(Bloomberg) -- CF Industries Holdings Inc. said reductions in rail service along Union Pacific Corp. lines will delay fertilizer shipments in parts of the U.S., threatening to reduce supply for farmers during the planting season.
The world's biggest nitrogen fertilizer company said in a statement the delays will affect shipments from its complexes in Louisiana and Iowa on Union Pacific rail lines to key farm areas from Iowa to California.
The delays threaten to further tighten fertilizer supply and drive up prices that have been hitting repeated records over the last few months as Russia's invasion of Ukraine threatens a massive portion of global supply. Russia is a low-cost exporter of every major kind of crop nutrient. It's an especially important season for farmers, who need fertilizer as they plant soybeans, corn and wheat in fields across the U.S.
“The timing of this action by Union Pacific could not come at a worse time for farmers,” said Tony Will, the company's president and chief executive officer. “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.”
The surge in global fertilizer prices is helping to drive up costs for crops including soybeans and corn that are fed to cattle, threatening to further accelerate food inflation around the world. A United Nation's index of food prices jumped the most on record last month, with the war in Ukraine worsening price increases brought on by high energy and fertilizer costs.
Read More: Union Pacific will limit customer-owned railcars to ease traffic
Both of the impacted facilities have the ability to truck shipments, and one of the facilities can do barge sales, so the company will have alternative options, though they might be less attractive, said Alexis Maxwell, an analyst at Bloomberg's Green Markets.
CF said in the statement it was told by Union Pacific on April 8 to reduce shipments by almost 20% or face embargoes at its facilities. Company shares briefly fell to a session low after the announcement. While CF said it should be able to deliver already-contracted rail shipments, it may not have capacity to meet orders later in the season over UP rail lines. CF also said it plans to ask the government to prioritize fertilizer shipments.
Logistics were already concerning going into the spring planting season, including a shortage of truckers, said Josh Linville, director of fertilizer at StoneX. The fertilizer marketplace has been very conservative in buying ahead because of heightened prices. “It all combines for a very high risk situation.”
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