IRPT Session Includes Commodities Update, Forecasts

Representatives from the grain, energy and fertilizer sectors provided an update on commodities and a forecast for them during a session of the Inland Rivers, Ports and Terminals annual conference, held September 19-21 in Louisville, Ky.

Panelists were Richard McCarty, senior director for marketing for grain and fertilizer for American Commercial Barge Line (ACBL); Jonah Rattner, who oversees coal sales and business development for Robindale Coal; and Jason Troendle, economist with The Fertilizer Institute, a trade-based organization with more than 200 member companies.

Grains

The river industry as a whole includes about 12,000 covered hoppers, which are primarily used for grain, McCarty said. About half of those are owned and operated by grain companies, he said.

That creates an interesting scenario because it means grain companies can be both shippers’ best customers and, at times, biggest competitors, he said.

The overall barge fleet has been shrinking in recent years as it has “right sized,” McCarty said. Part of the reason why is that the cost of a new barge has increased to between $950,000 and $1 million each.

At the same time, grain companies continue to invest in barging, both at origination and at export facilities. He mentioned that one grain company has recently filed permits to build an export house in the Gulf, which would be the first built in several years.

“Just another example of a grain company looking to put money into the river system,” McCarty said.

While industry moves a variety of grain, including rice, wheat and dried distillers’ grains, about 90 percent of what is moved is corn and soybeans, McCarty said. Grain moves 12 months a year for export, and about 10 different export houses exist in the Gulf region.

A single hopper barge can carry 70,000 bushels of corn or soybeans at a time weighing roughly 2,200 tons. However, low-water conditions greatly reduce how much can be loaded. Currently, McCarty said, each barge can be loaded with about 1,400 tons of grain each.

“It’s just amazing that for the second harvest in a row we have unprecedented low water,” McCarty said.

The center Gulf region handles about 60 percent of grain exports each year, he said. Grain typically moves to China, South Korea, Japan, Mexico, Central America and some parts of Europe. These are where the majority of companies are located that buy U.S. grains.

Grain freight makes up about one-third of ACBL’s revenue, he said.

Forecasting the grains market is complex and must take into account both U.S. exports and those from other countries, McCarty said.

One source that helps provide information is the World Agricultural Supply and Demand Estimates, commonly referred to as the crop pressure report, issued monthly by the United States Department of Agriculture.

The crop year begins in September and lasts through August, so the September report is for the 2023-24 crop forecast. In looking at it, McCarty noted that the report reduced the soybean export forecast by 35 million bushels.

“Assume that means 300 fewer barges that are needed for grain than what was estimated last month,” McCarty said.

Meanwhile, total corn production forecast for the 2023-24 season is a record 15.1 billion bushels, as opposed to 13.7 billion bushels forecast for the 2022-23 year.

U.S. producers and shippers have faced challenges the past few years, including a 2021 hurricane that affected grain export facilities in Louisiana and low-water conditions at harvest time in both 2022 and now 2023, McCarty said.

In looking at world production for exports and how that will compete with the United States, projections call for increasing production and exports from Brazil and Argentina, and Ukraine remains competitive with both corn and wheat, he said.

“We have very stiff competition that’s not going away,” McCarty said.

The South American climate allows Brazil to plant soybeans now for harvest in January and February, McCarty said. It can also plant two corn crops. While most corn harvested in the fall stays domestic, the second crop, planted as soybeans are harvested, comes online in the late spring and early summer and is in competition with the United States.

“It’s our opinion that the U.S. has gotten itself in a really difficult position,” McCarty said. “We continue to grow big crops. We’re going to continue to grow big crops, but from our perspective, the U.S. has become kind of the residual supplier of grains to the rest of the world. And when we say that what we mean is if there’s a crop failure in South America or a war in Ukraine, the world knows they can come to the U.S. and backfill what they need. The infrastructure of the U.S. is superior to other countries. Our government is stable.”

Grain companies continue to invest billions of dollars in South American infrastructure.

“When it comes to exports, which obviously impacts barging, we’re finding ourselves in a really difficult position that we benefit when other areas have crop failure and other natural disasters,” McCarty said.

China remains the largest buyer of U.S. soybeans and also buys U.S. corn, but it also buys a lot of those grains from South America. However, its imports have remained flat in recent years.

“They are not really growing their imports very much over the past few years, and that is a concern as they are the biggest buyer of grains,” McCarty said.

Finally, he noted that freight rates are up right now because of the drought, following historically high rates last year, also because of the drought.

To explain the impact, McCarty said last year 2,200 to 2,500 grain barges were stuck at one time, loaded with grain that was too heavy to move because the controlling draft was too shallow for grain that had already been loaded in those barges. That effectively took close to 20 percent of the industry’s capacity out of the market during the harvest.

“Supply wasn’t there, and demand was,” McCarty said.

The same situation could be shaping up this year.

Energy

Rattner gave a brief introduction to Robindale Coal, which has power generation, mining and bulk terminals business units. Its terminals include 11 locations, with some on the Great Lakes but also river terminals at Mile 34 on the Monongahela River and 80.9 on the Ohio River.

In looking at logistics, there is a lot of tightness on the vessel markets on the Great Lakes, where the fleet of available Jones Act vessels is quite low, Rattner said.

“There hasn’t been a new-build in 40 years,” he said.

On the river, he said, there is lots of competition between barge and rail, with rail making gains in recent years.

“We would have typically not seen some of these moves coming on rail,” Rattner said. “In the past they would have moved on barge, but things are changing. There’s definitely pressure between the barge lines and rail lines to gain business and grow business.”

The U.S. thermal coal supply and demand are both dwindling.

“There has been a decline every year,” Rattner said.

That is one reason energy companies are always looking to diversify their commodity profile, being proactive and not reactive, he said.

Coal prices are hovering around $125 per metric ton currently, which Rattner described as “OK.” Last year, he said, with the Russia-Ukraine conflict, coal prices were closer to $300 per metric ton, but that was not sustainable.

“Based on ‘23 supply, there’s a large oversupply, but in ‘24 you see it flipping it a bit to where demand has now outpaced supply, but with the oversupply left in ‘23 it will be tough to flush all that inventory out of the system,” he said.

Rattner noted that McCloskey, which provides data analytics across the global coal, mining and metals industry, is forecasting 2023 year-end coal inventory to be more than 130 million tons, which he described as a massive number not seen since 2017. McCloskey also projects that because of the large, overhanging supply that supply cuts will take place in 2024.

Rattner also noted that while energy use is increasing each year worldwide, coal-powered energy production continues to fall. In the first seven months of 2023 in the United States alone, 7.4 gigawatts of coal-powered electricity generation was retired, Rattner said. The country will see another 4.2 gigawatts retired before the end of the year and he already knows of an additional 5.5 gigawatts of generation to be retired in 2024, he said.

Global demand has shifted to other countries, with China at the top of the list for power with 53.5 percent of the global demand, Rattner said. India ranks second at 13.6 percent, and the U.S. is in third, using 9 percent of generation.

“The U.S. is not going to be the main driver of coal markets,” Rattner said. “China is.”

Moreover, he said, in the first eight months of 2023, China already exceeded its volume of coal imports for the entirety of 2022.

Fertilizer

Troendle began his talk noting that the cost of fertilizer has skyrocketed in recent years, and some farmers he has spoken to personally have been furious. He tried to explain what is driving those costs, ultimately saying that increased costs of inputs and trade disruptions are major issues.

Troendle gave an example that the input costs for 1 ton of diammonium phosphate (DAP), the world’s most widely used phosphorous fertilizer, which has both phosphate and  nitrogen components, were $195 in June 2020 but $708 in September 2023.

Natural gas is the main input used to produce ammonia, the basic building block of all nitrogen fertilizers. U.S. natural gas prices are therefore linked to how many ammonia plants exist in the United States and how much ammonia has to be imported.

In 1999, 42 ammonia plants operated by 26 companies existed in the United States. As natural gas costs escalated, several of them shut down, so that at one point only 22 plants operated by 12 companies existed in the United States. Slowly, starting in 2008, natural gas prices started coming back down, and some of the plants reopened. As of 2022, there are now 35 domestic plants operated by 16 companies, and some of those are both slightly larger and slightly more efficient, Troendle said.

To understand fertilizer prices, however, it is also important to look outside the United States, he said, as about 90 percent of fertilizer consumption occurs outside of the United States.

“We’re in a global industry,” Troendle said. “There are a lot of factors that can influence it.”

Some of the main types of fertilizers are nitrogen, phosphates and potash. The United States is the third largest consumer of nitrogen and phosphates and fourth largest for potash, he said. China leads all categories. India and Brazil are also major customers.

Russia is one of the largest fertilizer exporters in the world, exporting almost 25 percent of ammonia, almost 20 percent of potash, 13 percent of urea and 12 percent of phosphates. So when countries, particularly in Europe, decided to sanction Russia over the war with Ukraine, that disrupted the trade market and also disrupted supplies in the United States, at least on a temporary basis until agreements allowing continued fertilizer exports from Russia were drawn up, Troendle said.

The biggest impact of that conflict in the U.S. has been for potash, he said. That is because it comes from a mineral mined from the ground, and the U.S. has very little potash mining, instead importing about 95 percent of it. Of that foreign supply, generally 6 to 10 percent comes from Russia, Troendle said.

Other major foreign sources of potash have also been compromised.

In October 2021, the United States and many other western governments sanctioned Belarus because of some of the actions of its dictator. Belarus is landlocked, and Lithuania had provided Belarus with access to the Black Sea but stopped doing so. That eliminated 20 to 24 percent of the global potash from the market, he said. Some of this product is instead being sent by rail out of Russia.

Additionally, to protect its own domestic supply, China has curbed imports, most recently restricting exports of urea.

“These disruptions in supply are putting upward pressure on price,” Troendle said.

Some European fertilizer plants have had to shut down because of lack of natural gas usually received from Russia, Troendle said. Others have imported more nitrogen from the United States to make up for that lost supply, but that has decreased the amount available to U.S. plants.

Farmers in the United States have limited means of dealing with these price hikes. U.S. growers can cut back slightly on potash and phosphates, but about 50 percent of all fertilizers are used on corn in U.S. production, and without nitrogen fertilizer, corn yield decreases, Troendle said.

“So while we were having challenges with supply, we were also having really strong demand,” he said.

Weather has also been challenging with last year’s drought and again this year, but that could ultimately bring down fertilizer costs some, Troendle said. While fertilizers are usually applied in fall and spring, lack of moisture could prevent some fall application of anhydrous ammonia. If weather is poor, demand will be lower, which means the market will most likely soften.

Geo-politics will also have an impact, he said, with the world watching to see when China returns to the export market, especially for phosphates and urea, and focus increasing on how to make the supply chain as resilient as possible, especially with the Ukraine-Russia conflict continuing.

Domestically, he said, along with the chances for much-needed rain, fertilizer forecasters are also looking at potential impacts of the recent Waters of the United States ruling on facility expansion and on environmental justice issues, especially as those enforced through permitting with the Clean Air Act.