A Big Bet On Nitrogen Fertilizer

Illinois-based fertilizer giant CF Industries says it will spend $3.8 billion through 2016 on new nitrogen fertilizer capacity at its facilities in Donaldsonville, La., and Port Neal, Iowa. The company plans to take advantage of its access to low-cost natural gas in the U.S. to produce 2.1 million tons of ammonia per year, along with related products urea and urea ammonium nitrate.

More than half of the nitrogen fertilizer currently used by U.S. farmers is imported, mainly from Canada, Trinidad & Tobago, and the countries of the former Soviet Union. Experts say the emergence of inexpensive and abundant natural gas in the U.S. is set to reverse a 12-year trend of domestic-capacity shutdowns that began in 2000 when domestic gas prices soared.

At the same time, high crop prices, particularly for corn in the U.S. and sugarcane in Brazil, have pushed up farmer demand for nitrogen fertilizers. Ammonia prices recently peaked at $622 per ton, according to a third-quarter earnings report from CF, up 13% over 2011. CF reported that it earned a healthy 58% gross profit on ammonia sales in the quarter.

But nitrogen prices are likely to come back down to earth as more capacity comes on-line, says David D. Asbridge, president of NPK Fertilizer Advisory Service. “There have been eight to 10 announcements of new facilities for North America. That would drive prices down because the growth of supply will outpace the growth of demand.” CF’s announcement may discourage some other firms from going forward, Asbridge adds. “That may kick the legs out from even some of the more serious companies. CF plans to add a lot of capacity, and we will not need all these other plants.”

In September, Egypt’s Orascom Construction Industries said it plans to build a $1.4 billion nitrogen fertilizer plant near Wever, Iowa, by mid-2015. Also in September, CHS Inc. announced plans for a $1 billion nitrogen plant in North Dakota. PotashCorp says it plans to resume making ammonia at its Geismar, La., plant. Other fertilizer firms planning to expand nitrogen production in North America include Norway’s Yara and Calgary-based Agrium.