Kevin Hursh, The StarPhoenix Published: Wednesday, January 31, 2007
The price of nitrogen fertilizer is going through the roof, and there are worries about adequate supplies granular nitrogen for seeding time. The main reason the strong price of corn south of the border.
This spring in the U.S., millions of acres are expected to shift from soybeans to corn. Unlike soybeans, corn requires lots of nitrogen. With corn prices higher than they've been in 10 years, producers will be pouring on the nitrogen in search of the best yields possible.
Here in Western Canada, a big acreage increase is anticipated in canola, another heavy user of nitrogen.
Analysts say that only about 60 per cent of North American nitrogen demand is serviced by North American production. This year, the fertilizer industry apparently didn't lock-in enough offshore product quickly enough to meet the increase in demand.
Last fall, urea (46-0-0, a dry granular product with 46 per cent nitrogen) was retailing for about $340 a tonne Saskatchewan. Since then, the price has skyrocketed.
Depending upon the retailer, you can fi nd urea that ranges all the way from $460 to $520 a tonne and there could be further increases coming.
For a canola producer applying 70 pounds per acre of actual nitrogen, urea at $340 a tonne is a cost of about $23.50 an acre. At $500 for a tonne of urea, the price tag for 70 pounds of actual nitrogen per acre is about $34.50.
The situation was entirely different a year ago. In the fall of 2005, natural gas markets were sky high. Urea was in the $450 to $500 a tonne range and most analysts expected prices would be even higher by the spring. In nine out of 10 years, prices are lower in the fall.
That wasn't the case in 2006.
Producers who locked in their supply the previous fall were out money.
This year, even though natural gas prices have been moderating, there was a huge price advantage to purchasing after harvest.
Natural gas is the main component in nitrogen fertilizer.
There is a strong relationship between the price of natural gas and the price of nitrogen. However, fertilizer is its own commodity. When the supply is out of step with demand, the price can react independently of the natural gas feedstock.
While producers have seen big price swings in the past, this time there is also a serious worry about nitrogen availability.
Nitrogen in the form of anhydrous ammonia appears to have an adequate supply. The price has increased, but it appears there should be enough available for the needs of producers. Most analysts are also predicting an adequate supply of phosphate fertilizer, even though it has also seen a considerable price increase.
Urea is the main concern. Analysts say producers who haven't locked in a supply may not be able to get it on a timely basis.
Across Western Canada, anhydrous ammonia accounts for about one-third of total nitrogen use. Some areas have no access to the product. In other areas, it's common, but even in these regions, some producers are set up to use anhydrous and others aren't.
There have been other years when people worried about spot shortages of fertilizer, but serious supply problems have seldom materialized. For 2007, many are convinced that urea will be in short supply and it could be much more than some localized and temporary spot shortages.
There could be market adjustments that reduce fertilizer demand. Faced with high-priced nitrogen and uncertain supply, some American farmers may back off on their corn planting intentions. Some Western Canadian farmers may seed a few more peas in place of canola.
How acute the situation becomes will also depend a great deal on how the spring unfolds. An early start to seeding in the U.S. and Canada with few seeding delays will aggravate the tight supply. The plants will have less time to manufacture product and less time to get it distributed.
Kevin Hursh is a consulting agrologist and farmer based in Saskatoon. He can be reached at [email protected].
