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High fertilizer prices adversely affecting farm operation finances

Farmers are “very concerned” about the escalating cost of nitrogen fertilizers and the impact it will have on their continuing operation, says Ford West, president of The Fertilizer Institute, Washington.

In many areas, farmers are getting out of the business, he told members of the Southern Crop Production Association at their annual conference at Orlando, Fla. “In the Pacific Northwest, for the first time we've been seeing wheat land become available for rent and no farmers picked it up because they couldn't pencil it out with their bankers.”

The chief culprit in higher fertilizer prices is the skyrocketing cost of natural gas, the primary feedstock for all nitrogen materials.

“We're an industry that has been based on $2 natural gas,” West said. “Yesterday, that gas was $13.70, and at that level it's very difficult for us to manufacture our products and be competitive in world markets.

“Our industry has shut 21 nitrogen complexes in the U.S. over the last four years, and the majority of the world's nitrogen manufacturing is now offshore. Fifteen years ago, only 10 percent of U.S. nitrogen was imported; today it's 45 percent, and that figure will only go up as the industry adjusts to increasingly high natural gas prices.

“As we go into the spring season, we need to keep making members of Congress aware of what these high fertilizer prices are doing to U.S. agriculture.”

In addition to energy concerns, the fertilizer industry is faced with security, transportation, trade, and regulatory issues, West said.

Since the bombing of the federal building in Oklahoma City, security “has become a major issue,” particularly for ammonium nitrate, the material used for that bomb.

“We're advised that since 9/11 the Al Qaeda terrorist organization has been training with bombs made from ammonium nitrate (AN). The bomb in Bali that killed more than 100 people was made from AN.

“For 10 years now, our industry has had a stewardship program for AN. Our dealers and distributors are continually cautioned: Know your customer, and don't sell to anyone you don't know.”

Unlike a chemicals which are regulated at the federal level, West noted, fertilizer is governed by state laws — “some good, some not so good. A big issue we're working on now is, what is our responsibility and what is our dealers' responsibility in the use of our products.”

For the first time in its history, he said, the industry has asked Congress to enact federal regulations for a fertilizer product. “We decided that as an industry we needed some additional protection, because another incident (like the Oklahoma bombing) could lead to pressures for a ban on AN in the U.S. So, we worked to develop legislation that would require those handling AN to be regulated by the state.”

He said Congress has indicated an interest in also addressing the security of chemical/fertilizer sites. “One of the questions is, should we stop shipping ammonia fertilizer and go to safer forms, such as solutions? The railroads are also picking up on this, and it's an issue we have to address.”

Transportation issues are ongoing, West said, particularly with the railroads.

“In the minutes of a 1916 meeting of the National Fertilizer Association, No. 1 on their agenda was that railroads need to understand the needs of the fertilizer industry. We're still struggling with that today — we continue to have a love/hate relationship with the railroads.

“And in a nitrogen industry that is predominantly based on imports, any disruption in the supply chain is going to be a problem. Half the urea that's imported into the U.S. comes through the Port of New Orleans, and Hurricane Katrina demonstrated graphically how that process can be disrupted.”

In many rural areas, theft of anhydrous ammonia for manufacturing methamphetamine (crystal meth) has been a major problem for farmers and “a public relations nightmare” for the industry, West said.

In the trade arena, he said the industry wants to reduce tariff and non-tariff barriers to fertilizer trade around the world. “While we're the largest phosphate exporter in the world, we've been a net importer of fertilizer for the past 20 years, and our nation's agriculture couldn't exist without these imports.”

The industry needs to work together with a cohesive approach, West said. “We can't afford to go to Congress with a mixed message, because when we do, we'll lose. It's hard enough to achieve the legislative and regulatory victories we need in this industry if we're not united.”

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