FARGO, N.D. - After a three-year run of euphoric times for the region's crop farmers, the outlook for poorer commodity prices was figuring into an uncertain outlook for many show-goers at the North Dakota Ag Expo in Fargo Dec. 3 and 4.
Gary Knutson, executive director of the North Dakota Agricultural Association, which sponsors the show in the Fargodome, said crowds were about two-thirds of normal on Dec. 3 and perhaps a third of normal on Dec. 4, with a storm looming.
Those who made it to the show had a lot to ponder -- lower commodity prices and an inability of Congress to pass a farm bill, high land rental rates and persistently high input costs. Some, however, are finding optimism in an outstanding or at least better-than expected 2013 crop in the region and opportunities to buy into the nitrogen fertilizer manufacturing game.
Farmers in southwest North Dakota had exceptional crops thanks to ample rainfall this year. Areas in the northeast corner of the state had better-than-expected crops, especially considering the late seeding season. Some, however, are still dealing with unharvested crops or higher-than-expected drying costs.
Crop insurance uncertainty
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Among the wide array of speakers at this year's expo, Frayne Olson, North Dakota State University Extension Service crops marketing economist, and Randy Martinson of Progressive Ag, told farmers that the realities of 2014 cropping choices will probably not be set until February when crop insurance selection choices can be made.
"Never say never in this industry, but we're not going to have the guarantees like we have in the past on crop insurance," Martinson said, noting that crop insurance potential won't be fully known until February, when markets are used to determine formulas. "In the last few years we've been able to lock in profits on the crop insurance. This year we're not going to be locking in profits. We're going to be minimum losses, is what it looks like."
Both said they don't think the farm bill is going to affect what farmers plant in 2014. "You're getting -- what, $10 an acre now on direct payments? If they took it away, it's not going to matter and you're not going to switch planting decisions. In the South, it means more for the cotton, rice and peanut farmers.
"That's what they live and die on," Olson said. He said cotton is the crop to watch because there are about 10 million acres of cotton that could change to corn. "The greatest influence the farm policy will have on planted acres will be on cotton."
Nitrogen facts
While farmers are concerned about lower commodity prices and high land prices and rents, they also are being offered an opportunity to invest in nitrogen fertilizer projects, including a $1.4 billion program being planned in the Grand Forks, N.D., area.
Tom Blue, president of Blue Johnson Associates, offered details about how the nitrogen fertilizer market works -- the current and likely source, supply and price -- in North America, but he left it to the listener's imagination what the bottom line was. There have been numerous projects talked about but there aren't many that will go ahead, said Blue, who consults with Northern Plains Nitrogen.
Blue said much of the nitrogen fertilizer used by farmers in the Northern Plains market is imported. "You get a whole bunch that comes down from western Canada; you get a whole bunch that comes up through the Houston and Galveston terminals -- an awful lot of that is as urea that comes up on the unit trains to some of the new unit train sheds that have been built up in this part of the world. You get as much that comes up the river and gets dropped off at St. Louis; some of it gets dropped off further north. A lot gets railed across into this marketplace."
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Corn accounts for more than 50 percent of all the nitrogen fertilizer consumed in the nation. Wheat is second.
Corn production has risen in the Northern Plains where the average spot price for urea was $425 per ton in the past year. Producers of fertilizer seem to be pegging their pricing on the value of the corn, and not the underlying cost of natural gas. Blue said on a "cost basis they are covering all kinds of costs --- getting $250 a ton over their cash costs" for producing it. The cost of urea fertilizer increased in 2012, even as the price of making it declined, apparently because commodity prices were higher, and makers figured farmers could pay for it. The profit margin gap is why so many people -- including North Dakota corn growers and CHS Inc. -- are interested in making it here, at announced billion-dollar-plus facilities.
Hedge against gouging?
Darin Anderson, a Valley City, N.D., farmer and president of a steering committee for Northern Plains Nitrogen, said his organization is trying to raise $3 million to $9 million before an internal deadline of Dec. 13 to get their project started. He said about half of that had been raised -- $1 million from founding investors -- but that meetings have been hampered by the late harvest and now weather issues.
Anderson said farmers are looking at investing in a fertilizer plant in part for an investment, but started out investigating it as a natural hedge against high fertilizer prices.
"Roughly a $1,000 investment would equal a ton of nitrogen hedging. If you used 50 tons of nitrogen fertilizer every single year, a $50,000 investment would correlate to a 100 percent hedge in the project," he said. By buying from existing nitrogen fertilizer producers there's no hedge at all, Anderson said.
"You could buy an existing producer," Anderson volunteered, "but you're already buying their expected profits down the road ... at a premium." He said a newly built facility would be 15 percent more efficient than existing production.
