No Bargains for Anhydrous

Price could trend higher next spring

By Tracy Sayler

Natural gas prices are high and expected to get higher.  Since natural gas is a key input to make anhydrous ammonia, don’t expect any bargains on the gaseous nitrogen fertilizer scene any time soon.

You can track the price of natural gas, traded at the New York Mercantile Exchange, at its website, www.nymex.com .  Natural gas futures are also published in a number of newspapers, including the Fargo Forum. Just like grain futures, natural gas futures are traded and quoted for nearby and far-away months, and those prices indicate demand.  Currently, natural gas futures show a steady increase into next year.

“Natural gas prices are high now, and through the winter, they could become astronomical.  It doesn’t bode well for ammonia prices,” says David Franzen, extension soils specialist at NDSU.

That means you might want to look into locking in propane costs yet this summer for any expected grain drying this fall, as well as anhydrous applications this fall, if you have the time and soils for it. “It might be smart money to get some anhydrous applied this fall, but you need the soils to support that,” says Franzen. “You’ll lose it in sandy soil, so if you have sandy soils, you’ll have to plan on applying it in the spring.”

If applying anhydrous this fall, be patient for optimum conditions.  Wait until after the first week of October. Soil temperature should be less than 50 degrees within the top four-inch soil depth.  “Otherwise, bacteria in the soil will convert the anhydrous to nitrate, and it will move where the moisture goes, and that’s not good.  We want it to stay put,” Franzen says.

Why are natural gas prices so high? One reason is that it has become so widely used today as a source of energy, both in residential and industrial markets.  For example, many power plants that years ago operated on coal use natural gas as energy.

It’s difficult to lock in lower prices of anhydrous ammonia, since only so much of it can be stored, limiting supply carryover.  Franzen predicts higher anhydrous prices may lead to more use of urea for fertilizer.  “You’re more apt to pick up bargains this fall on urea for application next spring, and it’s something that can be stored easier as well. Urea could become our primary source of N; it’s awfully close now.”  He says in 2002, about 60% of nitrogen fertilizer applied in North Dakota was anhydrous ammonia, and about 40% was urea.  In 1994, about 70% was anhydrous and 30% was urea.

Get more tips on managing energy costs online at www.prairiegrains.com . Click on the current issue, then the link “2001,” and then “Marketing Guide Table of Contents.”  Scroll down, and click on the online article, “Ways to Manage Energy Costs.”

Note how closely the price of ammonia follows the price of natural gas: Natural gas is the primary input to ammonia production, which, in turn, is the major input to production of nitrogen fertilizer. In recent years, increasing demand for natural gas and variations in supply have caused short-run fluctuations in natural gas prices, affecting nitrogen fertilizer production costs and prices. Phosphate and potash fertilizers are mined, with prices reflecting increased mining costs and annual variations in demand. The long -term upward trends in natural gas and fertilizer prices are expected to continue as production costs increase. (USDA graphic)