When Nitrogen goes up by 100%...the world needs more LNG.

We brought home our fertilizer this week and I almost fell off my chair when I saw the bill. $600,000.00!! Last year we paid $297,500.00 for the same amount of nitrogen! Now I understand that everything has gone up, but not by 102% WOW! Imagine if you owned a sandwich shop and the bread you bought was $5.00 per loaf one day and $10.00 the next! You would have to up charge your sandwiches. Unfortunately, farmers can't pass the cost of production onto consumers. Grain price is set by the world market so we must sell at the price set on the world commodity trade market. Of course I wanted to know why our nitrogen fertilizer bill was so high. "AFBF economists found several elements are contributing to record-high prices. These factors include increased prices for raw nutrients, increased global fertilizer demand, increased energy costs, distribution and supply chain disruptions, and trade duties." (Russ, Quinn, "DTN Retail Fertilizer Trends" Progressive Farmer, DTN.com 12/15/2021) My research lead me first to chemistry, then to politics, and finally to supply chain disruptions.

"Why do we need this ridiculously expensive nitrogen fertilizer anyway?" I thought. We are supposed to cut back by 30% in 8 years anyway. That lead me to the importance of nitrogen for crop growth. Without Nitrogen fertilization soil organic matter will decline and the supply of plant-available N will decrease, and stabilize at a low net plant-available N level with resultant low crop yield. High crop yields require N fertilization to supplement the soil N supply. So I guess we can't cut back. I discovered that there are 9 different types of nitrogen fertilizer, and the 2 mainly used in western Canada are Anhydrous Ammonia (82%N) and Urea (46%N). Urea is best used on soils with moisture content. The urea that we use on our farm comes with a slow released coating over the pellet. (Evironmentally Smart Nitrogen (ESN) by Agrium) This coating adds to the cost but keeps the urea from breaking down immediately when it hits the soil; instead it dissolves slowly in response to soil temperatures. Anhydrous ammonia is ammonia gas liquefied under high pressure and injected 12-20 cm into the soil from pressurized tanks. The ammonium hydroxide is rapidly absorbed by the clay and organic matter in the soil and there is very little loss of nitrogen to the atmosphere. These nitrogen fertilizers are a must to grow a high-yielding crop.

My next question was "what countries produce nitrogen fertilizer?" I learned that the top 5 Nitrogen fertilizer producing countries in 2020 were 1) China at 37 million metric tons, 2) India at 14 million metric tons, 3) the U.S. at 11 million metric tons, 4) Russia at 10 million metric tons, and then Canada with 4 million metric tons. But in order to make nitrogen fertilizer one must first purchase the raw nutrients which have seen increased prices also.

The top 3 countries producing Ammonia are China (38 million metric tons), Russia (15 million metric tons), the U.S. (14 million metric tons). Canada produced 4 million metric tons of Ammonia in 2020. The top 5 countries producing Urea are Russia (8 million metric tons), Indonesia (7 million metric tons), India (6 million metric tons), Pakistan (6 million metric tons), and the U.S. with 5 million metric tons. These raw nutrients are in high demand and with higher energy prices and pandemic worker shortages, the prices of these nutrients have risen.

This search then led to the politics of the nitrogen fertilizer producing countries. China's production is currently low due to the rise in natural gas prices. The majority of the natural gas is being used to heat homes and not for manufacturing. By March more gas should be allowed for industrial use. And what fertilizer is being produced is not being shipped out of China. They are trying to build up a reserve for domestic use to shelter Chinese farmers from the ever-rising global price, which of course, leads to a global shortage, which leads to a price increase. China's plants will also close for the first week of February for the New Year celebrations. They will probably remain closed until after the Beijing Olympics to keep the skies clear.

China has less LNG because the U.S. diverted their LNG cargoes in December from China to Europe. 249 cargoes went over during the Christmas holidays. However, this is temporary as Brazil and Asia are demanding more. Why did the US divert their LNG to Germany from China? Russia sends LNG to Germany through the Yamal-Europe pipeline through Poland. On December 21 the Russians reversed the flow of natural gas from Germany back to Poland, leaving Germany with a LNG shortage. Russia had already been curbing shipments to Europe through the pipelines which run through the Ukraine. Shipments are at the lowest level since 2015. Low supply means high pice. The high price of gas affects the production of ammonia and urea.

And like every other good, there are supply chain distribution issues. When Hurricane Ida hit the ports of Louisiana, it caused major damage to the docks where all imported fertilizer arrives. The Mississippi River has been under restrictions since then while channel reinforcement is underway. Also in the U.S. Gulf, Port Allen, Bayou Boeuf, Algiers, & Bayou Chene locks are under size and time restrictions. The Illinois River has ice formations with wait times of up to 5 hours at the LaGrange Lock. These restrictions keep fertilizer from getting to Canada in time causing a shortage.

So what does this all mean to you the consumer? If farmers cannot continue to pay the skyrocketing prices of nitrogen fertilizer, they will grow less crops. Less crops grown and high demand for food around the world, means higher prices for wheat, barley, and canola. Food prices will continue to soar. What can be done? Produce more LNG.