In September 2004, our article Fertilizer Rising looked at how the fertilizer industry was responding to the strain of rising natural gas prices. Back then, $6/Mcf (one-thousand cubic feet of gas) for feedstock natural gas was too high for many domestic fertilizer producers, forcing some fertilizer companies to shut down plants, merge with other companies or move production overseas to take advantage of lower regional natural gas prices in the Middle East and the Caribbean. Recent events would seem to make those company’s moves to overseas fertilizer production look even smarter.

Now, after hurricane Katrina’s hit on the Delta’s energy and transportation infrastructure, natural gas futures in the U.S. are $11.69/Mcf and could hit $12 or higher beyond October. In the Middle East, where natural gas is a byproduct of pumping oil out of the ground, the price remains nearly static below $1/Mcf. In the Caribbean, where natural gas price is determined more by the price of ammonia (NH3) in the U.S., the price fluctuates at a level somewhere around $2.50/Mcf.

But the impact of Katrina wasn’t just on energy prices, it also is affecting transportation infrastructure, especially port access through New Orleans. At this writing, more than 100 cargo-laden ships are stacked up in the Gulf, waiting for limited port access. What effect will all this have on fertilizer supply and prices? We visited with Bruce Vernon, Agriliance director of crop nutrients marketing, about the situation. Here’s what he had to say.

It’s been a wild week. We’ve been in crisis management mode since last Sunday. The river has reopened today to some traffic. Vessels are coming in, but with a 35 ft depth limit. Ships loaded with fertilizer typically need 100 ft of depth. And fertilizer is a lower priority cargo than oil, food and emergency supplies sorely needed by the region. Agriliance has been somewhat fortunate in that we acquired access through the Port of Galveston last year, so we can still get fertilizer from the Gulf into the upper Midwest market. But a lot of fertilizer is still produced domestically, and the price of natural gas, and the ability to get sufficient supply to those plants, is a real concern.

Fortunately, the fertilizer industry as a whole has gone into a “stand down” mode, choosing to evaluate the damage and the situation rather than over reacting. Prices of NH3 vary across the country. Price of NH3 in Tampa, where most of the offshore supply comes in, is somewhere around $300 to $320 per ton. But in North Dakota, where local natural gas prices are a cost factor, NH3 price has touched $500/ton. Across the Midwest, NH3 averages somewhere between $450 to $500 per ton.

We really don’t know where prices for natural gas, NH3 or urea fertilizers are going to go from here. There’s a lot of volatility now and prices could go down as rapidly as they’ve gone up. It is hard to predict. A lot of our fall business has already been booked. So that leaves many farmers looking at prices for spring.

Farmer/co-op demand will still be a big part of what drives fertilizer prices. Their demand is dependent on grain prices. If grain prices rise accordingly, farmers may decide the extra price for fertilizer is worth paying. With today’s volatility, my advice to farmers is to catch your breath and watch the fertilizer market as closely as you watch the grain market. If fertilizer hits a price that works profitably for you, you might consider working with your dealer to book that price.

To review Fertilizer Rising go to http://farmindustrynews.com/mag/farming_fertilizer_rising/index.html