Last week the House Agriculture Committee held a full committee hearing on the changing agricultural economy during which testimony provided by U.S. Department of Agriculture (USDA) Chief Economist Keith Collins focused on the current fertilizer market situation. The Fertilizer Institute (TFI) provided Dr. Collins with background information, which factored into the following excerpt of his written testimony:
In 2000/01, the International Fertilizer Development Center reported that U.S. anhydrous ammonia production capacity was 16.5 million tons of nitrogen. By 2006/07, capacity had dropped by nearly 40 percent to 9.6 million tons. Prices of natural gas, the major component of nitrogen, rose more in the United States than in other key regions causing a shift in both ammonia and urea nitrogen production to overseas suppliers. Nitrogen imports now account for more than 50 percent of available U.S. supplies, compared with only 21 percent of available supplies in 1996/97.
Nutrient demand by U.S. and foreign farmers is expected to remain strong over the next several years reflecting high global commodity prices and expanding crop production. Thus fertilizer prices, and nitrogen in particular, are expected to remain at or near record-high levels. The U.S. demand for fertilizer expanded during the most recent fertilizer year ending June 30, 2007. This year's high corn prices and 93 million planed corn acres led the increase in demand for all three nutrients: nitrogen use is estimated to be 6-8 percent higher than the previous year; phosphate use, up 4 percent; and potash, up 5 percent. For the past 3 years, farmers have paid record prices for fertilizer materials. This past spring, during April 2007, farmers paid on average $523 per ton for anhydrous ammonia, up only slightly from $521 per ton in 2006, reflecting a slower rate of increases in energy prices.
Fertilizer prices are likely to remain strong, supported by energy prices and global fertilizer demand. India and China are purchasing large volumes of nitrogenous, phosphatic, and potassic materials. Brazil is also a strong market for phosphates. Although U.S. farmers have increasingly relied on imports, and thus have to pay additional handling and transportation costs, supplies should be adequate. Domestic production of nitrogen is estimated to be up in 2007, as the fertilizer industry is currently realizing very strong margins. For example, it takes 33 million Btus of natural gas to produce a ton of ammonia, so with natural gas prices now at $6 per million Btus, the natural gas cost is $200 for a ton of ammonia, which is now selling to Midwest farmers for about $575 a ton."