A proposed fertilizer plant in North Dakota would likely mean lower nitrogen prices for growers in the Upper Midwest and the Canadian Prairies, but it represents a poor investment for farmers, said an American fertilizer industry expert.
Glen Buckley, chief economist with NPK Fertilizer Advisory Service in St. Louis, Missouri, said nitrogen fertilizer production is increasing, corn prices aren’t going to remain near $8 per bushel forever and natural gas prices will likely rise in the near future.
Taking the supply, demand and cost of production factors into account, investing hundreds of millions to build a nitrogen fertilizer plant in North Dakota just doesn’t pencil out, Buckley said.
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“From a farmer’s standpoint, new capacity in the U.S. will drop prices. From an investment standpoint, there is a lot of risk,” said Buckley, who was chief economist at fertilizer producer CF Industries for 30 years before joining NPK.
Buckley said global scale plants are under construction or are about to start production in the Middle East and elsewhere. As a result, the world supply of urea and ammonia is moving into a surplus.
In addition, corn has been trading around $8 per bu. this summer and natural gas has been below $3 per million British thermal units (MMBtu) for most of 2012.
But there is no guarantee that grain prices will be at record levels and natural gas prices will be at record lows when the proposed North Dakota plant is operational three or fours years from now, Buckley said.
“It’s going to take three years to build this plant. You tell me in three years that natural gas prices are going to be at $2.50? Not likely…. And urea prices will likely be more in the $350 (per tonne) range than in the $700 range.”
During a meeting with Manitoba producers in Brandon, Don Pottinger, a Minnesota consultant and business adviser to the proponents of a farmer owned nitrogen fertilizer plant, admitted building a plant in North Dakota will be challenging because of the labour shortage in the state.
Buckley concurred, noting it’s possible to make $20 per hour working at a McDonald’s in North Dakota.
Labour costs aside, Buckley said the idea of securing a regional supply of fertilizer and lessening dependence of foreign supplies sounds appealing to farmers.
But it’s impossible to isolate the nitrogen market in the Northern Plains from fertilizer produced in Canada, Egypt or Saudi Arabia, he said.
“From an economic standpoint you’ve still got to compete against the international market.”
