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Skyrocketing natural gas prices add to farmer woes

Know someone with cows? You might get in line to speak for their manure. With the grim outlook for natural gas prices the next year or so, nitrogen fertilizer may be so dear that some farmers may consider going organic.

The best-case scenario, natural gas industry officials say: a cooler summer and warmer winter, which would reduce demand for a supply that's becoming more limited. But since nobody can say with any accuracy what the weather's going to do, rising prices of natural gas futures are already reflecting the uncertainty of supply/demand.

In just the past year, prices have more than doubled; the cost of 1 million Btu is more than triple that of 18 months ago. How high could it go? Nobody's hazarding a guess, but everybody agrees it ain't likely to get cheaper.

Natural gas is the main building block for virtually all nitrogen fertilizers used in the United States; it represents 90 percent of the total cash cost of producing ammonia.

All of which is having “a devastating impact” on both the American farmer and the fertilizer industry, says Robert Liuzzi, president and chief executive officer of C.F. Industries, one of North America's largest interregional cooperatives that provides nitrogen and phosphate fertilizers to more than 1 million farmers in the United States and Canada.

“High natural gas prices present the most serious threat to the fertilizer sector and to farmers in general since the energy shocks of the 1970,” he told a House Committee on Energy and Commerce hearing June 10, testifying on behalf of the Fertilizer Institute. The price volatility has resulted in permanent closure of nearly 20 percent of the nitrogen fertilizer production capacity in the United States, with an additional 25 percent idled.

Mississippi Chemical Corp., a major manufacturer of nitrogen and potash fertilizers, earlier this year sought relief under Chapter 11 of the Bankruptcy Code; among the reasons cited was “the extreme increase in price and price volatility of domestic natural gas… which has resulted in substantial financial losses… for the last five years.” Last week, the company said it would temporarily idle two New Mexico potash mines and sharply curtail nitrogen production at its Yazoo City, Miss., plant. It had already permanently shut a Donaldsonville, La., plant. (Louisiana once had 11 fertilizer production plants. Now there are just three, all running at reduced output levels.)

No less a luminary than Federal Reserve Chairman Alan Greenspan warned the House committee that if natural gas prices “stay at these very elevated levels,” it could be a drag on the nation's economic recovery. Unfortunately, he said, he could offer no solution for easing the grim outlook in the immediate future.

Long-term, Greenspan said, the situation could be helped if Congress would lift restrictions on imported natural gas and on explorations for new domestic sources, particularly on public lands. Congress has been less than enthusiastic about increasing imports and any move to increase drilling on public lands raises the hackles of environmentalists.

The upshot: home heating, fertilizer production, and anything dependent on natural gas is going to cost a lot more.


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