Farmers feel fertilizer shortage

FARGO -- With spring and planting around the corner, farmers and grain elevators are faced with warnings about fertilizer shortages -- another potential crisis in which railroads play a part.

Recent rail service issues this winter have left elevators and farmers' bins choked with 2013 crops. Now, railroads are being pressed to turn their focus to fertilizer for the 2014 crop.

Based on testimony in an April 10 hearing, the U.S. Surface Transportation Board on April 15 directed Burlington Northern Santa Fe Railway and Canadian Pacific Railway to report their "plans to ensure delivery of fertilizer shipments for spring planting of U.S. crops" by April 18.

BNSF, in its weekly podcast on rail issues, says the company recognizes the "very important need" to improve fertilizer shipments. He says the company has taken several steps to increase focus on the fertilizer fleet.

Specifically, BNSF says it is taking the following measures to increase velocity on fertilizer shipments and improve the efficiency of fertilizer service:

-- Handling unit fertilizer similar to the logistics of 110-car grain shuttles, where customers have the capacity for rapid load and unload.

-- For customers with this capability, the railroad will commit locomotives to these trains to reduce any potential delays and ensure expedited turnaround service at origin and destination.

-- Adding an additional shuttle set into fertilizer service to increase capacity through increased resources.

-- Managing crew availability, so crews are in position when the train is ready to depart.

-- Working to ensure accurate estimated times of arrival so facilities can be prepositioned to load and unload as fast as possible.

"In just a few days we have seen a 17 percent improvement in the seven-day average of these fertilizer trains," says John Miller, vice president of BNSF's agricultural group. 'These improvements are showing quick, significant progress in full cycle times of fertilizer unit trains from just a few weeks ago."

As for grain cars, Miller says BNSF has seen an increase in available supply for general fleet car orders. "Since last month, our 28-day average of equipment placed against past-due orders, have seen positive improvements of 22 percent.

He says improved weather, stronger locomotive performance and the use of directional routing in several locations to improve line capacity in key lanes will keep traffic moving.

He says past-due car numbers declined 3 percent nationwide on the week. South Dakota past dues fared the best, declining by 34 percent to 671 late cars from 1,022 the previous week. Past dues declined slightly in North Dakota and Montana but increased slightly in Minnesota. Average days late were about the same as previous weeks, except in Minnesota, where they declined to 20.9 days, which was nearly the same as the first week in March.

CP response

In the CP response, available April 18 on the STB website, the railroad says it anticipates better weather and easing of congestion in Chicago will result in lower transit times for all shipments, including ag fertilizer shipments.

CP says it has taken these steps to improve the situation:

-- Heightened the visibility for agricultural fertilizer shipments at the field operational level.

-- Accepted private cars for seasonal phosphate business.

-- Implemented a new train pair from Canada to the U.S., which will support both grain and fertilizer service.

CP described itself as "a relatively small presence in agricultural fertilizer and plant nutrients in the Dakotas, Iowa and Minnesota" and estimated its overall market share at about 10 percent. The railroad says it averages eight cars per day in Iowa, 13 cars per day in North Dakota, one car per day in South Dakota and 27 cars per day in Minnesota."

By April 25, the railroads must start weekly reporting on fertilizer shipments. They "shall provide fertilizer delivery data by state, indicating the number of cars shipped or received, which are billed to agricultural destinations, and the number of cars placed during each prior week," the STB says. "CP and BNSF will also be directed to include actual performance versus trip plan data for fertilizer shipments."

CP says it was "a little surprised by the order's direction" and asked that it not be required to report weekly on fertilizer volumes. The railroad also says it "will update the board and share information on a weekly basis during our calls with the board's staff, in particular as relates to grain traffic and the situation in the Chicago Terminal.

"Canadian Pacific and its employees are committed to turning things around as safely and as quickly as possible. We will do this by running our operating plan and getting back to normal operating conditions as soon as possible," according to the official response.

To read CP's response, go to the STB's website, www.stb.dot.gov . Visit "quick links" and click on "filings." The filing ID number is 235927.

The region's congressional figures have applauded STB's actions. U.S. Sen. John Hoeven, R-N.D., urged BNSF to dedicate extra resources to the fertilizer.

Some in the industry, however, are still skeptical.

Other factors

Alan Goldsby is the urea product manager for CHS Crop Nutrients, a fertilizer division of the giant cooperative based in Inver Grove Heights, Minn., and a major supplier of fertilizer in the Upper Great Plains. Goldsby acknowledges the late spring might take the blame for yield impacts of shipping delays.

Goldsby notes systemic problems with the railroad need to be addressed, but those are only part of the problem.

Among the other factors:

-- Low and declining corn prices last fall meant farmers logically didn't pre-purchase as much nitrogen as they usually do, based on prophesies of lower fertilizer prices. Their retailers, consequently, didn't prepare with as much supplies as they otherwise would have.

-- A late harvest and cold fall meant less anhydrous ammonia nitrogen was fall-applied. Typically, 40 percent of the region's fertilization is done in the fall and 60 percent in the spring.

-- Railroad problems became more apparent in mid-January. Industry fertilizer shipments are 30 to 40 days behind schedule, although Goldsby says CHS is probably in better shape, overall.

-- Canada's Agrium Ltd. in early April declared "force majeure," a sort of act-of-god clause allowing the company to not fill fertilizer contracts because of plant problems in Carseland, Alberta. Another Canadian supplier also had interruptions, Goldsby says. That means less fertilizer coming into the Northern Plains from Canada.

-- The Mississippi River barge system is behind schedule because of the exceedingly cold winter. The first barge reportedly was unloaded April 17 -- earlier than anticipated, but behind normal arrivals. CHS has its own rail heads in the Gulf of Mexico area, and has diverted some northern-delivery urea to train traffic that would have been supplied via the river.

"Most of the tons moving here by barge are already committed, with people waiting on them," Goldsby says. "The urea won't be sitting on the floor very long. The challenge is how many are scheduled to leave on rail cars, how many on trucks. I would guess a large amount of tons planned for rail may have to move on trucks -- especially in the north where the rail service is lagging."

Goldsby says shuttle trains to the north can be loaded, but then, in some cases, can wait 10 to 14 days until they get power and crews to move them.

He is reluctant to give exact figures, but says farmers will end up paying more for transportation costs on fertilizer. He says farmers -- where it's agronomically prudent -- will adjust to post-plant applications in May and early June rather than pre-plant.

"I don't see this nitrogen getting delivered before it's time to plant the seed," Goldsby says. He says any STB efforts with the railroads would have needed to be launched in mid-February to accomplish any real effect.

Tom Lilja, executive director of the North Dakota Corn Growers, says the problem will be that everybody will want fertilizer all at once.

"Typically, fertilizer distribution starts in the southern part of the United States and works its way north," he says. "There will be logistical issues with the timing this year."

Easing the impact

Some factors, however, could help mitigate the impact. Some farmers with enough storage, fearing short supplies, overbooked their needs for spring. Whatever they get late might not be needed, and as the season moves forward, they'll need less still because they'll shift to soybeans. They'll have plenty of carryover fertilizer for the fall. North Dakota farmers already were planning to plant 1 million fewer acres of corn than they did last year.

Some farmers who don't get the urea they ordered will put anhydrous ammonia nitrogen down instead, but that takes more labor and is a slower process.

"Everybody's scared they won't get it," says Jim Broten a Cooperstown, N.D., farmer and president of the North Dakota Ag Rail Business Council. "As we get later, it will change the fertilizer crunch. Some guys who were wondering if they'd seed corn might go to beans. That might save our butts a little bit."

Raising the prices

Broten says with the spring pressure, urea fertilizer prices will go up. "They're raising the prices because they can, unless you have it pre-bought," Broten says. Farmers are paying up to $150 per ton more for urea than they would have if they'd have pre-bought it.

Tony Jochim, agronomy manager with ADM-Benson Quinn in Rogers, N.D., says his warehouses are full of urea fertilizer, waiting for farmers to get into the fields. His facility covers farmers in a 40- to 50-mile radius.

"Hopefully the railroad starts to perform so we can get cars moved from Minneapolis out to the country," Jochim says, noting he's on the CP system. His facility needs to turn its capacity two more times to serve farmers' needs. He says if he can get some train cars in with fertilizer in them, it will likely pay to hold them and pay demurrage penalties rather than run short of fertilizer for customers.

"We'll know in about two weeks, what the outcome is," Jochim says. Roughly 75 to 80 percent of his clients have pre-bought all of their fertilizer needs, but that works only if the warehouse is replenished.

Jochim says he's had several farmers ask if they can take fertilizer to their farms. He thinks they'll put a couple hundred tons into on-farm hopper bins as an insurance policy, in case the warehouse runs short.

Typically, about 80 percent of the spring fertilizer is applied in the form of dry urea, Jochim says. About 20 percent is anhydrous ammonia.

Art Schmidt, agronomy manager at Central Plains Ag Services of Hannaford, N.D., says his facility will be able to serve its customers and is being careful about taking on new customers. He says the industry will have to realize it has to build bigger storage sheds, so suppliers can meet customer needs during logistical interruptions, but he also realizes there are limits to how much fertilizer can be carried over, considering price swings.

Schmidt adds, somehow farmers and the industry "have a way of getting the work done," regardless of the challenges.

In the long-term, farmers can look forward to local production.

A $1.5 billion to $2 billion project by CHS in Spiritwood, N.D., has been proposed, but CHS has delayed development because of further cost reviews it deemed necessary. If built according to early schedules, it could come on line as early as 2017. A similar-sized project is being developed near Grand Forks, N.D.

If either plant is built, it would "pretty well take away" the problems being seen today, Goldsby says.

Uncertainties in the rail delays have caused farmers and agribusinesses to increase their in-field storage of grain, fertilizer and propane.

This summer, Central City Grain will erect a new, 820,000-bushel steel bin in Carrington, N.D., to go with the already huge 720,000-bushel steel bin it put up in 2012. The reason is a combination of needing more bushels to handle increased plantings of corn in the region, as well as the need to hold more with the uncertainty of getting reliable rail transportation on the Canadian Pacific railway, says manager Jerome Hoheisel.