Fertilizer costs jump

this document web posted: Thursday February 27, 2003 20030227p1

By Adrian Ewins Saskatoon newsroom

The price of nitrogen-based fertilizer is climbing toward unprecedented levels.

A $30 a tonne increase in the wholesale price of nitrogen by a major manufacturer in mid-February has retailers talking about urea prices in excess of $400-$410 a tonne.

That's approaching a 10-year high, said Steve Epp of Wendland Ag Services in Rosthern, Sask.

"Farmers don't like it but the sad part is they know there's nothing they can do about it."

According to farm input price statistics from Alberta Agriculture, the average annual price of bulk urea (46-0-0) over the past five years was $315 a tonne.

Some farmers will have purchased much of their nitrogen-based fertilizer last fall or early winter at prices 25-30 percent below current levels.

But for many, the high price will be an unavoidable additional expense.

"If you were in a drought area and have no grain in the bins and bills still from last year, boy it's going to be tough with these kind of prices," said Terry Hildebrandt, president of Agricultural Producers Association of Saskatchewan.

Fertilizer industry officials say the current price reflects two factors:

• The global supply and demand situation for nitrogen is tight. On the supply side, production is down in Venezuela and there is no new capacity coming on stream. On the demand side, the prospect of better grain prices is boosting fertilizer demand from farmers in North and South America.

• The price of natural gas, which accounts for 80 to 85 percent of the cost of producing nitrogen-based fertilizer, has been rising to historical highs due to cold winter weather, lower production and political instability.

Fertilizer manufacturers have responded to the high natural gas price by scaling back production to levels they expect will meet, but not exceed, spring sales.

For example, Calgary-based Agrium Inc., Canada's largest nitrogen producer, cut production in January at two Alberta plants, in Joffre and Fort Saskatchewan.

"We're very conscious of not ending the spring season with too much inventory, especially when gas prices are as high as they are, because that's high-cost inventory," said Agrium spokesperson Jim Pendergast.

But one farm industry leader said the increase in natural gas prices is just an excuse for fertilizer manufacturers to extract more money from producers.

"They price according to what the market will bear," said Darrin Qualman, executive secretary of the National Farmers Union. "Grain prices are up, so they're going to crank up fertilizer prices."

The North American fertilizer market is controlled by four companies, which have the power to set prices, he said.

While manufacturers portray themselves as helpless victims of natural gas prices, history shows that increases in fertilizer prices outstrip increases in natural gas, Qualman said. He added that manufacturers routinely lock in natural gas prices in advance to cushion themselves from price increases.

Hildebrandt acknowledged that it's normal business practice to pass on costs and earn profits. But he also thinks fertilizer is too expensive as a rule.

"We're always paying more than we should for that stuff, no matter what price it is," he said. "There's obviously a whole lot more margin in fertilizer than there is in food for some reason or another."

Related stories, resources and websites:

• Fertilizer still worth using despite price, supply worries

• WP February 27, 2003

• Precision farmer reduces fertilizer, increases yield

• WP November 21, 2002

• New plants find own fertilizer

• WP September 26, 2002

• Experts tackle fertilizer questions

• WP July 18, 2002

• Ideal fertilizer strategy involves homework

• WP March 14, 2002

• Fertilizer prices will shock growers

• WP January 4, 2001

• Fertilizer will likely be affected by soaring natural gas prices

• WP September 21, 2000

• Alberta Agriculture

• website

• Agricultural Producers Association of Saskatchewan

• website

• National Farmers Union

• website

• Cargill Crop Nutrition

• website

• Agricore United

• website

• Saskatchewan Agriculture

• website

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