farmgate: Corn Production Needs Extra Evaluation Because Of Nitrogen Costs
Beans or corn? Corn or beans? Which will dominate your 2008 cropping plan? If revenue per acre is relatively equal, will Asian rust tip the scales toward corn? Or will rising nitrogen prices tip the scales toward soybeans? The spread of rust may be harder to predict than nitrogen prices, since you know they are going up.
During the past 7 cropping seasons the composite price of fertilizer climbed 113%, and during that time, the price of ammonia rose 130% from $227 to $523 per ton says USDA economist Wen-Yuan Huang in the November issue of Amber Waves. Higher prices are due to increasing demand, and USDA says with global demand up 14% since 2000, US imports of nitrogen will be more costly. It has to be imported because the US supply is declining due to higher costs for the natural gas used to make ammonia. Ammonia production has declined 44% since 2000, while imports have increased 115%. That balance, says USDA, will make corn growers more vulnerable to changes in global supplies of nitrogen and the natural gas market.
This is happening at the same time corn production increased to keep up with the demand for ethanol, and with the demand for additional nitrogen, it will greatly impact the cost of corn production says Iowa State ag economist Don Hofstrand in the November issue of Ag Decision Maker.
Hofstrand says natural gas contributes 80% of the cost of producing ammonia, and ammonia prices have closely paralleled natural gas prices since 2000. Since then the number of ammonia plants declined from 40 to 25 and production capacity declined from 20 to 13 million tons per year. To make up for the shortfall imports increased and in 2005 represented 80% of the ammonia used in the US.
Prices of natural gas and crude oil usually parallel each other and petroleum costs are well known to everyone. Additionally, supplies of natural gas are located in the same nations with large oil reserves. Hofstrand says our attempt to become more energy independent with ethanol may link us tighter to the Mideast if natural gas demand increases for nitrogen fertilizer production. Alternatives include the Caribbean island of Trinidad and Tobago, as well as Venezuela, but production capacity is not well developed there.
Until then, Iowa State’s Hofstrand says the cost of ammonia will be an element of uncertainty to corn production. USDA says the current US ammonia industry is to make and deliver the product as needed to minimize the cost of holding inventory, and any unexpected problem will result in a shortage of supply and higher prices. USDA says the US has 3 million tons of unused ammonia production capacity, but it is uneconomical produce even at current prices, and it would take higher ammonia prices to bring it into production.
Summary:
Farmers making cropping plans for 2008 should balance revenues with production costs, but the cost of nitrogen for corn production is difficult to estimate. Increased domestic and global demand will raise the price of ammonia and its feedstock natural gas. Ammonia prices are expected to rise into next spring, possibly to the point of bringing some idled plants into production. Nevertheless, corn growers should expect higher costs for nitrogen
Posted by Stu Ellis on November 7, 2007 12:12 AM to farmgate