Several factors contributing to fertilizer increase, supply decrease

Nitrogen and phosphorus fertilizer prices increased dramatically in the last year and are expected to keep climbing in 2008. Several factors are contributing to this change, a University of Nebraska-Lincoln soils specialist says.

Increases in fertilizer prices often are blamed on natural gas prices because natural gas accounts for 80 to 90 percent of the cost of producing anhydrous ammonia, the base material for producing all other nitrogen fertilizers, said Gary Hergert, soils specialist at UNL's Panhandle Research and Extension Center at Scottsbluff.

"However, that doesn't represent the whole story," he said.

Natural gas prices in the U.S. averaged about $7 per million British thermal units during 2007. World prices for natural gas are much lower and range from less than $1 MMBTU in parts of the Middle East to only $2 to $3 in Russia.

World demand and ethanol production are among several other factors contributing to the increasing fertilizer prices, according to The Fertilizer Institute.

Demand, especially in South America, China and India, has risen 14 percent in the past few years, Hergert said.

"With fertilizer being a worldwide commodity, the U.S. must compete with other buyers," he said. "The weak U.S. dollar makes fertilizer more expensive for U.S. producers." The U.S. imports 75 percent 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 and are considerable for people in areas far from major distribution centers.

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.

One of the major production ports for shipping urea and ammonia is Yuzhnyy in the Ukraine on the Black Sea, he said.

Hergert said an excellent source for fertilizer information is available at http://fertilizerworks.com/ and by clicking on The Market in the left column. Remember, these prices are set by world manufacturers and do not reflect transportation, marketing and dealer costs.

All indicators point to increasing fertilizer costs and tight supplies, so management that maximizes fertilizer use efficiency is essential, he said.

2/4/08
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Date: 1/29/08

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