The Great Plains Synfuels Plant near Beulah is on track for record losses in 2018. Heading into the new year, eyes are turned to fertilizer operations to see if the new $740 million urea plant can turn things around.
“We have gone through many major changes at Dakota Gas in the past year, and the benefits of continuing to operate the plant far outweigh the losses this subsidiary is experiencing today," said Paul Sukut, CEO of Basin Electric Power Cooperative, which owns the subsidiary plant. "The new urea production facility, which became operational in January, is profitable today and we are optimistic it will continue to be going forward."
Sukut also said the marketing partnership the cooperative has formed with OCI to sell its ammonia-based fertilizers and diesel exhaust fluid is expanding Dakota Gasification Co.'s customer base throughout the Midwest and beyond, to Washington, Oregon and California.
“One of the things to keep in mind is fertilizer is a globally traded commodity, perhaps more than it ever has been,” said Bryon Parman, North Dakota State University Extension agricultural finance specialist. “It’s not just what happens in the U.S. that matters.”
Fertilizer prices used to be pegged to the price of natural gas but, in the 2010s, that relationship broke down, according to Parman. Natural gas prices have been historically low for some time with the expansion of hydraulic fracturing and directional drilling in the oil fields.
“Now, it has become more supply-and-demand driven,” Parman said of the resulting market volatility.
In 2013 and 2014, fertilizer prices skyrocketed alongside record high crop prices — $800 a ton in 2014 for nitrogen-based fertilizer, such as that produced at the Great Plains Synfuels Plant, Parman said. There was a massive spike in urea prices in 2010 to mid-2012.
“This was the golden age of agriculture we just went through,” Parman said.
When crop prices fell so did fertilizer prices. By late 2014, nitrogen fertilizer prices were at $600 a ton and, this fall, it was about half of that. At the lowest, prices dipped below $200 a ton.
Until recently, farmers had been going for the best yield possible, according to Parman.
“That’s really not the case now,” he said of year after year of depressed crop prices resulting in farmers' inability to absorb fertilizer prices.
The fertilizer market has returned to 2004 to 2006 price levels.
“The great equalizer in all of this is logistics,” Parman said.
A logistical advantage
Whether fertilizer prices rise or fall, the Beulah plant, owned by Basin Electric Power Cooperative subsidiary Dakota Gasification Co. and mostly supplies those within a 100-mile radius, stands to profit due to its local location.
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“This presents a little bit of opportunity,” Parman said.
If the world price goes high, the plant, could beat prices of fertilizer coming into port in New Orleans and still make a profit.
If the world price is really low, DGC will have to make downward adjustment to what it charges, but lower transportation costs will give it an edge.
“They’ll definitely be impacted, but it won’t necessarily be a one for one,” Parman said. “Basin has the logistical advantage.”
Trade war concerns
Uncertainty permeates many markets as the trade war with China, a large producer and user of fertilizer, continues. As a result, the U.S. Department of Agriculture is projecting a 6.4 million acre reduction in soybean plantings.
“If it’s not soybeans, it’s going to go into wheat and corn, which do use a lot of nitrogen,” Parman said. “Corn is kind of a nitrogen hog. Wheat uses a bit.”
DGC is producing an average of 1,091 tons of urea daily. The plant also has added diesel exhaust fluid as well as liquid carbon dioxide to the plant’s product line as part of the cooperative’s 10-year financial forecast, according to Basin Electric senior business analyst Kimberly Miller.
That financial forecast predicts revenue at DGC to range from $470 million to $669 million annually, while operating expenses are predicted to range from about $513 million to $676 million annually, Miller said.
Parman said forecasters have been “bearish on fertilizer prices,” going into 2019.
“I think fertilizer probably stays sideways for first part of 2019,” he said, predicting a leveling of prices rather than the large swings that have marked the market over the past few years.
Beulah Mayor Travis Frey also expressed optimism for the community.
Frey said the buyouts and reductions at DGC were "a topic of discussion" at Beulah City Council meetings, as about one-fifth of the city's revenue comes from coal-related taxes and the plant.
City officials have made plans for how they would adjust the city budget if those revenues were to be reduced as a result of cutbacks at DGC. But Frey indicated Basin Electric has reassured the council the changes that have been made will be sufficient to turn things around.
"They're still producing," Frey said of DGC. "And (Basin Electric's) power plants have been doing quite well."