Natural gas prices create nitrogen shortage

By Marcene Heeren Kathy - Staff writer

Soaring natural gas prices are creating hardships for many Midwesterners this winter, but farmers who heat with natural gas are getting a double whammy.

Natural gas is used to pull nitrogen out of the air and convert it to anhydrous ammonia. Increased natural gas prices have pushed costs up for anhydrous ammonia, urea, and liquid nitrogen (28 percent), and it could create a nitrogen shortfall this spring.

"It's looking like there may be a shortage. Many producers have either shut down their facilities completely or slowed production down to a dribble," said Ron Lorenzen, assistant general manager for Farmers Cooperative Company of Hinton, Oyens, Akron and Le Mars. That includes Terra Industries, Farmland Industries and six other companies, according to a memo from Agriliance, a company that provides products to farmer cooperatives.

The shutdowns are in response to the high natural gas prices. Lorenzen said some nitrogen production companies have opted to sell the natural gas they had contracted back to the natural gas market at a higher cost.

"There's a better opportunity to make money doing that," he explained. Many independent production companies are looking at their profit margin rather than worrying about whether there will be nitrogen available for spring planting, he added.

Nitrogen producers are struggling to survive, according to Agriliance officials, and most are operating at a loss - even with the higher nitrogen prices.

"This is not a case of price gouging by nitrogen producers," the Agriliance memo states.

Agriliance officials have advised cooperatives not to oversell their current nitrogen positions with farmers. "The entire industry may be extremely tight on available supply this spring," Agriliance officials said.

Adding to the problem, Lorenzen said, is the fact that few farmers applied anhydrous this fall because winter weather arrived early. Russ Todd, Le Mars Agri-Center agronomy manager, also believes there could be a nitrogen shortage this year.

"There's definitely a reason to be concerned with a shortage, especially with 28 percent," Todd said. "Forty-two percent of the nitrogen-producing facilities in North America are shut down right now."

Todd said the Le Mars firm has a "pretty good supply" lined up. Customers are being asked to pre-pay to lock in a price. The current price is good until Jan. 10, he said. "Then we will have to go up in price after that," he explained.

Nitrogen prices are already $50 a ton higher than a year ago. Todd expects the price to climb at least $35 to $40 a ton more. He emphasized that phosphate and potash are not affected by the natural gas shortage.

The Hinton-based Farmers Co-op and the Farmers Co-op in Remsen also are also selling on a pre-paid basis. Kory Kroeger, a custom applicator for the Remsen co-op said fertilizer sales there must be booked and paid for in advance.

"Once our inventory is gone, it's gone," Kroeger said. His suppliers have indicated that everything is sold out, he said.

The Remsen co-op ordered their nitrogen early enough to get a lot of it pre-paid before prices soared. Still, they aren't getting everything they ordered.

"We're only getting 80 percent of what we paid for," Kroeger said.

The Hinton-based cooperative has gained some new business at its four agronomy locations, but Lorenzen said they want to focus on established customers and reward loyalty.

"But without their willingness to commit with their dollars, that's going to be difficult," Lorenzen said.

Although three of the four businesses contacted voiced concern about potential nitrogen shortages, John Dunlap, co-owner of Sioux Fertilizer in Hawarden, said he isn't very concerned about it.

"It doesn't sound like in the long term that those will be too hard to get a hold of," Dunlap said.

He is contracting for nitrogen with customers on a pre-paid basis. His suppliers are guaranteeing delivery so far, he said.

"They are guaranteeing in so many words, but there are always ways to get out of contracts," Dunlap said. "Then you go hunting and try to find some."

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-- Martin Thompson (mthom1927@aol.com), January 05, 2001