Would new fertilizer plants lower costs to farmers?

Published online: Jun 25, 2013
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There is debate going on in North Dakota and Minnesota about whether construction of two proposed nitrogen fertilizer plants in North Dakota-one near Grand Forks and the other at Spiritwood-would substantially decrease the price of nitrogen fertilizer for farmers of the two states.

Dave Franzen, a North Dakota State University Extension Service soil specialist, has been quoted as suggesting the price of urea fertilizer could decrease by $100 per ton, but other "experts" suggest the price drop would more likely be as low as $25 per ton. Based on ballpark selling price of urea at $500 per ton, that $100 per ton drop would be a 20 percent price decrease.

It appears that the larger price drop is based on a belief that excess supply would drive competition based on price. The lower price decrease is based on the idea that manufacturers/producers of the fertilizer will price more closely to what the market will bear and national pricing of nitrogen fertilizers.

If price decreases came about, how would that affect area farmers' decisions on crop rotation and crops to plant that require a lot of nitrogen fertilizer compared to those that don't require nitrogen? Indications are that the lesser price drop would not be enough to have farmers change their crop rotation plans drastically.

Another NDSU Extension specialist, Joel Ransom, who specializes in cereal grains and corn, has been quoted as saying that crop prices, not the supply of nitrogen fertilizer, will determine what farmers raise. Both Extension specialists recognize that crop input costs have impact in planting decisions-pre-season calculations of return on investment do impact planting decisions.

The Grand Forks fertilizer plant is a $1.5 billion project with support from the North Dakota Corn Growers Association. The Spiritwood plant is a $1.4 billion project involving CHS and the North Dakota Farmers Union.

Both nitrogen fertilizer production facilities are seen as feasible by their backers because of the availability of nearby natural gas from oil production in western North Dakota. Apparently urea, anhydrous ammonia and urea ammonium nitrate liquid fertilizer are in the plans for each production facility.

U.S. nitrogen production has gone down drastically in the last decade, but might be stemmed with recently proposed production facilities to be built across the U.S.-again because of the availability of lower priced natural gas as the feedstock.  According to the The Fertilizer Institute (TFI), imported nitrogen fertilizer amounted to about half of the U.S.-grower use of these fertilizers in 2011 compared to 19 percent in 2002.  

Besides the shipping cost of the foreign nitrogen fertilizer to reach the U.S., upper Midwest growers have additional shipping costs added on for the cost of reaching growers after the fertilizer is unloaded at a port.

Looking at the situation from a long-term business perspective, for success of new U.S. nitrogen fertilizer plants natural gas needs to stay relatively low in cost compared to prices of a decade ago.

So, the question remains about how would two new nitrogen fertilizer plants in North Dakota affect local prices as well as how much of an impact could they have on national pricing, if those plants have connections to ship their fertilizer across more of the Midwest than the Dakotas and Minnesota.

Source: agprofessional.com