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Fertilizer industry soars amid gas glut

| Sunday, May 17, 2015, 9:00 p.m.
Rick Ebert positions his tractor to load fertilizer in the hoppers of his corn planter to be applied at the same time the corn is planted on May 12, 2015.
Sean Stipp | Trib Total Media
Rick Ebert positions his tractor to load fertilizer in the hoppers of his corn planter to be applied at the same time the corn is planted on May 12, 2015.

The glut of cheap natural gas that is hindering profits and prompting job cuts among Marcellus shale drillers has been a blessing for companies that use the gas to make fertilizer for farmers.

The domestic fertilizer industry is experiencing its largest growth in 25 years, thanks to gas pulled from shale in record volumes across Appalachia.

“Ever since you started seeing the (price) declines in natural gas, you've seen the profitability of this industry just skyrocket,” said Glen Buckley, a fertilizer industry consultant who spent 30 years working at CF Industries, based in Deerfield, Ill., the largest public homegrown fertilizer producer.

Low-cost gas selling for $2.76 per million British thermal units — down 40 percent from last year's prices and well below the $9 it cost in 2003 — has invigorated the fertilizer manufacturing industry across the Midwest and Southeast, with more than 35 fertilizer plants proposed or recently brought online, according to The Fertilizer Institute, a Washington-based industry advocacy group.

Natural gas makes up 90 percent of nitrogen fertilizer, the variety most commonly used by farmers. Its ingredients and manufacturing process depend on huge amounts of natural gas, so when gas is cheaper, so is fertilizer production.

Farmers have not seen the drastic price breaks that manufacturers are getting, according to a report from the Brookings Institute in Washington on the effects of cheap shale gas on manufacturing.

Rick Ebert, who runs a dairy farm and grows soybeans and hay in New Alexandria, said he has seen only slight drops in his fertilizer prices. Fertilizer is about one-third of the cost of producing a corn crop, he said.

“There has been some decrease ... but it would be nice to get more plants built here,” he said. “The slight drop in fertilizer does help, but it's still a very tight margin.”

Prices have decreased slightly at E.H. Griffith, a fertilizer wholesale distributor based in Swissvale. Nitrogen fertilizer prices have decreased about 5 percent after years of weekly increases, said Jim Guesman, a sales manager. The company sells fertilizer for turf at parks, schools and cemeteries.

It buys fertilizer by the truckload, about 22 tons each, Guesman said. Prices vary from $70,000 with pesticides blended and $14,000 without.

“We didn't have the normal increases,” he said.

When farm costs fluctuate, that can bite into a farmer's profitability, said Mark O'Neill, spokesman for the Pennsylvania Farm Bureau.

“The general public wouldn't realize the price of natural gas impacts the price of fertilizer, but it does,” he said.

The United States has become a low-cost producer of nitrogen fertilizer after decades of importing most of it from the Middle East.

The number of plants has risen over the past eight years, growing 8.3 percent from 2007 to 2012, according to the Brookings report. Employment in the industry rose from 2007 to 2012, up 8.6 percent.

Three companies dominate domestic production: privately owned Koch Industries, based in Wichita, Kan.; Cairo-based Orascom Construction Industries; and CF Industries. There is limited price competition in certain parts of the country where fertilizer retailers who sell to farmers have no choice from which producer they buy, Buckley said.

“Fertilizer is really a highly concentrated and oligopolistic-type industry,” he said.

All three are proposing new plants, most to be built where demand is high near corn and soybean growers in the Midwest. CF has three of the newest plants, scheduled to come online this year and in 2016, according to The Fertilizer Institute.

The company has prospered as shale gas prices plunged. CF's stock price increased from $58.56 per share in June 2010 to $312.68 in February, an 81 percent jump. The company did not return phone or email requests for comment.

Wholesale price trends for fertilizer prices are generally hard to track. There are no futures markets, and The Fertilizer Institute and the federal Department of Agriculture do not distribute information on wholesale or production prices. Wholesale data is available mostly through paid private trade publications.

“It's not a very transparent market,” said Buckley. “The producers dictate a lot of the things that's going on. To try to get data in this industry is very difficult because it's controlled by the producers.”

As the fertilizer plants start producing, the increase in supply to the global market will likely drive prices even lower for producers, said Joe Dillier, director of plant food at GrowMark, a fertilizer cooperative in Bloomington, Ill.

“The irony is that if all these facilities get built, the fertilizer price that's gotten cheaper is going to get cheaper still,” he said.

Katelyn Ferral is a staff writer for Trib Total Media. She can be reached at 412-380-5627 or kferral@tribweb.com.

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