Fertilizer supply/demand updateLogically, any discussion of fertilizer costs should be relegated to the back burner this time of year, even at most Northeast locations. As I write, our region in general really hasn’t experienced much seasonal cold weather with normal snowfall. The Buffalo vicinity serves as the exception to that statement. Driving through much of rural New York, I see lots of late summer/early fall-planted winter grains looking pretty good. Already several inches tall, they’re ready to be put to bed, tucked in by several inches of snow.

Fertilizer management planning should be a cold weather task every bit as much as ordering seed. I look at it this way: at any time, any day, somebody somewhere on the planet is planting seed. The American Farm Bureau Federation (AFBF) has documented that in 1961 U.S. farmers consumed 25% of the world’s fertilizer; in 2018 our farmers only consumed 10% of the planet’s fertilizer manufacture. Most likely, that percentage has slipped another notch in the last four years. That doesn’t mean that crop growers in the U.S. used less fertilizer – it means that growers elsewhere on Earth significantly increased tonnages of the N/P/K plant food that they use. The fertilizer supply/demand picture is a very global, becoming more so every year.

Review of commercial fertilizer manufacture is in order here, particularly for folks who wonder why the price of natural gas places upward pressure on phosphate costs. Here goes: With commercial fertilizer, nitrogen and phosphorus supplies are closely related. N can be applied to land separately from P in the conventional (non-organic) world. In the same world, however, P cannot be applied apart from N. P must be applied as mono-ammonium phosphate, or diammonium phosphate – period. A little more fertilizer manufacture background is helpful here.

The process starts with natural gas (methane, chemically CH4). Methane and water are combined and subjected to high temperature and extreme pressure. The resulting chemical reaction yields carbon dioxide (CO2) gas and hydrogen (H) gas. Earth’s atmosphere is 78% N. The N is removed from the air by fractional distillation, then blended with the isolated H gas, again under very high temperatures and pressure conditions. In that combination, one N and three Hs then react, becoming one anhydrous ammonia (NH3) molecule. Add the right amount of CO2 to the NH3 molecule, along with temperature and pressure, and the result is urea – simple formula of CH4(N2O). Additional chemical reactions produce three other main fertilizer ingredients, namely urea/ammonium nitrate, mono-ammonium phosphate (MAP) and diammonium phosphate (DAP). To make things more interesting, a fairly strong relationship exists (in terms of supply/demand) between natural gas, drilled petroleum and corn-derived alcohol.

Conventional phosphate fertilizer production starts with mined rock phosphate ore being chemically treated with sulfuric acid, a reaction which yields phosphoric acid and waste slag. The phosphoric acid is treated with ammonia, a reaction which yields MAP. When MAP is treated with more ammonia, the result is DAP. The fertilizer analysis of MAP is 11-52-0 (N-P-K). The analysis of DAP is 18-46-0. Since ammonia is made from natural gas (along with CO2, atmospheric N and H2O), CH4 costs greatly influence costs of all commercial N as well as P fertilizers. In the ongoing Ukraine war, Russia continues trying to freeze out western Europe by cutting back exportable natural gas supplies. This action has increased CH4 cost – supply/demand again. From that point on, the economics are fairly simple.

I subscribe to the semi-monthly online Argus North American Fertilizer newsletter. I’ll give examples of fertilizer commodity quotes, based on FOB pricing at the Port of New Orleans. Freight rates to move product upstream are higher, due to (quoting Argus) “low water levels still limiting upriver barge transit. Nearby (to the lower Mississippi Basin), barge demand has dried up as the market moves out of season. Most buyers will likely stay put and wait to see what prices are offered for winter fill and first quarter delivery. Robust demand is expected for early next year amid dwindling inventories as the fall application season concludes.”

Here’s a sample of four barge quantity, fertilizer commodity prices, all based on FOB NOLA (taken from the Argus Newsletter, rounded to the nearest dollar per ton): On Dec. 1 urea priced (on average) at $468; the week earlier it priced at $513, and a year earlier (YE) at $770. On Dec. 1, MAP priced at $630; a week earlier at $630, and YE at $761. On Dec. 1, DAP priced at $640; a week earlier $640, and YE at $743. And lastly, muriate of potash priced at $515; a week earlier at $515, and YE at $685.

Quoting Argus again: “Carriers and shippers said barge movement on the Mississippi River improved in November from the prior month but draft and tow restrictions remain an impediment. While recent rainfall has lifted water levels from the historic lows reached in October, industry participants are wary of water levels dipping again this month. Parts of the river near Memphis, TN, remain below the low water threshold, according to National Weather Service (NWS) data. The NWS also forecast the river gauge near St Louis, MO, falling to about -4 feet by mid-December. But that is up from -5 feet last week.”

The Army Corps of Engineers has worked diligently, around the clock, to dredge out the Mississippi, to accommodate more barges per tug tow and more tonnage per barge.

Moving away from water transportation to rails, President Joe Biden on Dec. 7 signed a bill averting a national rail strike into law, calling the agreement “the right thing to do.” According to the Washington Examiner, if the intended Dec. 9 strike were to happen and last even a month, nearly one million American jobs would have been lost. Had the strike occurred, market research had projected a potential 4% increase in inflation and more than $160 billion drained from the economy. A rail strike would have seriously undermined back-up transportation so critical if the Mississippi River gets stymied by low water again.