Last month I wrote about in creasing variable costs over the past three years. Fertilizer costs are influenced by energy costs and the resulting changes to the market, and availability may significantly increase your risk for 2006 and beyond.
Recently in comments made before the U.S. Congress, Mike Bennett, Terra Industries CEO and president, indicated the landscape is changing rapidly and it could have a significant bottom line impact on corn and soybean growers.
“Since 1999 when natural gas prices began rising, 22 nitrogen fertilizer plants have closed,” Bennett says. Of those 22 plants, 17 have closed permanently, accounting for a 20% drop in total U.S. nitrogen (N) fertilizer production capacity.
Meanwhile, operating rates for the U.S. ammonia industry have also declined significantly from historical levels. The permanent and temporary closures have resulted in a 35% decline in U.S. ammonia production.
“Consequently,” Bennett adds, “the U.S. fertilizer industry which typically supplied 85% of its domestic needs from U.S.-based production now relies on imports for nearly 45% of nitrogen supplies.”
Bennett goes on to say that the only way to avoid a further decline of the U.S. fertilizer industry and a nationwide economic disaster in farm country is to increase U.S. supplies of natural gas significantly as soon as possible.
Mark Rosenbury, senior vice president at Terra Industries, says it takes about 33-34 million British thermal units (MMBtu) of natural gas to produce a ton of ammonia. The January futures price of natural gas is about $15/MMBtu. That equates to more than $500/ton for ammonia without overhead, transportation and other costs.
Rosenbury estimates the curtailment of ammonia production or plant closing amounts to between 6,000 and 10,000 tons of ammonia a day. My quick calculation of application of 145 lbs. of actual N per acre related to about 67,000-113,000 acres of corn production that are impacted each day of reduced domestic production.
What is the alternative to ammonia? Ron Farrell, president of Farrell Growth Group in Kansas City, says “imported urea is the most likely alternative. However, barge transportation challenges on the Mississippi River as a result of the devastation of Katrina could limit timely delivery. Rail is an alternative, but rail rates, rail car availability, track availability and power unit availability all impact that option.”
The bottom line is cost and availability of fertilizer may be an issue. It's just good management to be proactive and control your own destiny before someone else does.
Good risk management dictates you should work closely with your supplier, look at all conservation, tillage and best management practices that conserve N and look at alternative N products and sources.
In previous issues I pointed out the value of diversification with livestock enterprises, but recently manure from livestock operations is creating value at the farm gate.
I have first-hand knowledge of what fertilizer is worth. We're proud members of The Maschhoffs, Inc. and care for hogs in their program. It has been a great experience because my brothers and I have provided the capital, my nephew Jason provides the labor and we get management expertise from Maschhoffs.
Recently the Maschhoffs tested the manure nutrients in 158 buildings in their program. The average value of NPK was 41-28-31/1,000 gal.
The October issue of Soybean Review references the Iowa State University publication PM 1811 published in Nov. 2003, which states in part that, “Recent research suggests that all of the nitrogen in swine manure from liquid handling systems is available the first year of application.”
The practical issue is if manure is injected, Iowa DNR considers a 2% allowable volatilization loss. That means growers injecting liquid swine manure must account for nearly all of the manure as available in the year of application. What was thought to be waste is of great value, plus it makes good ecological sense that the crops nourish the animals and the animals nourish the crops.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell provides risk management advice to clients in 24 states. For more risk management tips, check his Web site (www.russellconsultinggroup.net) or call toll-free 877-333-6135.