Worried About High N Prices?
Keith A Kelling and Larry G Bundy
Department of Soil Science
University of Wisconsin - Madison
Source: PotashCorp
Fertilizers, Feeds& Industrial SalesFertilizersFertilizers &
ExplosivesIndustrial SalesFertilizers &Industrial Sales
Solid UreaUAN SolutionAmmoniumNitrateNitric AcidAmmonia
Natural Gas
Anhydrous Ammonia(NH3)
Carbon Dioxide(CO2)
Liquid Urea(UR)
Prill Toweror Granulator
UAN Solution
28-32% N (UAN)
Liquid Ammonium
Nitrate (AN)Nitric Acid
(NA)
Prill Toweror Granulator
33.5 MMBtu/ton
0.22 t/t0.29 t/t
0.80 t/t
0.35 t/t0.45 t/t 1.01 t/t
0.78 t/t0.58 t/t
1.01 t/t
Nitrogen - A Simplified Flow Diagram
Source: PotashCorp
Source: NYMEX Monthly Closing gas prices
NYMEX Natural Gas Prices
0123456789
1011
Jan-9
9
Apr-99
Jul-9
9
Oct-99
Jan-0
0
Apr-00
Jul-0
0
Oct-00
Jan-0
1
Apr-01
Jul-0
1
Oct-01
Jan-0
2
Apr-02
Jul-0
2
Oct-02
Jan-0
3
Apr-03
Jul-0
3
Oct-03
$US/MMBtu
$9.13
$4.43
Source: Monthly Closing gas prices
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Jan02 Jan03 Jan04 Jan05
Actual
$ Per MMBtu
January 2002 - December 2005
Henry Hub Price
Natural Gas Prices
PIRA Forecast
Source: NYMEX
2.75
3.25
3.75
4.25
4.75
5.25
5.75
6.25
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2003 2004 2005 2006 2007
$ US / MMBtu
NYMEX US Natural Gas Futures PricesOctober 16, 2003
Source: NYMEX
Per Cent 2002 2003 Change
Res/Commercial 22.04 22.85 +3.7
Electric Generation 15.11 13.75 -9.0
Industrial 20.11 18.89 -6.1Ammonia 1.14 0.90 -21.1
Misc. 5.17 5.17 0.0
Total 62.42 60.67 -2.8
U.S. Natural Gas DemandBCF/Day
1997-2003 Nitrogen Market Driving Factors
• High U.S. natural gas prices
• Record increase in world nitrogen
capacity
• China’s ban on urea imports
• Collapse of the Russian ruble
(i.e. natural gas prices)
Source: Industry Publications
US Ammonia Production is About 25% Curtailed
PotashCorp Geismar and Memphis still down
Koch’s Sterlington plants are still down
Terra’s Blytheville ammonia/urea brought back to 80% (was shut down on July 1)
Miss Chem’s Donaldsonville Ampro plant is still down
Miss Chem’s Donaldsonville Triad facility and Yazoo City 3 are up (Yazoo City 4 is still down).
Dakota Gas’ Beulah, ND plant down for $3.5 million of repairs
Source: Industry Publications
10
12
14
16
18
20
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Estimate
Actual
Million Tons
U.S. Annual Nitrogen ProductionCapacity
Source: Fertecon
Million Tonnes Product
New Ammonia Capacity vs Demand
Several Projects uncertain
Cumulative Growth
Source: Fertecon
Longer-Term Outlook
• Increased reliance on imports• Further consolidation of U.S. industry
– Industrial ammonia suppliers along Gulf coast likely to close and rely on imports
– Some urea capacity likely to close due to increased offshore competition
U.S. natural gas prices are expected to moderate but remain above historical averages. This will likely result in:
Tightening world balance and access to large domestic market, however, will allow the bulk of the industry to remain competitive
• Low commodity prices?• Some inflation• Large fertilizer price increases?
Possible strategies• Cut inputs?• Continue past practices?• Evaluate and allocate for best
returns
Y2K + 4 outlook
Corn grain yield response at Arlington 1990’s
020406080
100120140160180200
0 30 60 90 120 150 180
N rate (lb/a)
Economic Optimum N Rate (EONR)
Cost of lastincrement of
N added
Value of yield increase
produced
=
Calculation of economic optimum N rate for 1990’s Arlington corn data
N rate
Actual Yield
Yield Increase
Increased Corn Value
Increased Fertilizer
Cost
Increased Return
------ bu/a ------ ------------- $/a -------------
60 161.4 9.8 24.50 4.00 20.50
80 169.2 7.8 19.50 4.00 15.50
100 175.0 6.8 17.00 4.00 13.00
120 178.8 3.8 9.50 4.00 5.50
140 180.6 1.8 4.50 4.00 0.50
160 180.8 0.2 0.50 4.00 (3.50)
180 180.5 -0.3 (0.75) 4.00 (4.75)
Calculated at corn to N fertilizer price ratio of 12.5:1.Check yield 126 bu/a
EONR only changes slightly with N cost or corn value changes
• Steep response curve
• Broad top plateau
• EONR not related to yield
• Needed 0.78 lb N/bu
Optimum N rates for northern Illinois sites 1999-2002
location corn - corn soybean - corn
optimum N rate
yield lb N/bu
optimum N rate
yield lb N*/bu
lb/a bu/a lb/a bu/a
Perry 127 132 1.0 88 127 1.0
Urbana 187 161 1.2 163 183 1.1
Monmouth 173 174 1.0 127 202 0.8
DeKalb 206 159 1.3 126 172 1.0
*40 lb “soybean” credit added to calculate this ratio for corn following soybean.Adapted from Nafzigen et al, 2003.
Principles of N fertilizer economies
1. EONR generally insensitive to value/price changes
2. EONR is best rate if supply and capital are unlimited = largest total return
3. “Other” N reduces EONR
4. First units applied provide biggest per unit returns
5. Management value increases in tough times
Beating Y2K + 4
• Use the EONR or slightly less
• Credit all N sources
• Guard against N losses
• Treat each management unit individually
• Grow the best possible crop
UW Soil ScienceDepartment
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