Concern is mounting as transportation and production issues point to a serious shortage of nitrogen supplies this spring.
“If it was April, I would be panicking,” said Brian Kenyon, director of sales and marketing with Yara Canada.
However, even though nitrogen shipments to Western Canada are down by an estimated 750,000 to one million tonnes this fall and winter, there’s still time to salvage the situation, he said.
“A shortage is only a shortage if the demand is there and they can’t get it,” said Kenyon. “There’s still time for people to bring supplies in from other markets to make up for the production shortages that have occurred in Western Canada.”
It’s rumoured CF Industries suffered a lengthy production shutdown at its Medicine Hat plant last year, but a company official wouldn’t confirm it, citing stock market regulations that limit what companies can say about events that can affect financial performance. While Kenyon wouldn’t identify any specific plant, he said, “I know one of our competitors was down for 40 days and that’s 120,000 tonnes of lost production.”
But there’s sufficient nitrogen fertilizer elsewhere and the market will respond to demand, he added.
“If urea is going to be tight, then the market will naturally work itself into a price that will allow other product from other sources and other countries to enter this market. That’s effectively what will happen.”
Nitrogen prices have already increased significantly since fall — $50 to $100 depending on the retailer — and that caught many producers flat footed, said Remi Schmaltz, chief executive officer of Decisive Farming, an Irricana-based company that helps grain and oilseed farmers make crop-marketing decisions.
The latest jump was a surprise because fertilizer prices have been pretty flat over the last two years and many farmers reasoned they would follow grain and oilseed prices lower, he said.
“They just sat there waiting and all of a sudden, grain prices went down and fertilizer went up,” said Schmaltz.
Moving fertilizer to Western Canada given the congested rail system has been the big factor, he said.
“It’s a bit premature to suggest that there’s a shortage in the market,” he said. “There’s certainly a logistics bottleneck.”
Kenyon said he’s been conducting straw polls at meetings this winter and most farmers have told him they plan to maintain or even increase their fertilizer use this year.
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“What this means is that from January to May, we have to increase our shipping significantly more than last year in order to hit an objective that says we want to put on the same amount or more than last year,” he said.
“Quite frankly, from what I’m seeing, I don’t think that that is going to happen.”
However, any further drop in grain and oilseed prices will likely result in a significant drop in fertilizer use, added Schmaltz.
“If grain prices drop and fertilizer prices go up, guys are going to put less on,” he said. “That’s what’s going to happen if they can’t pencil it.”
All the uncertainty over supply and prices is putting fertilizer dealers in a tough spot as they try to estimate how much farmers are willing to pay.
“The retailers and fertilizer manufacturers understand the economics of the farmer,” said Schmaltz. “If things are out of whack, it’s no good for them either.”
Figuring out what happens next is a challenge, both men said. The North American fertilizer market is currently quite tight, with about half a million tonnes of nitrogen being imported each month. And while current rail bottlenecks are adding to the problem, Western Canada is a difficult market to service, said Schmaltz.
“There are a fair bit of logistics that occur to get it to the farmer,” he said. “We’ve just seen this isolation happen earlier because of the grain backlog and the logistics that’s occurring between moving grain and fertilizer and all those other commodities that are causing this bottleneck and isolating the market here, as well as production issues in Western Canada, of course.”
The best thing farmers can do right now is keep in regular contact with their suppliers, Kenyon said.
“What I would tell farmers is to be in touch with your supplier of your nitrogen products and make sure you’ve got your forecast of what you intend to do with them,” he said.
“Have that discussion and then they can let you know what’s available and what’s not available. I definitely wouldn’t panic.”