The NFiles | Crude and Corn Vie for Influence

Posted on 07/19/2018 1:00 PM

 

  • Anhydrous is $35.79 above year-ago pricing -- off $1.99/st this week at $520.70.
  • Urea is $33.42 above the same time last year -- down $6.67/st this week at $362.81.
  • UAN28% is $17.63 above year-ago -- lower 71 cents/st this week at $256.72.
  • UAN32% is priced $18.86 above last year -- down $1.17/st this week at $278.41.

Urea was our downside leader in the nitrogen segment this week, falling $6.67 on softness in Indiana to the tunenh3 chart of $21.40 as Minnesota fell $13.20 and Illinois dropped $12.10. Two states were unchanged as Michigan posted the only gain, up $2.96.

Anhydrous ammonia was lower with Nebraska off $8.09 and Iowas and Illinois each falling right around $6.50 per short ton. Four states were unchanged as Indiana added $2.78 and Kansas gained 99 cents.

UAN32% was led lower by an $8.33 drop in Indiana as Iowa fell $4.78. Five states were unchanged as Missouri added $3.11 and Minnesota firmed $1.50.

UAN28% trailed gains with North Dakota off $13.93, Nebraska down $10.63 and Minnesota falling $7.85. Three states were unchanged as declines were offset by a $28.00 gain in Missouri as Illinois firmed $5.91.

With tariffs on fertilizers pending, and a stalemate in negotiations, we remain wary of the potential impacts, but areurea price chart left to rely on our fundamental analysis. Seasonally we are due for a decline. We believe the rise in crude oil prices will keep a hard floor under fertilizer prices, but this week's downward swing across the nitrogen segment is encouraging.

As we have watched urea and anhydrous battle for influence over UAN solutions, urea currently has the upper hand. But that came only on a few weeks of price softness. It is conspicuous, however, that on an indexed basis urea is no longer the most expensive form of nitrogen in our weekly survey. In other words, UAN solutions and urea are currently clumped together within a narrow range roughly 4.5% above anhydrous. The optimist would say the consolidation between urea and UAN solutions could signal the three intend to correct lower en masse toward the lower NH3 price.

The pessimist would call anhydrous undervalued at its current price point. Declining corn prices will likely be a weight on anhydrous ammonia. But with crude oil futures resetting to a higher range, a new custody battle is uan32 price chartbrewing for the nitrogen segment between crude and corn. But we cannot ignore the role of natural gas in the price of nitrogen, especially with an increase in natgas-based N production in the U.S.

Natural gas has been on a steep downtrend since August futures peaked around $3.04 in mid-June. Futures appear to be setting up for a test of the contract low placed in February 2018 at $2.69. But traders may also consider that a buy signal, potentially supporting higher natgas futures. According to EIA, U.S. natural gas supplies are 24% below year-ago and 19.2% below the 5-year average which is normally a bullish fundamental signal. Traders, indeed are adopting a more bullish mindset, which would be bullish fertilizer.

Seasonally, however, we expect nitrogen to continue lower as a whole for the time being. We will be looking for opportunities to book fall and spring nitrogen sometime ahead of harvest.

December 2019 corn closed at $3.87 on Friday July 13. That places expected new-crop revenue (eNCR) per acre based on Dec '19 futures at $626.26 with the eNCR18/NH3 spread at -105.56 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread narrowed 18.78 points on the week.


Nitrogen pricing by pound of N 7/18/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.32
$0.40 1/4
$0.45 1/2
$0.43 1/4
Year-ago
$0.29 1/2
$0.37
$0.43
$0.41

The Margins by lb/N -- UAN28% is at a 1 1/4 cent premium to NH3 this week. UAN32% is at a 1 1/4 cent premium to anhydrous ammonia. Urea holds a 3 1/4 cent premium to NH3.


Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
32 cents
0
0
Urea
NH3 +5 cents
40 1/4/ cents
+8 1/4 cents
+3 1/4 cents
UAN28%
NH3 +12 cents
45 1/2 cents
+13 1/2 cents
+1 1/2 cent
UAN32%
NH3 +10 cents
43 1/4 cents
+11 1/4 cents
+1 1/4 cent

nitrogen indices price chart

 

 

 

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