Damn government interference

But this time its in India.  This story from the Wall Street Journal talks about how the green revolution in India is stalled because of government subsidies that favour nitrogen application.  As some of you may remember, when we started using fertilizer in western Canada we started with high phosphate analyses.  When high nitrogen fertilizers appeared it seemed like they were magic but eventually the high applications of nitrogen appear to lose their effectiveness.  Fertilizer application ultimately has to be balanced to nutrient removal by the crop but the Indian government doesn’t appear to have learned that lesson.

If the general thrust of that WSJ story is accurate and the Indian government begins to tender for increased quantities of phosphate and potash relative to its nitrogen purchases then look for continued strength in the potash market and firmer pricing in the phosphate markets. 

Its worth noting that the domestic US phosphate market is currently so low that it is likely some exports will occur.  In other words, expect higher phosphate pricing going into the spring and summer.

Peak phosphate – something else to worry about

Last winter we were parked in Florida for a couple of months. One day I happened to notice that the gravel in the RV park was made up of tiny shells and that reminded me that Florida is one of the world’s greatest repositories of rock phosphate. Mining in “phosphate alley” or “bone valley” in central Florida dates back to the late 1800’s and it is still one of the largest sources of phosphate in the world. Rock phosphate that accumulated in the bones and shells of ancient animals is the necessary precursor for all phosphate fertilizers.

Rock phosphate isn’t available to plants, despite what some “natural” phosphate snake-oil salesmen may tell you. Once it has been processed into various phosphate fertilizer forms it becomes more available but it is a difficult nutrient for many people to understand.

Phosphorus is a highly reactive metal that is never found by itself in nature. Rock phosphate can be smelted to produce phosphorus or it can be beneficiated to produce phosphoric acid. Phosphoric acid can be subsequently reduced with anhydrous ammonia to produce ammoniated phosphates such as MAP, DAP or ammonium polyphosphate solutions.

The phosphate ion (P2O5) is a cation – a positively charge ion. Soil has what is known as cation exchange capacity which is simply the ability to retain cations. At a microscopic level soil has many negatively charged surfaces. The negatively charged soil attracts the positively charged cation and holds it. Some soils hold cations better than others but that isn’t the point today – the point is that soil hangs onto cations. Plants are able to take up free phosphate ions but those ions first need to be pried loose from the soil exchange sites and that isn’t easy because the positive-negative attraction is relatively strong. When you flood the soil with a large amount of phosphate ions in close proximity (a fertilizer band in the seedrow for example) you temporarily disrupt that soil to phosphate balance thereby freeing some phosphate ions for crop uptake. Over time though the soil tries to get things back in balance by tying up the free phosphate ions.

The fertilizer phosphate has to come from somewhere. In North America that somewhere is from open pit mines in either Oregon or more likely Florida. Open pit mines anywhere tend to attract negative attention and the US is no exception. Florida has done a good job of reclamation on their old mining properties but new sites are increasing difficult to develop.

The International Fertilizer Association (IFA) is starting to deal with the concept of peak phosphate. Readers may be familiar with Peak Oil which is the theoretical point where we can no longer find any additional oil reserves. Some of us who are longer in the tooth can remember that we were supposed to run out of oil a long time ago. So far higher prices for a barrel of oil have stimulated exploration which has revealed new reserves but it seems logical that any resource must have some finite limits, whatever those may be.

Phosphate is no different in terms of the absolute quantity available. Increasing prices tend to stimulate discovery of new reserves but it seems logical to assume that at some point we will have found everything there is to find, whatever that amount may be.

The difference between phosphate and oil is that phosphate cycles in a useful time frame. Once we extract the energy from a barrel of oil it is for all practical purposes gone. We don’t get to reuse that energy. Phosphate however is different because once added to the soil it enters a renewable cycle. There are some removals from the cycle – human bones for instance – but most of the phosphate stays within the system once it is added. Animal & human waste is high in phosphates as are animal carcasses. I suppose our human carcasses are a good phosphate source but I think we are a long way from using them as fertilizer.

Green bullshit

If it looks like shit and it smells like shit then ……………

There’s no shortage of charlatans in the agriculture supply chain and now there’s a whole new batch sporting environmental garb.  This afternoon I received this gem in my inbox:

“…………… this winter has been especially hard on plants, citrus
trees, and other types of produce. Whiteflies attacked local ficus trees, killing some and leaving several others leafless.

Frank (names changed to protect the guilty) applied Wonderdirt X-tra to a select population of affected trees . After only 20 days he’s seen visible improvement! We’re all very interested to see what his end results are after continued treatment with Wonderdirt X-tra.” 

Who cares?  We’re talking about 20 trees that might have recovered or died without treatment.  The only useful information that this “experiment” will provide is to tell us if Wonderdirt kills citrus trees. 

Based on a subsequent email it turns out that Wonderdirt also enhances the growth of marijuana plants.  Only legitimate medical use marijuana plants of course:

“Here are some excerpts from the first report by a legal, California grower:  I have a set of plants currently in their second week of flowering that have been receiving foliar application of your product. I started them on this program as soon as they became well rooted clones.  I must tell you.....I am absolutely amazed!”  I guess we’re supposed to believe it’s really good stuff if a pothead from California endorses it.

Here’s another one.  The premise for this scam is that we’re going to save agriculture by making more or less anything into charcoal.  Then – here’s the kicker – you farmers are going to pay to have this half-burned crap applied to your land.  It probably wouldn’t actually do any harm but don’t hold your breath waiting for a payback either.

When we were in business we always used to laugh at the pseudo-research that accompanied any new soil amendment.  Invariably if no yield benefit could be demonstrated then you could be certain that whatever the product was, it promoted better “root mass”.  You have to say it like a mid-westerner to get the real effect – it’s kind of a cross between “root” and “rut”.  What it means is “we can’t scientifically prove that anything is happening here but ---- damn the roots look good don’t they?”

There’s lots of good agricultural science gets done every year.  Look at the yield improvements in peas or canola over the last 20 years for proof.  There’s also lots of snake oil gets promoted and unfortunately some of it gets sold.  Retail marketers have long since jumped on the green bandwagon and you can expect ag marketers to follow suit.  Eventually it won’t all be bullshit but I’m willing to bet a lot of it will be.

The wired farmer

Give yourself a pat on the back.  If you are reading this you are part of a fairly elite group.  Not because of the pearls of wisdom that I scatter here, although I wouldn’t mind if that was the reason.  No, you are elite because up to half of your peer group hasn’t embraced the internet yet. 

I find that hard to believe but that’s what a recent study commissioned by the National Association of Farm Broadcasting says. 

These are US numbers so they aren’t necessary exactly accurate for Canada but they probably aren’t too much different.  The number that leaps out at me is that roughly 1/3 of farmers with gross sales greater than $500,000 don’t personally access the internet.  Several years ago now I sat on the board of directors of the Canadian Association of Ag Retailers.  One of our board members runs a very large Canadian fertilizer company – we’re talking fertilizer manufacturer here, not a retailer – let’s call him George.  We had a big debate about the use of email to send information out to board members.  George stunned us all when he said that he didn’t see what the big deal was about using email versus using the fax machine.  “When an email comes in my girl has to print it off.  When a fax comes in it’s already printed.  So the fax is actually faster and easier to use.”

I’m relieved to see that farmers haven’t figured out why to use Twitter either.  I tried to figure it out and concluded that it was a colossal time waster with no visible benefit.  Apparently I’m not alone in that conclusion. 

Nitrogen head scratcher

Those of you who have been paying attention will recall that all you need to make nitrogen fertilizer is a supply of natural gas, some fresh air and a lot of capital. When you get your plant up and running it will kick out anhydrous ammonia and likely urea because there are some natural synergies to the urea production process. If you want to go one step further you will add an ammonium nitrate line and then you will bring the urea and nitrate together to make UAN or liquid nitrogen.

That’s a gross over simplification of the process but the point is that UAN (28-0-0) is the final stage of nitrogen production. Its arguably more convenient to use and it has the most processing cost per unit of N which explains why historically it is also the highest cost product per unit of N.

But not right now. Since about this time last year the prices of urea and UAN have been inverted in NOLA.

The boy who cried wolf

One of these years it will really be true.  Year after year fertilizer manufacturers sing the same tune and the retail chain carries the chorus – if you don’t buy it now we may not have it in the spring.  And year after year the pipeline fills up over the winter, spring comes and goes and nobody goes short.  And this year will likely be no different.

Nitrogen pricing is still weak in the gulf and buyers are gunshy after the volatility of the past few years.  Its an axiom of the commodity markets that nobody ever buys a weak market (just like nobody ever sells the highs).  That of course is why there are highs and lows – by definition there are no buyers at the bottoms and no sellers at the top.  The logistics however depend on buyers having inventory going into the spring and right now they don’t.

On another matter, Agrium is continuing their retail invasion in western Canada.  Currently the CPS flag flies over locations formerly owned by Parkland Agri Service (9 locations with head office in Didsbury), Ross Agri (10 former Esso locations around Camrose), ServAgro (3 southern Alberta Esso locations), RTL Agri Services (3 Esso stores in southern Alberta), Heartland Agro (former Esso multi-outlet business based in Moose Jaw) and Cheyne Agri Services (another Esso dealership in SE Sask.). 

In the case of the Esso dealerships Agrium already owned the real estate or at least the equipment located on the real estate as a carry over from their Sherritt/Veridian/Esso heritage.  Parkland was an Agrium joint venture so there has been a long term Agrium involvement there. 

There’s a couple of issues around this new competitor in western Canada retail.  The biggest question for farmers should be “how competitive will this competitor really be?”  There’s a good chance the reason the Esso dealerships failed can be traced directly to Agrium’s pricing policies during the 2008 run-up and 2009’s dramatic drop in nitrogen prices.   I’m sure the legal-beagles on Agrium’s 4th floor made sure everything was done legally but I doubt it was done morally. 

Right now about 21% of Agrium’s international sales comes directly from their retail organization but 29% of their profit comes out of the retail business.  So its not hard to figure out why they want to increase their retail outlets. 

Post Christmas bargain shopping

Those of you that have been in the malls lately may have noticed that there aren’t as many bargains as there used to be. Retailers seem to have figured out that people will shop after Christmas and have adjusted their pricing accordingly. Despite the orange tags screaming “marked down 60%”, the bargains are farther apart.

Similarly if you are shopping for nitrogen or phosphate you may have to look a little farther afield but the bargains are out there nevertheless.

According to AgProfessional’s University of Nebraska correspondent, US retail pricing for urea is running around $450/ton. When you translate that into Canadian bucks and metric tonnes you can likely do better north of the border. It has been a while since that has been true. That means that Agrium is more appreciative of its loyal western Canadian base. Actually it doesn’t mean anything of the sort – they’ll take as much as they can get wherever they can get it but right now western Canada looks pretty damn good.

The sleeper is likely anhydrous ammonia. You don’t have much flexibility, you can’t store it and you’re at the mercy of your dealer but you still might find a bargain. The Americans had a late corn harvest and didn’t get much ammonia in the ground which means that inventories are high. That doesn’t necessarily translate into better pricing in western Canada but it means your suppliers might be receptive to some pressure. Right now US retails for ammonia and urea are similar – that’s a big discount for ammonia, if you can find someone who wants to play the game.

Good luck with your yearend bargain hunt.