NCGA Public Policy Action Team member Terry Hilgedick testifies to the House Small Business Subcommittee on Rural Enterprise, Agriculture and Technology on the impact high natural gas prices are having on corn growers.

NCGA’s Hilgedick Highlights Impacts of Rising Natural Gas Prices on Growers (03-18-05)

As world oil prices rose to record highs this week, the National Corn Growers Association (NCGA) testified Thursday on the impact high natural gas prices are having on corn growers and their production operations, while also emphasizing the need for comprehensive energy policy.

Terry Hilgedick, a member of NCGA’s Public Policy Action Team and chairman of the Missouri Corn Merchandising Council, highlighted to members of the House Small Business Subcommittee on Rural Enterprise, Agriculture and Technology the harmful effects farmers are having due to higher production costs.

“Increased natural gas prices have already had an adverse effect on farmers due to higher production costs, and will continue to do so in the future,” said Hilgedick. He added that growers rely on natural gas as a feedstock for fertilizer, energy for irrigation, powering farm equipment, drying grain and producing ethanol.

Fertilizers account for more than 40 percent of the energy input per acre of corn harvested; most energy is consumed in the production of nitrogen fertilizer. Nitrogen fertilizer is a key input for the bountiful yields achieved by U.S. corn farmers. Due to rising natural gas prices in the U.S. domestic nitrogen fertilizer producers have restricted their production.

“Farmers are facing higher nitrogen fertilizer prices and the prospect that there might not be an adequate supply of nitrogen fertilizer to satisfy farmers’ demands at any price,” said Hilgedick. Noting that of the 16.5 million tons of nitrogen capacity that existed prior to 2000 in the United States, 20 percent has been closed permanently while another 25 percent is at risk of closing within the next two years.

Hilgedick cited several countries whose nitrogen imports are the key cause for curtailments and higher pricing in the United States while explaining that the practice of taking excess natural gas, turning it into fertilizer and underselling U.S. producers will become commonplace.

“Imports currently account for approximately 40 percent of the total U.S. nitrogen fertilizer supply,” said Hilgedick. “This makes it difficult for U.S. nitrogen fertilizer producers to compete with these countries much lower natural gas prices.”

Hilgedick said prices for natural gas have climbed steadily since 2000 when anhydrous ammonia was selling for $160 to $170 per ton, and by the end of the year, prices climbed to $210 per ton. Last spring, prices increased to $360 per ton and are still on the rise and will be for the foreseeable future.

According to Hilgedick, these increases are hard for the agriculture industry to cover and he is feeling the pinch of these costs on his family farm in central Missouri. “For my farm, the price increase in one year amounts to $13,000 for ammonia alone,” he said. “That’s an additional $7,000 cost increase when other forms of plant food are added in. We cannot pass on all our production costs to our buyers.”

Hilgedick pointed out that government policy is creating a supply squeeze for natural gas. “Our ability to be efficient and environmentally friendly corn producers will face huge obstacles if our nation cannot come to grips with its desire to have limitless resources, like natural gas, for production and not realize that these resources have to come from somewhere,” he said.

Hilgedick concluded his testimony by telling the subcommittee members that the days of cheap energy are behind us and encouraging Congress to address the energy and natural gas issues while working towards sound comprehensive energy policy.

“Congress needs to enact comprehensive energy policy now that provides an enhanced role for renewable energy sources, further development of all energy resources, and environmentally sensitive production of adequate domestic supplies of natural gas,” he said. “Our ability to produce food and fuel for our nation and the world depends on a sound energy policy.”

To read the written testimony, please click here.