Don't expect much new production until natural gas prices drop into the $4 to $5 range.

What do you expect from the nitrogen situation?” the southern Minnesota co-op manager was asked.

“More gray hair,” he replied with a smile.

In a few words, that's probably a good attitude to take in the face of the current fertilizer shortage. Given the gloomy forecast, one might expect a burst of anger, at best a sense of resignation. But as veteran retailers know, crises come and go in their business, and this one's no different. True optimists are even seeing some opportunities to strengthen customer relationships.

Managing the crisis started last fall for many. By working closely with customers to honestly assess the warning signals and lock in supplies, these retailers got a step ahead of an industry that has shut down half its production. The unanswered question is whether the early action will keep them far enough ahead.

Weather will be the litmus test in many areas. AgLand FS, a member company of the GroMark cooperative, took a proactive stance in heading off potential problems by opening the lines of communication with their growers early enough to guarantee a supply. Mike Long, certified crop advisor with AgLand FS in Armington, IL, says, “As a result, we should be in fine shape. But if we have a cold, wet March and everyone goes into the field at once in April all across the Midwest, then things could be fun.”

Independent Minnesota retailer Roger Strand also took precautions and is glad he did. Last summer the owner of Strand of Milan had a hunch when he saw what was happening with the price of natural gas. “Usually when you see natural gas prices moving up, you know it's going to affect supply. I also felt that it was going to hit before the end of the year.” Normally he would be a lot happier about being right. But by being proactive, he locked in his supply early and believes he has enough storage available to handle spring needs.

Kim Ricketts, of Ricketts Farm Service, with outlets in northeast Missouri, says the nitrogen crisis gives dealers an opportunity to work more closely with customers. “We started with a plan. When we saw what was happening and anticipated the end result, we quickly sent a letter to our customers. We explained what we thought was going to happen and suggested they prepay to lock in a price. That way we could guarantee a supply. A second option was to lock in a supply, but without a price guarantee.”

Opening communication quickly with customers about the impact of short N supplies seemed the wisest strategy among co-ops and independent suppliers questioned. “Our seven agronomists worked closely with farmers in Minnesota and South Dakota to determine needs and to lock in supplies,” says Jeff Schmeising at West Consolidated Cooperative with headquarters in Appleton, MN. “We were able to store some of what we would normally use in fall applications, and prepay the rest.”

Schmeising saw a bit of a positive in the situation. “We have a loyal farmer base, yet I think situations like this show that the services a retailer provides beat that Internet purchase, or going all over the country looking for the cheapest price. That's why we made the investment that we did to help them adjust to the shortage.”

Long agrees. “We made person-to-person contact with every grower customer we have and told them the reality of the situation. We're 95 percent locked in with our anhydrous and 28 percent N as a result.”

He admits to getting some hard looks last fall when he advised against early fall anhydrous applications. “We worked hard to keep them out of the field in early October. The soil was too warm and they would have been throwing money away.” Nitrification losses are greatest when soil temperatures are above 50°.

A major shift in cropping patterns to short-circuit the supply shortage seems unlikely. Neither Long nor others questioned expect to see much movement from typical corn and soybean rotations.

“Switching corn acres to soybeans may be a high-risk strategy simply from a disease standpoint. Continuous soybeans tend to have a higher incidence of soybean cyst nematode, disease and insect problems that can reduce yields,” says Minnesota extension educator Kent Thiesse.

Waiting to topdress or sidedress doesn't seem like a good gamble, either. “Who knows if we'll have a supply by then, either?” says Missouri retailer Ricketts.

“We don't anticipate much change in tradition. This is one of those situations where dealers and farmers must work together to get through,” says crop advisor Long. “I don't know if we'll be going back to the pre-crunch prices, or what will happen in the future. All I can say is that this isn't a time to be jumping ship.”

Al Giese, president of Agriliance, the joint marketing venture of Harvest States Cooperatives, Land O'Lakes Inc. and Farmland Industries, reported in a nationwide mid-January Webcast news conference that more than half of North American production was shut down and that virtually all nitrogen available for this spring had already been produced. Anything going into the pipeline after mid-February, he predicted, would not be available for this growing season. As a result, he forecast spring supplies at about 80 to 90% of demand. That means some producers will not get what they need for maximum production.

“This is not a case of price gouging by nitrogen producers,” Giese said. “Current nitrogen prices are well below production costs. That has forced scale backs of production or plant closings. The nitrogen industry is struggling to survive.”

Basic NH3.“The production of anhydrous ammonia is the first step in the manufacturing of nearly all fertilizer made in the United States,” says Ron Phillips of The Fertilizer Institute. And natural gas is the major cost component. The spot prices for natural gas have increased from about $2.50 per MMBtu in January 2000 to more than $8 this past January. At $8 per MMBtu, the raw product cost of ammonia is $270 per ton. Throw in costs of manufacturing, storing and shipping, and the price to the farmer could reach $400 per ton, or 24 cents/lb. That compares to an average cost of $230 per ton, or 14 cents/lb., over the past 10 years.

Giese doesn't expect much relief until natural gas prices start to fall back, and that doesn't seem likely in the near future. “We don't anticipate much new production until natural gas prices drop into the $4 to $5 range,” he said.

Here's advice to offer growers from University of Illinois soil specialists:

• Allocate fertilizer across all corn acres. Response to applied N is greatest for the first units applied, so stretch the available supply proportionally across all fields.
• Take credit for homegrown N. Corn yield is better when corn follows another crop, especially legumes. Reduce N at least 100 lbs./acre when corn follows alfalfa, and about 40 lbs./acre following soybeans.
• Check out alternative sources, including manure and sewage sludge.
• Consider shifting to soybeans. Soybeans following soybeans usually yield only 4 to 5 bu./acre less than soybeans following corn (keep in mind, however, the greater risk of disease when you select varieties).
• vMonitor PK and pH. N use efficiency is best when soil pH is above 6.0 and P and K are at optimal levels.

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