INSIGHT: Fertilizer industry prepared for extended Illinois River closure

Author: Mark Milam

2020/07/01

HOUSTON (ICIS)--The deep and active waters of the Illinois River are going to be turning increasingly quiet and less traversed over the next several months as a major maintenance effort commences today.

From 1 July until the end of October, the vital US river, which is a key corridor for the passage of millions of tonnes of crop commodities, chemicals and fertilizers each year, will undergo a concentrated rehabilitation.

The project will see the US Army Corps of Engineers (USACE) upgrade the waterway's infrastructure, whose series of locks and dams were first constructed in the 1930s.

Having prepared for this event over many months, the fertilizer industry appears poised to steadily ride out the closure, although there are those who have concern it could disrupt some of the buying for fall applications and refilling.

Some of those volumes could be  forced to be moved to other open river locations, which could cause price volatility.

There is sentiment that the real impact of the closure will not be felt by buyers or sellers but rather the manufacturers.

“I don’t know how a Q3 closure matters to anyone but producers," a market source said  "[It] seems like a bearish factor to me as there will be less homes, spaces and warehouses for producers to go with barges in a time that they need outlets.”

Designed to reach completion in the narrow window between the traditional spring flooding and when prime harvesting starts, the massive undertaking is essential as the river’s infrastructure has been tested by not only time but the constant exposure to the natural elements.

“Plans for this have been in the making for the past 12 months to prepare for those affected.  I believe we’re prepared for the Illinois River closure. There were a lot of resupply efforts that took place early to make sure bins were close to full going into the closure,” said a fertilizer distributor.

Recognising the impact of disrupting a path of transportation, the USACE said this closure is necessary to maintain reliable navigation and avoid unscheduled long-duration stoppage later.

The USACE has said on the river that the LaGrange Lock will undergo major rehabilitation, the Peoria Lock will be dewatered for routine maintenance, and that there are four other locks requiring installation of bulkhead recesses and new mitre gates. The work is expected to add 25 years of service life to the waterway.

Work on-going at the La Grange lock and dam. Source US Army Corps of Engineers (USACE)

While wet weather did delay some spring progress, the majority of crops are planted and, with crop development seen as favourable, the agency will need to finish in a timely fashion.

“The majority of the river should be back open by September 30 if all goes as planned, which should give ample time for re-supply in the fall season for most terminals. Phosphates and potash were our main focus to supply as they have the greatest demand in the fall season,” said a market source.

Closing out what appears to have been a fairly significant spring run despite the pandemic and economic uncertainties, the fertilizer industry has been diligently planning for the maintenance.

That preparation was spurred by anticipation that this spring would bring about a strong level of demand given the drop off experienced in 2019 with less applications and reduced plantings.

An estimated 4m tonnes each year of fertilizer volumes are carried along the river, from nitrogen to phosphates. For now, any final crop inputs will have to come from supply at hand, with a good deal of movement having occurred in recent weeks.

Those that might be shorthanded to restock inventory will need to turn towards other modes of transport including trucks or railroad carriers.

There is also the option to reroute along other waterways, like the Mississippi River, but to do so costs not only time but can bring additional complications of freight expenses and securing space.

For some, the potential impacts could be region limited, given the difference in fall consumption, with a seller saying: “the effect is probably minimal from a logistics standpoint as the Illinois and Michigan areas have little fall application. I think most of the fall application on urea is in South Dakota and maybe a little in North Dakota.”

“It does mess with the timing of the buying. If barges get cheap, no one will be able to buy and fill warehouses until after the river reopens. One could argue that this is bearish because if removes demand during the maintenance.”

Insight by Mark Milam