ISSUE 15 August 9, 2001
THE FERTILIZER SITUATION, 2001-2002
There is certainly a lot of time before planting season in 2002 and much can affect the fertilizer industry positively or negatively during that time. However, given the anxiety level of farmers and industry people last year over supply and prices, it might be good to reflect on what has been and look forward to this coming crop nutrient application year.
There was no question early in the fall of 2000 that gas prices were somewhat higher along with anhydrous ammonia prices than they had been in the recent past. In North Dakota and northwest Minnesota, fall ammonia application was reduced due to the wet weather and early winter. In November of 2000, gas prices in the US began to rise drastically, peaking somewhere around $10/million metric BTU (MMB) in January. Since natural gas prices are the single most important input in anhydrous ammonia production, the cost of ammonia is linked to gas directly. The cost of making a ton of ammonia shot up well past $300/ton.
Since the US does not survive in a vacuum and trade with other countries is a part of life, US marketers and producers of ammonia had to consider that this was a North American problem, not a world problem. They quickly realized that when their competition in the Former Soviet Union (FSU), Saudi Arabia, Indonesia, Venezuela and other countries found that they had a $200/ton price advantage over US production, "the gas would flow" to the US. (These competitors price for natural gas precursors of ammonia ranged from $0.50/MMB to a high of about $1.50/MMB). As a result, two things happened. First, ammonia plants closed, reducing domestic production to less than 50% capacity for a period of time in January/February 2001. Secondly, imports poured in.
Our imports of ammonia in 2000/2001 were double 1999-00. Nitrogen solutions quadrupled. Urea imports increased 2 ½ times. Some of these products never made it to market. The barge traffic on the Mississippi River was blocked until planting season was over, and about a million tons of urea were stranded at the Gulf ports waiting to unload during the planting season. But farmers had made adjustments, and considerable acreages were not seeded, particularly in North Dakota/Northwest Minnesota. Due to frantic early buying by retail fertilizer dealers and increased before season storage precautions, there was no general shortage of N fertilizer.
That brings us to today. Gas prices are down to $2.50-$3.00/MMB, which means that North American ammonia production is still about $100/ton higher in cost than foreign competitors. Ammonia pricing for this next year is forecast in the high $200's/ton in the mid-west as opposed to the mid $300's last spring. Most if not all US ammonia manufacturers in the southeast US and the Gulf states have shutdown and moth-balled their plants. They cannot compete with offshore production. The plants in the central US are going to try to make a go of it, due to the problem with supplying all of the US needs through the Gulf ports. Barge traffic past St. Louis will freeze up in December and won’t open again until spring. Trucking is too costly. The pipelines are committed at least partially to handling petroleum products of many kinds and can only grant N fertilizers partial time. Railroads want to handle unit trains, and coordination of port authority, longshoremen and the railroads is probably frustrating at best.
So when looking at the price of ammonia at Tampa, and looking at the central, northern US market, there will likely be a higher than normal price spread between north and south. Where imported fertilizer makes up the great share of the market, prices will be lower. Where domestic production makes up a greater share, prices will be higher.
It will be easier to move urea north than ammonia and N solutions due to the Gulf bottleneck. The wild card in pricing and the survival of the US ammonia production market will be the cost of urea from overseas compared to domestic, domestic/foreign mix ammonia pricing. If urea is cheap enough, if the retail fertilizer dealers and farmers have the ability and the desire to switch to and take advantage of lower priced N as urea, than the future of our domestic ammonia production capacity is in trouble.
I do not think short-term that shortage of N will be an issue this coming year. Unlike 2000-2001, the flow of imports is already underway. The problem may be long-term. US crops are extremely dependent on N fertilizer. It is discomforting to think that most of our N requirements might come from the Mid-East and Asia in the coming years.
Crops are beginning to come off the field and with it comes the need to plan for next years crops. Even if fertilizer will not be applied until spring, or the future crop is yet unknown, the fields should be sampled to determine a fertilizer strategy for the coming year.
If the field has not been tested for several years, a composite test for phosphate, potassium, soil pH, nitrogen and any other nutrients that might have been a problem in the past should be analyzed. Nitrogen, sulfate and chloride is analyzed on a 0-2 foot core (0-6 inch plus 6-24 inch cores), while phosphate, potassium, soil pH, zinc and copper are run on the 0-6 inch depth.
An improvement on a composite sampling technique is having the nitrate samples taken on hilltops, slopes and depressional areas. The resulting report contains three numbers instead of one, and helps to avoid under-fertilization when some parts of the field test unusually high, and also eliminate the need for "insurance N" because of distrust of high soil test N values. The cost of this alternative type of sampling is very low compared to the benefits.
We have had an unusually high amount of water this year in many areas of the state. In any field, it will be hard to estimate the fertility levels, especially of N, without a fall soil test. Soil testing can proceed immediately after small grain harvest. Soil testing following early broadleaf crops should be delayed until after September 15. When filling out the soil test form, make sure that this year’s crop is mentioned, so that any previous crop credits can be accounted for prior to calculating the N recommendation for next year.
NDSU Extension Soil Specialist