With spring, a young farmer’s fancy turns to fertilizer. This year such indulgences may prove costly.
Ammonia-based fertilizer prices have jumped as much as 30 percent compared to last year and some economists predict the price may rise another 20 percent by spring.
Higher natural gas prices, which have almost doubled during the past year, are affecting nitrogen fertilizer prices.
Nitrogen fertilizer is made from ammonia, which comes from natural gas.
According to the United States-based Fertilizer Institute, when natural gas prices double, the cost of producing ammonia rises by almost as much.
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Natural gas prices rise as supplies shrink. Natural gas demand has risen steadily during recent years as prices remained low until recently.
Fertilizer producers hedge the price of some natural gas supply by buying futures, but there is a wrinkle.
Fertilizer companies have some production plants that are not efficient to operate when gas prices rise. When these plants are taken out of production, the supply of fertilizer drops and this causes more pressure on nitrogen prices.
Agrium is one of the largest manufacturers of nitrogen fertilizers. The Calgary-based company decided late last year to stop producing fertilizer at its more expensive-to-operate Redwater One facility in Alberta and its Finley, Washington, plant.
The company said last week these two would remain closed and the company would reduce production at Joffre and Fort Saskatchewan, Alta., and at Borger, Texas.
Agrium, along with other North American producers, has chosen to stop producing fertilizer from natural gas at its current price. The spot price for natural gas in November was 2.75 times higher than the 1999 average price.
Jim Pendergast of Agrium, said the company thinks natural gas prices will drop once the shortage is overcome. But the company said it wouldn’t produce more fertilizer unless the sales demand is there.
Last year, the price of natural gas was hovering in the $6 per million btu range. It is now near $13. It takes 33 million btus of natural gas to produce one tonne of ammonia. This would result in anhydrous ammonia prices of $429 per tonne without including production or transportation costs. Urea or urea-ammonium nitrate would be even higher on a nitrogen per unit basis as the cost of producing these products is higher than that of pure ammonia.
Agrium is planning to import fertilizer from offshore to augment North American supplies, but these prices too are rising rapidly with demand.
“We may also face some challenges in importing. We may not have the infrastructure to handle the imported (fertilizer) … storage, rail cars, transportation. It could mean spring shortages even with imported product,” said Pendergast.
Fertilizer dealers say they are warning farmers to not delay fertilizer buying decisions.
Urea prices increased by about $60 per tonne in the last 15 days of December, bringing the price to more than $350 per tonne.
Many dealers say they sold more fertilizer last fall than in past years but are afraid even farmers who bought 80 percent of their supply will get a nasty shock when they visit their dealer next spring for the rest. Most predict the price at that time will be 50 percent higher than it was in the fall of 2000.
Rick Renwick, of Ren Gro Fertilizer in Milestone, Sask., said he has sold out of fertilizer at the old prices and will need to pass on new higher costs to his growers.
“I have heard some producers saying they plan to increase their pulse crop acres so they won’t need as much (nitrogen) this season,” he said.
