Farmers can rest a bit easier. The big question is no longer whether the supply of nitrogen will be adequate, but whether it'll be in the proper place when needed.
The fertilizer crunch has eased since the beginning of the year when natural gas prices shot up to around $10 and fertilizer plants were forced to cut back production. Natural gas prices have gone back down to the $4 to $5 range. While still not at the pre-crisis gas price of around $2, many fertilizer plants are now back on stream.
In reaction to the plant closings, there was also quite a bit of nitrogen imported into the country. So now, working in the farmers' favor is not only the plants again firing up but sizable imports.
In December, imports were 25 percent over a year earlier. In January, they were at 28 percent higher — a substantial spike.
“U.S. plants were at just over 65 percent of capacity as of the end of February. We'll see that number go up when the March numbers are released,” says the Fertilizer Institute's Kathy Mathers. “We think there's enough nitrogen in the country to take care of farmers' needs. That's especially true with the imports.”
The plants are a bit slow in coming back into higher capacity because starting the plants back up is a time-consuming process, says Mathers. Once a plant is shut down, it can't come up from 40 percent to 100 percent capacity overnight.
“What farmers should probably be looking at is the transportation system. If their fertilizer is coming up the Mississippi River on barges, they might want to check on how well the river traffic is moving,” says Mathers.
The logistics of moving product around is a real concern. The product is available. Getting it where it's needed is the question.
“The biggest thing we're doing currently is trying to insure there's an adequate supply of natural gas for the future. This situation is attributable to the natural gas prices. When the price gets too high, the manufacturers can't sell their product for a profit. Actually, when gas prices were so high, they couldn't even sell it and break even.”
From a policy standpoint, there are plenty of natural gas reserves, says Mathers. Farmers need to make sure those supplies are developed.
“The demand for natural gas is now a year-round thing. It's been selected by policymakers as a clean source of energy. As such, we're hoping the government allows the existing resources to be tapped.”
The weather has delayed the run on fertilizer a bit, says Don Johnson, long-time agronomist, consultant and former employee in the fertilizer industry. Johnson says people in the fertilizer industry are uncertain about demand. There's been very little field activity above the Mason-Dixon line due to the weather.
“Down South, it's been wet and there hasn't been the normal peak activity that the industry expects this time of year. It will hit, though, and the system will feel the pressure.
“Everyone seems to be holding his breath and praying everything won't break loose at once. If there are a few days of good weather across the nation and farmers are in the field from top to bottom, the strain on the fertilizer industry will be immense.”
Johnson says short-term shortages of material — particularly nitrogen — could still occur. If it gets too late to plant corn in some areas, farmers will be looking to soybeans. That is another unknown that could pose hardships on the industry.
Johnson agrees with Mathers about tapping natural gas reserves. “There's gas out there, but it'll take a while to bring additional capacity into the system. The current price will have to be around a bit to provide the incentive to go get the untapped sources.”
Fertilizer prices will stay higher in the near term, says Johnson. More importantly, the overall economy has dropped and slowed. “All companies are looking carefully at all areas of their operations. Fertilizer companies are no different. They want to find the inefficiencies and fix those aspects of business.
“There's enough fertilizer. The only real question seems to be about nitrogen in certain forms. In the Midwest, where they use a lot of anhydrous ammonia, there's concern about whether there's enough ammonia.”