Fertilizer: Pedal To The Metal

Caution, not commitment, is the “c-word” used most often in crop nutrient circles this year, all the way up the supply chain. A slow start to spring buying in many parts of the country has put much of the industry on edge, trying to prepare for what could be another challenging year for fertilizer.

“Everyone is waiting for growers to start buying,” says Jeff Greseth, director of supply and trading, Crop Nutrients, for CHS. “With many of those decisions being made later than normal this year, and some products already in tight supply, we’ll definitely be pushing the limits of just-in-time delivery this spring.”

The just-in-time delivery concept becomes more complicated with urea, since half of the 8 million tons used annually in the United States is imported from outside of North America, says Matt Bohan, international product manager for CHS. “About 2 million tons of urea is imported from the Arab Gulf each year. Vessels sailing from there typically take about 30 days to reach U.S. ports. But recently, in order to avoid the added costs of going through the Suez Canal, as well as the Somalian pirate threat, those vessels are going all the way down around South Africa and up to the U.S., which adds another 10 days to the voyage.

“Then, it takes another five days to discharge the vessel, and 21 to 28 days for the barges to make it up the Mississippi River, so you’re now looking at a total of 75 to 80 days from when product is loaded in the Arab Gulf until it arrives at terminals in the Midwest,” he says.

Based on this, it takes advanced planning to get vessels to the U.S. in time, he adds. “Someone needs to step in and buy them, but because of the losses taken last year, there is more reluctance to do that this year. This will be felt in the supply chain this spring.”

Along with the Arab Gulf, other sources for U.S. urea imports include China, Venezuela, and Trinidad, which supply spot cargos that have totaled around 1 million tons annually in recent years. “That amount is less dependable because spot cargos will only go to the highest priced markets, and over the past eight months, U.S. urea prices have been below world prices,” says Bohan. “That’s a major reason we are still almost 1 million tons below the usual 12-month rolling average heading into spring.”

The latest USDA estimates are for 88 million acres of corn crop to be planted this spring, which is up from the five-year average of 86 million acres, he adds. “With current dealer inventories significantly below last year’s levels, plus 2 million more acres of corn and 1 million fewer tons of urea, there is potential for a urea shortage.”

With the majority of phosphates, UAN, and ammonia produced domestically, there is less concern about overall supplies, notes Greseth. “Strong international demand and a busy export market has pushed phosphate prices higher in recent months, and now producers say their production could be limited due to sulfur shortages,” he says. “But for the most part, supplies should be adequate for spring.”

Longer Supply Chain

With more importation of crop nutrients in recent years, the supply chain has gotten stretched out, notes Dan Mack, vice president, transportation and business development, CHS Grain Marketing.

“That impacts the industry’s ability to thread the needle of just-in-time product delivery. We’re likely to be pushing the limits of the transportation system this spring, if fertilizer buying is delayed much more,” he says.

There will likely be several major limitations in moving crop nutrients this spring, he says, including the large volume of product that will need to go through the chain within what could be a relatively short amount of time. “The sheer volume, along with soft track and the potential for spring flooding in areas that have seen heavy snowpack this winter, could also increase the length of time it takes to get product to the end destination. We saw this happen last spring, with flooding and wet conditions. For facilities located on branch lines, railroads may be forced to impose weight limitations for tracks in those conditions and it takes longer than normal to get the necessary amount of product delivered.”

Load-out capabilities can be a limiting factor, as well as the railroads’ abilities to turn rail equipment quickly. “While most railroads now have good availability of rail cars, they are willing to commit only a portion of that fleet to hauling fertilizer,” he says. “They may be the exact same type of car, but we can’t assume a railroad will automatically increase their fertilizer fleet by converting more of its grain cars to satisfy a short-term demand increase.”

On the upside, the increase in unit train facilities in recent years has helped to increase capacity within the distribution system. “The unit train concept allows dealers to pre-position a large percentage of their annual product needs,” says Mack. “What used to be delivered by the railcar or truckload is now being moved in 80- and 100-car trainloads, with up to 40,000-ton capacities.”

This year that volume advantage in transportation won’t be felt until dealers can get enough grower commitments, says Greseth. “So far this spring, few dealers are willing to lay in much more product than they have sold. With the losses many took last year, that is understandable.”

Last year’s planting season was stretched farther than most thought possible, and that lengthened the window for fertilizer application a bit. But there is still a lot of fertilizer to be shipped this spring, adds Mack. “That means there will be logistical constraints that could have implications for product supply. My best advice is for dealers to get product in place as soon as they can, but be prepared for some delays.”

Risk Management Options

Keeping inventories low has become the main method for managing risk for both fertilizer producers and dealers this year.

“No one wants to get caught with excess inventories again,” notes Keith Swanson, CHS Crop Nutrients risk management services. “Most want to end the season empty.”

There are a few other strategies a dealer can use to reduce risk on crop nutrient, he says, including using the swaps market to transfer the price risk of their inventory. “But dealers can’t access that market on their own. That’s why CHS developed a dealer risk management service — to provide access to swaps and offer timely market intelligence to participating dealers.”

He says another strategy would be to work with a supplier to take unpriced inventory into dealer storage, if space exists. “It could help dealers get ahead of all the just-in-time buying we expect to see this spring, while shifting price risk upstream. The dealer would be giving up warehouse space and lose the appreciation he could claim on owned product, but it would allow him to have product in place without incurring the price risk.”

Dealers should continue to encourage growers to develop a marketing plan that is linked to input purchases, says Swanson. “Farmers need to get into the habit of buying inputs and marketing grain simultaneously. But currently I’d say less than 5% are doing that.”

This back-to-back selling/buying is the best way to reduce financial risk, and is something increasingly seen at the dealer level, says Greseth. “It means we’re dealing with a lot more small purchases, but with the current level of uncertainty out there about the spring season, it’s one of the only ways dealers can do business and still sleep at night.”

Leave a Reply

Fertilizer Stories

FertilizerKoch Agronomic Services Launches N-TEGRATION Technology
July 27, 2015
Koch Agronomic Services, LLC (KAS) has launched  N-TEGRATION Technology, a process technology platform designed to enable production of enhanced efficiency fertilizers at Read More
FertilizerWSJ: Cf Industries Exploring Merger With Dutch Chemical Company
July 23, 2015
U.S. fertilizer maker CF Industries is in advanced merger talks with Amsterdam-listed chemical company OCI NV, the Wall Street Journal Read More
Crop InputsH.J. Baker Launches Fall Sulphur Campaign
July 22, 2015
H.J. Baker has launched their “Keep Your Future Green – Use Tiger This Fall and Win Big” campaign. The campaign Read More
FertilizerNew Research Could Lead To Less Reliance On Nitrogen, Eliminate Runoff
July 21, 2015
Farmers often are required to apply nitrogen fertilizers to their crops to maintain quality and improve yields. Worldwide, farmers used Read More
Top 100 Articles
CropLife 100Allied Ag Distributors Adds Four New Owners
July 30, 2015
Aligned Ag Distributors LLC has announced the addition of four new customer/owners to Franklin Holding Co. LLC. They are: The Read More
CropLife 100Pinnacle Purchases California-Based Specialty Crops Retailer
July 20, 2015
Pinnacle Agriculture Holdings has successfully acquired California-based NH3 Service Co.  Operating as part of Pinnacle’s Performance Agriculture brand, the new locations Read More
Asmus Farm Supply liquid fertilizer facility features 20,000 square feet
CropLife 100Slideshow: Asmus Farm Supply Shows Off Its New Liquid Fertilizer Facility
July 15, 2015
Asmus Farm Supply, Rake, IA, recently added a new liquid fertilizer facility to its company operations. The new liquid fertilizer Read More
CropLife 100Wilbur-Ellis Feed Division Facilities Receive Safe Feed/Safe Food Certification
July 13, 2015
Wilbur-Ellis Co.’s Feed Division, a marketer and distributor of value-added feed ingredients for the aquaculture, livestock and pet food industries Read More
CropLife 100BRANDT Expands To Brazil With Acquisition
July 8, 2015
BRANDT has acquired a majority interest in Target Brasil Fertilizantes Ltda. through its Brazilian subsidiary. Target Brasil manufactures, distributes and Read More
Milan Kucerak, president/CEO, West Central
CropLife 100West Central Cooperative And Its New President Are A Match Made In Deviation
June 29, 2015
To appreciate just how unique West Central Cooperative is in the world of ag retail, an observer need only consider Read More
Latest News
CropLife 100Allied Ag Distributors Adds Four New Owners
July 30, 2015
Aligned Ag Distributors LLC has announced the addition of four new customer/owners to Franklin Holding Co. LLC. They are: The Read More
FungicidesReport: Sudden Death Syndrome Symptoms Appearing In Soy…
July 30, 2015
Last week, symptoms of sudden death syndrome (SDS) began to appear in April 15-planted soybeans at the University of Illinois’s Read More
Seed/BiotechAdvanta Seeds Adds New Phoenix Corn Hybrids
July 30, 2015
Corn growers in the High Plains and Western states have new options available for the 2016 growing season from Advanta Read More
ManagementTechnology and agriculture: a Futurist’s Perspective
July 30, 2015
Futurist David Zach, speaking at this week’s InfoAg Conference in St. Louis, shared thoughts on the benefits and limitations of Read More
Biofuels Plant in Lousiana
Industry NewsIdle Biofuels Plant In Louisiana To Reopen As Ammonia F…
July 30, 2015
A Lithuania-based company plans to spend $265 million to reopen an idle biofuels refinery in Grant Parish as an ammonia Read More
FFA at Monsanto Booth at the 2015 National Farm Machinery Show
Industry NewsFive Students Receive The 2015 Monty’s Plant Food Compa…
July 29, 2015
This fall, five college-bound students will have financial support through the Monty’s Plant Food Company FFA Scholarship. All five scholarship Read More
GYPSOIL Blendable Pellets
Crop InputsBeneficial Reuse Management Launches Pelletized Gypsum …
July 29, 2015
Beneficial Reuse Management (BRM) announced this week at Ag Media Summit that its GYPSOIL Pelletized Products Division will open a Read More
StewardshipOhio Water Quality Project To Determine How Much Phosph…
July 27, 2015
Researchers with the College of Food, Agricultural, and Environmental Sciences at The Ohio State University are looking for farmers in Read More
FertilizerKoch Agronomic Services Launches N-TEGRATION Technology
July 27, 2015
Koch Agronomic Services, LLC (KAS) has launched  N-TEGRATION Technology, a process technology platform designed to enable production of enhanced efficiency fertilizers at Read More
HerbicidesExpert: IARC Herbicide Classifications Leading To Confu…
July 24, 2015
Few people in the crop protection industry had heard of the International Agency for Research on Cancer (IARC) before this Read More
ManagementFCI Trade Summit Update & Precision Tank Turns 50
July 23, 2015
Editors Dave Frabotta and Eric Sfiligoj discuss the upcoming FCI Trade Summit in Las Vegas, NV, and how Precision Tank Read More
Palmer pigweed seedhead in cotton
HerbicidesUSDA Deregulates Dow AgroSciences’ Enlist Cotton Trait
July 23, 2015
The USDA today issued its decision deregulating Dow AgroSciences’ Enlist cotton trait in the U.S. The USDA has now completed its Read More
Industry NewsVerdesian Life Sciences Showcases Versatile Product Por…
July 23, 2015
Technology has revolutionized agriculture by bringing farmers, retailers and distributors to the forefront of the digital age. To meet the Read More
FertilizerWSJ: Cf Industries Exploring Merger With Dutch Chemical…
July 23, 2015
U.S. fertilizer maker CF Industries is in advanced merger talks with Amsterdam-listed chemical company OCI NV, the Wall Street Journal Read More
HerbicidesNufarm Releases New Panther SC Herbicide
July 23, 2015
Nufarm has announced the availability of new Panther SC herbicide. Panther SC is the first liquid formulation of flumioxazin available Read More
EquipmentFarmLink Launches Farm Equipment Sharing Program
July 23, 2015
FarmLink has introduced a new online farm equipment sharing community – MachineryLink Sharing – leveraging this new economy business model Read More
HerbicidesCould The South’s Most Troublesome Weed Represent A Thr…
July 22, 2015
Palmer amaranth is undoubtedly the most troublesome weed in the southern United States, taking a devastating toll on both cotton Read More
Industry NewsH.J. Baker Hires New Director Of International Sales
July 22, 2015
Global Agriculture firm H.J. Baker announced today that Steve Langley has joined the company’s Crop Performance Division and Animal Health Read More