United States General Accounting Office 

GAO Report to the Ranking Democratic 

Member, Committee on Agriculture, 

Nutrition and Forestry, U.S. Senate 

September 2003 NATURAL GAS 

Domestic Nitrogen 

Fertilizer Production 

Depends on Natural 

Gas Availability and 

Prices 

GAO-03-1148


a
Highlights of GAO-03-1148, a report to the 

Ranking Democratic Member, Committee 

on Agriculture, Nutrition and Forestry, U.S. 

Senate 

Natural gas is the most costly 

component used in manufacturing 

nitrogen fertilizer. Therefore, when 

natural gas prices increased in 

2000–2001, U.S. companies that 

produce nitrogen fertilizer reported 

adverse financial consequences 

resulting from much higher 

production costs. Concerns also 

arose that the nation’s farmers 

would face much higher nitrogen 

fertilizer prices and that there 

might not be an adequate supply of 

nitrogen fertilizer to satisfy 

farmers’ demands at any price. 

Responding to congressional 

concerns, GAO undertook a study 

to determine (1) how the price of 

natural gas affects the price, 

production, and availability of 

nitrogen fertilizer and (2) what role 

the federal government plays in 

mitigating the impact of natural gas 

prices on the U.S. fertilizer market. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1148. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Jim Wells at 

(202) 512-3841, wellsj@gao.gov. 

September 2003 

NATURAL GAS 

Domestic Nitrogen Fertilizer Production 

Depends on Natural Gas Availability and 

Prices 

Higher natural gas prices have contributed to higher nitrogen fertilizer prices 

and reduced domestic production. The following figure shows the 

relationship between natural gas prices and the farmer price for nitrogen 

fertilizer. 

Farmer Price for Nitrogen Fertilizer Relative to Natural Gas Prices, January 1998–March 2003 

Higher gas prices in 2000–2001 also led to a 25 percent reduction in domestic 

production of nitrogen but, despite this decline, the supply of nitrogen 

fertilizer was adequate to meet farmers’ demand in 2001. Demand was met 

because U.S. nitrogen production was supplemented by a 43 percent 

increase in nitrogen imports and a 7 percent decrease in agricultural 

consumption of nitrogen fertilizer. 

The federal government does not set natural gas prices, and it has a limited 

role in managing the impact of natural gas prices on the U.S. fertilizer 

market. Three federal agencies—(1) the Federal Energy Regulatory 

Commission, (2) the Commodities Futures Trading Commission, and (3) the 

Energy Information Administration—are responsible for ensuring that 

natural gas prices are determined in a competitive and informed 

marketplace. Moreover, the federal government has no role in controlling 

fertilizer prices, but the U.S. Department of Agriculture (USDA) does 

monitor developments in the agricultural sector, including fertilizer markets, 

that could affect farmers. Also, in 2001, USDA collected additional survey 

information in response to concerns about the price and availability of 

nitrogen fertilizer. 
Contents


Letter


Results in Brief 


Background 


Higher Natural Gas Prices Have Contributed to Higher Nitrogen 


Fertilizer Prices and Reduced Domestic Production but Have Not 

Affected Availability of Fertilizer 

Federal Government Has a Limited Role in Managing the Impact of 

Natural Gas Prices on the Fertilizer Market 

Observations 

Agency Comments 

1 

3 

4 

5 

14 

19 

20 

Appendixes 

Appendix I: Objectives, Scope, and Methodology 22 

Appendix II: GAO Contacts and Staff Acknowledgments 26 

GAO Contacts 26 

Staff Acknowledgments 26 

Tables Table 1: U.S. Nitrogen Supply and Demand, June 30, 1996–2002 12 

Table 2: Average Corn Prices, 1996–2001 18 

Table 3: Average Costs of Materials Used per Acre on Corn Farms, 

1996–2001 19 

Figures	 Figure 1: 

Figure 2: 

Figure 3: 

Figure 4: 

Figure 5: 

Anhydrous Ammonia and Natural Gas Prices, 


1998–2003 6


Urea, UAN, and Natural Gas Prices, January 1998–March 


2003 7


Prices of Anhydrous Ammonia in the U.S. Gulf Port and


Mid Cornbelt Relative to Natural Gas Prices, January 


1998–March 2003 8


Farmer Prices for Nitrogen Fertilizer Relative to Natural 


Gas Prices, January 1998–March 2003 9


Nitrogen Fertilizer Availability, 2001 13


Page i GAO-03-1148 Natural Gas 
Contents 

Abbreviations 

CFTC Commodity Futures Trading Commission


EIA Energy Information Administration


ERS Economic Research Service


FERC Federal Energy Regulatory Commission


NASS National Agricultural Statistics Service


TFI The Fertilizer Institute


UAN urea ammonium nitrate


USDA U.S. Department of Agriculture


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Page ii GAO-03-1148 Natural Gas 
Page 1 GAO-03-1148 Natural Gas 

A

United States General Accounting Office 

Washington, D.C. 20548 

September 30, 2003 

The Honorable Tom Harkin 

Ranking Democratic Member 

Committee on Agriculture, Nutrition 

and Forestry 

United States Senate 

Dear Senator Harkin: 

Nitrogen, the plant nutrient and fertilizer component most widely applied 

by American farmers, is essential for maintaining the high yields achieved 

for major crops such as corn, wheat, and cotton in this country. Natural gas 

is a key component in the production of nitrogen, and the cost of natural 

gas can account for up to 90 percent of nitrogen fertilizer production costs. 

When natural gas prices in this country increased in late 2000 and early 

2001, U.S. fertilizer producers reported financial losses resulting from the 

significant increase in their costs of producing nitrogen fertilizer. These 

higher production costs also made it difficult for U.S. producers to compete 

with foreign nitrogen fertilizer producers, who could buy natural gas at 

lower prices and export their products to the United States. At about the 

same time, concerns arose that the nation’s farmers would face much 

higher nitrogen fertilizer prices—and even that there might not be an 

adequate supply of fertilizer to satisfy farmers’ demand at any price. Such 

an outcome was considered possible if U.S. fertilizer producers were 

forced to significantly decrease their production, because in recent years 

domestic producers have supplied more than one-half of the nitrogen 

fertilizer used by American farmers. According to fertilizer industry 

officials, higher natural gas prices in 2003 are again having a negative 

financial impact on the U.S. nitrogen fertilizer industry, threatening to 

irreversibly cripple it. 

In this context, you asked us to determine (1) how the price of natural gas 

affects the price, production, and availability of fertilizer and (2) what role 

the federal government plays in managing the impact of natural gas prices 

on the U.S. fertilizer market. To address the first issue, we examined 

government and industry price data pertaining to natural gas and nitrogen 

fertilizer to determine how nitrogen fertilizer prices, both major market 

Page 1 GAO-03-1148 Natural Gas 
spot prices1 and retail prices paid by farmers, behaved when the price of 

natural gas increased in 2000–2001 and again in early 2003. Specifically, we 

determined the extent to which a correlation exists between the price of 

natural gas at the Henry Hub2

 and prices for three major types of nitrogen 

fertilizer products: anhydrous ammonia, urea, and urea ammonium nitrate 

(UAN). We selected these three products because they are widely used by 

American farmers. We also examined data obtained from the Department 

of Commerce and industry sources to determine how nitrogen fertilizer 

production behaved when natural gas prices spiked in 2000-2001 and the 

results of a U.S. Department of Agriculture (USDA) survey aimed at 

determining how farmers reacted to higher fertilizer prices in 2001. To 

determine how higher natural gas prices have affected the supply of 

nitrogen fertilizer, we obtained the results of a second USDA survey aimed 

at determining the availability of fertilizer. In addition, we analyzed 

sources, supplies, and consumption of nitrogen from fertilizer years 1996 

through 2002.3

 To address the second objective, we reviewed the 

responsibilities of federal agencies relevant to the natural gas and fertilizer 

markets and their efforts to monitor and collect information on these 

markets. We also reviewed relevant documents provided by agriculture and 

fertilizer industry representatives and interviewed these officials to obtain 

their views on what actions, if any, the federal government should take to 

mitigate the effects of high natural gas prices on the U.S. fertilizer market. 

We performed our review from February through August 2003 in 

accordance with generally accepted government auditing standards. A 

detailed description of our objectives, scope, and methodology is contained 

in appendix I. 

1

Spot prices are the current cash prices at which fertilizer is sold at various locations. For 

the purposes of our review, we used prices at two major market locations: the U.S. Gulf 

Port, whose price is considered the benchmark for fertilizer prices in North America, and 

the Mid Cornbelt. Unless otherwise specified, fertilizer prices referred to in this report are 

Gulf Port prices. 

2

The Henry Hub is one of the largest gas market centers in the United States. Its price often 

serves as a benchmark for wholesale natural gas prices across the country. The price of 

natural gas is commonly measured in dollars per million British thermal units (mmBtu), 

which is approximately 1,000 cubic feet of gas. 

3

Information on nitrogen and fertilizer production and consumption is reported in industry 

sources on a fertilizer year basis—which represents the time from July 1 to June 30. Thus, 

fertilizer year 2002 represents the time between July 1, 2001 and June 30, 2002. Unless noted, 

all references to nitrogen and fertilizer production and consumption are on a fertilizer year 

basis. 

Page 2 GAO-03-1148 Natural Gas 
Results in Brief	 Higher natural gas prices have contributed to higher nitrogen fertilizer 

prices and reduced domestic production, but supplies of fertilizer have 

been adequate during periods of high natural gas prices in the past 

primarily because of increased imports. For example, between January 

2000 and January 2001, the average price of natural gas increased by more 

than 300 percent, from $2.52 to $10.16 per mmBtu. Because natural gas is 

the most costly component used in manufacturing nitrogen fertilizer, the 

higher gas prices led to higher prices for nitrogen fertilizer. For example, 

between January 2000 and January 2001, the U.S. Gulf Port spot price for 

anhydrous ammonia, one of the most commonly used nitrogen fertilizers, 

increased by 144 percent, from $119 to $290 per ton. Higher natural gas 

prices during 2001 led to higher production costs for U. S. nitrogen fertilizer 

producers and this in turn led to a 25 percent reduction in domestic 

nitrogen production in 2001. Despite this significant decline in production, 

a USDA survey found the supply of nitrogen fertilizer was adequate to meet 

farmers’ demand. According to this survey, conducted from April to June 

2001, while nitrogen fertilizer supplies were below normal early in the year, 

they had returned to normal levels by June. Our analysis shows that the 

demand for nitrogen fertilizer was met in 2001 because (1) U.S. production 

was supplemented by an increase of about 43 percent in nitrogen imports 

and (2) agricultural consumption of nitrogen fertilizer decreased from 12.3 

million tons in 2000 to 11.5 million tons in 2001. According to industry 

officials, gas prices in 2003 are again resulting in unacceptably high 

production costs and, as a result, a decline in production levels is 

occurring. 

The federal government has a limited role in managing the impact of 

natural gas prices on the U.S. fertilizer market. Although the federal 

government does not set natural gas prices, three federal agencies—(1) the 

Federal Energy Regulatory Commission, (2) the Commodities Futures 

Trading Commission, and (3) the Energy Information Administration—are 

responsible for ensuring that natural gas prices are determined in a 

competitive and informed marketplace. Moreover, the federal government 

has no role in controlling fertilizer prices, and nitrogen fertilizer products 

imported from other countries are generally not subject to U.S. trade 

restrictions, such as quotas or tariffs. However, as part of its overall 

mission, USDA monitors developments in the agricultural sector that could 

affect farmers. Regarding the fertilizer market, USDA collects information 

on fertilizer prices and, in 2001, in response to concerns about fertilizer 

prices and availability, conducted two surveys of the fertilizer market. 

These surveys showed that there was no problem with fertilizer availability 

Page 3 GAO-03-1148 Natural Gas 
in 2001, and most farmers surveyed did not reduce their use of nitrogen 

fertilizer. 

Background	 Natural gas is a key feedstock in the manufacturing of nitrogen for which 

there is no practical substitute. Manufactured nitrogen—also known as 

anhydrous ammonia—is used as a fertilizer itself and is also the primary 

building block used to manufacture all other nitrogen-based fertilizers. 

Some of this nitrogen also is used for industrial purposes such as 

promoting bacterial growth in waste treatment plants, making plastics, and 

as a refrigerant. U.S. manufacturers supplied almost 14 million tons of 

nitrogen during fertilizer year 2002 and an additional 7 million tons were 

imported. Fifty-six percent of the total nitrogen supply was consumed by 

U.S. agricultural demands. Since natural gas is the most costly component 

of nitrogen, the profitability of the U.S. nitrogen fertilizer industry depends, 

to a large degree, on the price of natural gas in the United States. As we 

4 

reported in December 2002, natural gas prices can be volatile, and small 

shifts in the supply of or demand for gas are likely to continue to cause 

relatively large price fluctuations. In addition to facing a volatile natural gas 

market, which sometimes leads to price spikes, America’s nitrogen 

fertilizer producers must also compete in a marketplace where many 

competitors pay much lower prices for natural gas. For example, industry 

data show that recently, when the U.S. market price for natural gas was $5 

per mmBtu, lower gas prices were available to nitrogen fertilizer producers 

in other parts of the world. The price of gas in the Middle East was 60 cents 

per mmBtu; in North Africa, 40 cents; in Russia, 70 cents; and in Venezuela, 

50 cents. According to The Fertilizer Institute (TFI),5

 fertilizer products 

operate in a world market, and U.S. prices are influenced by numerous 

variables other than the price of natural gas in the United States. 

4

U.S. General Accounting Office, Natural Gas: Analysis of Changes in Market Prices, 

GAO-03-46 (Washington, D.C.: Dec. 18, 2002). 

5

TFI represents, by voluntary membership, manufacturers, retailers, trading firms, and 

equipment manufacturers of the U.S. fertilizer industry. The Institute employs a full-time 

Washington, D.C. staff in various legislative, education, and technical areas. 

Page 4 GAO-03-1148 Natural Gas 
Higher Natural Gas 

Prices Have 

Contributed to Higher 

Nitrogen Fertilizer 

Prices and Reduced 

Domestic Production 

but Have Not Affected 

Availability of Fertilizer 

Because the cost of natural gas accounts for such a large percentage—up 

to 90 percent—of the total costs of manufacturing nitrogen fertilizer, 

nitrogen fertilizer prices tend to increase when gas prices increase. When 

gas prices increased in 2001 and 2003, prices for nitrogen fertilizers 

increased throughout the marketing chain. The higher natural gas prices in 

2001 also led to higher production costs for the U.S. nitrogen fertilizer 

manufacturing industry and resulted in a significant reduction in the 

amount of nitrogen produced in this country that year. Despite this decline 

in the production of nitrogen, supplies of nitrogen fertilizer were adequate 

to meet farmers’ needs in 2001 primarily because of a significant increase in 

imported nitrogen. 

Natural Gas and Nitrogen 

Fertilizer Prices Are Closely 

Related 

Higher natural gas prices have contributed to higher prices for nitrogen 

fertilizer throughout the marketing chain. When gas prices increased 

significantly in 2001 and 2003, spot market prices, as well as the prices 

farmers paid for fertilizer, increased for all three nitrogen-based products 

included in our analysis—anhydrous ammonia, urea, and UAN. Further, the 

high prices seen in 2001 could have been even higher, if the volume of 

fertilizer imports had not increased to compensate for the reduction in 

domestic production of nitrogen. The relationship between gas prices and 

fertilizer prices was the strongest for anhydrous ammonia, at least in part, 

because anhydrous ammonia contains the highest concentration of 

nitrogen of the three fertilizer products—82 percent—and natural gas is by 

far the most costly component used in manufacturing nitrogen. Anhydrous 

ammonia is the nitrogen-based fertilizer used most often in the United 

States, and is also the primary building block for urea and UAN. As shown 

in figure 1, prices for anhydrous ammonia and natural gas prices moved 

closely in relation to each other during the period from January 1998 to 

March 2003. When gas prices increased or decreased, the spot market price 

for ammonia tended to follow the same trend. More specifically, both the 

price of natural gas and the price of ammonia peaked in January 2001 and 

again in March 2003. Closer review of the data shows that the monthly 

price of natural gas in January 2000 of $2.52 per mmBtu had risen 1 year 

Page 5 GAO-03-1148 Natural Gas 
later to $10.16 per mmBtu, an increase of 303 percent. Over the same time 

period, the price of anhydrous ammonia rose from $119 per ton to $290 per 

ton, an increase of 144 percent.6 

Figure 1: Anhydrous Ammonia and Natural Gas Prices, 1998–2003 

Anhydrous ammonia in dollars per ton Natural gas in dollars per mmBtu 

400 12 

350 

10 

300 

8 

250 

200 6 

150 

4 

100 

2 

50 

0 0 

Jan 

Apr 

l Ju

Oct 

Jan 

Apr 

l Ju

Oct 

Jan 

Apr 

l Ju

Oct 

Jan 

Apr 

l Ju

Oct 

Jan 

Apr 

l Ju

Oct 

Jan 

Apr 

1998 1999 

Source: GAO analysis of industry data. 

2000 2001 2002 2003 

Anhydrous ammonia - Gulf Port 

Natural gas 

From January 1998 to March 2003, prices of urea and UAN also reflected 

natural gas prices. However, as shown in figure 2, the relationship between 

the two was not as close as that between natural gas and anhydrous 

ammonia prices because urea and UAN contain considerably less nitrogen 

6

Although there is a strong correlation between natural gas prices and nitrogen fertilizer 

prices, many other variables influence the supply and demand market forces that ultimately 

determine fertilizer prices. In addition, U.S. companies that produce nitrogen use various 

purchasing techniques to manage their natural gas price risks; therefore, they do not 

purchase all their gas at the prevailing market price. 

Page 6 GAO-03-1148 Natural Gas 
than anhydrous ammonia: 46 percent and 32 percent nitrogen, respectively. 

Because urea and UAN prices reflect lower nitrogen concentrations, they 

did not always move in direct relationship with natural gas prices. For 

example, in May 1998, urea prices increased to $162 per ton, while gas 

prices remained basically flat. 

Figure 2: Urea, UAN, and Natural Gas Prices, January 1998–March 2003 

UAN and urea in dollars per ton Natural gas in dollars per mmBtu 

250 12 

10 

200 

8 

150 

6 

100 

4 

50 

2 

0 0 

1998 1999 2000 2001 2002 2003 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr

l Ju

l Ju

l Ju

l Jul Ju

Source: GAO analysis of industry data. 

Urea-Gulf Port 

UAN-Mid Cornbelt 

Natural gas 

Note: UAN prices are shown in dollars per ton for a 32 percent nitrogen solution. 

Moreover, the prices of nitrogen fertilizer can differ depending upon how 

much further along the marketing chain prices are recorded. For example, 

as shown in figure 3, the price for anhydrous ammonia in the Mid Cornbelt, 

where this fertilizer is primarily used, was higher than the price in the U.S. 

Gulf. This difference reflects the cost of transporting the ammonia from the 

Gulf, where it is produced, to the Mid Cornbelt. Also, changes in the price 

Page 7 GAO-03-1148 Natural Gas 
of nitrogen fertilizer can lag behind changes in natural gas prices, 

depending upon where in the marketing chain prices are recorded. For 

example, as shown in figure 3, the price for anhydrous ammonia in the Mid 

Cornbelt peaked in February 2001—about 1 month after natural gas prices 

spiked that year. Other increases and decreases in the price of Mid 

Cornbelt ammonia lagged behind natural gas price changes on other 

occasions. We believe these lags reflect the time associated with 

transporting the fertilizer from its point of origin to the farmers who 

ultimately use the product. 

Figure 3: Prices of Anhydrous Ammonia in the U.S. Gulf Port and Mid Cornbelt Relative to Natural Gas Prices, January 1998– 

March 2003 

Retail prices for nitrogen fertilizer, or those prices paid by farmers, also 

tend to rise sharply when natural gas prices increase. As shown in figure 4, 

the USDA-reported farmer prices for nitrogen fertilizer reflected the 

Page 8 GAO-03-1148 Natural Gas 
natural gas price spikes that occurred in January 2001 and March 2003. 

However, the 2001 spike in fertilizer prices lagged behind the increase in 

gas prices by about 1 month. The February 2001 price for nitrogen fertilizer 

was about 79 percent higher than it was the previous year. 

Figure 4: Farmer Prices for Nitrogen Fertilizer Relative to Natural Gas Prices, January 1998–March 2003 

Farmer price for nitrogen fertilizer in dollars per ton Natural gas in dollars per mmBtu 

400 12 

350 

10 

300 

8 

250 

200 6 

150 

4 

100 

2 

50 

0 0 

1998 1999 2000 2001 2002 2003 

Farmer price 

Natural gas 

Sources: GAO analysis of USDA, National Agricultural Statistics Service, and industry data. 

Note: Nitrogen fertilizer prices were calculated using USDA price indices and the amount of nitrogen 

contained in anhydrous ammonia, urea, and UAN. 

Furthermore, according to USDA data, the average U.S. farm-level price for 

nitrogen fertilizer during the spring, when farmers’ demand for nitrogen 

fertilizer is the highest, tracked natural gas prices. Specifically, the April 

monthly price for natural gas increased approximately 84 percent from 

April 2000 to April 2001. Over the same time period, the April farm-level 

price for anhydrous ammonia increased 76 percent from $227 to $399 per 

ton. By April 2002, gas prices had decreased by 39 percent, and ammonia 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr 

Oct 

Jan 

Apr

l Ju

l Ju

l Ju

l Jul Ju

Page 9 GAO-03-1148 Natural Gas 
prices had dropped by 37 percent from the previous year’s level. In April 

2003, the price of natural gas was again higher, increasing by 48 percent, 

and the average farm-level price of anhydrous ammonia followed this trend 

by increasing 49 percent. However, it is difficult to determine the extent of 

financial harm farmers suffered because of increased fertilizer prices in 

2001. A USDA study directed at determining how corn farmers responded 

to higher fertilizer prices in 2001 found that about 34 percent of the 

responding producers of corn—a crop that requires large quantities of 

nitrogen fertilizer—purchased a majority of their nitrogen fertilizer at 

prices that were set prior to January 2001 and, therefore, were not affected 

by the sharp rise in fertilizer prices that year. Further, these producers were 

among the largest corn-producing farms and applied the most nitrogen 

fertilizer per acre. Eleven percent of the corn producers that responded to 

the USDA survey reported adjusting their nitrogen application rates or 

practices in response to higher prices, and the remaining 55 percent of 

respondents—generally smaller corn farms that applied the least amount of 

nitrogen fertilizer—reported they took no action in response to higher 

nitrogen fertilizer prices in 2001. 

Higher Natural Gas Prices 

Had Financial 

Consequences for U.S. 

Nitrogen Fertilizer 

Producers and Led to 

Reduced Production 

The sharp rise in gas prices in 2001 had financial consequences for the U.S. 

nitrogen fertilizer manufacturing industry because of the sharp increase in 

their production costs. These higher production costs, which could not be 

recovered through higher fertilizer prices, led to plant closures and a 

significant reduction in domestic nitrogen production. According to 

industry data, several companies that manufacture nitrogen fertilizer 

reported decreased revenues or financial losses in 2001, and each cited 

higher natural gas prices as contributing to or causing the financial 

consequences. For example, one large interregional cooperative that 

produces nitrogen fertilizer for U.S. farmers and ranches reported a loss of 

more than $60 million in 2001. The company’s 2001 annual report cited high 

natural gas prices as a primary reason for the financial loss. 

Industry data obtained from the International Fertilizer Development 

Center7 showed that between January 2001 and June 2003, eight U.S. 

nitrogen fertilizer manufacturers permanently closed their plants, and a 

ninth plant had not operated since 2001. Industry officials also told us that 

7

The International Fertilizer Development Center is a public, nonprofit organization 

dedicated to increasing agricultural productivity through the development and use of sound 

plant nutrient technology. 

Page 10 GAO-03-1148 Natural Gas 
natural gas prices in 2003 have remained well above historic averages and 

are continuing to exact a financial toll on the domestic nitrogen fertilizer 

manufacturing industry. These officials cite the fact that, in June 2003, the 

U.S. industry was operating at only 50 percent of capacity as evidence of 

this toll. Further, they said the industry has suffered through several years 

of extreme financial hardship, caused in part by higher gas prices driving 

up production costs and foreign competitors who have access to less 

expensive natural gas and, if gas prices in this country remain relatively 

high, more U.S manufacturers are likely to curtail nitrogen production, and 

some could permanently shut down their plants. 

The production and consumption of fertilizer is often measured by the 

amount of nutrient content in the fertilizer applied. For nitrogen fertilizer 

products, the primary nutrient that is measured is nitrogen. Manufacturers 

supply nitrogen that is consumed in both the agricultural and industrial 

sectors. Table 1 below provides estimates of nitrogen supply and demand 

in the United States over the last 7 years, including the nitrogen nutrient 

content in fertilizer products consumed by the agricultural sector. As the 

price of natural gas, the key component in the manufacturing of nitrogen 

spiked in 2001, nitrogen production fell. As shown in table 1, U.S. 

manufacturers produced 25 percent less nitrogen in 2001 than in 2000. 

Page 11 GAO-03-1148 Natural Gas 
Table 1: U.S. Nitrogen Supply and Demand, June 30, 1996–2002 

000 tons 

Supply and 

demand 1996 1997 1998 1999 2000 2001 2002 

Producers beginning 

inventory 2,415 2,047 1,799 1,956 2,585 1,856 2,468 

Production 14,469 14,593 15,092 14,634 14,186 10,583 11,519 

Imports 4,963 4,497 5,066 6,114 6,289 8,978 7,273 

Total supply 21,847 21,137 21,957 22,704 23,060 21,417 21,260 

Consumption 16,813 16,965 17,028 17,270 17,254 16,373 16,809 

Agricultural 12,303 12,352 12,313 12,452 12,334 11,535 12,009 

Industrial 4,510 4,613 4,715 4,818 4,920 4,838 4,800 

Exports 3,292 3,365 3,390 3,458 3,442 2,768 2,945 

Producers ending 

inventory 2,047 1,799 1,956 2,585 1,856 2,468 1,690 

Total demand 22,152 22,129 22,374 23,313 22,552 21,609 21,444 

Sources: GAO analysis of Department of Commerce, Bureau of Census, and TFI data. 

Note: Total supply and total demand differ primarily because the components are derived from several 

independent sources, as explained in appendix I. 

Imports Have Helped 

Maintain Availability of 

Nitrogen Fertilizer 

Despite the significant decline in domestic production of nitrogen in 2001, 

supplies of nitrogen fertilizer were adequate to meet farmers’ demand that 

year primarily because of an increase in imports. USDA collected 

additional survey information from April to June 2001 to determine 

whether farmers were facing problems in obtaining nitrogen fertilizer. The 

results of this survey show that the supply of nitrogen fertilizer was 

adequate to meet farmers’ 2001 demand. As shown in figure 5, while 

nitrogen fertilizer supplies were below normal in several states in April 

2001, they had returned to normal levels in all but one state by June of that 

year. Nationally, nitrogen fertilizer supplies were at 92 percent of normal 

levels in early April 2001, while only 12 states reported supplies at less than 

90 percent of normal levels. Only two states—Pennsylvania and New 

Jersey—reported supplies at less than 80 percent of normal levels. 

However, by early June nitrogen fertilizer supplies were at 97 percent of 

normal levels nationally, and all but one state reported supplies at 95 

percent or more of normal levels. By June 30, 2001, USDA officials 

concluded that there were sufficient supplies of nitrogen fertilizer, and they 

stopped the survey. Furthermore, USDA did not conduct a similar survey in 

Page 12 GAO-03-1148 Natural Gas 
2003, when gas prices and fertilizer prices again increased, because it was 

unaware of any concerns about the availability of nitrogen fertilizer. 

Figure 5: Nitrogen Fertilizer Availability, 2001 

The results of USDA’s survey are consistent with our analysis, which found 

that although domestic production of nitrogen declined 25 percent in 2001, 

the overall demand was met primarily because imports increased by about 

Page 13 GAO-03-1148 Natural Gas 
43 percent. As shown in table 1, nitrogen imports increased from 6.3 million 

tons in 2000 to approximately 9 million tons in 2001. Although most 

nitrogen fertilizer imported into the United States has for the past several 

years come from Canada, the amount of nitrogen fertilizer imported from 

Canada decreased by almost 13 percent in 2001. On the other hand, 

nitrogen fertilizer imports from Trinidad Tobago, Venezuela, and Ukraine 

increased by 19 percent, 59 percent, and 469 percent, respectively, in 2001. 

The price of natural gas in these three countries was considerably lower 

than the price of gas in the United States; thus, fertilizer producers in these 

countries were able to produce nitrogen fertilizer at much lower costs than 

domestic producers. 

Table 1 also shows that domestic agricultural consumption of nitrogen 

decreased from 12.3 million tons in 2000 to 11.5 million tons in 2001—or 

about 7 percent. At least part of this reduction can be attributed to the 

impact of higher fertilizer prices on the country’s farmers. For example, 

according to USDA’s survey aimed at determining how corn farmers 

responded to higher fertilizer prices in 2001, 11 percent of responding 

farmers reported they adjusted their nitrogen fertilizer rates or practices in 

response to higher nitrogen fertilizer prices that year. About 80 percent of 

these farmers reduced their nitrogen fertilizer use by an average of 23 

percent. 

Federal Government 

Has a Limited Role in 

Managing the Impact of 

Natural Gas Prices on 

the Fertilizer Market 

The federal government has a limited role in managing the impact of 

natural gas prices on the domestic fertilizer market. For example, the 

government does not determine the price of natural gas; however, two 

federal agencies—the Federal Energy Regulatory Commission (FERC) and 

the Commodity Futures Trading Commission (CFTC)—play important 

roles in promoting competitive natural gas markets by deterring 

anticompetitive actions. In addition, the Energy Information 

Administration (EIA) is responsible for obtaining information about and 

analyzing trends in the natural gas market that are used by industry and 

government decision makers. As with natural gas, the federal government 

does not set or control prices for nitrogen fertilizer. However, as part of its 

overall mission, USDA does monitor developments in the agricultural 

sector that could affect farmers. Regarding the fertilizer market, USDA 

collects, analyzes, and disseminates information on fertilizer prices and 

uses and, in 2001, collected additional information on the supply of 

nitrogen fertilizer and how higher fertilizer prices affected farmers. Lastly, 

USDA provides insurance and commodity price support programs to assist 

Page 14 GAO-03-1148 Natural Gas 
America’s farmers in managing risks associated with crop yields and 

revenues. 

Federal Role in the Natural 

Gas Market Is Focused on 

Ensuring a Competitive 

Marketplace 

As we reported in December 2002, in today’s deregulated market the 

federal government does not control the price of natural gas. However, two 

federal agencies are responsible for ensuring that natural gas prices are 

determined in a competitive marketplace. Specifically, FERC plays a major 

role in overseeing the natural gas marketplace to ensure that prices are just 

and reasonable and free from fraud and market manipulation. Similarly, 

CFTC exercises regulatory oversight of natural gas derivatives8 that are 

traded on federally regulated exchanges, such as the New York Mercantile 

Exchange, to protect traders and the public from fraud, manipulation, and 

abusive practices. 

Following the price increases that occurred in the natural gas market 

during 2000–2001, both FERC and CFTC initiated investigations into 

possible fraud or manipulation. In August 2002, FERC reported that it had 

found indications that several companies may have manipulated spot 

prices upward for natural gas delivered to California during 2000–2001.9

 In 

March 2003, FERC reported that it had found evidence of manipulation of 

both electricity and natural gas markets, and that spot market gas prices 

were not produced by a well-functioning competitive market.10 FERC staff 

made several recommendations to FERC commissioners aimed at 

correcting the deficiencies they found in the electric as well as the natural 

gas market. In a statement before the National Energy Marketers 

Association on April 4, 2003, the Chairman of CFTC acknowledged that the 

commission had imposed monetary penalties and filed complaints in 

federal court against several companies in connection with false reporting 

and attempts to manipulate natural gas prices and operating an illegal 

futures exchange. The Chairman also said that CFTC was actively engaged 

in other energy sector investigations, and further charges might be filed. 

8

These natural gas derivatives are futures and options contracts whose value is derived from 

the price of natural gas itself. These contracts can be bought and sold by entities that are 

interested in protecting themselves against increases in the price of natural gas. 

9

FERC, Initial Report on Company-Specific Separate Proceedings and Generic 

Reevaluations: Published Natural Gas Price Data; and Enron Trading Strategies, August 

2002. 

10FERC, Final Report on Price Manipulation in Western Markets, March 2003. 

Page 15 GAO-03-1148 Natural Gas 
Following the price spike that occurred in the natural gas market in 

February 2003, FERC and CFTC again undertook investigations of possible 

market manipulation. On July 23, 2003, they issued a joint statement saying 

that neither investigation had identified evidence of market manipulation. 

FERC concluded that gas prices had risen in apparent response to 

underlying supply and demand conditions and in a manner consistent with 

those conditions.

11 CFTC said that it found nothing that suggested 

manipulative activity in the natural gas futures and options market during 

the week of February 24, 2003. 

A third federal agency—EIA—analyzes energy price movements and 

provides market information that gas industry analysts use as an indicator 

of both supply and demand. For example, in May 2002, EIA began reporting 

estimates on the volume of gas in storage, which is a key predictor of future 

natural gas prices. EIA also provides weekly and monthly updates on the 

natural gas market and special reports on various issues affecting the gas 

market. In its August 2003 energy outlook, EIA reported that gas prices at 

the Henry Hub, one of the largest gas market centers in the United States, 

fell below $4.70 per mmBtu during the last week in July 2003. This was 

considered significant because these prices had been considerably above 

$5 per mmBtu on a monthly basis since the beginning of the year. However, 

EIA advised that gas prices are at risk for volatility and industrial users who 

rely on spot market purchases for their gas, such as nitrogen fertilizer 

producers, face the greatest risk of higher natural gas prices. 

11FERC, Report on the Natural Gas Price Spike of February 2003, July 2003. 

Page 16 GAO-03-1148 Natural Gas 
Federal Role in the 

Fertilizer Market Is Limited 

The federal government does not control prices for nitrogen fertilizer, and 

nitrogen fertilizer products imported from other countries are generally not 

subject to U.S. trade restrictions, such as quotas and tariffs.12 However, as 

part of its overall mission, USDA does monitor and report on developments 

in the agricultural sector that could affect farmers and offers certain 

programs to help farmers manage the risks associated with crop yield and 

revenues. The National Agricultural Statistics Service (NASS) collects 

information on agricultural acreage, production, stocks, prices, income, 

and information on fertilizer prices and uses. For example, the annual 

Agricultural Chemical Usage report provided by NASS includes 

information for targeted crops by major producing states on how much and 

what type of fertilizer was applied per acre. NASS also reports monthly 

price indices for three major fertilizer types—nitrogen, phosphate, and 

potassium—and actual prices paid by farmers for several fertilizer 

products in April of each year. 

In addition to its routine surveys, USDA collected additional information in 

2001 about nitrogen fertilizer availability and prices. According to officials 

from the Office of the Chief Economist, this information was collected 

because Congress and others had raised concerns about higher natural gas 

prices and the possible impact these prices would have on the availability 

and price of fertilizer. In order to collect this information, questions were 

added to USDA’s ongoing Crop Progress survey aimed at determining the 

availability of nitrogen fertilizer in 2001 and to the Agricultural Resource 

Management Survey to determine how corn growers responded to the 

higher nitrogen fertilizer prices that occurred in 2001. The results of this 

additional survey information are discussed elsewhere in the report. 

12Although nitrogen fertilizer is generally imported into the United States under a free trade 

arrangement, the United States International Trade Commission has, since 1999, ruled on 

four cases alleging that certain nitrogen fertilizers exported from several countries were 

being sold in the United States at less than fair value. In three of these cases —(1) Solid Urea 

from Armenia, Belarus, Estonia, Lithuania, Romania, Russia, Tajikistan, Turkmenistan, 

Ukraine, and Uzbekistan, USITC Pub. 3248, Inv. Nos. 731-TA-339 and 340-A-1 (October 1999); 

(2) Certain Ammonium Nitrate from Russia, USITC Pub. 3338, Inv. No. 731-TA-856, (August 

2000); and (3) Certain Ammonium Nitrate from Ukraine, USITC Pub. 3448, Inv. No. 731-TA894, (August 2001) —the Commission found that certain fertilizers imported from the cited 

countries were being sold at prices that materially injured the industry in the United States. 

Therefore, the price of certain nitrogen fertilizers imported from Armenia, Belarus, Estonia, 

Lithuania, Romania, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan was 

restricted, either by order or agreement. These restrictions are still in effect. 

Page 17 GAO-03-1148 Natural Gas 
USDA also offers insurance and commodity price support programs to help 

farmers manage risk associated with crop yields and revenues, but it 

currently does not offer similar programs to cover the risks associated with 

farm production costs, such as the cost of fertilizer. For example, in 2002, 

USDA’s insurance program covered crops valued at $41 billion, and 

commodity price support payments have averaged more than $10 billion 

per year since 1996. According to USDA officials, the agency does not offer 

insurance to cover the risks associated with farm production costs because 

these risks tend to be small compared with the risks associated with crop 

prices. Since a farmer’s income per acre from a crop equals the crop price 

times the yield, changes in either crop price or yield are directly and fully 

reflected in a farmer’s income. As shown in table 2, crop prices can change 

significantly over time and from year to year. From 1996 to 2001 the 

average price of corn declined by $.98 per bushel, or 35 percent, and 

average corn prices declined by $.61 per bushel—24 percent—from 1997 to 

1998. Overall, from 1996 to 2001, average corn yields increased only 11 

percent—from 130 bushels per acre to 144 bushels per acre. In addition, 

while national average yields are relatively stable from year to year, the 

actual yields for individual farmers can vary significantly from year to year 

as a result of natural causes, such as weather conditions and the extent of 

loss caused by insects and diseases. 

Table 2: Average Corn Prices, 1996–2001 

Crop prices/yields 1996 1997 1998 1999 2000 2001 

Price (dollars per bushel at harvest 2.82 2.52 1.91 1.69 1.77 1.84 

Yield (bushels per planted acre) 130 130 136 135 138 144 

Source: USDA, Economic Research Service. 

In contrast, a farmer faces fewer risks with costs of production because 

these costs tend to remain stable from year to year. As shown in table 3, 

total production costs per acre for a corn farm remained relatively stable 

from 1996 through 2001, and changes in different cost categories often 

offset one another. For example, although average fertilizer costs increased 

by $8.68 per acre from 2000 to 2001, this large increase was offset by a 

decrease of $8.24 in fuel, lube, and electricity costs. Other production costs 

also decreased and, as a result, total production costs decreased by $3.84, 

or about 2 percent. 

Page 18 GAO-03-1148 Natural Gas 
Table 3: Average Costs of Materials Used per Acre on Corn Farms, 1996–2001 

Cost categories 1996 1997 1998 1999 2000 2001 

Fertilizer $47.04 $46.21 $41.44 $38.75 $39.04 $47.72 

Seed 26.65 28.71 30.02 30.29 30.02 32.34 

Chemicals 27.42 26.87 27.36 28.40 28.82 26.44 

Fuel, lube, and electricity 24.43 24.55 22.96 23.04 29.12 20.88 

Repairs 15.78 16.17 16.65 17.17 17.55 13.76 

Custom operations 11.30 11.30 11.29 11.37 11.48 10.94 

Manure 0.60 0.56 0.51 0.49 0.48 2.65 

Interest on operating capital 3.86 3.96 3.61 3.50 4.53 2.60 

Other variable cash expenses 0.30 0.32 0.31 0.31 0.31 0.22 

Soil conditioners (lime) 0.16 0.16 0.16 0.17 0.16 0.12 

Total costs $157.54 $158.81 $154.31 $153.49 $161.51 $157.67 

Source: USDA, Economic Research Service. 

Similarly, although USDA provides information to farmers through the 

Cooperative State Research, Education and Extension Service to help them 

participate in farm commodity futures markets, there is relatively little 

information regarding farm production costs, such as fertilizer. According 

to a state extension service official, the extension service has issued 

several publications that provide information on farm commodity futures 

markets because farmers are generally familiar with these markets and 

have access to the information needed to participate successfully in these 

markets. However, the extension service generally does not encourage 

farmers to participate in futures markets involving farm production cost 

items, such as fuels, because farmers are not as familiar with these 

markets. Instead, farmers generally use various prepayment methods to 

control the costs of items used in producing crops. 

Observations	 Natural gas is the most costly ingredient used in manufacturing nitrogen 

fertilizer products. However, the price of natural gas can vary significantly 

in different markets throughout the world. Unfortunately for domestic 

nitrogen fertilizer manufacturers, the price of natural gas in the United 

States can far exceed its price in other parts of the world. As a result, 

domestic manufacturers are at a competitive disadvantage when domestic 

natural gas prices rise. Manufacturers can close plants in response to 

periodic price spikes and resume production when prices drop again, but 

higher prices sustained over the long term may result in more permanent 

Page 19 GAO-03-1148 Natural Gas 
curtailment of domestic production. In the past, farmers’ needs for 

fertilizer have been met by increases in imports when domestic production 

has been curtailed, as it was in 2001. However, it remains to be seen how 

well the market will respond to further reductions in the domestic 

production of nitrogen fertilizer that may be caused by more sustained 

higher natural gas prices in the future. Earlier this year, increased natural 

gas prices once again caused higher production costs for the nation’s 

fertilizer manufacturing industry, which in turn contributed to a reduction 

in the amount of nitrogen being produced and an increase in nitrogen 

fertilizer prices. Although it is too early to determine whether these higher 

gas prices will have the same adverse effect on the fertilizer manufacturing 

industry as higher gas prices did in 2001, some within the industry contend 

that continuing higher gas prices are threatening the industry. 

Agency Comments	 We provided USDA and TFI with a draft of this report for review and 

comment. We received oral comments from USDA and TFI officials, who 

agreed with our facts and observations. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the USDA Secretary, The 

Fertilizer Institute, and other interested parties. We also will make copies 

available to others upon request. In addition, the report will be available at 

no charge on the GAO Web site at http://www.gao.gov. 

Page 20 GAO-03-1148 Natural Gas 
Questions about this report should be directed to me at (202) 512-3841. Key 

contributors to this report are listed in appendix II. 

Sincerely yours, 

Jim Wells 

Director, Natural Resources 

and Environment 

Page 21 GAO-03-1148 Natural Gas 
Appendix I 

Objectives, Scope, and Methodology


In our study of the natural gas and nitrogen fertilizer markets, we 

determined (1) how the price of natural gas affects the price, production, 

and availability of nitrogen fertilizer and (2) the federal government’s role 

in managing the impact of natural gas prices on the U.S. fertilizer market. 

To address these objectives, we reviewed pertinent documents and 

obtained information and views from a wide range of officials from both 

the federal government and the private sector. We interviewed staff and/or 

obtained information from the Department of Agriculture’s (USDA) Office 

of the Chief Economist, Economic Research Service, National Agricultural 

Statistics Service, and Cooperative State Research, Education and 

Extension Service; the Department of Commerce; the Department of 

Energy’s Energy Information Administration; the Federal Energy 

Regulatory Commission; the Commodity Futures Trading Commission; and 

the International Trade Commission. We also discussed the relationship 

between the natural gas and nitrogen fertilizer markets with 

representatives from various industry organizations, including The 

Fertilizer Institute (TFI); the International Fertilizer Development Center; 

the American Farm Bureau Federation; Agrium Incorporated; CF 

Industries, Incorporated; and Terra Industries, Incorporated. 

To determine how the price of natural gas affects the price of nitrogen 

fertilizer, we examined industry-supplied natural gas prices and industry, as 

well as government, price data for nitrogen fertilizer and determined how 

fertilizer prices behaved when gas prices increased in 2000–2001 and again 

in 2003. We determined the extent to which a correlation existed between 

the price of natural gas and prices for three nitrogen fertilizers, anhydrous 

ammonia, urea, and urea ammonium nitrate, which were included in our 

analysis because they are widely used by American farmers. We compared 

natural gas and nitrogen fertilizer prices for the period January 1998 

through March 2003. More specifically, we obtained industry prices for 

natural gas at the Henry Hub from Global Insight (USA), Inc. We selected 

Henry Hub prices because this market center is one of the largest in the 

country and often serves as a benchmark for wholesale natural gas prices 

across the country. We obtained monthly spot prices, or the current cash 

prices at which nitrogen-based fertilizers are sold at various locations, from 

an industry source—Green Markets: Fertilizer Market Intelligence Weekly. 

Green Markets, a Pike & Fischer, Inc., publication, collects independent 

spot price quotes for 19 fertilizer commodities every week. Our analysis of 

the market data included fertilizer prices at two major market locations: (1) 

the U.S. Gulf Port, whose prices are considered the benchmark for fertilizer 

prices in North America, and (2) the Mid Cornbelt, where large quantities of 

Page 22 GAO-03-1148 Natural Gas 
Appendix I


Objectives, Scope, and Methodology


nitrogen fertilizer are used. In addition, we compared the relationship 

between the prices paid by farmers for nitrogen fertilizer and natural gas 

prices. To do this, we calculated the monthly prices paid by farmers for 

nitrogen fertilizer. We used the April prices paid by farmers for anhydrous 

ammonia, urea ammonium nitrate (32 percent nitrogen solution) and urea 

(46 percent nitrogen). Since these prices are reported only once a year in 

April, we applied the monthly prices paid index for nitrogen fertilizer 

published by USDA to the April prices in order to calculate a monthly price 

for nitrogen fertilizer. We did this by using the appropriate weights, 

supplied by USDA, for each of the fertilizer components (anhydrous 

ammonia, urea ammonium nitrate, and urea). The index for nitrogen 

fertilizer is based on the Producer Price Index series (PPI) and appropriate 

subcomponents from the Bureau of Labor Statistics. The April fertilizer 

prices are obtained by survey from establishments selling fertilizers to 

farmers. 

To determine the effect of natural gas prices on domestic nitrogen fertilizer 

production, we examined nitrogen inventory, production, and consumption 

data obtained from government and industry sources from 1996 through 

2002. These data (shown in table 1) reflect the estimated quantity of 

nitrogen in the United States, including the nitrogen nutrient in several 

fertilizer products—anhydrous ammonia, ammonium nitrate, ammonium 

sulfate, aqua, nitrogen solutions, urea, and other nitrogen materials. The 

estimated nitrogen production, imports, and exports were derived from the 

Department of Commerce, Bureau of Census, quarterly report Inorganic 

Fertilizer Materials and Related Products (MQ325B). The inventory data 

were taken from a TFI report, Fertilizer Record, which reflects the results 

of a TFI monthly survey of domestic nitrogen fertilizer producers. The 

agricultural consumption data were derived from reports filed by fertilizer 

users with state fertilizer control officials. These reports are tabulated by 

the Association of American Plant Food Control Officials, Inc. (AAPFCO) 

and TFI and published by TFI in Commercial Fertilizers. Because of the 

incompleteness of the state fertilizer consumption reports, an unknown but 

significant amount of missing data, particularly for the most recent year, 

are imputed based on historical information by AAPFCO and TFI. The 

estimates described above were used in this report for several reasons. 

First, the estimates of total supply and total demand, which reflect the 

combination of data from several independent sources, differ only slightly. 

Second, the trends in consumption from the trade source are consistent 

with those in the related Census Bureau series. Third, these data are widely 

used by companies that produce nitrogen fertilizer. In addition, we 

reviewed financial reports and other industry documents that describe how 

Page 23 GAO-03-1148 Natural Gas 
Appendix I


Objectives, Scope, and Methodology


the nitrogen manufacturing industry responded to higher natural gas prices 

and interviewed industry and government officials to obtain their views 

and comments. 

In determining the effect of higher natural gas prices on the supply of 

nitrogen fertilizer, we relied primarily on the results of a USDA survey on 

fertilizer availability in 2001. According to USDA officials, they added 

questions concerning nitrogen fertilizer supplies to the ongoing Crop 

Progress survey1

 because this was the most efficient and reliable survey 

vehicle available on short notice. USDA asked respondents to report on the 

adequacy of nitrogen fertilizer supplies that were available to producers in 

their area. Although the responses were subjective, those people providing 

the responses are widely respected as the most knowledgeable about 

agricultural situations in their respective counties. The results of the survey 

questions used to gather information on the availability of nitrogen 

fertilizer were presented in the National Agricultural Statistical Service’s 

Crop Progress report dated June 4, 2001. We also examined data contained 

in our supply and demand table (table 1) to determine sources, supplies, 

and consumption of nitrogen fertilizer over the 7-year period ending in June 

2002. 

To determine what role the federal government plays in managing the 

impact of natural gas prices on the U.S. fertilizer market, we reviewed the 

responsibilities of federal agencies regarding the natural gas and fertilizer 

markets and their efforts to monitor and collect information on these 

markets. We reviewed relevant documents provided by agriculture and 

fertilizer industry representatives and interviewed these officials to obtain 

their views on what actions, if any, the federal government should take to 

mitigate the effects of high natural gas prices on the U.S. fertilizer market. 

We also reviewed relevant documents and interviewed USDA and state 

extension service officials regarding how farmers manage the risks 

associated with their production costs and the federal government’s role in 

assisting farmers in managing these risks. Finally, we reviewed the results 

1

USDA, National Agricultural Statistics Service conducts crop progress surveys on a weekly 

basis from early April to the end of November to collect specific data and the overall 

condition of selected crops in major producing states. The surveys are nonprobability 

surveys that include a sample of more than 5,000 people who make visual observations and 

have contact with farmers in their counties. 

Page 24 GAO-03-1148 Natural Gas 
Appendix I


Objectives, Scope, and Methodology


of a USDA analysis of the 2001 Agricultural Resource Management 

Survey, which was used to gather information on how American farmers 

who grow corn responded to the higher nitrogen fertilizer prices in 2001.2 

The results of this analysis were presented in the USDA, Economic 

Research Service’s Agricultural Income and Finance Outlook report dated 

September 26, 2002. 

We performed our review from February through August 2003 in 

accordance with generally accepted government auditing standards. While 

we did not independently verify the accuracy of natural gas and fertilizer 

prices and other data obtained from industry sources, we did compare 

these data with other relevant data to ascertain the reasonableness of the 

data we used. We also interviewed knowledgeable government and 

industry officials to determine the reasonableness of the data and our use 

of them. We determined that the data were sufficiently reliable for the 

purposes of our report. 

2

The Agricultural Resource Management Survey, conducted by USDA’s Economic Research 

Service, is an annual, state-by-state survey of farms and agricultural commodities conducted 

to obtain information about the financial condition, production practices, resource use, and 

economic well being of America’s farm households. Trained enumerators conduct personal 

interviews of a statistical sample of farm operators to collect data for this survey. 

Page 25 GAO-03-1148 Natural Gas 
Appendix II 

GAO Contacts and Staff Acknowledgments


GAO Contacts	 Jim Wells (202) 512-3841 

Mark Gaffigan (202) 512-3168 

Staff 	 In addition to the individuals named above, Carol Bray, James Cooksey, 

Nancy Crothers, Paul Pansini, Robert Parker, and Barbara Timmerman Acknowledgments made key contributions to this report. 

(360306) Page 26 GAO-03-1148 Natural Gas 
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