Black Swan Event? Top US Fertilizer Producer Hit With Rail Delays To Midwest
A fertilizer supply shock is imminent for US farmers as CF Industries Holdings, Inc. warned Thursday that rail shipments of crop nutrients would be reduced to top agricultural states, which couldn't come at the worst time as the Northern Hemisphere spring planting season is underway.
The world's largest fertilizer company said Union Pacific had hit it with railroad-mandated shipping reductions that would impact nitrogen fertilizers such as urea and urea ammonium nitrate shipments to Iowa, Illinois, Kansas, Nebraska, Texas, and California. Union Pacific told CF Industries without advance notice to reduce the volume of private cars on its railroad immediately. This means CF Industries had to decrease shipments by a whopping 20% to stay compliant.
"The timing of this action by Union Pacific could not come at a worse time for farmers," said Tony Will, president and chief executive officer of CF Industries.
"Not only will fertilizer be delayed by these shipping restrictions, but additional fertilizer needed to complete spring applications may be unable to reach farmers at all. By placing this arbitrary restriction on just a handful of shippers, Union Pacific is jeopardizing farmers' harvests and increasing the cost of food for consumers," Will said.
The move is particularly problematic for the Midwest, where 90% of corn and 80% of soybeans are produced in the US. The region is a critical node in the global food system, and tightening the fertilizer supply will only drive up food prices by shrinking harvests.
Farmers have been pressured by record-high fertilizer and diesel costs.
CF Industries released an ominous warning about the lack of fertilizer across the Midwest this year and how it may cause food supply woes:
"If farmers are unable to secure all the nitrogen fertilizer that they require in the current season because of supply chain disruptions such as rail shipping restrictions, the Company expects yield will be lower.
"This will likely extend the timeline to replenish global grains stocks. Low global grains stocks continue to support high front month and forward prices for nitrogen-consuming crops, which has contributed to higher food prices," CF Industries said.
Josh Linville, direct of fertilizer at StoneX, called this a "black swan" moment for the Midwest.
UP rail situation:— Josh Linville (@JLinvilleFert) April 14, 2022
Sounds like the UP is backed up on shipments. As a result, they are restricting "private car" shipments (i.e. not UP equipment) by almost 20%.
We were already struggling with fert logistics coming into spring. This doesn't help at all...#blackswan pic.twitter.com/YOo36UWj2J
In response to record-high fertilizer costs and tight supply, some farmers have already transitioned millions of acres from corn to soybeans this year (soybeans require very little fertilizer versus corn).
Last month, a tweet from Douglas Karr, the founder of the businesses blog Martech Zone, made the point that "media isn't even warning you" a food crisis in America is emerging.