The drought is affecting farmers in ways that cut deeply into corn, soybean and wheat yields. Low water levels in the Mississippi and Ohio River systems are also wreaking havoc with fertilizer shipments. "This is becoming a huge problem for barges, with barge companies lightening loads," says Jennifer McCubbin, account manager, Cenex Harvest States (CHS).
The drought is adding two weeks to transit time, which is putting more pressure on supplies.
"The fertilizer supply chain is highly dysfunctional," McCubbin says. "There is a huge disconnect between the manufacturer and the grower, an absolute lack of concern on the part of the manufacturer."
Even with very low natural gas costs, manufacturers don’t want risk. Retailers have added margin, but not enough for large price swings.
McCubbin advises growers to lock in supplies of fertilizer at the same time they sell their grain to guarantee that fertilizer is available when they need it, and to lock in profit margins. Both spring and fall fertilizer applications have become 10-day events, she added.
Further impacting supplies is that retailers no longer stockpile large amounts of fertilizer for producers. Retailers have shifted to a "just-in-time" supply policy due to the huge losses in 2008 when fertilizer prices crashed, devaluing inventories almost overnight. CHS, for example, lost $100 million that year on the value of its fertilizer inventory. Put into context, the cooperative’s net income in 2011 was approximately $964 million.
Much of the U.S. fertilizer supply is determined by international players and factors, McCubbin says. As a result, river systems are crucial to getting supplies where and when they are needed.
- September 2012