Fertilizing change2 proposed North Dakota nitrogen fertilizer plants could reduce input costs, alter cropping patterns
By: Jonathan Knutson, Agweek
Area farmers could see substantial savings if two proposed North Dakota nitrogen fertilizer plants are built.
“I really hope [farmers] are calculating this into their business plans,” says Dave Franzen, a North Dakota State University Extension Service soil specialist with extensive experience with nitrogen and other fertilizers.
He estimates that if one or both plants are built, the price of urea, North Dakota’s most popular type of nitrogen fertilizer, could drop by $100 per ton in the state and surrounding area. Other experts who talked with Agweek estimate the potential savings at $25 to $50 per ton of urea.
Agweek ran those estimated savings past Andy Swenson, an NDSU Extension farm management specialist who tracks farm expenses and their impact on profitability.
He applied the potential savings to corn and spring wheat, both of which are heavy users of nitrogen. His conclusion:
• A reduction of $25 per ton would cut the per-acre cost of planting corn by roughly $4.60 and planting spring wheat by $3.50 in the Red River Valley of eastern North Dakota.
A reduction of $100 per ton would cut the per-acre cost of planting corn by $18.50 and the per-acre cost of planting wheat by roughly $14 in the RRV.
• In central North Dakota, where nitrogen isn’t used as heavily, the per-acre savings would be roughly two-thirds as much as it is in the RRV.
• In western North Dakota, where nitrogen use is still more limited, the per-acre savings would be roughly half as much as in the RRV.
“Those are just projections, though,” Swenson says.
Urea currently costs about $500 per ton.
Change in crops ahead?
The two proposed nitrogen fertilizer plants, if built, also should make nitrogen more plentiful and readily available in the area. There are mixed views on whether that might encourage farmers to plant more acres to crops that use a lot of nitrogen and fewer acres to crops that use relatively little of it.
Joel Ransom, NDSU Extension cereal grains and corn specialist, says crop prices, not the supply of nitrogen fertilizer, will determine what farmers raise.
“The price they get for their crop is what matters,” he says.
Bill Zurn, a Callaway, Minn., farmer, also says crop prices will dictate what farmers plant.
Franzen discounts a possible connection between cheaper or more plentiful nitrogen and planting decisions.
“I don’t see it being manifest in increased acres of corn or wheat or anything like that,” Franzen says.
But Swenson says lower fertilizer prices would have some impact on planting decisions, albeit a smaller one than crop prices.
“It (nitrogen prices) wouldn’t be the driver on planting decisions. Crop prices are the driver. But you have to factor in input costs, too,” he says.
Randy Englund, executive director of the South Dakota Wheat Commission, says he’s uncertain if lower fertilizer prices would encourage farmers to plant more of some crops and less of others.
The important thing is that farmers would pay less for fertilizer, he says.
Yields, nitrogen use
There’s agreement, however, that cheaper, more plentiful nitrogen wouldn’t cause farmers to use more of it in hopes of raising yields.
Crop prices, not fertilizer prices, are the dominant factor in deciding how much fertilizer to use, Franzen says.
His website (www.ndsu.edu/pubweb/soils/wheat) includes a calculator that looks at crop prices, fertilizer prices and fertilizer use.
Fertilizer use on sugar beets wouldn’t be affected by lower nitrogen prices, says Mike Metzger, research agronomist for Wahpeton, N.D.-based Minn-Dak Farmers Cooperative.
Minn-Dak growers use about 120 pounds of nitrogen per acre to maximize quality, and that amount won’t change if nitrogen prices fall, he says.
But sugar beet growers would benefit if nitrogen were produced in the area, he says.
“Having it produced locally means cheaper, which of course helps our guys’ bottom line,” Metzger says.
Big deal in the region
It’s difficult to overstate the importance of nitrogen fertilizer to U.S. agriculture.
As a 2011 publication of the U.S. Department of Agriculture’s Economic Research Service puts it, “Nitrogen is the single most important input a farmer can control to increase crop yields on nonirrigated fields.”
Nitrogen, phosphate and potash, sometimes known as the “the big three,” are all essential to plant growth. The use of nitrogen fertilizer, in particular, has increased because the yields of some seed varieties improve when it’s applied, according to the Economic Research Service.
In 2010, the U.S. used about 12.3 million tons of nitrogen, 4 million tons of phosphate and 4.5 million tons of potash, according to the ERS.
The U.S. both imports and exports nitrogen, though on balance is a big importer, according to The Fertilizer Institute, a Washington, D.C.-based trade group.
U.S. nitrogen production has slipped in the past decade, so nitrogen imports have been increasingly important. Imports accounted for 50 percent of U.S. consumption in 2011, up from only 19 percent in 2002. The biggest supplier of imported nitrogen is Trinidad, an island nation in the Caribbean.
Most of the imported nitrogen used in the Upper Midwest is shipped up the Mississippi River on barges, which adds expense and uncertainty to the region’s nitrogen supplies.
‘Change the complexion’
The ERS has no research into the connection, if any, between new nitrogen plants and lower prices, says Wen-yuan Huang, an ERS agricultural economist who studies fertilizer use and prices.
But he thinks more plants and more production “favor lower nitrogen prices for U.S. farmers,” he says, adding that his views don’t necessarily reflect those of USDA.
He notes that U.S. ammonia is relatively cheap to produce because of relatively low natural gas prices here. It’s possible, then, that U.S. ammonia producers may begin increasing ammonia exports because they can receive a higher price on global markets than at home, he says.
“Consequently, the price paid by (U.S.) farmers may not reflect the relatively low production cost,” he says.
Nonetheless, building one or both of the proposed North Dakota nitrogen plants would eliminate the expense of transporting nitrogen up the Mississippi, officials say.
“Having nitrogen produced in the interior would really change the complexion of where our nitrogen comes from,” Franzen says.
“I encourage producers to start planning for that,” he says.