The NFiles | Revisiting Energy Futures and Nitrogen

Posted on 10/10/2018 3:54 PM

 

  • Anhydrous is $89.88 above year-ago pricing -- higher $6.35/st this week at $506.48.
  • Urea is $53.19 above the same time last year -- up 15 cents/st this week at $390.06.
  • UAN28% is $22.86 above year-ago -- higher 32 cents/st this week at $243.67.
  • UAN32% is priced $18.33 above last year -- higher 13 cents/st this week at $262.54.

Anhydrous ammonia led gains in the nitrogen segment with Michigan up $50 per short ton as Wisconsin addedanhydrous price chart $23.53. Four states were unchanged as Kansas fell $4.35 and Minnesota dropped $3.28.

UAN28% was higher on a $7.09 rise in South Dakota and a $6.17 price hike in Minnesota. Five states were unchanged as Wisconsin fell $11.76 and Kansas softened $2.22 per short ton.

Urea was slightly higher with South Dakota up $8.39 as Kansas added $3.69. Three states were unchanged as Indiana fell $5.14 and Minnesota fell $4.22.

UAN32% added the mildest gains of the nitrogen segment led by Michigan, up $5 bucks even and Iowa, which firmed $2.42. Seven states were unchanged with Minnesota off $3.73 and Kansas falling $3.03.

Nitrogen prices continued to march higher on the week but the uptrend flattened notably from last week. We talked last week about the possibility strength in nitrogen fertilizers could be linked to strength in energies. The charts we crudely crafted last week showed little if any correlation. But interestingly, the underlying fundamentals in the nitrogen and crude oil markets are impacting each similarly.urea price chart

The Trump administration's sanctions on Iran are cutting both crude oil and urea shipments coming out of Iran. That has urged world crude oil prices higher, but it has also added support to urea. It has been reported that India has been unable to count on Iranian urea for its nitrogen needs, forcing that country to look elsewhere. That extra demand has led U.S. producers to divert ammonia from UAN and anhydrous production to urea production with an eye on the export market.

So as we have tracked down one source of support for nitrogen prices -- crude oil prices as well -- the question remains, how long will prices rise, and will we see an offseason setback. The supply shortfall based on sanctions against Iran -- and let's not forget the potential loss of Chinese supplies -- will leave a void that nitrogen producers wi9ll be anxious to fill. However, the timing on filling that void will be key to downside potential for spring purchases, especially purchases of anhydrous ammonia.uan

There is also the potential that, as nitrogen producers focus more on urea production, fall NH3 applications may not be as robust in years past due to the rain delayed harvest. This could all even out by spring if post-harvest applications fall short of expectations, leaving the potential for a supply overhang. There is certainly upside risk and at least a portion has already been expressed. We believe it prudent to wait until the dust settles and look to book nitrogen after the first of the year.

December 2019 corn closed at $4.00 on Friday, October 4. That places expected new-crop revenue (eNCR) per acre based on Dec '19 futures at $648.75 with the eNCR18/NH3 spread at -142.27 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread widened 9.23 points on the week.


Nitrogen pricing by pound of N 10/10/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.30 3/4
$0.43
$0.43 3/4
$0.41 1/4
Year-ago
$0.25 1/2
$0.37 1/2
$0.39
$0.38 1/2

The Margins by lb/N -- UAN28% is at a 1 cent premium to NH3. UAN32% posts a 1/2 cent premium and urea is at a 7 1/4 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
30 3/4 cents
0
0
Urea
NH3 +5 cents
43 cents
+12 1/4 cents
+7 1/4 cents
UAN28%
NH3 +12 cents
43 3/4 cents
+13 cents
+1 cent
UAN32%
NH3 +10 cents
41 1/4 cents
+10 1/2 cents
+1/2 cent

nitrogen indices chart

 

 

 

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