The tragic events this fall put life in perspective. Here at MFA our hearts and thoughts go out to the victims of the atrocity. Actions such as these have far-reaching, unexpected consequences. Let's hope those sponsoring or encouraging terrorism suffer dire consequences. One of the unforeseen reactions, oddly enough, is showing up in the fertilizer industry. Because of the volatile situation in the Middle East, insurance premiums for ships operating there have risen enough to hinder deliveries in the global market.

Today's market is a worldwide phenomenon. China, Australia and India have recently come on-line as producers and exporters of plant foods. Just a few years ago, China and India were large importers. At that time their demands were met by increased production in North America. Those increases in production and capacity were based on faulty information and faulty reasoning. China has long been opaque to outsiders. This time was no exception. So too with India. Now both are exporters, a situation that contributes to oversupply.

Adding another level of complexity is the fact that both nations subsidize their industry substantially. That may, in fact, work to industry's benefit. India is reportedly losing so many millions underwriting its industry that the Indian government may stop the payments and go back to importing plant food. Both actions would help ease market stresses.

Complicating the picture further is the fact South America has emerged as a huge player in the industry. Natural gas from the oil fields of South America up until a few years ago was a nuisance. No one in a tropical area needs natural gas for heating. Now it is used to manufacture nitrogen products. Natural gas is the primary component in producing anhydrous ammonia, accounting for 75 to 90 percent of the total cash cost of production. Anhydrous is the seed stock used to produce urea, nitrogen solution and ammonium nitrate. That gave South American producers a huge advantage last year when natural gas prices skyrocketed. But this year, natural gas prices dipped back under $2 per million British thermal unit--a totally unexpected event. Last January, the price reached $9.90. Suddenly, U.S. nitrogen producers are back in the market.

Reflecting all of the above, U.S. nitrogen and phosphate prices are at low ebb. So for those of you who are looking for fall-applied fertilizer, now's the time to order. You won't see these prices for long. In fact, the domestic fertilizer manufacturing industry is in turmoil. I'm a board member of CF Industries and a member of its audit committee. CF is the huge interregional plant foods cooperative MFA and eight other regional cooperatives formed in the middle of last century. CF supplies its members with nitrogen and phosphate.

CF Industries is one of five major players in the industry. Its mission is to provide its members with an assured supply of quality fertilizers "at the lowest possible total cost--where total cost includes an appropriate allowance for cost of capital." In this past fiscal year, CF sold 8.2 million tons of plant foods and had net sales of $1.1 billion. In doing so, it lost $63.6 million. Most of you who keep track of the fertilizer market know why: the above-mentioned worldwide over-capacity coupled with weak demand and compounded by last winter's alarming rise in natural gas prices. Selling prices for nitrogen and phosphate for this past fiscal year were significantly below the cost of production for U.S. producers. In other words, the more industry produced the more money industry lost. That's no way to run a business.

Ownership was more of an advantage when we started CF Industries in the late 1940s. MFA has $36 million invested, a substantial sum for a cooperative. And, no, CF is not in danger of folding. The interregional cooperative remains in sound financial condition. But I could think of better places to invest $36 million today. Still, there is a limit to the number of years any manufacturer can survive a downturn this extreme. The long-term growth rate for the fertilizer industry is projected to be 1 to 2 percent a year. At that rate, it will be a long time before the industry is stable, much less profitable. That does concern me.

CF is hoping for a gradual recovery in demand. The recovery, though, is dependent on no additional capacity being added. As you can imagine, there is bound to be a shakeout in the industry. Someone has to exit the market and remove excess capacity. I've seen the balance sheets of the other players in the plant foods industry. A look at those balance sheets tells you just how seriously the fertilizer industry has been rocked by the developments of the last few years.

Softening all these blows are several expected factors. Analysts believe world population growth and improved diets in developing countries will expand trade. China's entrance into the World Trade Organization and the resulting opening of its markets will entice stability. And so far as I can tell, the only good to come out of last winter's staggering natural gas prices was the increased investment in development of new gas supplies and delivery systems. That should keep prices moderate this heating season.

Now let's hope the plant foods industry stabilizes.