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

Crop InputsLand O’Lakes Announces Minnesota Water Quality Partnership
May 25, 2016
Governor Mark Dayton and Land O’Lakes, Inc. President and CEO Chris Policinski today announced a new public-private partnership to protect Read More
Crop Inputs2013 West Texas Tragedy Ruled A ‘Criminal Act’ [Updated]
May 11, 2016
A 2013 fertilizer plant blast in West, TX, that killed 15 people and injured 160 others was caused by a Read More
Young Corn Field
Crop NutritionEnhancing In-Season Nitrogen Use Efficiency Is In The Details
May 5, 2016
Spring is here and crops are in the ground. Do you have a plan for your nitrogen during the growing Read More
Truck dumping dry fertilizer
FertilizerFertilizer Logistics Q&A: Southern States’ Joe Wlodkoski
May 2, 2016
Joe Wlodkoski, Director of Agronomy Procurement, Fertilizer, Southern States Cooperative, is a 40-plus year fertilizer industry veteran. He is quite Read More
Trending Articles
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Monsanto Luling Plant
Crop InputsReport: Bayer Eyeing Monsanto For Possible Mega-Merger
May 16, 2016
Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. in a deal that would create the world’s Read More
Aerial Drone
Precision AgA Deeper Dive Into The Future Of Precision Ag
May 9, 2016
For about two decades now, through the good and the bad times, the ups and the downs inherent in agriculture, Read More
Palmer amaranth in soybean stubble
HerbicidesWSSA: Billions In Potential Economic Losses From Uncontrolled Weeds
May 4, 2016
What losses would corn and soybean growers experience if they were forced to eliminate herbicides and other control techniques from Read More
Eric SfiligojReasons For Hope In Commodity Prices
May 2, 2016
For many months now, the doomsayers have ruled the day in agriculture. Too much supply with too little demand would Read More
Eric SfiligojMissing The Family Ties In Agriculture
April 25, 2016
By its nature, the agriculture market is cyclical. Up and down cycles come and go with a regular pattern. For Read More
Latest News
ManagementWashington Visit and Bayer/Monsanto Deal Update
May 26, 2016
Editors Paul Schrimpf and Eric Sfiligoj discusses a recent trip to DC and the latest news on the proposed pairing Read More
Fertilizer closeup in hand
Industry NewsVerdesian: Striking A Balance Between Yield & ROI
May 26, 2016
Finely tuned nutrient management plans are helping farmers throughout the U.S. improve nutrient use efficiency, increase return on investment (ROI) Read More
Crop InputsLand O’Lakes Announces Minnesota Water Quality Pa…
May 25, 2016
Governor Mark Dayton and Land O’Lakes, Inc. President and CEO Chris Policinski today announced a new public-private partnership to protect Read More
Soybean Plant closeup
Industry NewsMonsanto Rejects Bayer Bid; Open To More Talks
May 25, 2016
Monsanto Co, the world’s largest seed company, turned down Bayer AG’s $62 billion acquisition bid as “incomplete and financially inadequate” Read More
Corn close up
Crop InputsArysta LifeScience Establishes Global Headquarters In R…
May 25, 2016
Arysta LifeScience has announced plans to relocate its global headquarters from West Palm Beach, FL, to Cary, NC, over the Read More
fertilizer blending and storage, Top 100
BlendersCHS Dakota Expansion Features AGCO’s GSI InterSys…
May 25, 2016
The continued growth of precision agriculture has increased farmer use of customized fertilizer blends best-suited for their soil conditions. Several Read More
ManagementAgriculture 3.5: A Bumpy Road Ahead
May 24, 2016
You may have read my article a few years ago on Agriculture 3.0, which is a term I coined to Read More
Topcon’s X30 display with CropSpec sensors
EquipmentGPS Autosteer Systems: Product Updates From Precision A…
May 24, 2016
Throughout 2015 GPS Steering solutions continued to evolve from what was once an after-market add on, to today’s cab where Read More
Trimble TMX-2050 In-Cab Display
Eric SfiligojThe Precision Ag Revolution Continues
May 24, 2016
It’s funny how much “the first time” tends to mean to someone as they get older. I sometimes can’t recall Read More
Eric Wintemute, AMVAC
Precision AgAMVAC Ups The Ante With New Precision Ag Technology
May 24, 2016
A potentially industry-changing at-plant soil treatment system from American Vanguard Corp., or AMVAC, is coming soon to large growers in Read More
Dry and Liquid Plant
CropLife 100CropLife 100 Map
May 24, 2016
The new CropLife 100 map shows the locations of each of the headquarters of the 2015 CropLife 100 retailers. The interactive Read More
Southern States Cooperative
Corn Field
Industry NewsTiger-Sul Names Veteran Account Manager To Lead Central…
May 23, 2016
With the continuing growth of the sulphur bentonite and precision crop nutrient industry, global agriculture firm H.J. Baker has announced that Read More
Bayer sign
Industry NewsReuters: Bayer Defies Critics With $62 Billion Monsanto…
May 23, 2016
German drugs and crop chemicals group Bayer has offered to buy U.S. seeds company Monsanto for $62 billion in cash, Read More
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Industry NewsCompass Minerals Hires Industry Veteran To Lead Plant N…
May 19, 2016
Compass Minerals has hired plant nutrition industry veteran Vatren Jurin to steer the company’s portfolio expansion into specialty liquid micronutrient Read More
ASMARK Retailers LIVE! Tour 2016 Group shot The Andersons
CropLife 100The Andersons Rejects Unsolicited Proposal From HC2
May 19, 2016
The Andersons, Inc. has announced that its Board of Directors has rejected two non-binding, highly conditional, unsolicited proposals from HC2 Read More
glyphosate
Crop InputsWHO: Glyphosate ‘Unlikely’ To Cause Cancer
May 16, 2016
Via Reuters.com reporter Kate Kelland: The weed-killing pesticide glyphosate, made by Monsanto and widely used in agriculture and by gardeners, Read More