The NFiles: Urea Proves Leadership Role

Posted on 03/09/2017 10:12 AM

 

  • Anhydrous is $99.55 below year-ago pricing -- higher $6.14/st this week at $484.41.
  • Urea is $17.06 below the same time last year -- higher $7.60/st this week to $354.22.
  • UAN28% is $40.51 below year-ago -- higher $5.45/st this week to $236.18.
  • inputsmonitor.com"UAN32% is priced $41.86 below last year -- higher $1.62/st this week at $268.47.

Urea led gains in the nitrogen segment firming $7.60 regionally. Missouri led gains firming $21.86 as Illinois gained $13.36 and North Dakota firmed $11.55. Wisconsin was our only unchanged state in this week's urea price survey. Indiana was our sole decliner, softening $2.32 by the short ton.

Anhydrous ammonia firmed $6.14 led by Ohio which added $28.77, Missouri gained $16.48 and Illinois firmed $13.14. South Dakota declined $16.67 and inputsmonitor.comMichigan fell $7.51.

UAN28% gained $5.45 on the week led by South Dakota which firmed $16.91 Minnesota, North Dakota and Ohio all gained about $9.50 and Iowa added $8.78. One states was unchanged as Indiana softened $3.00 and Illinois fell $1.95.

UAN32% rounded out gains in the nitrogen segment led by Michigan which added $14.00 as Missouri and Kansas each gained roughly $7.50. Declines were led by Indiana which softened $20.10 and Illinois fell $1.43.

Urea price action has indicated a floor was set in the first week of November and the regional price by the short ton has since firmed 14.2%. It took anhydrous and UAN a few weeks to catch the upside draft, but UAN28% and 32% have placed clear "V" bottoms, and anhydrous has begun to firm in kind. UAN28% has become quite the indicator for us. First, we speculated that its price relationship with potash would signal a recovery. I still question how reliable the 28%/potash price relationship is as an indicator of nitrogen price moves, but the last two times potash crossed over 28%, the price trajectory in nitrogen accelerated.

inputsmonitor.comThis week, the "V" bottoms in UAN28% appear conspicuous in the same way. The "V" placed on the chart by UAN28% in summer 2013 was followed by very loose price action in the N segment for a few weeks followed by a change of direction, in that case, nitrogen pointed higher immediately afterward. That came as urea extended its premium to the rest of the N segment. We note the same setup occurred as urea built a clear premium beginning at that November 2016 low. UAN28% posted its "V" bottom well below the rest of the segment and then nitrogen price spreads fell apart. If the setup from summer 2013 can be trusted as an indicator, price action since November 2016 strongly suggests upside risk for UAN and NH3.

inputsmonitor.comThe news is not all bad though. The bullish setup and ensuing upside price action in summer 2013 stopped for UAN and NH3 right at parity with expected new-crop corn revenue, even as urea surged to a ridiculous premium. So there are a couple of takeaways here if UAN28%'s "V" bottom is truly an indicator of upcoming price action. The first is that nitrogen prices are technically set up to firm. Secondly, urea is likely to overdo its upside price move, leaving UAN and NH3 behind to stop near parity with expected new-crop corn revenue. And finally, since 28% and potash sent a message in a bottle indicating upside price action in nitrogen, and 28% twice placed a "V" bottom just ahead of that price strength, urea may be the N segment price leader, but UAN28% seems to be the sage that will warn us of a change of nitrogen price direction.

December 2017 corn closed at $3.92 on Friday, February 3. That places expected new-crop revenue (eNCR) per acre based on Dec '17 futures at $627.57 with the eNCR17/NH3 spread at -115.34 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread narrowed 0.46 points on the week.

Nitrogen pricing by pound of N 2/7/17

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.29 3/4
$0.39 1/2
$0.42
$0.41 3/4
Year-ago
$0.35 3/4
$0.41
$0.49
$0.48

 

The Margins -- UAN32% is at a 2 cent premium to NH3. Urea is 4 3/4 cents above anhydrous ammonia; UAN28% solution is priced 1/4 cent above NH3.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
29 3/4 cents
0
0
Urea
NH3 5 cents
39 1/2 cents
9 3/4 cents
4 3/4 cents
UAN28%
NH3 12 cents
42 cents
12 1/4 cents
1/4 cent
UAN32%
NH3 10 cents
41 3/4 cents
12 cents
2 cents

 

inputsmonitor.com

 

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