Worried About High N Prices? Keith A Kelling and Larry G Bundy Department of Soil Science University of Wisconsin - Madison
Nitrogen - A Simplified Flow Diagram Natural Gas 33.5 MMBtu/ton Carbon Dioxide (CO 2 ) Anhydrous Ammonia (NH 3 ) Nitric Acid (NA) 0.29 t/t 0.80 t/t 0.22 t/t Liquid Ammonium Nitrate (AN) 0.58 t/t Liquid Urea (UR) 0.78 t/t 1.01 t/t 0.45 t/t UAN Solution 28-32% N (UAN) 0.35 t/t 1.01 t/t Prill Tower or Granulator Prill Tower or Granulator Ammonia Fertilizers & Industrial Sales Nitric Acid Industrial Sales Ammonium Nitrate Fertilizers & Explosives UAN Solution Fertilizers Solid Urea Fertilizers, Feeds & Industrial Sales Source: PotashCorp Source: PotashCorp
NYMEX Natural Gas Prices 11 10 9 $US/MMBtu $9.13 8 7 6 5 4 3 $4.43 2 1 0 Jan-99 Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Source: NYMEX Monthly Closing Source: Monthly Closing gas prices gas prices
Natural Gas Prices $ Per MMBtu 8.00 Henry Hub Price 7.00 6.00 5.00 4.00 Actual PIRA Forecast 3.00 2.00 Jan02 Jan03 Jan04 Jan05 January 2002 - December 2005
NYMEX US Natural Gas Futures Prices October 16, 2003 6.25 5.75 5.25 4.75 4.25 3.75 3.25 $ US / MMBtu 2003 2004 2005 2006 2007 2.75 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NYMEX Source: NYMEX
U.S. Natural Gas Demand BCF/Day Per Cent 2002 2003 Change Res/Commercial 22.04 22.85 +3.7 Electric Generation 15.11 13.75-9.0 Industrial 20.11 18.89-6.1 Ammonia 1.14 0.90-21.1 Misc. 5.17 5.17 0.0 Total 62.42 60.67-2.8
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)
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 Source: Industry Publications
U.S. Annual Nitrogen Production Capacity Million Tons 20 18 16 Actual 14 Estimate 12 10 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
New Ammonia Capacity vs Demand Cumulative Growth Million Tonnes Product Source: Fertecon Source: Fertecon Several Projects uncertain
Longer-Term Outlook U.S. natural gas prices are expected to moderate but remain above historical averages. This will likely result in: 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 Tightening world balance and access to large domestic market, however, will allow the bulk of the industry to remain competitive
Y2K + 4 outlook Low commodity prices? Some inflation Large fertilizer price increases? Possible strategies Cut inputs? Continue past practices? Evaluate and allocate for best returns
Corn grain yield response at Arlington 1990 s 200 180 160 140 120 100 80 60 40 20 0 0 30 60 90 120 150 180 N rate (lb/a)
Economic Optimum N Rate (EONR) Cost of last increment 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/a bu/a lb/a bu/a lb N*/bu 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 Science Department