03/06/06 Why fertilizer prices are up

One of the reason several ag producers in our region, and across the nation, have expressed concerns over rising fuel prices has been their correlation to rising fertilizer prices. After all, one of the main fertilizer products, ammonium nitrate, is made using natural gas, along with other nitrogen based fertilizers. And natural gas has seen its share of price increases over the last year and a half. But according to Tony Frizell, the Fertilizer Sales Manager for a large U.S. fertilizer distributor, recent price decreases in natural gas since last fall's spike and continued steady high prices in nitrogen fertilizer seems to indicate that natural gas is not the only price factor these days. FRIZELL: When everything was normal, you could tie natural gas to fertilizer production. And it's still a big component of it. But when it was at fifteen dollars, these U.S. producers cut production capacity to fifty per cent. Well, when it dropped here a few weeks ago to about eight dollars, they were still operating at fifty per cent. So there is more to it now. For example, one of the offsets of cheaper gas prices is increasing international demand for fertilizers. FRIZELL: Two years ago China and Brazil were begging for fertilizer, especially Brazil on the potash and phosphate side of the business. They were clearing land as fast as they clear it. Every pound that was produced in the United States was going export. Anything they could get their hands on. And then supply and demand kicked in. The U.S. producer sort of forgot about the U.S. farmer. They got their eyes in, they could make more money overseas, and that's where a lot of it was going. And that created some shortages, thus driving the price up. Now add increased transportation costs, such as diesel fuel prices and barge rates, thanks in part to disasters such as Hurricane Katrina. FRIZELL: The vessel freight has more than doubled over the last two years. Barge freight has also doubled over the last two years. All this goes into costs, of course, they pass it to us, we pass it on. In addition, the U.S. government implemented new fertilizer import tariffs last year. So for example, fertilizer producers wishing products such as urea from Russia must pay a tariff first. Frizell says several fertilizer industry groups will be pushing Congress in the coming months to address the fertilizer import tariffs. Frizell does believe despite all these price factors, the price in nitrogen based fertilizers themselves should stabilize prior to the spring planting season.