Successful farming in western Canada

I think there’s a trend here

noreply@blogger.com (R.J.(Bob) Evans) — Fri, 09 Dec 2011 20:56:00 +0000

I can’t give any advice about buying fertilizer but I don’t see anything on that chart that would make me rush out for yearend speculative buys. If I needed the tax expense phosphate looks like the better bet.

But that’s free (non)advice and probably worth exactly what it cost you.

(later)

The chart above was originally posted in early December. FWIW I have updated it to the 2nd week in January.

Also since I made the initial post Mosaic has announced Phosphate production cuts and Potash has temporarily closed one mine. As I have said many times, P & K are in strong hands – N still trades somewhat like a commodity but P & K pricing is very definitely managed.

I’ve been quiet lately

noreply@blogger.com (R.J.(Bob) Evans) — Sun, 08 May 2011 00:38:00 +0000

At times I feel out of touch with western Canadian agriculture and I’ve always believed that if you have nothing to say you should keep your mouth shut. Or your fingers still as the case may be.

I ran into a nugget of information today though that is worth mentioning. One of the world reference points for nitrogen pricing is the Arabian Gulf which reflects the importance of supply from that region. Approximately 1/3 of the world’s seaborne urea exports come out of that region. Given how unstable the area can be that’s a huge risk for farmers.

So the message is to keep an eye on the mid-East as you make your purchase decisions for 2012. Urea has come off a long way from its highs of 3 or 4 years ago and the market is soft right now. But if you take 1/3 of the export supplies out of any market it will tighten up real quick. The list of traditional exporters doesn’t include any of the countries that we typically think of as anti-western but Iran is a sometime exporter and any one of the Islamic countries could easily turn against the west if public opinion dictated. The real risk is that some internal crisis such as the one in Libya could disrupt production or exports or both.

The big domestic pricing story is the continued advance of the Canadian dollar against the US dollar. While that makes your grain harder to sell it also directly reduces the cost of imported inputs. The more you think the dollar is going to appreciate then the less eager you need to be to lock in a price for next year’s fertilizer.

Might be old news already

noreply@blogger.com (R.J.(Bob) Evans) — Sun, 28 Nov 2010 15:03:00 +0000

Rob Saik posted a link to this U-tube video on his Facebook page and I can’t resist re-posting it.

Young man you are speaking Eskimo to me.

When we were in business I was always very careful about commenting on the Wheat Board because you just never know where people are on the issue. For me it’s always been pretty black and white but maybe I’m too stupid to understand the issues. This little video takes a cynical poke at some of those issues and it should be required viewing for everyone who thinks the Board is about defending western Canadian farmers.

Where’s the beef?

noreply@blogger.com (R.J.(Bob) Evans) — Mon, 01 Nov 2010 23:53:00 +0000

I’ve had about enough of Brad Wall’s posturing on the Potash Corp deal. I can’t figure out what he thinks he is going to gain but what he is spouting is pure bullshit.

Potash Corp is a private company largely owned by foreigners. I think it was the Devine government that privatized it – too lazy to look it up right now. The company has been phenomenally successful since privatization but it’s not a Saskatchewan company any more than Agrium or Mosaic are Saskatchewan companies by virtue of having mines in Saskatchewan.

The last time I checked all mining companies in this province are subject to provincial royalties when they extract minerals. And they are subject to income tax on their Saskatchewan operations. So what precisely is going to change? Anyone who wants to own shares in what is presently known as Potash Corp will be able to buy shares in BHP Billiton. That won’t be a pure Potash Corp play but so what?

As far as I can tell Brad’s argument has nothing to do with investors and share ownership. Somehow he seems to be spinning this as a loss of control by the province. I don’t get it and I don’t think it will happen and furthermore I think Brad Wall is smart enough to know that. So get off the pot Brad and get on with governing – this fight should be beneath your dignity.

It’s that time of year when fertilizer dealers turn to selling spring delivered fertilizer. Pay attention to the corn market when you consider buying spring nitrogen. Nitrogen prices tend to be high on big corn years. If you believe the runup in corn prices is going to drive corn plantings then it makes sense to lock up your nitrogen sooner rather than later.

Wild ass guesses and speculation

noreply@blogger.com (R.J.(Bob) Evans) — Mon, 23 Aug 2010 22:21:00 +0000

With Agrium’s recent offer to purchase all the shares of Australian Wheat Board there’s all sorts of speculation about what Agrium might do with the grain handling assets. Its hard to believe that even Agrium would have the hubris to think they could enter the grain business and Viterra appears to be a logical purchaser for those assets. The apparent logic for North American commentators may simply be a function of our lack of knowledge of the Australian market but leave that alone for a minute.

Here’s a thought: what if Agrium were to swap the grain handling business in Australia for Viterra’s crop inputs business in western Canada? It’s not such a wild notion. Agrium is serious about retail in North America. Their US retail arms generate more gross revenue than their wholesale operations. The arrival of Crop Production Services in western Canada signals a long awaited move north of the border but lately that move seems to have stalled. Rumours have flown about Agrium taking over Viterra’s retail assets and now they just might have something to offer Viterra in exchange.

Miserable wet soggy weather

noreply@blogger.com (R.J.(Bob) Evans) — Sun, 27 Jun 2010 23:04:00 +0000

I just found these two YouTubes of the #1 highway washout. We’re headed back into Saskatchewan so I’ll get some pix of my own from the east side but here’s what the SW looks like.

Ground Level View - #1 Highway Washout

Aerial View - #1 Highway Washout

Rental arrangements

noreply@blogger.com (R.J.(Bob) Evans) — Fri, 25 Jun 2010 17:23:00 +0000

I still do a lot of work directly with farm clients. As I do farm budgets or planning documents I see land rental arrangements and I am often disappointed by the lack of imagination that I see in those agreements. Very few rental agreements move beyond one of two basic arrangements:

- a fixed dollar amount - “cash rental” agreements

- a percentage of the crop, sometimes with variations involving the landlord sharing in the input costs

There are a lot more possibilities than those 2 basic flavours. Land rental is a huge cost for most successful farms on the prairies and it deserves a little more attention than it usually gets.

In the past I have seen some more creative cash rental pricing agreements involving commodity basket prices. The concept is as flexible as your imagination but essentially it involves a lease that refers to a price that is then determined by some formula that you develop. That formula might involve canola prices on July, September and January 1, the Wheat Board PROs on Feb. and August 1 and some local pea buyer’s posted price on 2 more dates. Put them all in a basket, run an average or weight the average and then multiply by some magic factor to arrive at a land rent.

	Aug	Sept	Jan	Feb	Apr	Jul	Sum	X	Total
Canola		472	580			395	1447	1.5	2170
PRO	278			320			598	.8	478
Flax		573			680		1253	.5	627
Peas	773		902				1675	1	1675
									4950

The table isn’t intended to be anything other than an example. The final step would be to take the 4950 number from the lower right panel and divide it by another factor. In this example division by 10 might work but the final divisor could be 7.983131 or whatever other number you and your landlord agree on. The point is that you can design the formula to fit your farm. The table above is very sensitive to canola prices because it uses 3 reference canola prices compared with only 2 for each of the other crops and then it multiplies the canola sum by 1.5.

Another creative pricing agreement that works well is to base the rent on crop insurance guarantees at a fixed coverage level for the crops you grow. Again you can weight the average based on your typical cropping pattern and again you multiply or divide the result by some magic number to end up at the final rental price.

Another possibility that I have seen used less frequently but that could easily be incorporated is to tie input pricing into the formula. That’s a little more difficult because it is hard to get verifiable pricing but you can likely agree on some mechanism for that. In that case you will want to ensure that rising input prices lower the rental price. In the table above you would accomplish that by adding a row for input prices and then dividing your end result by the input factor. That way a higher input price would lead to a higher divisor which would result in a lower rent.

The important concept to remember is that this is a risk management tool, not a profit maximizing tool. I’ve seen tenants who go to elaborate lengths to devise formulas that make it look like they are sharing pricing risk but really the goal is just to screw the landlord. If that’s your goal you might as well get it out on the table and just offer $10 per acre or whatever lowball number makes you feel good. The concept of risk sharing means that in exchange for the landlord taking some of the price risk when grain prices unexpectedly drop, you are willing to give up some of the gains when prices unexpectedly rise. Its important as you design a formula that you plug in some possible prices just so you clearly understand ahead of time what impact they might have on your formula price.

Another lease concept that has a lot of merit is to sign leases with rolling terms that are cancelled by exception. Typically you sign a 3 or 5 year lease today and it expires 3 or 5 years from today. A lease with a rolling term on the other hand has an anniversary date and continues to roll forward from that date. So a rolling 3 year term signed today would have an anniversary next June. At that time if neither the landlord nor the tenant objected the lease would automatically renew for an additional year. The effect is that as a tenant you know that you have a fixed term ahead of you that you can plan for. If you want to invest some inputs you don’t have to worry about whether the lease will renew on its anniversary. The landlord benefits from the security of an ongoing agreement as well because he doesn’t have to worry about you dropping his land in tough times without giving him any notice.

I hope the sun is shining on those of you that are flooded. Even if it doesn’t immediately get better sunshine makes everything look more optimistic.

Crumbs

noreply@blogger.com (R.J.(Bob) Evans) — Sun, 20 Jun 2010 23:18:00 +0000

I spent the first part of last week at the North American Consulting School, which is a bit of a misnomer because we didn’t so much spend time learning to consult as we did spend time networking and learning about global economic factors. Like the following tidbits:

Did you know that CBT open interest in wheat futures is actually about 8 times the size of the actual wheat crop? One way to interpret that is that the guys who buy and sell paper wheat have 7x the influence on the market that the guys who grow it do.

Ethanol production could consume 5 billion bushels of corn in 2010-11. Out of a total corn crop of 13 billion bushels that’s getting to be a significant consumer of corn.

Canola stocks/use ratio is historically low whereas soybean stocks/use is historically high. That could mean that canola will trade independently from soy.

Here’s an encouraging number: US federal debt to GDP is 70% which is about where Canadian debt to GDP was in 1993. Currently our ratio is 35%.

Wet acres

noreply@blogger.com (R.J.(Bob) Evans) — Thu, 17 Jun 2010 13:53:00 +0000

I’m just home from the CCAA conference in Calgary. CCAA is the Canadian Consulting Agrologist Association which doesn’t really mean much other than that it is a good excuse for a bunch of ag types from across Canada to get together.

Not surprisingly a big topic of conversation was the ongoing soggy seeding conditions in much of the west and the likely effect of that going forward. I heard some pretty wild numbers about how many acres are likely to be affected – as high as 12 million with a base of about 8 million.

A couple of thoughts as I sit here in the rain north of Calgary:

I can’t believe 12 million acres not seeded. Maybe 12 million acres “affected” but not 12 million unseeded. Pay close attention to your market prognosticators – if they are assuming 12 million unseeded acres then adjust your assumptions about their reliability accordingly.

Protein is going to be at a premium. US wheat is likely to be low protein and all this water is going to reduce Canadian protein as well. You can manage protein with mid-season nitrogen applications. Give that some thought. Nitrogen in the ground at harvest is unlikely to be lost prior to next year’s crop, no matter what the government extension types may tell you. The only way to grow high protein wheat is to have the wheat literally swimming in nitrogen while it is filling. You can predict soil test nitrogen levels based on wheat protein levels – if your protein is over 13 you probably have 60+ pounds of soil test nitrogen. As long as you aren’t growing pulses behind your wheat (which is a really silly rotation anyway) you can consider that nitrogen a down payment on next year’s inputs.

Stocks/use for canola is going to be low and stocks/use for soybeans is going to be high. That means that we may see canola break free of its price relation to beans. It doesn’t often happen but it has happened before and it look like it could happen this year. Pay attention to that as you start to price this year’s canola.

Good luck finishing up seeding and getting it sprayed. I’ve got some more comments coming from the conference but today we have to get hooked up and headed west. It looks like its raining pretty well across Canada so we aren’t likely to drive out of it anytime soon.

Nitrogen matters

noreply@blogger.com (R.J.(Bob) Evans) — Thu, 10 Jun 2010 21:21:00 +0000

The world nitrogen market continues to deteriorate – there should be some bargains out there if you look around. The bigger issue for western Canada though is going to be denitrification on soggy soil.

I used to listen to customers talk about nitrogen “leaching” out of wet ground and quietly laugh to myself. Its true that nitrogen goes out of wet ground but most of it goes up through denitrification, not down through leaching. Soggy ground is anaerobic, “lacking oxygen” and that favours a group of bacteria that convert nitrate back to atmospheric N2 nitrogen. The symptoms that you will see in the field are large yellow patches wherever the crop has stood under water. The area may not have actually had standing water on it but it will have been soggy right to the surface for a period of time.

Its not too late to fix those areas but you need to move fairly quickly. When you are all done spraying it is likely too late but anytime until then is likely OK. Nitrogen is the gas pedal for crops so you will certainly see the effects of denitrification in the combine hopper. Most years the affected patches won’t be all that large but for some of you there may be significant areas affected this year and its relatively easy to fix. Broadcast urea isn’t the ideal solution because it too is subject to denitrification but under cool wet conditions it may be your most economical solution. Dribbled on UAN (28-0-0) is only slightly better than urea although there may be some theoretical benefit to adding sulphur to the UAN solution. At the end of the day the cost per unit of N applied may still be higher than for urea. Offgrade ammonium sulphate (“fines”) may be an option for some of you but again there may be no real cost advantage over urea.

Research shows 15-30% losses through volatilization from surface applied urea so you can likely take the applied rate of urea and discount it by 20 or 25% to figure out your cost per unit of N that the crop gets the benefit of. You probably need to figure some lower level of loss for applied UAN and you can likely assume that the full rate of ammonium in the sulphate fines is available to the crop. Discount the urea and UAN, compare it to the sulphate and use whichever is cheapest. Your crop will thank you and so will your combine this fall.

No doubt the universe is unfolding as it should

noreply@blogger.com (R.J.(Bob) Evans) — Tue, 01 Jun 2010 03:31:00 +0000

That’s a picture of urea pricing for the last 10 years. It doesn’t really matter much exactly what the numbers mean or how they are calculated. The important point to note is that, aside from the commodity bubble in 2008, nitrogen prices are back in the same range they have traded in since about 2004.

The other important take away is not to expect to see them drop a whole bunch more. That means it should be safe to pre-buy nitrogen this summer and fall without worrying about the bottom dropping out of the market after you buy.

Of course the bigger issue now for a lot of you is getting the crop in the ground. We were up in Nipawin earlier this week and there is actually a lot of crop out of the ground there and most of the ground south and east of town is seeded. As you get closer to Melfort you start to see more unseeded but it’s still pretty good at Melfort. South of Melfort towards Regina isn’t pretty. And the stretch from Meath Park to White Fox is a wreck. There is a bunch of that ground that just won’t get seeded. The eastern side of Saskatchewan has enough rolling ground that some portion of the acres will get seeded but that flat stuff between P.A. and Nipawin is wet from corner to corner.

I know we’re not supposed to remember this kind of stuff but how many of you remember about 5 years ago when the smart guys were telling us that the extended drought was caused by global warming? I guess now we’re supposed to call it climate change but it sure doesn’t look like a drought to me.

Got a phone call last night

noreply@blogger.com (R.J.(Bob) Evans) — Wed, 31 Mar 2010 19:35:00 +0000

It was a farmer in Saskatchewan who was using one of the calculators on my other website. I had kind of forgotten that those were even out there but periodically somebody says that they are using them so I guess they must be useful.

This link will take you directly to the page where all the calculators are listed. There’s one to figure out how much NH3 you want to apply, a couple for dry and liquid blend calculations, one to do seed rate calculations and one that will calculate a cost per bushel based on your own numbers. Here’s another link that will take you to the homepage for that website.

I thought I’d spend a few minutes hyping my own website. The calculator for cost per bushel is one that a lot more farmers need to use with their own numbers. I used to have customers who could tell me exactly what it cost them to produce a bushel of any particular grain but those guys were few and far between. Too many farmers base their crop inputs on dollars per acre. If you have a total input cost in mind that you need to stay under then you may be making that mistake too.

Take the time to actually figure out what it cost you last year to produce a bushel of each of the crops you grew. You might be surprised at the results and if you are surprised then you need to ask yourself “Why?” Why are you producing crops for less than you can sell them for? Why don’t you reassign your input dollars in order to change your costs per bushel? Why are you sticking to a rotation if it has perennial losers in it?

Keep your eye on the ball

noreply@blogger.com (R.J.(Bob) Evans) — Mon, 22 Mar 2010 21:38:00 +0000

Its hard to believe but fertilizer giant Agrium’s retail business is bigger than their wholesale business. Agrium recently dropped it’s hostile takeover bid for CF Industries and CEO Mike Wilson announced that they would be pursuing further retail expansion opportunities. The big hole in their current retail assets is western Canada.

The Agrium flag already flies over 20 some locations in western Canada but that is a pittance compared to the total western Canadian business. Agrium grew out of the old Cominco so it is bizarre that retail is such an important part of their business yet they have virtually no retail presence in western Canada.

This Reuters article sums the situation up pretty nicely. There’s nothing you can do about this other than staying aware of what is happening. And what is happening is that the day is fast approaching when you will really only have one supplier to deal with.

On a more positive note, international nitrogen pricing seems to have run out of steam. Be real careful what you believe on the pricing front. Weakening international prices for nitrogen compounded by a strengthening Canadian dollar should create some bargains for nitrogen going into the spring.

Damn government interference

noreply@blogger.com (R.J.(Bob) Evans) — Tue, 23 Feb 2010 16:16:00 +0000

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

noreply@blogger.com (R.J.(Bob) Evans) — Sat, 13 Feb 2010 15:39:00 +0000

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

noreply@blogger.com (R.J.(Bob) Evans) — Thu, 11 Feb 2010 15:29:00 +0000

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

noreply@blogger.com (R.J.(Bob) Evans) — Wed, 03 Feb 2010 18:09:00 +0000

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

noreply@blogger.com (R.J.(Bob) Evans) — Fri, 29 Jan 2010 22:49:00 +0000

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

noreply@blogger.com (R.J.(Bob) Evans) — Wed, 27 Jan 2010 14:12:00 +0000

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

noreply@blogger.com (R.J.(Bob) Evans) — Mon, 28 Dec 2009 22:02:00 +0000

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.

Haber-Bosch – most people have never heard of it but it drives life on earth

noreply@blogger.com (R.J.(Bob) Evans) — Sun, 27 Dec 2009 01:29:00 +0000

Back in October I mentioned the Haber-Bosch process that is the foundation for nitrogen fertilizer manufacture worldwide. I’ve been meaning to come back to it but never got around to it until a recent online discussion got me thinking about it again.

Most people have no clue what the Haber-Bosch process is or that it even exists for that matter. They certainly don’t begin to understand how fundamental it is to our life. We routinely hear people blathering on about how wonderful it would be if only we could live a totally natural life, by which they mean some utopia where nature coughed up enough to keep us alive without us having to put anything back in. Most 8 year olds with a piggy bank understand the concept that you can’t keep taking out without ever putting back in. So why is it so difficult for adults to understand the same concept when it applies to land?

I just happen to have some US production figures handy for another project I’m working on so I’ll use them but the principle would apply equally to Canadian production. The US produced roughly 12 billion bushels of corn in 2008. That equates to about 4.8 million tons of actual nitrogen removed from the ground. Just by way of reference, 4.8 million tons of actual N is equal to roughly 1/4 of the total annual US nitrogen fertilizer use.

You could do similar calculations for all the cereal crops. Vegetable crops are also high nitrogen users. Soybeans are legumes so they can fix their own nitrogen but canola isn’t so it is a net miner of nitrogen. Someday when I have nothing better to do I’m going to do a nutrient budget for western Canada just to see how far out of balance we are.

Legumes return nitrogen to the soil but not as much as you might think. There is still a significant nitrogen removal in the legume seed. The only nitrogen that gets added to the system is whatever is left in the stubble or root system. Anyone who has tried to grow a cereal on pea stubble with no added nitrogen will know how inadequate the nitrogen returned to the soil really is.

Haber-Bosch is so essential because, without it, our yields would drop off rapidly. And the greenies can talk until they are blue in the face – the reality is that the whole system would be in a nitrogen deficit because of the nitrogen that is removed in the crops. In fact the world is in a deficit because we are mining organic matter on a global scale.

In the early 1800’s Thomas Robert Malthus argued that any ecosystem has a natural limit on its ultimate growth. He extended his argument to the world and argued that world population would ultimately be limited by mass starvation. No doubt his dismal prediction would have been accurate if Haber-Bosch had never been invented. Without the ability to artificially fix atmospheric nitrogen we would likely have long since outgrown our capacity to feed ourselves. One of the surest ways to identify an undereducated greenie is when they trot out the human starvation argument.

There’s a really good graph about halfway down the page here. Scroll down to the world population graph to see the invention of Haber-Bosch on a population timeline. The graph doesn’t prove that Haber-Bosch enabled population growth but the relationship is pretty obvious on the chart.

………. and now for something completely different

noreply@blogger.com (R.J.(Bob) Evans) — Sat, 14 Nov 2009 16:31:00 +0000

In our culture there are some subjects that are deeply taboo. Different people find it hard to talk about different things but for most of us death is the ultimate taboo. Nobody wants to talk about it because that would involve admitting that death will eventually come to all of us. So our topic for the day is that awful subject, our own inevitable mortality.

When my mother died, a year ago now, I went to the safe and dug out an envelope that had been lying there for close to ten years. That’s how long ago mom & dad wrote down their final wishes and sent them to my sister and me. At the time I didn’t want to think about it, let alone talk about it, so I put the envelope in the safe and more or less forgot about it. Occasionally I would have to move it when I went to the safe for something else but it mostly just waited there until last November. Which is all it needed to do and fortunately I remembered where it was.

When I opened the envelope I found that it contained a simple little booklet that mother and father had each filled out. Inside that booklet was all the information that I needed to deal with the mechanics of their deaths. I don’t think they ever gave me a greater gift. Those of you who have dealt with this already will know what I am talking about but for those of you that haven’t, there are some bits of information that you will need and some decisions that you will have to make once your parents die. You won’t have all the information you need and some of it will be downright hard to find.

Think about your own death for a minute - do your kids know where their grandparents were born? If they don’t they are going to have to figure that out at a time in their lives when they have better things to be doing. More importantly do they know how you want your final celebration of life or memorial service to be handled?

Ideally we should sit down with our kids, have the conversation, make sure they take notes and then get on with living. I can’t do that and I haven’t done it. Of course I don’t plan to die anytime soon so it doesn’t matter but I’ve got friends who are already dead and doubtless you do too. That’s the problem. I don’t know when the “right” time will come, if it ever will.

Mom & dad were persuaded to write down their final wishes by a class they attended at their church. The material was so useful that I made a special point of seeking out the preacher at the funeral and telling him how helpful it had been. He got a sheepish look on his face and said “I guess I should do mine too.” He absolutely should because he has some serious health issues but that’s his problem.

We can all find a reason to delay doing this but if you want to do something yourself then I’ll make it easy for you. I have plagiarized the booklet that the aforementioned preacher put together and made it available online. All you need to do is download the file, open it in the Acrobat reader and print your own copy. It’s formatted so that it can be stapled into a small booklet. If you don’t do anything other than fill it out and mail it to your kids you will have done a wonderful thing. If you actually sit down with them and talk about the material you will have gone far beyond what 99% of parents ever do for their kids.

To download the "My Final Wishes" booklet click here and either save it to your hard drive or open it. Once you have it open you can print it and fill it out.

PSSSST …. Wanna buy some snake oil?

noreply@blogger.com (R.J.(Bob) Evans) — Tue, 10 Nov 2009 13:03:00 +0000

Over the years I have seen some memorable scams run against farmers. Often there is a germ of science buried in a blizzard of bullshit but sometimes you just have to shake your head.

For instance, this summer I was doing some crop inspections in southern Saskatchewan . In the course of a visit with what I thought were two very high end farmers, the father pointed across the road and started telling me about the neighbour’s new seeding system. I vaguely remember hearing about this “technology” but didn’t pay much attention to it at the time because it was so clearly crap. In a nutshell what it claims to do is capture the exhaust gasses from the tractor and inject them into the ground. Once in the ground the gasses presumably have miraculous properties to enhance nutrient availability.

As I was listening to the description of what the neighbour had done (and how many tens of thousands of dollars he had spent) I was trying hard to contain myself for fear I was talking to a true believer. Fairly quickly though I realized that the guy I was talking to was equally astonished that anyone could be gullible enough to fall for such a ridiculous sales pitch.

But ridiculous sales pitches combined with optimism and often a little desperation let the snake oil salesmen continue to succeed. “Black gold” (rock phosphate) is another one that comes around when times are tough. The claim is that you are buying “natural” phosphate. What they fail to mention is that on the calcareous soils of western Canada you would be at least as far ahead if you spread road gravel on your fields. In fairness to the Black Gold salesmen it is likely that they are too stupid to understand the chemistry involved. Several years ago now one of my distant cousins informed me in all seriousness that adding bleach to your wild oat spray would dramatically improve its performance. At those moments I’m torn between shouting “How could you be so freaking stupid as to believe that crap?” or trying to explain why what they are telling me is simply impossible.

It’s hard to understand why this stuff continues to make the rounds but in fairness, some of the so-called agronomy dispensed by ag retailers isn’t a lot better. Selling a farmer a concoction of (overpriced) micronutrients when he isn’t maximizing his returns from the macronutrients should be a criminal offense. Similarly, selling potash south of the Yellowhead highway is unlikely to improve anybody’s bottom line except of course the salesman’s. There may be some science behind the products that claim to release phosphate in the soil but there certainly isn’t any economics in them, yet they continue to be sold.

Life teaches us that we need to rely on experts. None of us would contemplate doing open heart surgery on ourselves and most of us trust mechanics to divine the intricacies of electronic engines. When it comes to crop nutrition however it is difficult to separate the morons from the master mechanics. Every farmer needs to have a basic understanding of soil chemistry and plant physiology in order to wade through the marketing bullshit.

Who pays the freight?

noreply@blogger.com (R.J.(Bob) Evans) — Thu, 29 Oct 2009 17:25:00 +0000

Have you ever thought about why it is that you pay the freight to ship your grain out but you also pay the freight to ship your fertilizer in? That doesn’t seem right (and actually it’s not always true). I’m sure some of you rationalize it by thinking that it is just another case of the farmer getting screwed but it’s really not that simple.

The decision about who pays the freight depends on whether the freight region is a net importer or exporter of the commodity in question. In the grain example the west is clearly an exporter. We export into an international market so the grain has an established market value at tidewater. The costs to get the grain to port are borne by producers because the buyers would simply go elsewhere if we attempted to get a higher price at the port. It is useful to note that the more we are able to differentiate our production the more we are able to extract a premium to compensate us for the freight but that’s the subject for a whole ‘nuther post.

According to the latest available shipping statistics from the Canadian Fertilizer Institute (www.cfi.ca), Canadian manufacturers exported roughly 600,000 te. of ammonia, 1.3 million te. of urea, 200,000 te. of nitrate and 400,000 te. of UAN in the fertilizer year 2007-08. Virtually all of those exports went to the U.S. Most of the Canadian potash production was also doubtless exported but CFI doesn’t report those numbers for current years. For the years 2004/05 CFI reported 17 million te. of Potash exported and for 2005/06 over 12 million te. were reported. Those export numbers are really good news for Canadian farmers.

Before we talk about why high fertilizer exports are good for domestic farmers, let’s look at how fertilizer is priced in North America. Phosphate fertilizer is definitely an import for Canadian farmers. Agrium produces phosphate fertilizer at Redwater but the rock phosphate to produce that fertilizer is imported. So your phosphate fertilizer is ultimately an import, even if it was processed in Canada.

The fact that your phosphate is imported means that you have to pay the freight to get it here. It has a value somewhere on the Mississippi river, for argument’s sake let’s say it is reference Minneapolis. At one time the reference point was New Orleans but it doesn’t really matter exactly where the reference point is. The point is that the fertilizer has an internationally established value somewhere outside Canada.

In order for us to buy the fertilizer we have to be prepared to pay the price wherever the international reference point is. Then in addition we have to pay the freight to get it here. That leads to the bizarre situation where a farmer who can see the Agrium facility at Redwater will actually pay more for his phosphate than one at Yorkton or Morden. The fertilizer will get processed at Redwater, loaded on trucks or rail, hauled to an intransit warehouse, off-loaded or transloaded, delivered to a retail facility somewhere on the east side of Sask. or west side of Manitoba and still sell for less money than it will right next door to the Agrium facility. The simple reason is that the farmers closer to Minneapolis have other options. They can deal with brokers and bring in fertilizer from the US. The simple rule is that the farther your farm is from New Orleans, the more you will pay for phosphate.

So what about nitrogen or potash where we are net exporters? The story is the exact opposite. Imagine you are a manufacturer with more nitrogen capacity than what you can sell into the Canadian market. Your excess nitrogen production has an established market value somewhere in the U.S. Midwest but you have to get it there in order to sell it. The freight to get it into selling position is a cost to you so you could actually sell the nitrogen for less than that market price closer to home and still obtain higher net returns. That in turn becomes a cost of production advantage for Canadian farmers.

About five years ago now when natural gas prices got so ridiculously high I heard the CEO of Saskferco say that it didn’t matter what happened to gas prices. If they got too high to produce nitrogen locally his company would just import nitrogen from offshore. On the surface that seems like a reasonable response but the impact on Canadian farmers is huge. Rather than getting a price break on nitrogen due to freight costs our farmers would then have to pay additional freight to import nitrogen. In effect that is double jeopardy – losing the advantage of the freight plus having to pay the freight is a double hit.

As a higher percentage of our domestic nitrogen production is consumed in western Canada so too will the domestic manufacturers become less susceptible to international pricing. Obviously they have to be aware of pricing in the Midwest U.S. but the closer we get to seeding the harder it is for Canadian producers to substitute U.S. supply. There are also a host of non-tariff barriers to trade that have to be overcome to arbitrage price differences between the U.S. and Canada. For example, we have different placarding requirements for ammonia and different trucking configurations with neighbouring states.

But right now all that really matters is getting the 2009 crop in the bin. Fertilizer for the 2010 crop seems less important when last year’s crop is still lying in the field. Don’t miss the pricing opportunities that the current weather is exposing in the fertilizer market. If you are worried about getting your crop in then perhaps your fertilizer dealer is worried that you won’t get it in too.

The relationship between natural gas & nitrogen fertilizer pricing

noreply@blogger.com (R.J.(Bob) Evans) — Fri, 09 Oct 2009 22:35:00 +0000

If I had a nickel for every time I have heard that the price of nitrogen fertilizer is directly correlated to the price of natural gas ………….. well .............. I’d have a lot of nickels. And there is quite a bit of truth to the statement – they’re just not as closely tied as some people seem to believe. It would be more correct to say that the price of nitrogen is strongly influenced by the price of natural gas.

If you want to make nitrogen fertilizer the first thing you need to do is make anhydrous ammonia. Regardless of what kind of nitrogen you want to end up with the starting point is anhydrous ammonia. Once you have ammonia you can relatively easily convert it into urea, often in the same facility. You can also run the ammonia through a nitric acid plant and then combine the nitric acid with urea to make UAN or liquid nitrogen. So regardless of your destination the starting point is building ammonia.

Right now you are breathing air that is 78% nitrogen but the nitrogen isn’t in a form that plants (or animals for that matter) can utilize. In 1909 Fritz Haber pioneered the process of converting atmospheric nitrogen to NH₃. Rights to the process were subsequently purchased by BASF and refined by Carl Bosch. The two men were awarded Nobel prizes for associated work. The science that they developed which we now call the Haber-Bosch process has enabled the green revolution. Without the artificial fixation of nitrogen, life as we know it would not be possible but that’s a story for another day.

Nitrogen manufacturing plants take air which consists of oxygen and nitrogen and combine that with natural gas. Eventually the nitrogen from the air is bound to the hydrogen from the natural gas to give NH₃ (anhydrous ammonia). The oxygen from the air and the carbon from the natural gas end up recombining with the anhydrous ammonia to produce urea which for those of you who care has a chemical composition of (NH₂)₂CO.

The point of all that chemistry is to illustrate that the only components needed to manufacture nitrogen fertilizer are fresh air and natural gas. That in turn means that there most definitely is a relationship between the cost of natural gas and the cost to produce nitrogen fertilizer. Modern NH₃ plants will have roughly a 30:1 conversion ratio. That means if the price of natural gas is $4 per million BTUs then the plant will consume 30 times that or $120 worth of natural gas to make a tonne of ammonia. That’s an important number to keep in mind when nitrogen prices start dropping like they have lately or when natural gas prices start climbing like they have in the past. Take the price of natural gas per MMBTU and multiply it by 30. As soon as the retail price of ammonia gets close to that number you can expect manufacturers to start closing plants or shutting down production.

If the cost to produce a tonne of ammonia exceeds what it can be sold for then the manufacturer will need some pretty strong reasons to keep the plant open. They may have contracts to fill or they may have pre-bought natural gas but the bottom line is “if 30 times the current price of natural gas per MMBTUs is more than the ammonia can be sold for then you can expect some plant closures.” That’s what happened a few years ago when California was so short of natural gas during the winter. Ammonia manufacturers could make more money by selling their gas contracts than they could by building ammonia. So they shut the plants down and sold the contracts. Eventually that drives the price of ammonia up because guys like you want the fertilizer and despite what you may say today, you will pay more for it if you have to. For some of the older plants the factor is more like 35 or even 40 times which is why a lot of the old plants in the US got closed down during the gas price increases of the early 2000s.

If you look closely at the chart of the nitrogen index against the natural gas price you can see several periods where the price of nitrogen clearly lags the price of natural gas but appears to follow it. The early 2000s show a pattern of rising gas prices with nitrogen prices delayed but following the same trend. The disconnects between the two commodities get more apparent as we move back in time but that is understandable. Natural gas used to be a surplus commodity until we figured out a bunch of ways to use it – like making fertilizer.

There are a couple of important lessons you can draw from this relationship:

First, you need to keep an eye on the price of natural gas and particularly the forward futures contracts because that will give you a good head’s up for what’s likely to happen to the N price.

Second, if the day comes, and it may, when manufacturers are no longer willing to forward price retail ammonia, then you may be able to run your own hedge program based on natural gas. If you are a urea or UAN user then you can always buy and store. That may create some other difficulties but it is always an option. It’s not an option for ammonia so you are forced to trust your retailer but more importantly you are forced to trust that the manufacturers will continue to offer forward pricing to their retail locations. If you look at that practice from the manufacturer’s viewpoint it really doesn’t make much sense to let you contract ammonia at Dec. 31 pricing if prices are rising rapidly. There was a time when competitive pressures drove that practice and you should appreciate it while it lasts. Right now your major domestic manufacturer is integrating down the retail chain so you have to ask yourself how long they will continue to offer that option.

(added on edit) I was browsing a bit this evening and noticed the charts above. As always form your own opinions - I'm not qualified or authorized to give you advice.