Sean Stipp | Trib Total Media
Rick Ebert positions his tractor to load fertilizer in the
hoppers of his corn planter to be applied at the same time the corn is
planted on May 12, 2015.
The glut of cheap natural gas that is
hindering profits and prompting job cuts among Marcellus shale drillers
has been a blessing for companies that use the gas to make fertilizer
for farmers.
The domestic fertilizer industry is
experiencing its largest growth in 25 years, thanks to gas pulled from
shale in record volumes across Appalachia.
“Ever since you started seeing the (price)
declines in natural gas, you've seen the profitability of this industry
just skyrocket,” said Glen Buckley, a fertilizer industry consultant who
spent 30 years working at CF Industries, based in Deerfield, Ill., the
largest public homegrown fertilizer producer.
Low-cost gas selling for $2.76 per million
British thermal units — down 40 percent from last year's prices and well
below the $9 it cost in 2003 — has invigorated the fertilizer
manufacturing industry across the Midwest and Southeast, with more than
35 fertilizer plants proposed or recently brought online, according to
The Fertilizer Institute, a Washington-based industry advocacy group.
Natural gas makes up 90 percent of nitrogen
fertilizer, the variety most commonly used by farmers. Its ingredients
and manufacturing process depend on huge amounts of natural gas, so when
gas is cheaper, so is fertilizer production.
Farmers have not seen the drastic price
breaks that manufacturers are getting, according to a report from the
Brookings Institute in Washington on the effects of cheap shale gas on
manufacturing.
Rick Ebert, who runs a dairy farm and grows
soybeans and hay in New Alexandria, said he has seen only slight drops
in his fertilizer prices. Fertilizer is about one-third of the cost of
producing a corn crop, he said.
“There has been some decrease ... but it
would be nice to get more plants built here,” he said. “The slight drop
in fertilizer does help, but it's still a very tight margin.”
Prices have decreased slightly at E.H.
Griffith, a fertilizer wholesale distributor based in Swissvale.
Nitrogen fertilizer prices have decreased about 5 percent after years of
weekly increases, said Jim Guesman, a sales manager. The company sells
fertilizer for turf at parks, schools and cemeteries.
It buys fertilizer by the truckload, about
22 tons each, Guesman said. Prices vary from $70,000 with pesticides
blended and $14,000 without.
“We didn't have the normal increases,” he said.
When farm costs fluctuate, that can bite
into a farmer's profitability, said Mark O'Neill, spokesman for the
Pennsylvania Farm Bureau.
“The general public wouldn't realize the price of natural gas impacts the price of fertilizer, but it does,” he said.
The United States has become a low-cost
producer of nitrogen fertilizer after decades of importing most of it
from the Middle East.
The number of plants has risen over the past
eight years, growing 8.3 percent from 2007 to 2012, according to the
Brookings report. Employment in the industry rose from 2007 to 2012, up
8.6 percent.
Three companies dominate domestic
production: privately owned Koch Industries, based in Wichita, Kan.;
Cairo-based Orascom Construction Industries; and CF Industries. There is
limited price competition in certain parts of the country where
fertilizer retailers who sell to farmers have no choice from which
producer they buy, Buckley said.
“Fertilizer is really a highly concentrated and oligopolistic-type industry,” he said.
All three are proposing new plants, most to
be built where demand is high near corn and soybean growers in the
Midwest. CF has three of the newest plants, scheduled to come online
this year and in 2016, according to The Fertilizer Institute.
The company has prospered as shale gas
prices plunged. CF's stock price increased from $58.56 per share in June
2010 to $312.68 in February, an 81 percent jump. The company did not
return phone or email requests for comment.
Wholesale price trends for fertilizer prices
are generally hard to track. There are no futures markets, and The
Fertilizer Institute and the federal Department of Agriculture do not
distribute information on wholesale or production prices. Wholesale data
is available mostly through paid private trade publications.
“It's not a very transparent market,” said
Buckley. “The producers dictate a lot of the things that's going on. To
try to get data in this industry is very difficult because it's
controlled by the producers.”
As the fertilizer plants start producing,
the increase in supply to the global market will likely drive prices
even lower for producers, said Joe Dillier, director of plant food at
GrowMark, a fertilizer cooperative in Bloomington, Ill.
“The irony is that if all these facilities
get built, the fertilizer price that's gotten cheaper is going to get
cheaper still,” he said.
Source: http://triblive.com