Nitrogen demand raises price

Nitrogen fertilizer prices are rising and the forecast is for more of the same, say manufacturers of the key farm input.

U.S. anhydrous ammonia prices were up 18 percent Aug. 18 from a month earlier and liquid urea prices were up nine percent, according to a survey conducted by DTN.

Agrium Inc. expects continued strong nutrient demand and rising prices in the second half of 2010.

“Global nitrogen markets have firmed considerably due to a combination of seasonal turnarounds in some export regions reducing supply and a significant increase in demand from markets such as India, Pakistan and Brazil,” said the company in an Aug. 4 news release.

North American demand is also expected to be strong.

The U.S. Department of Agriculture reduced its corn ending stocks estimate by 13 percent in July and by another four percent in August.

Analysts expect those reductions, when combined with attractive prices, will result in increased U.S. corn area in 2011. The crop is a big user of nitrogen.

An early U.S. corn harvest has created a big window for farmers to apply nitrogen this fall, which should help make up for poor spring application caused by weather constraints.

Agrium said North American nitrogen supplies are tight with urea inventories 11 percent below the five-year average as of the end of June.

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CF Industries, another large fertilizer manufacturer, agreed that North American nutrient demand is likely to increase.

“We expect upward momentum in nitrogen to be sustained by the combination of low inventories, seasonal supply outages, solid demand both domestically and internationally and favourable relationships between natural gas prices in North America and other world markets,” said company chair Stephen Wilson.

Ian Wishart, president of Keystone Agricultural Producers, said fertilizer manufacturers shouldn’t become too greedy with their prices or growers will balk.

“As we demonstrated in 2008 and 2009, there is a limit to how high they can go or we won’t buy,” he said.

Wishart said former Soviet Union countries might be exporting fertilizer because they had such disappointing harvests and are forecasting a decline in winter cereal acreage.

However, he agreed that nitrogen fertilizer prices could rise and doubts there will be much relief in sight. As a result, farmers might want to consider buying their supplies soon.

“If (fertilizer companies) manage to drive the price up in the fall, they’ll do their level best to hold it through winter,” he said. “They can manage supply and keep prices high.”

Bob Friesen, president of Farmers of North America Strategic Agriculture Institute, said a price hike in one of farmers’ most costly inputs comes as no surprise.

“We started anticipating it as soon as the wheat price started strengthening because that’s exactly what happened the last time around.”

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Friesen said there has been no discernable increase in natural gas prices, which is the biggest cost in producing nitrogen fertilizer.

“Companies are increasing price simply because they can.”

FNA has brought in shiploads of low-cost nitrogen fertilizer for its members in the past and is considering doing it again as prices rise. The company is also exploring a long-term solution to the problem.

“We believe that farmers should seriously look at putting up their own nitrogen plant in Western Canada and in fact FNA is looking into the possibility of offering that sort of initiative to its members.”

Wishart said fall demand for nitrogen fertilizer may be strong in the United States, but that might not be the case in Western Canada.

The crop is late and in some cases will be low-yielding, which means the soil may not require a nutrient injection.

Viterra, a major Canadian retailer of fertilizer products, said its 2010 sales will depend on fall field activity.

“Should we have good harvest conditions and farmers are able to participate in post-harvest work, we expect them to maximize their application of nutrients given the significant erosion of nitrogen resulting from excess moisture,” Doug Wonnacott, senior vice-president of agriproducts, said in a July 8 news release.

Wishart recalled hearing the same warnings about nutrient loss in 2005, another wet year.

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However, he said it didn’t happen.