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June 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.

The Fertilizer is Falling, The Fertilizer is Falling!

Jun 28, 2013

hen pecked in ur face 4Senator Barbara Boxer had her day in court with the EPA and the U.S. Chemical Safety Board yesterday and the Senator did little to prove that the management at the West, Texas fertilizer station had done anything wrong. The national media response to the blast has been to overstate the dangers of solid ammonium nitrate and, indeed, all forms of fertilizer. These chicken littles are doing the industry more harm than good and while well intentioned enough -- all they want to do is keep explosions from happening -- in the case of West, it has been hard to nail down an actual crime.

If anything, the hearing was an indictment of government agency oversight. Remember, dry ammonium nitrate does not count as an 'extreme hazard' according to the EPA and the U.S. Chemical Safety Board. Sam Mannan, director of the Mary Kay O’Connor Process Safety Center at Texas A&M University told the AP the West disaster could have been avoided if the U.S. Occupational Safety and Health Administration had enforced its regulations on the storage of solid ammonium nitrate.

The management at West did have an appropriate risk management plan in place as required by law, but only in reference to the risk of anhydrous ammonia leaks. Ammonium nitrate in its solid form was not required to be part of the firm's risk management plan since solid AN does not qualify by the fed's own rules as an extreme hazard.

Boxer's hearing on June 27 made a few observations of note that may exonerate the owners and managers of the facility, but these same observations could lead to increased regulation which ALWAYS leads to increased cost and headache for end users and suppliers.

The first observation was that the storage facility at West did not have a sprinkler system in place. But no government agency requires sprinklers systems at locations like the West facility. In addition, the ammonium nitrate had been stored in a wooden building near a stash of organic seed. Ironic that in the denomization of fertilizer, organic seed is thrown under the bus as a contributor to the fire that led to the explosion. When Senate inquiries are reduced to castigating organic seed rather than ammonium nitrate, it is easy to see how the conversation has gotten completely out of hand.

The truth is, if anyone is to fault on this it is the government agencies who failed to require regulation of solid AN. Senator Boxer is looking for a cat to hang and coming up with nothing. The hearings also lumped the Geismar, LA olefin plant explosion that claimed two lives in with the West tragedy. As though fertilizer was also responsible for petroleum based explosions in neighboring states.

Now add last week's story about an Indiana grain and fertilizer facility that experienced an explosion. Initial reports from law enforcement and even from a trusted news source were that a 'fertilizer plant' had exploded and one more lay dead as a result. The next day, the reports of more deadly fertilizer were amended to note that it was a grain dust explosion that raised the alarm, not fertilizer.

Fertilizer regulators, the EPA and the U.S. Chemical Safety Board have some tough questions to answer. With lawsuits aimed at the ownership and parent companies of the West, TX fertilizer depot, federal regulatory failures are too glaring to be ignored. While the blame of the tragedy likely rests squarely in the category of a horrible accident, not criminal negligence, Senators and agencies need scape goats. As these chicken littles scramble to shift the blame first to ammonium nitrate -- stored as it was in solid form is not a qualified hazard, by law -- then to the lack of sprinklers -- not required by law -- then to the nearby organic seed, the truth of the matter becomes more clear.

Senator Boxer's clucking that the sky is falling is less and less likely to be heard as this debate rolls on. Accidents do happen in this and the petroleum industry -- and in every other occupation since the beginning of time. I do not mean to downplay the sacrifices of the brave first responders in West who lost their lives, nor do I mean to trivialize the devastation to the town of West. The fact that an Indiana man first reported to have been killed by fertilizer actually lost his life as a result of grain dust does nothing to make that family or his fellow employees feel any better. But if Senator Boxer and the EPA are looking to point fingers, they would do well to first look at the holes in their own system.

If solid ammonium nitrate were classified by EPA as an 'extreme hazard', all indications are that the West fertilizer company would have complied. If West had been in violation of law, it certainly would have come out by now. But the fact that West does have a risk management strategy in place for extreme hazard, anhydrous ammonia demonstrates their intent to comply. The fact that government agencies do not regulate the storage of solid ammonium nitrate does not constitute a crime on the part of the West storage facility but, rather, a non-issue legally until the Chemical Safety Board and EPA can prove otherwise.chickenlittles

So far, inquiries into the West, TX explosion have only served to prove that the sky is not falling, and that if the government wants to accuse fertilizer retailers of lax oversight, it had better come to the table with more than just accusations, mischaracterisations and fear-mongering.

"So all three of them run on and on until they meet Foxey Loxey. 'Where are you going?' asks Foxey Loxey. 'The sky is falling and we are going to the lion to tell him about it,' says Ducky Lucky. 'Do you know where he lives?' asks the fox. 'I don't,' says Chicken Little. 'I don't,' says Henny Penny. 'I don't,' says Ducky Lucky.'

'I do,' says Foxey Loxey. 'Come with me and I can show you the way.' He walks on and on until he comes to his den. 'Come right in,' says Foxey Loxey. They all go in, but they never, never come out again." (excerpt from Chicken Little)

 Photo credit: chrisjfry / / CC BY-NC-ND





Axle Deep in Uncertainty -- No Pain, No Grain

Jun 21, 2013

cornemerges 002 (2)Spring 2013 has been a real doozie. It all started with a very late season blanket of snow after a few lucky growers found a narrow window to put seed in the ground. Anyone who missed that window found themselves plagued by sticky soil followed by saturated soil followed by ponding that has lasted into the present day in some cases. There are a lot of fields out there with decent emergence and generally healthy looking plants flanked by bare spots in low lying areas made inhospitable for early plant growth by excess rainfall.

A Butler County, Iowa grower pulled me aside last week to show me a picture from his phone of his John Deere axle deep in mud with a planter in tow. He said, "Dude, it was hard enough to plant this year, and now we can't get in to replant. I've already switched to a 103 day corn... this is what happened when I tried to get out there on my first pass." That farmer is considering putting the bald spots in his fields to hay to try and recoup his losses. "But then, I've gotta bale more hay," he chuckled.snowtill

The Butler County grower was initially concerned with nitrogen loss. His worry then shifted to waterlogged plants. "Now I'd be happy just to make a single pass across the field," he said. His sentiments reflect the thoughts of a lot of corn growers and the barrage of crop threatening conditions has been nonstop. But these are the conditions that prove the resiliency and perseverance that has earned the American farmer the title of the best producers in the world.

Allow me to take a moment here to encourage you to examine your level of stress. Movingclumpsnh3 forward toward a profitable harvest is going to take some careful forethought, and some crafty farming. Stress has a real effect on brain activity and studies have shown that decision fatigue can reduce your patience for thinking things through fully. While we are all at the mercy of the weather, we must be careful not to let stress rob us of our decision making abilities when we need them most.

Having said that, I believe the best response to a stressful situation is understanding your position and your options. Corn futures have trundled along with little strength as the market looks for some fresh demand news. Meanwhile, investors have a hard time shaking the notion that 'rain makes grain', apparently not fully understanding that too much rain makes pain, not grain. The crop will recover -- corn is a wiley grass after all -- and the expectation is for crop prices to improve by harvest. rain soaked 004 (2)

We have covered these issues with an eye toward agronomists' assessments and recommendations. To help you get your head around how to proceed, I have provided links to stories we have featured this spring. Many of them come straight from extension agronomists and may help set your mind at ease. Cover cropping can help salvage nutrient in bald spots. A few cuts of baled hay can put a little extra cash in your pocket if you have strips and bare spots where the corn didn't take. rain soaked 011 (2)

We may be axle-deep in uncertainty right now, and the forecast for hot dry conditions for July and August may show us the other end of the precipitation spectrum before combines fire up. So don't let the uncertainty overwhelm you. If you do not yet have a plan to replace potentially lost N or for what to do with those fallow acres, click around the following links and see what agronomists and experts have advised so far. And if you need a headline to make you feel better, I offer this from May 20's Inputs Monitor, "Weakness in December Corn Limits Upside for Nutrient."anhydrousunset

What the Color of Corn Can Tell You

Agronomists Advise a Shot of N for Rain-soaked Soil

Iowa State University Extension: Nitrogen Loss -- Spring 2013

University of Illinois: Nitrogen and the 2013 corn crop

Don't Let the Rain Wash Away Your Profits

Cover Cropping Considerations for Fallow Ground

Cover Cropping Prevented Plant Acres

Photo credit: D Michaelsen, Inputs Monitor

Brazilian Fertilizer Production & The Pursuit of Self-Sufficiency

Jun 14, 2013


As South American agriculture continues to evolve, a movement in Brazil has high hopes of fertilizer self-sufficiency. Fertilizer pricing for corn in Brazil is within a profitable range, garnering an average of 23.2% of new-corn revenue. But the same nutrients are averaging roughly 17% in the U.S. suggesting downside room for Brazilian fertilizer. But the reasons Brazil pays a larger percentage of crop revenue for fertilizers are directly related to transport costs and an upside-down tax policy that favors imports over domestic product.

Between 1970 and 2001, Brazilian agricultural production increased by 3.4 times and fertilizer use increased 4.4 times. The telling feature of this, however, is the fact that during that same period of expansive growth in production and fertilizer consumption, tilled land increased only 1.5 times. In other words, due to increased fertilizer use, crop production has increased while the amount of land dedicated to crop farming has grown much more slowly.

brazilcorn3Agricultural officials in Brazil have taken notice, and the next step for this nation, which struggles constantly with transport issues including port strikes and sketchy roadways, is to add to domestic fertilizer production.

Historically, fertilizer production had been limited to areas near ports where imported feedstocks could be easily accessed. But that left the issue of transport to the interior. Since the 1980's, an increased number of production and blending facilities have moved closer to agricultural areas. This helped get fertilizer to the farm with greater ease, but left the issue of transporting imported raw materials from ports to interior processing and distribution facilities.

What Brazil needs most of all is to increase domestic fertilizer production. But the current policy taxes domestic product at a level above import tariffs suggesting Brazil needs to change its tariff policy as much as it needs to build production facilities. State taxes on domestic fertilizers are currently at 8.4% with a mining tariff of 2%. But imports are exempt from those fees.

Vale SA's potash mine produces roughly 10% of Brazil's potash, but that mine is expected to exhaust its reserves and close by 2016. Vale has also opted out of its Rio Colorado potash venture in Argentina which had the potential to provide a solid domestic K source. That leaves Brazil reliant on imports from FSU, China and Canpotex.

A switch in tax/tariff policy would go a long way toward satisfying crop production demand for nutrient. Improvements to infrastructure in the interior -- specifically road improvements -- would also help mitigate transport costs. But Rio is hosting the 2014 Soccer World Cup and the Olympic games in 2016 and preparations have diverted resources and construction cash toward preparations for these events. brazilcorn2

The United States is in the process of adding 6 million tons of annual nitrogen production in ag-intensive regions. This is expected to keep corn growers in America close to much needed nitrogen supplies, and may lower the price of retail fertilizer. Brazil's tax policy coupled with the massive expenditures necessary to host a World Cup and the Olympics will continue to hamper growth in the fertilizer industry.

Meanwhile, Brazilian corn production improves by the season and growers are taking a closer look at soil nutrition, and profiting from its benefits. World nitrogen supplies are currently high and China and Ukraine will keep Brazilian crops thriving. Phosphates from the U.S. and Middle East are sufficient to meet Brazilian demand, and PotashCorp eyes export opportunity for its bulging stores of K via Canpotex. But moving forward, Brazilian officials must make fertilizer production a priority over pet projects and sporting venues in order to fully realize that state's agricultural production potential.

Photo credits:

Nitrogen Pricing Convergence: What is Expensive Fertilizer?

Jun 07, 2013

The driving force when fertilizer prices move is corn. In years past when fertilizer pricing has seemed low, the price of corn has had a $2 handle. With corn futures currently above $5.00, it is optimistic to expect fertilizer pricing reflective of $2.90 corn. But all forms of N are not the same, and pricing reflects that. At 170 lbs/acre/N, a 53 cent application of anhydrous costs $90.00/acre. That same acre/N application of urea at current pricing adds up to $105.40/acre.

But what if all nitrogen could cost the same? When broken down to pounds, it would make sense that a pound of nitrogen -- be it from anhydrous or 32% or prilled urea -- should cost the same. But the truth is, since all nitrogen products are not created the same way, production costs and feedstock skew prices and the best we can hope for -- like with crude -- is a favorable spread.

This week's Monitor Index registers an 18 cent per lb/N spread between the most expensive and least expensive forms of nitrogen. UAN28 is currently the top at 71 cents per lb/N and anhydrous is at the bottom at 53 cents. As urea and UAN solutions explore the downside, anhydrous has seen weeks of decline as well. But current anhydrous pricing, while favorable by the pound, may not have the room either to the upside or the downside to converge truly with urea based products.

Meanwhile, urea is expected by a growing numbers of industry watchers to continue declines. If a true convergence of N pricing is to take place, either declines in urea will need to end and correct hard to the upside, or anhydrous needs to make an run back above $1000/ton. The tables below play out three possible scenarios for nitrogen convergence.

The first simply demonstrates pricing from this week.

Scenario 1
Current Monitor Price/ton



Scenario 2 has anhydrous correcting to couple with the current urea price of 62 cents per lb/N. With anhydrous at 62 cents per lb/N the per ton price swells to $1010.00. In 2008 when fertilizer prices skyrocketed, the yearly average price in Minnesota was $755/ton. The fact that anhydrous runs at such a premium to that year at its current price suggests anhydrous over $1000 is unlikely. Shipments of ammonia into Tampa on the wholesale board are currently running at $625/ton. That is $225.00 above year ago pricing hinting at limited upside potential for anhydrous on wide production margins.

UAN solutions would not have very far to fall to reach 62 cents per lb/N. UAN28 would only need to shed $55/ton -- UAN32, $43/ton to converge with straight urea pricing. That scenario is more plausible than anhydrous reaching $1010.00, but we expect demand to inject some strength into UAN pricing in the immediate future locally as some growers are scrambling to replace N lost to heavy rains. Regions that have no ponding should see limited price response, however, as these extra applications will not be needed regionwide.

Scenario 2
Anhydrous follows Urea



Scenario 3 has urea correcting to couple with the current price of anhydrous at 53 cents per lb/N. This scenario requires anhydrous to stay put at current pricing levels, and while anhydrous has been on the downward slope for several weeks, history says anhydrous is still too high. Again, ammonia prices have fallen in the wholesale racquet but remain far above year-ago, suggesting 53 cents may not be the bottom for anhydrous.

Should the price of urea catch the price of anhydrous per lb/N, that would price urea at $480/ton, UAN28 at $295.00 and UAN32 at $340.00. This is not an unlikely scenario given that UAN solutions are well above historical pricing, but the price of UAN has only fallen roughly $25 since last June. Urea, on the other hand has fallen nearly $220.00 during the same period.

Scenario 3
Urea follows Anhydrous



It is interesting to note that in June 2012, Midwest anhydrous pricing was at $805.75/ton with urea at $781.89. In terms of pricing by the pound of N, anhydrous was at 49 cents with urea at 87 cents per lb/N. That was a 38 cent spread and the widest we have observed thus far. Currently, the anhydrous/urea spread stands at 11 cents with anhydrous at 53 cents and urea at 62. A narrowing of this spread may be what we can realistically expect, but continued oversupply from China and FSU is expected to fuel further declines in urea during the summer.

How low urea pricing will go is, of course, uncertain, but if industry expectations are correct, based on wholesale declines, urea may settle in around $420/ton at your preferred supplier. That is an optimistic projection of a $143.00/ton falloff from current pricing which would put pricing by the pound/N at 47 cents.

No matter what happens to fertilizer pricing, the price of corn futures will dictate how low nutrient can go. Production and natural gas pricing will have their sway, but the number one determining factor of fertilizer prices paid by growers is how much growers are willing to spend. That decision is best based on December corn futures because the lower corn goes, the more expensive fertilizer gets.





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