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					                            FERTILIZER REPORT
The USDGA board has put together a Fertilizer Task Force to get answers to the following
questions. The board decided to put this taskforce together because of the escalated fertilizer
costs which has raised concerns with many durum producers.

To get the answers to these questions, USDGA contacted Marvin Nelson from Rolla, ND to
research several questions that producers were concerned about. Marvin compiled the answers
to the questions below. If you have further questions, please contact Jim Diepolder, USDGA
Director.

1. What percent of anhydrous ammonia is used for agricultural purposes?
According to the United States Geological Survey, slightly over 80 percent of ammonia on a
world basis is used for fertilizer production, as far as the United States it is about 85 percent.
This dispels the myth perpetrated by suppliers that nonagricultural i.e.… industrial use is the
main price setting component for fertilizer.

2. What price relationship does natural gas have to the cost of fertilizer? Today in
the US using current prices which are really close to $6 per MMDth, the cost of
natural gas per ton of anhydrous ammonia is right at $200.
This is not the total cost of producing anhydrous ammonia, but it’s the part that varies the most
over time. Historically, it was often quoted that 80% of the cost of producing ammonia was the
cost of the natural gas and more recently, with higher prices figures like 90% are often stated. In
practice, the other costs tend to be more fixed and are dependant on your cost of building a
plant, on interest costs for money, and on labor costs, but in any case we are dealing with a few
dollars. I would suggest a fixed rate somewhere in the $20 to $40 dollar range per ton added to
the cost of the natural gas would get one really close.

3. What is the cost of ammonia to produce at the local coop controlled plant at
Beulah?
The cost of production is calculated at about 205 dollars per ton using the above natural gas
cost. With a reasonable profit and return on investment, the cost should not exceed 300 dollars
a ton.

4. What is the cost of fertilizer in Europe, Brazil, Canada, Australia and other
competing durum producing countries?
Surprisingly, the price of fertilizer is higher generally in Canada than the United States. Europe
and the United States have tariffs or antidumping duties on the importation of fertilizer from the
Russia and the Ukraine for Urea. Yet the suppliers of fertilizer (i.e. Cargill) are importing wheat
from these countries to the US while restricting the ability of US producer to buy the cheaper
nitrogen and compete in the Global market. What is the price of nitrogen and fertilizer in other
durum producing countries? The answer to this question is beyond the scope of the immediate
discussion and one should refer to the sources listed on the USDGA Web site at
www.durumgrowers.com
5. Who are the major suppliers and manufactures of fertilizer?
There are 14 major companies that produce nitrogen.
         Company                  Location               Capacity               Comments
                                                    (Thousand Tons)
1. Agrium Inc.                      Borger, TX               490
                                    Finley, WA               180                   Idle in 2006
                                    Kenai, AK                180
2.   CF Industries Inc.          Donaldson, LA              2,040
3.   Coffeyville Resources LLC    Coffeyville, KS            375
4.   Dakota Gasification Co.       Beulah, ND                363
5.   Dyno Noble ASA              Cheyenne, WY                174
                                  St. Helens, OR             101
6.    El Dorado Chemical Co.      Cherokee, AL               175

7. Green Valley Chemical           Creston, IA                32
Corp.
8. Honeywell, Internat. Inc       Hopewell, VA               530

9. Koch Nitrogen Co.               Beatrice, NE               265
                                  Dodge City, KS             280
                                     Enid, OK                 930
                                  Fort Dodge, IA              350
                                  Sterlington, LA            1,110
10. Mosaic Co., The                Faustina, LA               508
11. Nitromite Fert. Co.             Dumas, TX                 128                 Closed 2006
12. PCS Nitrogen Inc.              Augusta, GA               688
                                   Geismar, LA                483                   Idle 2006
                                     Lima, OH                 542
13. Rentech Energy Midwest       East Dubuque, IL             278
Corp.,
14. Shoreline Chemical             Gordon, GA                 31
15. Terra Industries, Inc.       Beaumont, TX                231                    Idle 2006
                                  Port Neal, IA              336
                                  Verdigris, OK              953
                                 Woodward, OK                399
                                 Yazoo City, MS              454

                                                          12,700
                                     Total             thousand tons


 6. Is their price competition between players?
 Yes. Wholesale prices seem largely set by Gulf Coast US trades and companies do compete.

 Retail is much tougher but again. Prices do seem to not be set by a bunch of territorial
 monopolies but by several overlapping distribution systems competing to sell basically the same
 product to the same market.

 The greatest potential area of setting prices is in potash. Where production is much more
 concentrated, and the head of one of the Canadian potash corporations has said many things
 that sound like he is an advocate of the industry setting the price.

 In all three nutrients; nitrogen, phosphorus and potassium, demand is very close to capacity for
 production. Bringing new production on line is quite expensive and takes some time. The
longest is an estimated 7 years for a potash mine, with an investment of some 2.5 billion dollars.
Nitrogen and phosphorus is shorter term, around 3 years and there is new nitrogen production
that should come on line over the next several years.

7. What is the storage capacity of fertilizer?

Retail dealers really don’t have much storage on site for ammonia. They have their nurse tanks
and usually one or two high pressure tanks for filling nurse tanks. Often they have but one day
at peak season on hand. So trucking from terminal storage is a concern.

For dry fertilizers. With all of the current hopper bottom bins and such that could be available,
it’s certainly possible to have more than a season’s use on hand.

The big concern this year is farmers are not buying and the supply chain is filling up. There is a
slug of higher priced product basically blocking the product that would reflect lower world
prices. The concern is that if the situation doesn’t let up, seasonal movement might not keep up
with those products.

Summary, Prices has been determined by what the market can bear; and little to do with cost
of production. Speculation (if you don’t buy it now you wouldn’t get it) dominated the market
price rise; not cost of production, supply and demand, or transportation costs. Many blame the
collapse of the energy prices for the fall in fertilizer prices; but before that---when cost of
fertilizer per acre went over the 100 dollars for durum production the speculative bubble for
fertilizer prices burst. Because when prices hit these historical levels farmers quit buying in
advance and inventories start to build. The decline in prices was not exclusive to wheat
production but other commodities i.e.…especially corn as well. Many retailers got caught
speculating with inventories and are try to pass off the higher costs to farmers. Retailers will
hopefully learn that they have no reason to speculate and need to be in touch with the end user
(the lowly farmer) and take a modest margin.

Logistics has more influence on price spikes than does supply and demand. Supply, especially
for ammonia, is available but because of the seasonal demand farmers will be subjected in
season to extreme price spikes. This maybe alleviated with more farmers switching to urea from
ammonia as a source of nitrogen; purchasing and storing it on their farms in advance.

Storage either on farm or at the retail and wholesale level for fertilizer is the answer for farmers
to protect themselves from future price swings and shortages.


Sources:
http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/
http://www.gao.gov/new.items/d031148.pdf
http://www.dakotagas.com/
www.ifdc.org
www.fertilizerworks.com
www.yara.com
http://www.usitc.gov/trade_remedy/731_ad_701_cvd/investigations/antidump_countervailing/docum
ents/orders-product-tbl_003.pdf
http://www.tpub.com/content/cg1998/rc98099/rc980990011.htm
http://www.tpub.com/content/cg1998/rc98099/rc980990032.htm

				
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