Fertilizer Waiting Game Could Cause Repeat Railroad Backlog

Growers and fertilizer retailers alike are sitting on the fence as to when to purchase their fertilizer product. One would be surprised at this simply looking at the market for both granulated and liquid fertilizer: supply is up, so the price is down. However, the fertilizer market alone does not predict how quickly retailers will fill their liquid fertilizer tanks or storage warehouses.

The other two influences on the fertilizer market this spring are lower corn prices and the strength of the U.S. dollar. Lower corn and commodity prices generally along with the flooding in major parts of the U.S. last spring and summer have growers spending conservatively and cutting their budgets. This translates to growers cutting or delaying their fertilizer orders until they see what the spring weather holds for 2016.

Retailers in turn are waiting beyond the normal winter time to fill their above ground storage tanks and dry fertilizer storage facilities. The strong U.S. dollar has encouraged international fertilizer to head to the U.S. This is driving the fertilizer prices down, and the prices have yet to hit a distinct bottom price. Add to that growers moving slowly to purchase their fertilizers. With potentially lower demand by growers, retailers are hedging their bets on the decreasing fertilizer prices by waiting to buy their supply for spring. They are waiting to buy at the lowest price.

The danger is if retailers wait too long transportation logistics could be a big problem. This type of transportation overload was experienced a couple years ago for other reasons. In 2014, extreme weather combined with large shipments of oil from North Dakota overwhelmed the railroad system, and disrupted many different industries, including liquid fertilizer tank owners. Some liquid fertilizer retailers and wholesalers were stuck waiting for shipments and only had hope that they would have the supply in time for the spring growing season.

According to a CropLife article, domestic fertilizer manufacturers have not decreased their output in light of the decreasing price and lack of pre-orders by retailers. Instead, it is production as normal with manufacturers storing the end product in any available space, including railcars.

While the product is ready for shipment, there is a limited amount of rail routes to transport the product especially when other industries also have transportation demands. If too many retailers wait until the last minute, it could result in a shipping backlog and empty above ground storage tanks when growers need their fertilizer.

Out west and particularly in California, the situation is somewhat rosier. El NiƱo has brought record-breaking moisture to the region and fertilizer and nutrient use is steadier, as many crops there are doing well. Furthermore, growers are using land that was previously idle and spending water assets there. Specialty crops in California such as grapes and nuts are doing particularly well. Due to the large variety of crops in California, there will be demand for many different types of nutrients and fertilizers.

So as the waiting game continues over fertilizer pricing and supply, it remains to be seen what 2016 will bring in regards to backlog and railroad logistics. Whether or not growers will be able to get the needed nutrients and fertilizer in time will be determined by when suppliers feel the price is low enough to buy before the spring season begins.

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