Iowa’s fertilizer industry profits as farmers struggle

WEVER, Iowa — When the Iowa Fertilizer Co. opened in 2017, many Iowans were skeptical the production facility in Lee County was worth more than $230 million in state and local incentives.

Five years later, owner OCI NV has met all state obligations by building a $3 billion fertilizer plant that employs 265 people full time and contracts with another 50 to 90 for engineering, electrical and service functions, Plant Director Mickey McHale said.

The multinational company reported $6.3 billion in revenue in 2021, up 82 percent from $3.47 billion in 2020, and is planning for another big year amid shortages in fertilizer imports from abroad.

Crop prices “remain at levels that incentivize farmers globally to maximize yields by using more nitrogen,” OCI NV officials said in their 2022 second-quarter report.

An Iowa State University study from earlier this year said there wasn’t sufficient evidence at that time to say fertilizer companies — some of which have seen their net income increase 400 percent in recent years — were price gouging.

But Iowa farmers wonder.

“They say they are pricing it off the global market, but yet their cost of production is very low here in the United States,” Robb Ewoldt, a Scott County farmer and outgoing president of the Iowa Soybean Association, said about the fertilizer industry.

“They are making a lot, lot of money. It always seems to coincide with when our grain prices go up.”

As droughts and floods cause famine in some parts of the world, Iowa farmers say skimping on fertilizer could reduce U.S. food exports.

“Do we cut fertilizer and take reduced yields?” Lance Lillibridge, a Benton County farmer and president of the Iowa Corn Growers Association, asked at a roundtable discussion with U.S. Sen. Joni Ernst in June at his farm near Vinton. “We’re going to have some hangry people around the globe.”

Iowa Corn Growers reports that more than half of the state’s corn is used in ethanol production.

Impact on Iowa

The fertilizer industry creates more than 32,000 jobs in Iowa and pays workers more than $3 billion a year, according to the Fertilizer Institute, a Virginia-based advocacy group.

There are 31 manufacturing plants in Iowa.

The Iowa Fertilizer Co. is the largest new plant built in the United States in 30 years, officials said. The compound of shiny metal tubes, towers and tanks rises among corn and soybean fields just east of Highway 61, seven miles north of Fort Madison.

“It’s really beneficial for the farmers where we put this,” Charles Ireland, plant operations manager, said during a tour this past month. “We are surrounded by thousands of acres of farm fields.”

CF Industries, with nine manufacturing sites in the United States, Canada and the United Kingdom, completed a $2 billion expansion of a facility near Sergeant Bluff in 2016, the Sioux City Journal reported.

OCI NV, which changed its name from Orascom in 2013, started out as a family-owned construction company in Egypt, according to its website. The company bought its first fertilizer plant in 2005 and now has plants in the United States, the Netherlands, United Arab Emirates, Egypt and Algeria.

When Iowa signed a deal with Orascom in 2012 to build the Wever plant, farm groups predicted having a large supplier in state would reduce fertilizer costs for Iowa farmers.

Other groups blasted the incentive package, one of the richest in state history and on a per-job basis, the Associated Press reported. Iowa paid the company $107 million over two years, while Lee County offered $133 million in local tax abatement over 20 years.

The Iowa Fertilizer Co. agreed to make predetermined payments to Lee County instead of paying property taxes and also pays a replacement tax on natural gas used at the plant, said Dennis Fraise, president and CEO of Lee County Economic Development.

“They’ve been a great corporate citizen,” he said. “They’re very generous with their time and dollars they spread around the community.”

Production levels

The Iowa Fertilizer Co. combines nitrogen from the air with hydrogen from natural gas at high pressure and temperature to produce ammonia, which binds the nitrogen to make fertilizer.

When the plant opened in 2017, owners said they planned to produce up to 2 million metric tons of fertilizer a year.

The company’s total fertilizer output last year included 1.2 million tons of urea ammonium nitrate and 700,000 tons of anhydrous ammonia, McHale said. Most of that fertilizer is sold in the Midwest.

The plant also made 700,000 tons of diesel exhaust fluid, or DEF, which is added to diesel gas to reduce greenhouse gas emissions.

Russia’s war on Ukraine has strangled fertilizer production and delivery worldwide, but there are other challenges, including countries hoarding fertilizer and increases in the price of natural gas, especially in Europe, the Washingon Post reported.

Profits expected to rise

OCI NV is poised to make money during this rocky period, the company noted in its 2022 second-quarter report.

“The outlook for the fundamentals of our nitrogen end markets continues to be underpinned by tight supply, healthy farm economics and decades low grain stocks globally that incentivize the use of nitrogen fertilizers,” the report states.

Some European producers can’t get enough ammonia to increase production, but OCI NV can import ammonia from its facilities in North Africa and the United States.

Natural disasters and COVID-19 have slowed natural gas production in some parts of the world, raising the cost of this core ingredient for fertilizer production. But OCI NV says it has “favorable gas supply agreements” through a subsidiary in the United Arab Emirates.

“With less than 10 percent of our natural gas supply exposed to market fluctuations in Europe, we have further enhanced our cost resiliency,” the report says.

Some U.S. fertilizer plants have sought to increase production here. Koch Fertilizer in February finished a $150 million upgrade in Oklahoma designed to increase production capacity, the Enid News and Eagle reported.

The Iowa Fertilizer Co., which already operates around the clock, has not added production capacity, McHale said.

“It’s not like you can flip the switch and automatically make more,” McHale said. “We’ll focus on the bottlenecks to get the most material through the process as possible.”

Farmers pay more

Fertilizer sales in Iowa for the year that ended June 30, 2021, were 4.65 million metric tons — the highest level since 2014, according to data from the Iowa Department of Agriculture and Land Stewardship.

“We were able to purchase our fertilizer before it really, really went up because we purchased it all in August or September 2021,” said Ewoldt, the Iowa Soybean Association president who grows corn, soybeans and some alfalfa.

“We typically would not have bought that early, but we needed to protect ourselves.”

Ewoldt saw his fertilizer costs go up 30 percent between the 2021 planting season and 2022. He expects a similar jump when he buys fertilizer for next season.

Farmers are getting more money for their crops. The average price per bushel of corn in June was $7.48, up from $6.19 per bushel a year ago, ISU Extension reported. Soybeans were selling for an average price of $16.20 a bushel, up from $14.70 in June 2021.

But fertilizer prices are outpacing commodity prices.

‘More questions than answers’

Iowa State’s June study found that while the price Iowa farmers are getting for their crops has roughly doubled since 2020, fertilizer prices are two to four times higher in that same span.

Factors include the cost of importing ingredients, such as ammonia, phosphate rock and potash, from other parts of the world. Natural disasters, the pandemic, trade disputes with China and the war in Ukraine have made it more expensive to import these inputs, the report found.

“Statistical analyses of these structural changes point to underlying energy costs, and to a lesser extent farm demand, having more influence on fertilizer prices,” ISU concluded.

Last fall, the U.S. International Trade Commission imposed a tariff on imported phosphate fertilizer at the request of the Mosaic Co. one of the nation’s largest fertilizer companies, causing prices to rise, Successful Farming reported.

Mosaic’s net income went up 484 percent from 2018-19 to 2020-21, ISU reported.

“The argument that fertilizer firms may be taking advantage of inflation to raise prices raises more questions than answers at this point,” ISU researchers said. “Nevertheless, they are good questions for which we need more data.”

Chad Hart, an ISU economics professor and one of the study’s authors, said the U.S. Department of Agriculture’s most recent fertilizer price report, released Aug. 23, shows prices have come down slightly.

Pipelines

OCI NV wants to reduce greenhouse gas emissions from its plants, seeking a 20 percent cut in “intensity” of operations — measured by the amount of carbon dioxide produced for each ton of fertilizer — by 2030, the company’s 2021 annual report said.

To work toward that environmental goal, the Iowa Fertilizer Co. has signed on with the proposed Navigator CO2 pipeline, which would collect up to 1.13 million metric tons of CO2 each year from the Wever plant and transport it to an underground sequestration site in Illinois.

The Navigator project is one of three pipelines proposed to crisscross the state, taking advantage of federal tax credits for carbon capture and storage.

The Iowa Fertilizer Co. also hopes to be connected to a 14-mile NuStar anhydrous ammonia pipeline proposed for Lee County, the Pen City Current reported.

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