A natural gas price dip has temporarily put an end to high fertilizer costs.
But people in the industry say producers shouldn’t bank on the lower nitrogen prices lasting for long.
Natural gas provides the building blocks for ammonia and the energy to transform the fossil fuel into fertilizer. Soft natural gas prices over the summer and fall reduced nitrogen prices to as low as 30 percent cheaper than the near-record costs seen before seeding the 2006 crop. Nitrogen prices routinely topped $500 per tonne at the time.
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Darren Blair of Blair’s Fertilizer in Lanigan in east-central Saskatchewan, said many producers have the optimism and in some cases the cash to put larger amounts of nitrogen in the ground or their bins this fall.
“Unfortunately, in our area it’s been too wet to put the anhydrous (ammonia) in this year. And -10 C nights and 5 C days aren’t exactly widening the window of application anywhere else in the West where it is dry enough to go,” he said.
Jeff Holzman of Agrium said the reasons behind the natural gas price slump are temporary.
“North American natural gas prices declined in September due to high gas storage levels. However the forward market is indicating higher gas prices through the winter months similar to the trend over the past few years,” said Holzman.
International markets for nitrogen have temporarily lost their appetite for the commodity due to a combination of high prices for the nutrient, low grain prices of previous seasons and poor growing conditions.
“High global energy prices have impacted nitrogen operating rates in key producing regions such as North America, Europe and India, which has supported (lower) global nitrogen prices.”
Holzman said the combination of rising grain prices and the expectation of higher corn and wheat acres in North America would likely push up nitrogen prices in late winter and spring.
India has been importing large quantities of nitrogen since July. That demand is pulling product away from American ports and squeezing North American inventory.
The result will be higher prices going into spring 2007, said Holzman.
Natural gas prices in October of around $7 US per one million British Thermal Units were half those of December 2005 when they hit $15, driven up by supply disruptions caused by hurricane Katrina.
But as production from the Gulf of Mexico came back on stream and as much of the U.S. enjoyed a mild winter, prices started dropping. By summer, stocks of the fuel climbed to higher than normal levels.
Gas hike
Bank of Montreal economist Earl Sweet also said today’s lower prices won’t last. He said rising demand for natural gas and fairly stable supplies should push prices higher in the future.
Blair said many of his customers are filling liquid tanks before winter temperatures arrive and loading storage bins.
“We are starting to get the calls from producers looking to book spring deliveries and lock in prices. I expect that we’ll see more of that in the coming month,” he said.
