FNA seeks seed money for nitrogen plant

Farmers of North America is asking members to invest seed money in a proposal to build Canada’s first farmer-owned nitrogen fertilizer plant.

“The business case is compelling,” Bob Friesen, spokesperson for FNA’s Fertilizer Limited Partnership, said in a news release.

“The real question is if and to what extent farmers want to gain a return on investment to offset the high cost of fertilizer rather than merely paying for it.”

Details on the proposed plant haven’t been finalized but estimates now peg the plant as costing about $1 billion while producing about 730,000 tonnes of nitrogen fertilizer annually.

That would be about two-thirds the size of the Yara International plant in Belle Plaine, Sask., near Regina.

FNA members are being asked to buy capital units in multiples of $1,000 up to a maximum of $10,000 to provide seed money for the proposed project.

Those who contribute are expected to get undetermined preferential treatment in the project, such as $1,000 of seed capital being converted to $2,000 in equity during the equity drive stage of the venture.

Seed capital will pay for environmental studies, civil and environmental engineers, securities regulatory costs and legal fees.

Friesen said the equity investment stage could happen later this fall.

FNA plans to conduct a series of town hall meetings at more than 50 venues across the country in October to raise money and engage farmers. 

This is the third billion-dollar, farmer-owned fertilizer project proposed in the past four months. The other two are in North Dakota.

In July, the North Dakota Corn Growers Association announced it was moving from the feasibility to the business planning stage for a $1.5 billion nitrogen fertilizer plant in the state. Keystone Agricultural Producers and the Manitoba Canola Growers Association are on the steering committee for that project.

In September, CHS Inc., the largest farmer-owned co-operative in the United States, announced it is investing $10 million in a feasibility study to build a $1.1 to $1.4 billion nitrogen fertilizer plant in Spiritwood, N.D., which would produce 2,200 tonnes of ammonia per day.

Farmers aren’t the only ones wanting to build plants. Yara International plans to double production at its Belle Plaine plant to 2.2 million tonnes annually by 2016.

Ohio Valley Resources wants to build a $1 billion facility in Rockport, Indiana. And Iowa Fertilizer Company intends to build another $1 billion plant capable of producing 1.5 to two million tonnes of ammonia, urea and urea ammonium nitrate per year.

David Asbridge, president of NPK Fertilizer Advisory, said there is no way there is room for six new billion-dollar nitrogen fertilizer plants in North America.

“There’s a good possibility that not all of these are going to get built,” he said.

“I hate to sound discouraging but to be honest with you, my brother farms down in Tennessee and if he called me up and said, ‘Hey, I’ve got an opportunity to invest in a nitrogen plant. What do you think?’ I’d tell him not to do it.”

Asbridge said high nitrogen and low natural gas prices have spurred new plant construction in places like the Middle East, China and Brazil.

“We’re in the beginning stages of a switchover to probably more supply than we’ve got demand growth coming up here for the next three to five years,” he said.

Friesen isn’t worried about overproducing the product. He noted that North America imports seven million tonnes of nitrogen fertilizer annually and the total capacity of all the proposed projects is less than that.

But the FNA plant wouldn’t have to compete in that arena because its farmer owners would provide a captive market for the nitrogen it produces, which would be enough for about 10 million acres of farmland.

Asbridge pointed out that natural gas in the Middle East is about one-third the cost it is in Western Canada. So manufacturers can compete in the North American market even with higher transportation costs.

FNA has been involved in a number of ventures to bring more competition into the industry. It has shipped fertilizer into the Port of Churchill on Hudson Bay, hauled it up the Mississippi River, and worked with suppliers in Russia, the Middle East and New Orleans.

But it says none of those ventures offered a permanent solution. A 2011 FNA poll of its membership found that three-quarters were interested in investing in a fertilizer plant.

Friesen said it is not feasible for growers to foot the bill for the entire cost of the plant. There would need to be significant investment from a business partner. 

FNA would not own or run the plant. But it expects memberships to grow as a result of the project. A membership costs $625 annually.

If the project does not proceed, members will receive a $600 credit to their account or a one year extension to their membership for each $1,000 of seed capital invested.

Friesen said if all goes well, a plant could be up and running in Western Canada by 2016 or 2017.

Asbridge likes FNA’s plan to not undercut the market by charging its members less for their fertilizer. That has been a recipe for disaster in some failed farmer-owned plants in the U.S.

But he said there could be tough times ahead in covering the capital costs of a $1 billion plant, especially if governments in Canada and the U.S. implement a carbon tax that would increase the cost of natural gas.