Last winter keeps flowing downstream

Author Mark Babineck, Houston Bureau Chief

Winter’s woes keep flowing.

A wet winter in the US midcontinent earlier this year laid the groundwork for historic spring flooding across the region and beyond, with the torrents rippling through spot commodity and transportation markets across the US and beyond all.

Throughout the year, Argus’ reporting teams have passed the baton as ramifications of the flooding coursed through markets for nearly all of 2019.

The Argus Metal Prices team was among the first to note the impacts of the wet weather as early as February, as conditions on the lower Mississippi river from heavy upstream rains disrupted ferrous scrap movements, adding costs for shippers.

“High water on the Mississippi river is typically a spring phenomenon caused by runoff from snow melting in northern areas, but has been unusually early this year because of heavy rain in the central US,” Argus wrote on 26 February. “Several agents and market participants expect the high water to last at least a couple of months.”

That turned out to be an understatement.

Less than two weeks later, Argus North American Fertilizer, which also closely follows bulk inland shipping on the US river system, weighed in on the developing situation in a market commentary for subscribers with word of major storms aiming for US heartland.

The flooding, in addition to roiling barge moves, shut a key ammonia pipeline in Nebraska.

By mid-March another key US midcontinent commodity, ethanol, began to see its own transportation struggles as washed-out rail lines contained regional production, which largely relies on trains to get to blending sites across North America.

Ethanol is based on corn, a prime move of fertilizer markets, and an Argus story at the end of March explained that although government sources expected US corn acreage to increase in 2019, it came with a caveat that “published planting intentions were based on farmer reports prior to major flood events that impacted Nebraska, Iowa and Missouri during the second half of March.”

Things began developing quickly. Urea prices rose briskly as strained barge and rail routes could not adequately supply the northern US midcontinent. As April wore on, more heavy snow and rain added unnecessary moisture and the flooding began spilling beyond the rivers into farms themselves. By mid-April, Iowa and Nebraska were assessing hundreds of million dollars of damage from inundated farmland.

Later in April, railroad service repairs on key ethanol routes caused prices of the biofuel, which trades by the railcar, to retreat along with high waters. Shortly afterward, Argus Petroleum Transportation North America took a dive into previously unreported rail service statistics that showed the first quarter of 2019 saw slower US crude movements attributable to both severe cold and the flooding.

As the sodden midcontinent moved into June, it became clear the weather indeed was going to render previous US Department of Agriculture projections moot and that the corn that was being planted was markedly late as rain continued to fall. Soybean planning by early June was down by 40 percentage points from the national five-year average, while corn planting was down by 29pt. Planting amounts and timing have direct impacts on fertilization schedules, driving those markets one direction or another.

The slow-to-develop corn crop boosted prices, which complicated the bottom line for ethanol producers, including US independent refiner Valero, whose biofuels unit got caught between higher feedstock costs and lower fuel demand in the second quarter.

As farmers finally got crops in the ground and stalks began to grow across the nation’s midsection, another reality began to hit home. The US midcontinent distillates market, normally tuned to power the heavy equipment farmers employ at harvest time, did not see its usual late-summer rally because crops had yet to mature. That finally did come around later in September. Argus US Products wrote that while the harvest season usually peaks in October, “market participants have said the heaviest amount of agricultural demand this year could be delayed until November”.

Those late harvests also are expected to lead to late crop drying, a common process performed in the US midcontinent to quicken the time it takes goods to get from the fields to storage or shipment. Propane is the fuel of choice, and its usual autumn bump in the midcontinent also took a pause.

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