As we roll into our third year of data collection, the numbers are starting to reveal their secrets. It has been a tricky past two years for fertilizer prices -- One year anhydrous is too high and the next, very low... and here we are again with NH3 overpriced compared to expected new-crop revenue (eNCR).
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You can see it clearly on the chart at right which compares eNCR with the average per-ton price of NH3. The chart at right shows anhydrous followed the general trend of corn, and a little number crunching suggests the charts have it right.
Let's go back to 2012-'13 when the national average on-farm cash price was $6.89 at a yield of 123.4bu/acre. That put revenue at $850.22 per acre. In 2013-'14, corn prices slipped to an estimated $4.55 in cash, but yield was strong at 158.8bu/acre. That puts estimated national average on-farm returns at $722.54.
That marks a 15% decline y-o-y for corn revenue per acre. Our nutrient composite 2012-'13 average ending peg was 466.153 with 2013-'14 at 400.426 -- a 14.1% decline.
So from one season to the next, as corn revenue per acre declined 15%, nutrient declined 14.1% over the same period.
When we look ahead to booking nutrient for fall, the outlook calls for more pressure on nutrient. If we use projected $4.20 as our average on-farm cash price and USDA's projected 165.3bu yield, new-crop revenue would fall to $694.26 -- a 3.9% decline.
But nutrient ticked higher through spring to a composite of 420.457 -- a 4.7% increase from 2013-'14 average. As projected corn revenues have declined 3.9%, nutrient has increased 4.7%. If projected 165.3bu yield at $4.20 cash is correct, these numbers suggest an 8.6% downside correction in year-end 2014-'15 nutrient prices.
The question is, where will those decreases in nutrient pricing come from? We figure our eNCR based on Friday's close from the previous week, since that is when our weekly price data collection ends for each week. That number was $4.57 for December futures. At trendline 160bu, that puts us at $691.20 per acre -- a 7.4% spread in favor of anhydrous priced at current $746.70.
It is necessary for anhydrous to realign this spread and it has shown over the years that it wants to. Yes, phosphate is priced high year-over, and we do expect some degree of pressure on phosphate pricing. UAN and urea are expected to soften and that will help shoulder some of the downside load for NH3, and as eNCR has retreated 8.6% to nutrient's 4.7% advance, either nutrient has to fall 8.6%, or cash corn prices need to correct higher.
With bearish attitudes pervasive in the trade and on the farm, we look for nutrient prices to settle in at an annual average 8.6% below today's pricing. But that does not mean a uniform price slide for nutrient across the board, and supply/demand balances will also have their say in the matter.
The overarching fertilizer industry expects nitrogen margins and P&K margins to realign this summer and crunching the numbers, it is not difficult to see why so many believe that. I would prefer to see the 8.6% gap between corn returns and nutrient pricing heal itself with higher corn prices, and it may. But realistically, the silver lining of lower corn prices is lower nutrient prices and our expectation is for fertilizer prices to respond lower, as guided by lower corn futures.