The NFiles: UAN Caught in the Middle

Posted on 03/09/2017 10:12 AM

 

  • Anhydrous is $167.58 below year-ago pricing -- lower $1.90/st this week at $483.49.
  • Urea is $107.69 below the same time last year -- higher 36 cents/st this week to $313.76.
  • UAN28% is $71.69 below year-ago -- lower $1.46/st this week to $228.30.
  • UAN32% is priced $76.84 below last year -- lower $6.85/st this week at $250.60.

When it comes to weekly price declines, anhydrous ammonia fell from the top spot, but still softened overall. Five of our twelve states were unchanged this week as Indiana led declines falling $22.77. Illinois fell $15.08 as Kansas fell $2.05. Missouri firmed $15.00 to lead gains as Iowa firmed $1.55.

Urea firmed this week on strength in anthracite coal in China. Only Wisconsin is unchanged this week as Missouri firmed $38.91. Other gains were much milder with South Dakota up $2.14 and Minnesota up $1.82. Illinois led declines softening $22.00 with Indiana falling $6.71 along with Nebraska which is down $5.63.

UAN28% fell $1.46 regionally led by Indiana which fell $12.85, Wisconsin down $11.07 and Michigan falling $9.11. Gains were mild with Ohio up $5.35 and Minnesota up $1.64. Four states were unchanged on UAN28%.

UAN32% led declines across our fertilizer price survey, falling $6.85 by the short ton. Indiana careened $90.80 lower to align itself better with our regional average in a corrective move. Nebraska fell $19.80 as Kansas dropped $4.03. Missouri led gains firming $26.83 to a price point in-line with the regional average. Illinois added $4.85 and Minnesota firmed $1.05.

Perspective -- Nitrogen prices are beginning to show signs of stabilizing. While we have not changed our outlook in some time, our expectation of seasonal nitrogen price support along with the inevitable end to the downtrend may be playing out in this week's price survey. Ammonia prices are lagging around the world which will be a weight on anhydrous, but Chinese urea producers are watching anthracite coal prices rise, supporting higher urea prices.

That puts UAN in the middle between bearish ammonia fundamentals and bullish urea fundamentals. Since the two major UAN feedstocks are at odds, the supply side fundamentals and demand will likely guide UAN pricing. Since domestic production has bolstered UAN stocks nationally, and demand for UAN in the fall is generally subdued, anhydrous should win the tug-of-war with urea over UAN.

It is very important to note that anhydrous fell only $1.90 by the short ton this week after a number weeks of double digit declines. But a slowing downtrend does not necessarily point to a rush to the upside, or even a mild turnaround. The trick will be determining if the current price support in the N segment is merely seasonality, or if prices are forging a longer-term bottom. That will vary from location to location and I would advise that if you have not yet locked in your fall nitrogen needs to have a conversation with your preferred retailer on supply side fundamentals in your area.

The domestic production that has pressured NH3 prices well below $500 per short ton is expected to influence prices less as we move farther away geographically. In other words, if you live within a 200 mile radius of new nitrogen production, the upside will be more limited than for those who live outside that radius.

When the markets get dicey, we have always advised farmers talk with their suppliers, and this is one of those times. We must ascertain whether the current slowdown in nitrogen's downtrend is merely a response to seasonal demand or a longer-term price floor.

December 2017 corn closed at $3.91 on Friday, October 14. That places expected new-crop revenue (eNCR) per acre based on Dec '17 futures at $620.00 with the eNCR15/NH3 spread at -136.51 with anhydrous ammonia at a discount to expected new-crop revenue. The spread widened 22.23 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $2.89 3/4 per bushel.

Nitrogen pricing by pound of N 10/20/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.29 1/4
$0.34 3/4
$0.40 3/4
$0.39
Year-ago
$0.40
$0.47
$0.54
$0.51 3/4

 

The Margins -- UAN32% is underpriced by 1/4 cent compared to NH3. Urea holds a 1/2 cent premium to anhydrous ammonia; UAN28% solution is 1/2 cent below NH3 on price.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
29 1/4 cents
0
0
Urea
NH3 5 cents
34 3/4 cents
5 1/2 cents
1/2 cent
UAN28%
NH3 12 cents
40 3/4 cents
11 1/2 cents
-1/2 cent
UAN32%
NH3 10 cents
39 cents
9 3/4 cents
-1/4 cent

 

 

 

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