The NFiles: Book Nitrogen for Spring -- and Perhaps a Bit for Fall

Posted on 03/09/2017 10:12 AM

 

  • Anhydrous is $108.33 below year-ago pricing -- higher $2.93/st this week at $478.27.
  • Urea is $26.70 below the same time last year -- higher $1.38/st this week to $346.62.
  • UAN28% is $45.55 below year-ago -- higher $1.42/st this week to $230.73.
  • UAN32% is priced $45.21 below last year -- higher $2.91/st this week at $266.84.

inputsmonitor.com"Anhydrous ammonia led our nitrogen segment to the upside this week. South Dakota posted strong gains, firming $23.89 by the short ton as Indiana added $9.80 and Illinois gained $3.92. Four states were unchanged as declines were limited to just two states... Ohio fell $9.59 and Iowa softened just 53 cents per short ton. All other states were unchanged or higher.

UAN32% nipped at NH3's heels on the way up firming $2.91 regionally. Indiana led 32% higher firming $26.88 as Minnesota added $5.48 and Illinois firmed $5.09. Seven of our twelve states were unchanged as declines were limited to a $1.87 discount in Michigan and a 61 cent decline in Iowa.

UAN28% was also firmer this week. No state posted a lower 28% price as Indiana firmed $6.52 to lead gains along with North Dakota, up $3.35 and Minnesota up $2.92.

inputsmonitor.comUrea trailed gains in the rest of the N segment, but once again, no state posts a lower urea price this week. Half of the states in our survey were unchanged as Indiana firmed $6.79 to lead gains. Minnesota added $6.51 as North Dakota firmed $1.85.

The nitrogen segment is acting about as we had expected. Whether it was the 28%/potash conspiracy or last week's surge in 32% or urea's leadership role in the N segment, the result is undeniable, and nitrogen price action has exhausted our appetite for risk. It may be that N only firms slightly from here or even not at all. But by booking ahead of the current price strength, we have locked in at least a segment of our cost of production, and can begin to get a handle on how to market next year's crop on the basis of those numbers.

inputsmonitor.comOn the basis of regional averages, we booked anhydrous at an average of $474.98 per short ton, urea at $332.79, UAN28% at $229.69 and UAN32% at $257.70. Those price points are well below last year's price and constitute a great value compared to expected new-crop corn revenue. This will be especially important if planted corn acreage surprises to the upside later this year which would be price negative for corn futures. Of course, in the event of higher or even mere sideways price action in corn futures for the next year, locking in nitrogen at such a discount to new-crop revenue will insulate profit margins, and take some of the sting out of potential corn price softness.

Some will wonder if it is wise to book nitrogen for fall at this time. If we forget about corn and fertilizer price uncertainty and just focus on the price ratio between the two, I must remind the reader that nitrogen is at a sharp discount to expected new crop revenue based on Dec 2017 futures. Recall our article "Supply Rebalancing and Fertilizer Price Potential". The graph in that article clearly shows that the relationship between expected new-crop revenue has fluctuated in alternating years between parity and wide disparity. This is a technical observation unique to the Inputs Monitor and suggests that the wide discount currently enjoyed by farmers will not go unnoticed. Fertilizer will remedy disparity with corn futures.

Domestic production additions may limit price support for fall nitrogen, but a cautious approach would be to book 30% of expected fall 2017 nitrogen needs at today's price. I am not offering official advice on that, but I know some will be thinking along those lines, and I would encourage that level of forethought. However, in that scenario, one must work equally as diligently to manage downside fertilizer price potential as upside risk. If you are asking if you should book for fall, lock in 30%, and leave room for booking the majority of fall needs at a lower price point, should we get lower prices late in summer 2017. It is my belief that we have seen a long-term bottom in fertilizer prices.

December 2017 corn closed at $3.89 on Friday, January 27. That places expected new-crop revenue (eNCR) per acre based on Dec '17 futures at $622.44 with the eNCR17/NH3 spread at -144.17 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread narrowed 13.19 points on the week.

Nitrogen pricing by pound of N 2/1/17

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.29 1/2
$0.38 1/2
$0.41
$0.41 1/2
Year-ago
$0.35 1/2
$0.41 1/4
$0.49
$0.48 3/4

 

The Margins -- UAN32% is at a 2 cent premium to NH3. Urea is 4 cents above anhydrous ammonia; UAN28% solution is priced 1/2 cent below NH3.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
29 1/2 cents
0
0
Urea
NH3 5 cents
38 1/2 cents
9 cents
4 cents
UAN28%
NH3 12 cents
41 cents
11 1/2 cents
-1/2 cent
UAN32%
NH3 10 cents
41 1/2 cents
12 cents
2 cents

 

inputsmonitor.com

 

 

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