

“I believe ammonia nitrogen will stabilize in price down to around $400 a ton from about $700 a ton currently,” MacKenzie said last summer at the Iowa Farm Bureau’s Economic Summit.

Since then, nitrogen has fallen below $700 a ton but few expect nitrogen to get cheap quickly.

By early fall, anhydrous ammonia in Illinois was below $680 a ton, and University of Illinois economist Gary Schnitkey didn’t expect it to go up before the 2014 corn crop is planted. Prices probably aren’t critical for the timing of fertilizer purchases, he believes.

“I don’t see why you’d want to be in a hurry. I don’t see anything on the horizon where N prices are going up,” he says.

Schnitkey projects total fertilizer costs for NPK at about $140 an acre on productive northern Illinois land next year. That’s down sharply from $170 an acre for the 2013 crop and a peak of $200 an acre in 2012.

The decline won’t be enough to keep margins as profitable as they were in 2011 and 2012, Schnitkey says.

Fertilizer is such a big share – almost half – of the projected $357 an acre in direct input costs, that it will make a difference. Fertilizer is also more than a fourth of the total nonland costs of $537 an acre.

“That’s why everybody follows it so much,” Schnitkey says. It’s the single biggest nonland cost, exceeding $110 an acre for seed and $121 an acre for total power costs that include machinery depreciation, repairs, and fuel.

In recent years, fertilizer prices have followed corn prices upward, rising from $90 an acre in 2007 and increasing every year, except for a dip in 2010 and 2011, to the 2012 peak. Nitrogen fertilizer once tracked with the price of natural gas, its biggest ingredient and a power source. In about 2006, nitrogen decoupled from the price of natural gas. At that time, anhydrous ammonia was about $500 a ton.

U.S. wellhead natural gas prices, meanwhile, peaked in July 2008 at almost $11 per 1,000 cubic feet, falling to $1.94 in May 2012, according to the U.S. Energy Information Administration. Recently, futures prices have been over $3 per 1,000 cubic feet.

Nitrogen fertilizer prices could fall more, as well, Schnitkey believes. “I could see further declines in future years. That $500 to $600 range is possible,” he says of anhydrous ammonia prices per ton.

Dave Miller, an economist with the Iowa Farm Bureau who also farms, has seen prices drop for 2014 from his supplier in Knoxville, Iowa.

Last year, he paid $623 per ton for monoammonium phosphate (MAP), with a guaranteed analysis of 11-52-0 NPK. He paid $615 a ton for potash, which this year cost $480.


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Potash prices fell this summer when a dispute between Russia and Belarus broke up a cartel called the Belarusian Potash Company (BPC). BPC and a Canadian marketing organization, Canpotex, sell about 75% of the world’s potash. Canpotex represents Potash Corporation of Saskatchewan, Mosaic, and Agrium.

“Now it appears we’ve probably seen the bottom of that,” Miller says, referring to the fall in potash prices.

Early in the fall, both phosphate and potash prices were rising slightly, up about $10 a ton in two weeks.

Supply, partially controlled by the cartel from two members of the old Soviet Union, is one factor in those prices.

The other is demand by farmers globally. U.S. producers are a stable market for all three major crop nutrients of nitrogen, phosphate, and potash, says Miller. Growers in India and China, the world’s largest users of fertilizer, are less consistent. The Indian government subsidizes both P and K, and changes in subsidy levels affect purchases.

This fall, a favorable monsoon season in India has some analysts expecting increased demand for fertilizer in India, but the cost of imported fertilizer was also affected by a record devaluation of the Indian rupee compared with the U.S. dollar. Earlier this year, the International Fertilizer Association’s outlook through 2017 projected slowing demand growth in both India and China. That, too, could be good news for U.S. producers buying P and K.

On the supply side, each major nutrient has its own market, with Canada and the former Soviet Union supplying approximately three fourths of the world’s potash. The U.S. has more than enough phosphate (produced from mines in Florida) and is among the world’s leading exporters.


Nitrogen, once produced mainly in the U.S. for domestic use, has shifted to production from abundant natural gas in the Middle East, Russia, Africa, and the Caribbean.

“We peaked at about 70% of it being imported,” Miller says.

Now, it’s coming back. Miller points out that most new projects in the Midwest won’t come online until 2015 and 2016 at the earliest. So this year’s nitrogen prices are still tied to corn prices. Because the corn/soybean ratio favors soybeans and because other crops are more attractive, as well, Miller expects fewer acres planted to corn in 2014, hence slightly less demand for nitrogen. Yet, that’s not going to bring a huge change in nitrogen prices.

“I would be surprised if nitrogen gets much below $650 a ton for the 2014 crop year,” he says.

The expansion of nitrogen plants into North America’s heartland, which could drive prices lower, may be slowing.

Earlier this year, Yara, a Norwegian company that is one of the world’s largest fertilizer makers, announced it was delaying an expansion at its Belle Plaine, Saskatchewan, nitrogen plant, citing high construction costs and the potential for oversupply. Globally, some 25 urea projects have been delayed this year, according to the International Fertilizer Association.

Plans for nearly 20 new nitrogen plants have been announced for North America, says Brian Schouvieller, vice president, CHS North America. A smaller number, perhaps four, will actually be built, he believes.

CHS, a global grain seller owned by farmers, ranchers, and local cooperatives, also imports and distributes fertilizer. It could become one of the handful of new nitrogen producers, as well. A year ago, CHS announced plans to build a $1.5 billion fertilizer plant near Spiritwood, North Dakota, that would produce 2,200 tons of ammonia per day. Construction hasn’t yet started.

“We’re making good progress and all factors appear manageable, but we really won’t know until late fourth quarter or early next year,” Schouvieller tells Successful Farming magazine.

Besides the Spiritwood plant and the Orascom plant under construction, CF Industries is making a major expansion near Sioux City, Iowa, with a new $1.7 billion fertilizer plant.

About half of the growth in nitrogen fertilizer capacity will be in expansions to existing plants and about half will be new ones, says Jeff Greseth, vice president, crop nutrients supply for CHS.

Among those new plants, “there’s definitely room for something east of the Mississippi,” Greseth says. “They’re going to be in geographic areas that make good sense for logistics.”

Meanwhile, CHS and other businesses that distribute fertilizer will continue to import and ship fertilizer by barge up the Mississippi, or in the case of much anhydrous, ship through pipelines.

Like Miller, Greseth and Schouvieller say current declines in nitrogen prices are due more to slow demand this fall from farmers and falling corn prices. They also say the nitrogen supply is unlikely to grow so much that we’ll see prices much lower than this year’s levels.

“You’ll probably end up pushing out some of the imports that are coming here today,” Greseth says.

Having more domestic production, he says, “will probably stabilize prices, and you won’t have huge run-ups in price.”

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