Logistics woes hit as US spring planting nears

Transportation woes plaguing the US barge, rail and trucking networks threaten to hinder fertilizer deliveries as spring planting nears.

Heavy rainfall in the Mississippi river valley has elevated waterways, trapping barges upriver and tightening supply at Nola, pushing spot fertilizer freight prices to their highest levels since 2014.

Other modes are facing issues as well. A shortage of locomotives and shrinking crew sizes have slowed rail service, while truck availability has tightened amid new regulations limiting hours of operations and distances traveled during peak fertilizer demand periods.

Unfavorable weather has kept most farmers out of fields so far, but fertilizer distributors have mounting concerns about potential logistical bottlenecks this spring, potentially limiting supply and impacting prices.

Flooding hamstrings river system

Suppliers are concerned elevated river levels on the Mississippi, Arkansas, Ohio and Illinois rivers will prevent barges from reaching destinations in time to meet spring applications.

High water conditions are expected to persist into April as rain remains in the forecast for the Mississippi river valley. The strain on the river system has pushed spot freight rates to their highest levels since summer 2014, when unusually strong demand combined with a harsh winter shortened barge supplies at Nola.

Logistics delays have supported phosphate and potash markets. DAP and MAP Nola prices have climbed by $3/st during the last two weeks, while potash barge prices have remained stable despite weak demand.

But urea prices could face headwinds heading into spring as suppliers without contracted freight have slashed offers to offset rising spot freight values and remain competitive, helping pressure the Nola urea market to its lowest level since January.

Meanwhile, upriver distributors face the threat of spring demand kicking off with low warehouse inventories. Demand in the Southern Plains has strengthened in conjunction with corn crop applications during the last few weeks, pushing urea and potash values up. Urea prices jumped by as much as $10/st since late February and maintained a $15/st spread between suppliers in Inola/Catoosa amid varying inventory levels last week. Potash prices maintained a $5/st premium to Corn Belt warehouses last week on tighter supply.

Locomotive, crew shortage slows rail transit

A lack of railroad reliability in Canada has constrained potash shipments from mines and lengthened transit periods as a result of locomotive and crew shortages.

Offshore exports and deliveries to the US have been restricted as a result, but US warehouse inventories have enough product to meet initial spring demand, according to market participants. Prices could quickly rise if rail deliveries remain inconsistent during the second quarter for the second round of orders.

For nitrogen, some participants estimated that 20-30pc of the Midwest UAN market has not positioned enough volume to meet spring needs because of longer rail cycles.

Wet weather in the Corn Belt has prevented farmers from applying nitrogen, leaving terminal and warehouse prices flat in March. But a break in precipitation would allow farmers access to their fields and potentially further tighten inventories and support higher prices.

The Fertilizer Industry (TFI) sent a letter to the US Surface Transportation Board (STB) on 23 March to address rail service problems with Canadian National, Canadian Pacific and Norfolk Southern. The US Surface Transportation Board (STB) said on 19 March it is addressing the decline in rail service by holding weekly calls with carriers, while regulators are asking for near-term and yearly service outlooks.

New regulations choke truck operations

New federal requirements mandating all commercial trucks install electronic logging devices (ELD) and drivers observe hours of service (HOS) standards have tightened truck supply.

All fertilizer markets could be impacted, but the inland ammonia market is acutely dependent on the nation's trucking network to deliver volumes to retailer and wholesaler terminals, and would face rising truck rates as spring demand strengthens.

Some distributors told Argus they anticipate a 3-5pc rise in trucking costs as a result of the mandates, potentially pushing terminal and warehouse prices up.

The Agricultural Retailers Association has petitioned the Federal Motor Carrier Safety Administration (FMCSA) to exempt retailers and distributors from the ELD mandate. But the US Omnibus Funding Bill for the 2018 fiscal year excluded fertilizer retailers and distributors, applying only to livestock and agricultural commodities.