October 17, 2000

Farmers can expect to pay more for fertilizer products as gas and oil prices continue to rise. According to The Fertilizer Institute, the cost of production of many fertilizers has increased significantly in the past months as a result in the sharp increase in natural gas prices. Natural gas is the "major cost component" in making all basic fertilizer products.

TFI also noted that according to their 1999 production cost survey, an estimated 635 trillion Btu's of natural gas (3% of the total U.S. natural gas production) was used in 1999 for ammonia manufacturing. The U.S. Department of Commerce estimates that 19 million short tons of ammonia were produced in 1999, with approximately 90% going to fertilizer uses. "Sharp" increases in natural gas prices have been noted by the industry.

In June prices shot up from approximately $2.00 per MMBtu to around $4.30 on average per MMBtu. Additionally, cost for production of ammonia rose from $100 per ton to $180 – gas retains most the majority of production cost.

According to the Fertilizer Institute, "Without a comparable increase in fertilizer prices, the price of natural gas creates pressure for fertilizer producers to curtail production and either way, they lose money." Likewise, ammonia producers either produce at a loss or curtail production as well.

The Fertilizer Institute believes that natural gas prices will continue to increase. Certain measures taken by the industry and consumers may slow this trend, including facilitating new supply; supporting the use of other technologies like nuclear, coal and biomass technologies; decreasing world oil prices to slow or reverse high gas prices; and developing new technology to assist in the production of new supplies and increases the efficiency of existing gas technologies.