The NFiles | Nitrogen Price Discovery

Posted on 09/06/2018 11:42 AM

 

  • Anhydrous is $2.96 above year-ago pricing -- down $34.52/st this week at $453.57.
  • Urea is $48.49 above the same time last year -- off $1.61/st this week at $370.53.
  • UAN28% is $14.61 above year-ago -- lower $9.61/st this week at $237.93.
  • UAN32% is priced $8.31 above last year -- off $3.11/st this week at $258.89.

There are reports circulating that anhydrous ammonia is priced as much as $100 per short ton above the same time last year. Market watchers believe dealers are eying the potential for an increase in corn acreage in theanhydrous ammonia price chart coming year as a possible reason, but others suggest dealers are raising prices simply because they can. In fact, there is little fundamental reason for nitrogen prices to have risen so dramatically, and our survey shows quite the opposite scenario.

This week, our regional average anhydrous price is roughly in-line with the same week last year around $450 per short ton. The high this week is in Michigan at $540 with Ohio and Indiana at $535. Meanwhile, our regionwide lows are in North Dakota and Kansas around $450.

If dealers are raising prices "because they can," as a recent fertilizer newsletter suggests, the first thought to keep in mind is the time of year. Harvest is underway in southern areas and around 2 to 3 weeks out for northern parts of corn country. That means demand for fall applications will soon escalate, bringing in seasonal buyers. As fertilizer prices have fallen over the past few years, dealers have had to cut prices to remain competitive in some areas. Bear in mind, it is no sin to raise prices, nor is it bad form to to try to widen profit margins in times of high demand.

But if the "because they can" pricing model is to blame for the higher prices reported by some, then we can expect32% price chart prices to fall once seasonal demand is exhausted. Another term for raising prices seasonally is price discovery. This is the free market at work. If people are willing to pay higher prices, retailers would be foolish to let such an opportunity pass them by. But, if in the process of price discovery it is revealed that farmers are unwilling to pay a given posted price, asking prices will have to fall.

If we look at the nitrogen segment as a whole, on an indexed basis, UAN and urea are still priced at a hefty premium to anhydrous ammonia. If NH3 can hold its ground at this week's low price, UAN will soften as well, so long as urea maintains its downward trajectory. But even if urea firms in the coming weeks -- which would be a contra-seasonal trend -- UAN will look to find the midpoint between urea and NH3. That could pressure UAN28% to somewhere around $210 regionally and 32% to $225. There we would find UAN solutions priced fairly against anhydrous ammonia's yardstick.

All in all, while I am willing to believe that some retailers are priced more highly than others, our survey does not 28%support the rumor that NH3 is priced $100 per short ton above last year on a large scale. News like that makes for a sexy headline and, in the online world, drives page views and clicks on stories. I would advise you have a chat with your preferred retailer regarding fall applied nitrogen with the full understanding that sharply higher prices have little fundamental basis beyond that of seasonal demand. A savvy negotiator should be able to take a chunk out of the premium his local bid holds over the same time last year.

Remember, a high price tag does a seller no good if it prices buyers out of the market. While currently we are showing very favorable prices across the Midwest for anhydrous, there is likely still room to the downside once fall demand is satisfied. We advise a hand-to-mouth strategy for the time being for spring applications, and will wait on signs of a price recovery before injecting any urgency into booking fall anhydrous.

December 2019 corn closed at $3.94 on Friday August 31. That places expected new-crop revenue (eNCR) per acre based on Dec '19 futures at $638.37 with the eNCR18/NH3 spread at -184.80 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread widened 3.46 points on the week.


Nitrogen pricing by pound of N 9/5/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.27 1/4
$0.41
$0.42 1/4
$0.40 3/4
Year-ago
$0.27
$0.36 1/4
$0.39 1/2
$0.39

The Margins by lb/N -- UAN28% is at a 3 cent premium to NH3. UAN32% posts a 3 1/2 cent premium and urea is at an 8 3/4 cent premium to anhydrous ammonia when considered by the pound of N.


Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
27 1/4 cents
0
0
Urea
NH3 +5 cents
41 cents
+13 3/4 cents
+8 3/4 cents
UAN28%
NH3 +12 cents
42 1/4 cents
+15 cents
+3 cents
UAN32%
NH3 +10 cents
40 3/4 cents
+13 1/2 cents
+3 1/2 cents

nitrogen indices chart

 

 

 

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