Spot Shortages, Volatile Prices for Fertilizer

Ron Schroeder, head of the Great Plains fertilizer division for Heartland/Agriliance, says that offshore natural gas supplies have become a huge factor in the price of nitrogen fertilizer. Cheaper off-shore natural gas has squeezed domestic fertilizer manufacturers. Off-shore nitrogen producers enjoy a price advantage of $3 - $5 per mmbtu in natural gas costs, he points out.

Schroeder, speaking at the recent Prairie Grains Conference, the annual meeting of the Minnesota Wheat and Barley Grower Associations, says that higher cost, older and smaller plants of domestic manufacturers are finding it especially difficult to compete. The result is less fertilizer in the pipeline, spot shortages, and volatile prices. Some trends that Schroeder sees:

•  A 5% to 7% per year shift from anhydrous to dry nitrogen products

•  A higher percentage of imports each year

•  More storage of dry and liquid nitrogen

•  More large hub fertilizer plants with unit train capacity, similar to grain

•  Continuing consolidation of both manufacturing and distribution in the fertilizer business

Schroeder expects the price for all forms of nitrogen higher this spring. Phosphorous supplies will be tight and prices firm, while potash supplies will be adequate and prices flat.  He advises growers to lock in most of their fertilizer needs. Prepay to ensure supply if you can, and apply precisely.

Current Supply/Price Situation

Product	Supply	Price Trend
NH3	Adequate	Flat/Firm
Urea	Tight	Firm
UAN	Short	Firm
Potash	Adequate	Flat
Phosphates	Tight	Firm

Price Changes vs. the Previous year as of December 8, 2003

NH3 $125/ton UP

Urea $76/ton UP

UAN $24/ton  UP

DAP $47/ton  UP

Potash $12/ton UP

Source: Green Markets, which follows fertilizer market trends. On the web: http://greenmarkets.pf.com

Expect Strong Weather-Markets Link in ‘04

It’s tough to predict weather, but at the same time, you can’t ignore trends either, especially when they become cumulative.

Gail Martell, an ag meteorologist and a former EF Hutton weather/crop analyst, was a speaker at the recent Prairie Grains Conference, the annual meeting of the Minnesota Wheat and Barley Grower Associations. She says that low moisture accumulation in the fall of ’03 leaves most of the plains winter wheat crop with about 25% below normal rainfall. That situation leaves the winter wheat crop throughout the Great Plains much more vulnerable to wind damage and other challenges.

It also leaves much of the spring wheat growing area low in stored moisture.  Martell says the Palmer Index shows a lingering below-average moisture pattern that extends throughout the U.S. Great Plains and into the prairie provinces of Canada.

Martell attributes the generally excellent wheat crop that most farmers harvested in the Northern Plains this past year to the jet stream that got stuck in August. This provided hot, dry weather for wheat after the crop was made, and provided grain producers with ideal harvesting conditions. However, that same late-summer stuck jet stream and accompanying low moisture caused serious problems for soybeans and other row crops.

She sees a continuing strong relationship between weather and crop prices in 2004, because of lingering global and regional weather patterns and reduced stockpiles of grain.

There are several long-range weather prediction sources on the Internet, including the U.S. Drought Monitor at the University of Nebraska (http://drought.unl.edu/dm) and the National Weather Service Climate Prediction Center (www.cpc.ncep.noaa.gov)

Meteorologists advise taking long-range estimations for what they’re worth; they do give some idea about what large-scale computer models are indicating about cycles, but the longer the range in forecast, the less accurate.