November 30, 2007

Nitrogen and phosphorus fertilizer prices increased dramatically in the last year and are expected to continue climbing in spring 2008. What's causing this change and how will it affect your operation?

Natural gas accounts for 80% to 90% of the cost of producing anhydrous ammonia, the base material for producing all other nitrogen fertilizers. After Hurricane Katrina, natural gas prices spiked to near $15 per million BTU (MMBTU) but have returned to pre-Katrina levels of about $7/MMBTU, according to the U.S. Department of Energy (http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp)

Fertilizer Prices

Increases in fertilizer prices often are blamed on natural gas prices, but that doesn't represent the whole story. World prices for natural gas are much lower and range from less than $1/MMBTU in parts of the Middle East to only $2-3/MMBTU in Russia. The Fertilizer Institute notes that several factors have contributed to increasing fertilizer prices, including world demand and ethanol production. World demand for fertilizer — primarily from South America, China and India — has risen 14% in the past few years.

 

Fertilizer is a world-wide commodity and the U.S. must compete with other buyers. A weak dollar makes fertilizer more expensive for U.S. producers. Because of tight cost margins and environmental regulations, 25 U.S. ammonia production facilities have closed permanently since 1999. New production facilities are being built in China, the Middle East and the Caribbean.

One of the major production ports for shipping urea and ammonia is Yuzhnyy (Ukraine) on the Black Sea. An excellent source for fertilizer information is provided by The Market out of London, England. See http://www.fertilizerworks.com/ , then click on the left side under "The Market" on download report. Remember, these prices are set by world manufacturers and do not reflect the added transportation, marketing and dealer markup represented in your local price.

Nitrogen and fertilizer costs jumped 20% last winter and are expected to increase rapidly for spring 2008 (Figures 2 and 3). Stay informed about fertilizer price shifts and if your fertilizer dealer is offering good prices (lower than last spring's highs), it's probably a good idea to book most of your fertilizer now.

Gary W. Hergert
Extension Soils Specialist
Panhandle REC, Scottsbluff