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Go big or go small?
That may be too simplistic, but it seems to be how the arguments break down when discussing how to increase domestic production of fertilizer.
Crop nutrients have been on farmers’ minds this spring as the war in Iran has choked off fertilizer supplies and increased prices, especially for urea, much of which has to travel through the Strait of Hormuz, effectively closed due to Iranian attacks.
Ag Secretary Brooke Rollins is working directly with major fertilizer manufacturers to address high input costs, but USDA also is working with the Commerce Department at how to bolster domestic production. "We're still working on what that looks like," she said.
Congress also is getting into the act. A group of House Democrats wrote to Rollins Monday asking for a “public action plan for how the administration will reduce fertilizer prices and stabilize markets.” And legislation has been introduced in the Senate both to provide transparency around prices and to establish a program to fund domestic production. There also have been calls to lift countervailing duties on phosphate imports.
But any solution will take time and a lot of money, experts say.
“We need a new world-scale nitrogen production facility, at least until we find the next silver bullet” through technology, says Josh Linville, vice president, fertilizer, at Stone X.
Linville notes that the U.S. produces about 20 million tons of anhydrous ammonia annually and uses 19 million. “We still have some imports that come in, but we produce most of what we need,” he says.
But, he adds, “that's a little bit of a misleading number,” because most of those tons go to industrial uses or are upgraded to urea-ammonium nitrate solution or urea production.
“Our direct application of anhydrous is only four and a half million tons, give or take, depending on the season,” he says. In the case of both anhydrous and UAN, “there's not that big of a delta between what we produce and what we need.”
Urea, however, is where there is a big gap, he says. U.S. production is slightly over 6 million tons, but demand is about 12 million. “So we need to import five, five and a half million tons to meet our demand. That's where we are in the most danger.”
Veronica Nigh, senior economist at The Fertilizer Institute, also says that “in order to make a meaningful improvement in total available capacity of fertilizer, you have to build world-class-size facilities – those that are able to produce a product at a price point that is globally competitive.”
Veronica Nigh (TFI photo)“If you want to replace our need to import fertilizer during peak demand season, then that's not going to be met by a ton of small facilities,” she says. “That would need to be met by large-scale commercial fertilizer production facilities.”
Doing so is difficult, though. “Who's going to build it?” asks Kansas-based fertilizer analyst Doug Wright. “Where's the money going to come from? Is it outside investment?”
Linville also cites the expense of building a large nitrogen production facility. “It would probably cost you in the range of $3 to $5 billion [and] that just gets you the money to start building it. Now you got engineering and construction, and you're a couple years before you produce the first ton.”
By then, profit margins may have shifted lower, he says. “And frankly speaking, if you’ve got that kind of money, is fertilizer really the place you want to invest it? For lack of a better term, there's sexier investments in the world than producing fertilizer.”
The Biden administration under then-Ag Secretary Tom Vilsack spent about $517 million on dozens of projects across the country to increase domestic capacity, but Nigh, Linville and Mark Behrman, chairman and CEO of LSB Industries, say that as yet, they haven’t “moved the needle” in the fertilizer market.
“There hasn't been yet a lot of additional capacity that has been brought online,” Nigh says. “Certainly, projects are underway, and that was helpful in that regard. But fertilizer facilities, whether it be in the nitrogen space or in the phosphate or potash space, are lengthy endeavors to bring on online.”
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“From what we have seen so far, I think there are some plants that will be built” as a result of that program, she says, “but they aren't large enough in size to really change” the overall price outlook.
LSB was a successful grantee under the Fertilizer Production and Expansion Program (FPEP) and is due to receive $23 million to expand capacity at its El Dorado, Ark., ammonia plant from 500,000 to 600,000 tons, says Behrman, who also is the chairman of TFI. But the company is still looking at whether to move ahead with the project, the largest to receive an award under the FPEP.
He agrees that large-scale production is necessary and that the FPEP has not made any appreciable difference in capacity. "Given the fact that we've got relatively cheap natural gas, we should increase domestic fertilizer production," he says.
"Scale matters. ... If you produce 1.2 million tons of ammonia, or 100,000 tons of ammonia, your fixed costs are primarily the same. They're going to be a little bit higher for a bigger plant, but going from 100,000 tons to a million, you don't need 10 times the people. You need a few more people, but not a lot. So your cost per ton is significantly lower when you have larger scale."
He says a grant program would work, but that the grants would need to be larger. "I think if they come out with another grant program, it's got to be with the mindset that it's going to have enough heft to help build some needle-moving production. Otherwise, I'm not sure, maybe not come out with a program at all."
Nigh says the money that went to FPEP would have been better spent on getting farmers access to precision ag technology. "It would make a lot of difference to help farmers buy more precision application equipment," she says,
But others emphasize what can be done on a small-scale basis. Farmers Union Enterprises, for example, has entered into an agreement with Replenish Nutrients to renovate and operate a processing plant in Crookston, Minn., to eventually produce 100,000 metric tons of Replenish’s Super KS pellet fertilizer.
Super KS is a 0-0-30-35 product that Replenish calls “a restorative regenerative fertilizer that improves soil biology while rebuilding plant-available sulphur and potassium levels in the soil.”
“You could do this everywhere in the countryside,” says South Dakota Farmers Union President Doug Sombke. “Why aren't we doing more of that?” Despite perennial discussion, “Nobody wants to talk about how to do it.”
“We’ve got ways to make more of our own from natural ingredients here in the countryside. We can do it in the neighborhood of the farming areas” and avoid the cost of shipping from within the U.S. or from overseas.
One company that’s looking to do that is TalusAg, which is building green ammonia systems to serve local and regional markets. It has so far deployed one of its TalusOne modular systems in the U.S., which have a capacity of one to one and a half tons per day, and is in the process of rolling out its Talus10, with a capacity of 20 metric tons daily. There is a TalusTen under construction in Eagle Grove, Iowa, with commissioning planned for the last quarter of this year.
Tristan Peitz (Linkedin photo)Tristan Peitz, president, Americas, at TalusAg, says the company is taking advantage of the 45V hydrogen tax credit, which is worth about $500 per ton and allows the company to offer long-term contracts to farmers that are 30% cheaper than the 15-year average and also more than 50% cheaper than the current price of ammonia in the Corn Belt, where the company is focusing its efforts..
“Our systems are cheaper than the incumbent producer or imports,” Peitz says. “It's more reliable because it's locally produced. It's not dependent on complex, multimodal, global supply chains.”
While the company is focused on local needs, Peitz says if TalusAg can upscale to 50 Talus10 systems, production could be about 250,000 tons, or close to 10% of the amount the U.S. imports each year. “So it’s material,” he says.
Another potential solution that has been floated to deal with fertilizer price shocks is a reserve to store product.
“In times like today, you start to wonder, do we need strategic reserves?” John Newton, American Farm Bureau Federation vice president of policy and economic analysis, asked at the Agri-Pulse Ag & Food Policy Summit March 23.
TFI’s Nigh, however, says there are serious obstacles to that idea. From a safety standpoint, for example, “You wouldn't necessarily want to look at storing ammonia for a long period of time,” she says. Sulfate products can eat through concrete, she adds.
Prilled products such as monoammonium phosphate and diammonium phosphate, as well as urea, act like cat litter when wet. “It clumps and then you can't spread it,” she says. “Plus, it's incredibly voluminous, so it would have to be undercover, it would have to be airtight.”
“I understand the desire, and it makes sense. But there's probably a reason it hasn't been done.”
