Nearly 150 attendees were on hand in Arlington, Va., for the 2007 Fertilizer Outlook and Technology Conference Nov. 6-8, sponsored by The Fertilizer Institute and The Fertilizer Industry Round Table. A range of speakers offered plenty of optimism for the industry, fueled by growing biofuels demand and expected increases in corn and wheat acreage in 2007. The optimism was tempered, however, by transportation concerns and regulatory uncertainties involving the changing political landscape after the midterm elections.
In the keynote address, USDA Economist Keith Collins said that biofuels demand will continued to grow globally, which will pull up crop prices and incomes. Following 2005, when a smaller corn crop resulted in carry-over stocks dropping by 50 percent, Collins said corn will be the big story in agriculture over the next few years due to the demands of ethanol production.
Bob Dinneen of the Renewable Fuels Association said the rate of growth for the ethanol industry in the U.S. “has simply been phenomenal,” with 106 plants currently in operation and 44 in construction. “This is not going to be forever a corn-derived fuel industry. Clearly other feed stocks are necessary,” he said. “While ethanol is not a panacea, it most certainly is part of the answer.”
Judith Taylor of ICIS outlined “the green push” of the Energy Policy Act of 2005, referring to bio-diesel as “more of a frontier market” than ethanol, which already has a foothold in the commodity market. Taylor said America is well capitalized to take advantage of the biofuels push, while biofuels and other bio-based products “offer rural America its largest new opportunity in history.” As to the food vs. fuel debate over corn demand for ethanol, Taylor said the market “will find its balance by utilizing novel ways to make ethanol,” including enzymatic activity to produce cellulosic ethanol.
John Urbanchuk of LECG LLG discussed the various ethanol production processes, and also quantified the growing ethanol demand; 2006 will produce 5.1 billion barrels of ethanol, he said, while corn used for ethanol has grown from 75 million bushels in 1981 to 1.7 billion bushels by 2005/06. As for 2007, Urbanchuk said 2.1 billion bushels of corn will go to ethanol production, with a 4 billion bushel ethanol demand predicted by 2015. Ethanol accounted for 14 percent of corn uses in the U.S. last year, he said. Urbanchuk also outlined the costs of producing ethanol, concluding that, even at today’s high corn prices, “ethanol is profitable.”
Not all the news was rosy for the industry. Joe Prochaska of Prochaska & Company consultants outlined the changing retail landscape, noting that there were 25 percent fewer ag retailers in 2006 than there were in 2002. Retailers have been impacted by energy prices, a shift from crop protection to genetics and seed strategies, and continued consolidation, with national distributors extending their retail market coverage and focusing more on specialty markets. Ag retailer trends include expansion through acquisitions, fewer but larger independent retailers, the growth of professional management, and the strong presence of local cooperatives.
“Retailers are gaining a comparative marketing advantage with the proliferation of products and technologies that have to be sorted out for the grower,” he said, noting a strong alliance between genetics and crop nutrition in the future. “Retailers are less differentiated by structure going forward than by the services provided.”
Tom Williamson of Transportation Consultants Co. presented a sobering look at the transportation crisis facing the fertilizer industry. Railroads have seen record demand for their services and are instituting “hyper rate increases,” as well as increased charges for all accessorial services. Added to this are the shipping demands of expanded ethanol production, coupled with consolidation that has seen the railroad industry go from 31 Class One railroads in 1985 to just seven today. As a result, railroads are taking large rate increases, especially for single-car shipments; are building the costs of their own inefficiencies into the rate system; and are using technology to determine the cost and profitability of all shipments. Railroads must increase capacity, Williamson said.
Truck, barge, and ocean freight has also increased dramatically due to high demand. Truck freight has been impacted by high diesel, tax, and insurance costs, and highway delays have increased 180 percent in the last 15 years, he said. World demand, powered by China, has pushed ocean bulk cargo rates up by over 100 percent in the past 20 months, he added, and river infrastructure in the U.S. is in need of extensive repairs.
Risk management options for shippers include hedging rail transportation by utilizing pool cars, hedging fuel surcharges via futures markets, and expanding tracks and loading/unloading equipment. “Efficient shippers and receivers will share the benefits by reduced rates,” Williamson said.
Transportation was also one of the “high profile issues” outlined by The Fertilizer Institute’s Pam Guffain, along with chemical facility security, ammonium nitrate sales tracking, future Farm Bill programs, and efforts to combat methamphetamine production. A continuing concern for the fertilizer industry is the effort by railroads to be relieved of their common carrier obligations to transport toxic-by-inhalation products such as anhydrous ammonia and chlorine, Guffain said.
Tip O’Neill of International Raw Materials noted his company’s transformation from an exporter to an importer. “We’ve all had to change on a dime,” he said, referring to the shutdown of 50 percent of U.S. nitrogen production in the last five years. “We are set up as an export nation, but now we’ve swung to an import nation,” he said. The challenges that result include limited import infrastructure, limited barge capacity, and an indifferent rail system. “Where is the fertilizer coming from for this big 2007 corn crop?” he asked.
O’Neill said world markets are now driving North American fertilizer prices, and emerging nations are dominating new production capacity. As a result, supply lines are dramatically longer and prices are much more volatile. “The retail dealer is just apoplectic about price volatility,” he said. He cautioned, however, that “just-in-time delivery is a mirage,” with supply lines now 90-120 days out.
O’Neill concluded by encouraging attendees to embrace and anticipate change. “Those that embrace change will survive,” he said. “History tells us that most of the companies that will be successful in our industry tomorrow are not around today.”
A wide range of other issues and technologies were covered at the conference. Kish Shah of Shah-4SHE outlined the steps the EU has taken to secure ammonium nitrate. “Activities concerning AN-based fertilizers are highly regulated in the EU to ensure safety and security,” he said, noting the product’s excellent safety record since the 1950s and its efficiency as a nitrogen fertilizer. “We must safeguard plants and products throughout the distribution chain in an effective and convincing manner,” he said.
Virenda Singh of Moodys Economy.com highlighted the economic and agricultural outlook for China and India, noting that both countries’ economies are “firing on all cylinders,” although a decline in GDP for both countries is expected after 2006. Singh, along with Rob Rennie of Spur Ventures Inc., outlined several uncertainties going forward, including the loss of arable land, a growing rural-urban divide in China, and rising social tensions, centered primarily around property rights. “China is neither a democracy nor a free-market economy,” Rennie said. “It is still a planned economy.” India’s largest social and political risks include terrorism and a weak central government, Singh said.
Claude Corkadel of Rentech Inc. explained the Fischer-Tropsch coal gasification process, highlighting the Rentech Energy Midwest ammonia plant at E. Dubuque, Ill. The plant will be online with its new gasification system by the end of 2009, while other gasification projects, including one in Natchez, Miss., and others in Montana and Wyoming, are being studied. Coal-to-ammonia fertilizer “provides a high margin, high value alternative to natural gas,” he said.
Other presentations included Terry Tindall of the J.R. Simplot Co. on the company’s Avail coating technology; Paul Fixen of the Potash and Phosphate Institute on phosphate use efficiency; Dennis Baron of Magic Green Corp. on micronutrients and Nano Technology; Greg Evanylo, a Virginia Tech professor and extension specialist, on the heavy metals content added to soils by animal manure and other sources; Gary Burau of Waconia Manufacturing Inc. on the role of mega distribution centers in the supply chain; Garry Wagner on AAPFCO activities; and IFA Director General Luc M. Maene on fertilizer’s role in meeting global nutrition challenges.