Storms Keep Coming for Fertilizer Industry

September 29, 2008 07:00 PM
 

Jeanne Bernick, Top Producer Crops & Issues Editor
 
Fertilizer facilities in Texas and Louisiana may have weathered Hurricane Ike with only minor damages, but the industry continues to struggle with tight supplies and the impact of a collapsing financial market.
 
On Galveston Island, Texas, a major CHS Crop Nutrient terminal suffered only cosmetic damage from Hurricane Ike, while flooding and debris in the shipping channel brought fertilizer imports to a standstill. The CHS facility in Galveston is a major hub for urea distribution, moving nearly 500,000 tons of urea annually, says Cheryl Schmura, vice president of Crop Nutrients for CHS.
 
"Short-term, we are not worried about supply,” Schmura says. CHS has 30,000 tons of urea in tact on site in Galveston and plans to reroute vessels to other ports to bring in urea.
 
"Long-term, however, our concerns are the same ones we've been expressing for some time about fertilizer supplies being very tight,” Schmura adds.
 
In addition, she says dealers are facing unprecedented restricted credit with the collapse of financial markets.
 
"The banks are going to be even harder on dealers in terms of credit extensions,” she says. "Growers really need to talk with their dealers about their planting intentions so dealers can make the case to get the capital to buy inventory for spring.”
 
Why tight supplies?
Nitrogen and phosphorus fertilizer prices have increased dramatically in the past two years, and the blame is often placed on natural gas prices. Natural gas accounts for 80-90% of the cost of producing anhydrous ammonia, the base material for producing all other nitrogen fertilizers, says Gary Hergert, soils specialist at University of Nebraska.
 
World demand and ethanol production also contribute to increasing fertilizer prices, Hergert adds. Demand, especially in South America, China and India, has risen 14% in the past few years, he says.
 
The U.S. imports 75% of its urea nitrogen fertilizer.
 
Regionally and locally, increased production of corn to meet biofuel demand has increased fertilizer demand. Transportation costs (barge, trucking, rail) also are higher.
 
In addition, 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.
 
All indicators point to increasing fertilizer costs and tight supplies again this year, making it imperative that farmers talk to dealers about their needs as soon as possible, says Schmura.
 
Farmers are already feeling the pinch as they try to lock in spring fertilizer.
 
"If I want 32% liquid nitrogen for spring, I have to pay for it all up front now,” says one farmer from Southwest Minnesota. "My co-op wouldn't even give me a price on urea for spring delivery. I hope that doesn't mean there is none available.” As for orders of phosphorous and potassium, farmers are being told they must pay for 25% this fall and the remainder in full by January 10, 2009.
 

 
You can email Jeanne Bernick at jbernick@farmjournal.com.
 
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