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April 2013 Archive for Inputs Insights

RSS By: Davis Michaelsen, Pro Farmer

Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.

Anhydrous vs Urea -- An Introduction to the Discussion

Apr 26, 2013

 

With the spring season off to a slow start, those growers who had a chance to knife in anhydrous last fall are glad they did. Soil temperatures were too warm in much of the Corn Belt to allow for anhydrous ammonia applications until very late in the season, and some growers missed the fall anhydrous window altogether.

Anhydrous ammonia has been the nitrogen source of choice for many Midwestern growers, but that trend may be due for a change. Anhydrous pricing has been stuck at the top of its retail pricing range for a good long time now -- long enough anyway, that some are looking for an alternative source of N.

Urea is the world's most popular nitrogen fertilizer, and while urea has a strong foothold in areas like Oklahoma and Ohio, the northern Belt has been resistant to making the switch. But some new research from Purdue University Extension suggests that a split application of nitrogen may be required, as modern hybrids developed after 1990 demonstrate a 27% increase in N uptake during the flowering stage compared to pre-1990 hybrids.

Along with this shift comes a necessary examination of how nitrogen is applied most effectively, and which form of N will produce the best yields. This discussion will look at the major differences between urea and anhydrous ammonia for corn. We all know there is much more to growing corn than burying seeds and going to church. A targeted, intentional approach to nitrogen application requires forethought, soil testing and research -- it wouldn't hurt to go to church no matter what your preferred N source.

Anhydrous ammonia --

Anhydrous ammonia (AA) is a gas that is transported and handled as a liquid under pressure. This can be a fickle form of N as product can easily be lost if, when knifed in, the soil is damp and clumpy or very sandy as the knife openings may not fully close, allowing AA to escape into the air. This risk is mitigated to a degree by AA's nearly 85% nitrogen content, which is potent enough to withstand some winter losses while leaving plenty behind for the following spring.yep

There are inherent dangers to humans with anhydrous application and with the product itself. AA moves toward water and when accidental exposure occurs, injuries can range from skin irritation, to organ failure and death. Special equipment and expertise is required and often adds to the expense. Commercial applications take the danger out of the grower's hands, but can be expensive.

Urea --

Urea is an equally respected form of N -- the most widely used worldwide -- and is much less hazardous to humans. But the corn carries the risk. Growers who prefer AA find it works on their timetable, and produces the most nitrogen bang for the buck. But as sidedress applications become more popular, UAN solutions -- urea ammonium nitrate -- will likely become more popular.

Urea is available in either granular, prilled or liquid form making it user-friendly to growers, requiring very little special equipment. Dry granular urea has a nitrogen content of 46% and currently runs roughly a dime per pound of N above anhydrous. In its granular form, urea can be surfaced applied, but must be incorporated to avoid N loss. Losses of up to 50% have been observed when dry urea has been spread over moist ground, allowing premature nitrification. But surface applied urea under the right conditions can pack some real benefits.

Fall applications of urea have been shown to be a bad idea as significant losses typically occur. Given the right soil conditions, dry urea is most effective when applied to the surface and either tilled in or rained in. Just 1/4 to 1/2 inch of rain within a few days of application has been shown to get urea's N where it needs to be. Liquid urea (UAN) can be easily sidedressed post-emerge, when corn plants need it most. Surface applications of urea are not recommended for a no-till approach as crop residue may block urea from making it to the soil.

There are positives and negatives on each side of this issue and this is only an introduction to what I expect will be a great debate in the minds of many growers. I urge you to stick with your program this year -- don't change horses midstream. But as technology changes how plants consume nitrogen, growers will follow proven success. Talk to your agronomist or CCA and fellow farmers. There is a wealth of experience and knowledge there, so take some time to compare anhydrous ammonia and urea as you look ahead to next year... we, here at the Monitor will do the same, and keep you posted.


Anhydrous Safety is No Accident

Apr 19, 2013

 

The late start to this year's fertilizer application in parts of the Corn Belt give us a pause to revisit some basics of anhydrous safety. Anhydrous ammonia is the Nitrogen source of choice for many corn growers and is currently the least expensive form of N by the pound at $0.52/lbN. Dry urea is a favorable alternative, but is a little more pricey by the pound at $0.62/lbN. Urea is less dangerous to handle and more user friendly, and some growers have made the switch this year from the unpredictable NH3 to simple dry urea.

Experts agree that the best policy when handling, applying and transporting anhydrous is to slow down and pay attention. A little prevention can go a long way to preserving your safety and that of those around you. Exposure to anhydrous ammonia has both immediate and delayed health implications including severe eye injury, respiratory system damage and skin damage and can be fatal if inhaled or swallowed.

Here are a few tips I have collected from various University extension offices. Your preferred retailer will have a safety checklist and can offer more detailed suggestions.

Transport --

When you pull up to your local retailer to pick up a tank of NH3, be sure to use a strong hitch pin with the keeper securely in place, and safety chains. Once you pull a nurse tank onto a state roadway, you are under the jurisdiction of the state DOT, and subject to DOT rules. The maximum speed you can go is dictated by the tires on the nurse tank which usually recommend 25mph for a fully loaded tank. Do not transport NH3 at night, and come to a complete stop at all railroad crossings.

Inspection --

Before hooking on, check all hoses and connections. Make sure the flo-meter is in the closed position prior to connecting hoses. Never handle a hose by the valve -- always grip the end of the hose by the valve body and hose. Check the valves on both the male and female halves of couplers. Once you have made all connections, recheck all hoses and connections. Here again, make sure to use the proper sized hitch pin with the keeper in place and safety chains affixed.

Exposure --

Should something go horribly wrong and a spill occurs, remove yourself from areas exposed to destroy anhydrous. Anhydrous ammonia seeks water once in the air and can quickly injure or destroy mucous membranes within the body. If anhydrous escapes in a closed area, evacuate the area immediately and close it off to foot traffic until the area can be cleared.

If anhydrous spills on you, water is the only remedy. DO NOT apply lotions, creams, ointments, salve -- just water. Stay upwind from the release. Carefully remove contaminated clothing. Flush affected skin for 20 minutes with fresh clean water, flush eyes for 30 minutes using an eyewash station if you have one. Just about any source of water will do... the pump outside the hog shed, livestock watering tanks or even the cattle creek that cuts through the waterway. Keep the water tank on the nurse tank full of fresh water at all times.

The important thing is to seek medical attention for even the smallest exposure. Anhydrous ammonia has both immediate effects and delayed effects and while you may think you only ruined a pair of blue jeans, NH3 can cause permanent lung and tissue damage that may only be immediately apparent to a physician. As with everything, early detection is the key to recovery.

The Illinois Department of Agriculture has released the following video on anhydrous safety and it is worth a look. Along with all of the above safety precautions, remember to wear heavy jeans and a long sleeved shirt or coveralls and work boots when handling or applying anhydrous ammonia. Never wear contact lenses, use appropriate eye protection and wear heavy gloves.

 

 

An ounce of prevention can save pounds of nitrogen. Anhydrous may be the least expensive form of N by the pound, but the safety hazards can outweigh the benefits if a little extra caution is not exercised Your local retailer has more on NH3 safety and we recommend you have a conversation about a 'worst case scenario' with your supplier.

Alert the authorities for large spills, wear your safety gear, take your time and check your P's and Q's. The explosion in Texas is a sobering reminder that NH3 is nothing to trifle with. But with a little extra care, NH3 can be safely knifed in, and growers can get on with growing.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVISITED: Agrium Unmoved - JANA Undeterred

Apr 15, 2013

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A crucial vote was held last week in Calgary at Agrium Inc's annual shareholders meeting, and the shareholders voted to keep the incumbent board in place rather than seeding the board with nominees from JANA Partners. JANA had expected to win two seats according to their own early count, but the final tally snubbed the New York hedge fund, and has the activist investor fuming.

We have reported on the dialogue between the two throughout the conversation and neither has shown signs of backing down -- even in light of the official vote count. JANA accuses Agruim of tampering with the vote and vows to investigate. This is a fascinating story that illustrates two different positions in the commodities marketplace and how those perspectives have shaped the discussion. In one corner, Agrium -- tried and true, diverse and successful. In the other corner, JANA Partners -- this firm has had prior success with McGraw Hill and Marathon, dividing these companies to unlock shareholder value. The situation reminds me of those old television commercials for Pace Salsa -- New York City!?

The following is an updated version of an earlier blog. If you are a new subscriber, this will help you get a handle on what all the fuss is about.

From the Monitor archives:

Calgary, Alberta based Agrium (AGU) is among the World's largest producers of nitrogen-based fertilizers like urea and ammonia, and is also the biggest retail seller of fertilizer, crop chemicals and seed in the United States.
 

JANA Partners Llc., an investment firm from New York City, holds a 7.5% stake in Agrium Inc. Since early summer 2012 when JANA bought in, it has argued for structural and operational improvements -- including a proposed split of Agrium's wholesale and retail divisions -- that they expect would add value for shareholders. But Agrium has publicly refused more than once.
 

One needs look no further than Agrium's definition of sustainability to understand why it is resistant to the suggested restructuring. It defines sustainability as, "The enduring well-being of interacting economic, environmental and social systems." The key word shows up midway through the definition..."interacting". Agrium's arms are long, supplying fertilizer to customers around the Globe while tending to the needs of the individual farmer at the retail level.
 

"We can't comment on what kind of stake any shareholder may or may not hold in Agrium," said Agrium spokesman Richard Downey in an email comment to Reuters. "What we can say is that Agrium's integrated strategy is producing record results and sustainable value for shareholders and that we do not plan to spin off our retail business."
 

What is written between the lines of all of Agrium's mission related statements is the strong belief that integrated diversity yields security.
 

JANA Holdings also demonstrates a penchant toward diversity in its portfolio which holds stock in Apple (AAPL), Expedia (EXPE), Phillips 66 (PSX) and others including Canadian based fertilizer giant Agrium. I spoke to a partner at JANA who affirmed Agruim's commitment to producers but noted that a golden opportunity for value creation is not being realized here and, "at the end of the day, it's up to the shareholders to make the call. We've been in similar situations where companies resisted our calls for change but by making our case to shareholders we were able to prevail and we don't view this situation any differently."
 

Agrium boasts the largest working inventory of any of the fertilizer giants and this inventory is thought by some to help insulate AGU against market forces. JANA disagrees noting that AGU's shares have performed no better than most uninsulated peers over the last cyclical downturn and failed to produce on the subsequent upturn. By cutting the excessive inventory, JANA believes AGU could reduce its reliance on volatile commodities and stabilize retail earnings, enhancing its value.
 

A New York commodities investment strategist told the Monitor, "Agrium shares have out-performed its peer group over the last five, three and one-year and year-to-date. But outperformance could have been even better if the two entities, retail - 40% of EPS - and wholesale - 60% of EPS - were separated. Long-only relative-term investors might prefer the better stability of the retail side while absolute-return hedge fund investors may prefer the optionality of the wholesale side."
 

Favorable natural gas prices promise to widen margins for nitrate producers like AGU. Dry soil conditions have growers throughout the Midwest praying for rain just so they can get an accurate soil test, let alone, apply nutria...many will likely opt to wait until spring. On top of that, China has yet to book its 2012 Potash, and India reports it will purchase no DAP or potash until after the end of this fiscal year.
 

The only certainty in a drought year is uncertainty. With a record of outperformance and a solid sustainability position, Agrium should weather the drought storm as well as or better than its peers. JANA has made a 700 million dollar bet on the restructuring and has every confidence that shareholders will take advantage of this value creation opportunity. But companies like Agrium are not likely panic or look to siphon quick profits. Agrium has made it clear that JANA's restructuring proposal is not the right move for the company or its customers. JANA may find in the end that Agrium is as difficult to move as the soil itself.

 

 

 

 


 

Peak Phosphate -- In Case You Are Sleeping Too Well

Apr 05, 2013

In case you don't have anything to keep you up at night worrying, world market watchers have been muttering about something called 'peak phosphate'. While nitrogen is the number one crop input for corn growers, phosphate has garnered a great deal of attention as world supplies of this finite resource dwindle in the face of increased demand for food and fertilizers.

Phosphate rock is dug out of the ground in several countries, but China, the United States and Morocco lead in global phosphate production. It takes 3.5 tonnes of phosphate rock and 3 tonnes of sulfuric acid to produce a single tonne of phosphoric acid -- a building block of DAP/MAP.gaslight 3 l

Some experts believe we may see phosphate resources dangerously low as soon as 2030 and as population growth estimates rise each year, more and more people will belly up to dinner tables and demand more food.

Really, the idea causes as much concern ahead of a total phosphoric depletion as after. Once production becomes more expensive due to declining feedstock supplies -- mined phosphate rock -- the price will first become to high for end-users to afford causing a demand crisis. At that point, producers will either have to produce phosphate at a fiscal deficit or go out of business.

Peak oil is a theory from 1949 used to describe and predict the point at which crude oil production pricing and supply/demand features fail. Like peak phosphate, the assumption associated with this is that oil is a finite resource and must, therefore, one day deplete as a result of human activity. Once the peak of profitability by oil producers has been reached, the diminishing amounts of resources will drive demand higher and low supplies will take prices to a level beyond what end-users can afford.

In the case of oil, this theory has become less in fashion as fracking unlocks a whole new world of energy resource potential, and the global supply does not seem so threatened from the U.S. perspective. In 2007 the peak oil theory was imposed on phosphate rock . When one considers that phosphate rock is a resource that will one day run out -- and has no known substitutes -- it can be easy to start to worry.

The case for Peak Phosphate --

The current dogma predicting peak phosphate projects the United States to deplete its phosphate reserves within 30 years at current extraction rates. The U.S. Geological Survey (USGS) notes that extraction rates generally increase by 2% each year. According to peak phosphate, that would deplete U.S. reserves in about 50 years -- at 3% growth, 45 years. Including China and Morocco along with the United States, a 3% annual extraction rate increase would deplete global supplies in just 75 years.

This line of thinking labels phosphate the 'main determinant of global economic development.' Developing nations -- India as an example -- already cannot afford to fertilize crops properly as a result of government price fixing. Government subsidies favors urea so heavily that P&K are priced out of the market. The ramifications for a global phosphate production peak suggest developing countries would be subject to famine and skyrocketing food prices by 2030.

China has already imposed a 135% tariff on phosphate exports in an effort to establish some control over their national supply. The U.S. signed a 2004 deal with Morocco for long-term access to Moroccan phosphate rock to insulate against waning U.S. supplies. In fact, some have proposed that we could one day see something similar to OPEC where phosphate producers would band together worldwide to stabilize markets and ration supplies. Discussions about recycling phosphate from watersheds and human excreta have begun, but the technology research is at the blank-slate level right now, and so far, no technological advances have been brought forward, much less put in place in point and nonpoint sources of recyclable P.

In other words, the sky is falling and we are all going to starve to death without enough DAP to feed the planet.

The other side of the table --

Experts on the other side of the table disagree. According to USGS data, U.S. phosphate mining capacity at the end of 2012 was set at 34.7 million tons per year. Phosphate rock was mined by 6 companies and 11 mines in four states and import reliance has fallen to just 5% of consumption of finished P products -- 13% in 2011 and 16% in 2010. 85% of this domestic P came from Florida and North Carolina with the rest produced in Utah and Idaho. The same USGS report puts world production capacity at 220 million tons per year in 2012, but notes expansions and new projects increases global capacity to 256 million tons per year. USGS states along with this data that additions to production capacity and newly found reserves in Peru and Morocco will keep the market supplied with phosphate at projected rates for as much as 1000 years.

A more accurate assessment would call peak phosphate 'plateau phosphate'. But this production plateau is nothing new. Supply/demand features will still have their roles, but rather than supply driving demand in a shortage panic, demand will drive supply as producers will mine phosphate only as needed. If we look to Saudi oil production -- as we often do -- one of the principal features of Saudi's production is the ability to adjust output based on demand and pricing. It sounds a little like the tail wagging the dog, and it is.

Remember PotashCorp's shutdowns as inventory outran demand late in 2012. We could actually call that a 'mini-peak potash' -- but the potash market made the necessary correction and, while workers in Saskatchewan had a rough Christmas, the market has recovered, and production resumed.

Phosphate will plateau when end users strike price resistance, and that will slow production. In time of high demand, production will simply ramp up a little and make more DAP when the price is right. As the phosphorous tail wags this dog, consumers may actually see phosphate pricing fall as production (supply) becomes more and more slavish to demand. Reports in this camp hold that production levels will flatten out, following population growth trends. The explosive population growth that inspires this conversation is projected to slow to almost zero by 2050, leveling off global P demand -- indeed, trends have already shown population growth to be easing a bit.

What does it all mean? --

There is a lot of bad information out there on this and even more speculation toward global disaster. Much of the data collected and used to support the idea of peak phosphate comes from a tricky time in fertilizer's history -- the collapse of the Soviet Union, 2008's fertilizer crisis, and a time when ammonia prices held U.S. DAP/MAP production costs high enough to drive increased reliance on imports. The data these little red hens are using to say the sky is falling actually prove phosphate rock's ability to endure. Global production capacity is high enough that production is nimble and can shift according to supply fundamentals. Like Saudi crude production, phosphate production works only as hard as the market requires.

There are those who predicted we would reach peak phosphate in 1988 -- and again in 1989. Prices were to have made DAP too expensive to spread, but the sky did not fall then and it is not falling now.

If you feel inclined, there are some actions you can take to do your part in saving this vital resource. The most obvious is to spread manure. A great deal of organic P comes with consistent application of manure and test plots have shown that, in the right kind of soil, manure can almost completely replace applications of DAP/MAP. The other natural safeguard against P depletion is the fact that phosphate tends to be very inactive in the soil profile. The only real P losses one can expect are to the plants themselves. The leftover is still there when the next crop goes in so between manure and carryover, DAP may actually find itself struggling to find demand as it is.

If corn prices don't show a little positive news, expected new-crop revenue will have more growers focusing on nitrogen and letting P&K slide until returns look a little more favorable. This would also limit demand and slow resource depletion. But the U.S. Geological Survey is convinced and confident that the world has enough phosphate rock to continue making DAP for 1000 years. The International Fertilizer Industry Association (IFA) agrees with USGS and offers a great resource titled 'Debunking Ten Myths About Phosphate Rock Production'.

We will look at peak oil in future posts, but for now, do not believe the hype put forward by bad data and investor enthusiasm about peak phosphate. Of course best management and nutrient reduction strategies all include a whisker of conservation and best practices are what is best for all of us. In the meantime, with peak phosphate no longer a concern, you will just have to rely on corn prices to keep you up at night.


Photo credit: WadeB / Foter.com / CC BY-NC-SA

 

 

Inputs Monitor's Unique Perspective -- Retail Pricing Charts

Apr 04, 2013

Your Inputs Monitor has been collecting data from retailers on the whiteboard pricing of nutrients and fuels at local co-ops and suppliers across the Corn Belt. If you had the chance to attend one of Pro Farmer's Profit Briefing Seminars, you heard me talk about charts as part of the Monitor's future. We have finally collected enough data to generate meaningful charts. One day soon, we will offer interactive charts as part of our website so that subscribers can mouse over a price and call up a variety of charts for each specific nutrient or fuel in each locale.

The Inputs Monitor tech squad is hard at work on that right now, but I have jumped the gun this week and am giving you a sneak peek at what these charts might tell us. Fertilizer pricing had been largely stable for decades until 2008 when corn prices shot up, and nutrient followed. I believe nutrient is still correcting from the all-time highs of 2008, but another development has also added to input market volatility.

World markets for finished products and feedstocks -- ammonia, in particular -- have added a global dose of volatility. Recall the production curtailments at PotashCorp that lasted from Thanksgiving to President's Day inspired by China's absence from the Canadian potash market. This delay influenced pricing by flooding potash storehouses with overflow inventory.

This first chart includes pricing data for all seven nutrients the Monitor tracks as well as an index composite figure derived from weekly state average prices.

All nutrient comp line

A chart of nitrogen products shows the late summer re-coupling of UAN 28 and 32% solutions. Anhydrous moved aggressively higher as Urea fell -- NH3 still runs an average of ten cents cheaper per pound of N, but growers are beginning to consider Urea as an easily applied alternative.

Nitrogenline

Global market volatility sticks out like a sore thumb in this P&K chart. Note the dramatic slide in potash pricing just ahead of the first of 2013. Ammonia prices from Trinidad and Tobago along with natural gas "difficulties" in Egypt held DAP/MAP at the high end of their range, but scheduled maintenance in Trinidad was completed just ahead of Christmas. As phosphate production resumes in Florida and North Carolina, lower ammonia pricing should allow DAP/MAP to level off. But low North American P inventories against the five-year average will limit downside room in the short-run.

P Klinechart

Your Inputs Monitor advised booking some farm diesel in mid-December and this chart clearly shows the dip. Meanwhile, LP has crossed over -- however gently -- the 'index high' of $1.487 to a new high of $1.499. As I have said before, seasonal increases in temperatures across the frozen Midwest should mitigate some demand for distillates and LP and we expect both farm diesel and LP to fall modestly near-term.

Fuelslinechart

And there you have it. A visual representation is more my speed -- data tables are all well and good, but I am anxious for the day when we can offer you charts on demand. Look for fully interactive charts later this year, and stay tuned to your Inputs Monitor for all your latest inputs news and analysis.


 

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