The NFiles | Rising Tide Floats Nitrogen's Boat

Posted on 05/24/2018 10:58 AM


  • Anhydrous is 80 cents below year-ago pricing -- lower $4.23/st this week at $523.81.
  • Urea is $22.94 above the same time last year -- higher 50 cents/st this week at $373.91.
  • UAN28% is $4.21 below year-ago -- higher $3.84/st this week to $248.04.
  • UAN32% is priced $5.23 above last year -- higher 50 cents/st this week at $281.08.

UAN28% led gains in the nitrogen complex this week with Wisconsin up $18.70 and Minnesota adding $10.11.Five states were unchanged as only Michigan declined, off 68 cents per short ton.

UAN32% was right behind 28% with Minnesota up $11.60 and Michigan $8.98 higher. Eight states were unchanged and no state posted a lower 32% price this week.anhydrous price chart

Urea gained 50 cents on the week with Minnesota up $3.84 and Wisconsin adding $2.76. Five states were unchanged with South Dakota off $4.43 and Kansas falling 42 cents.

Anhydrous ammonia was our only decliner in the nitrogen segment this week. Minnesota careened $29.35 lower, Michigan dropped $18.51 and North Dakota fell $11.51. Six states were unchanged as Kansas posted our only gains... up 17 cents per short ton to $493.68 -- the lowest per short ton price in our anhydrous survey this week.

It is not uncommon for anhydrous to begin its seasonal downward trek earlier than the rest of the nitrogen segment. We have said it before... anhydrous is gaining popularity at sidedress, but the early summer still belongs to UAN. That will keep a floor under UAN for the next few weeks, but both 28 and 32% are priced fairly closely to NH3 and should have little trouble correcting to NH3's level in short order once demand runs out.

Of concern this week is a bulletin following the BMO Capital Markets Annual Ag Conference. Some bullet points from urea price follow:

  • "Among the hot topics at last week's BMO Farm to Market conference: Nitrogen prices are expected to continue to rally..."
  • "Nutrien (NYSE:NTR) CEO Chuck Magro continued to see a strong potash market and expects higher nitrogen prices on tighter global supply and demand..."
  • "CF Industries (NYSE:CF) sales VP Bert Frost said nitrogen prices should rise significantly this year and that U.S. sanctions on Iran could be positive for the urea market as the move could tighten supply."

My thought is, while these industry experts and manufacturing kingpins expect higher world nitrogen prices based on tightening supply and demand fundamentals, there are two major factors that may limit nitrogen price strength here at home. The first is a corn planted acreage below 90 million acres. That will crimp demand for nitrogen, and allow supplies to replenish quickly this summer. If the U.S. was expected to put in 95 million acres, I would be a whole lot more concerned about fertilizer supplies.

That brings us to our second factor which may blunt nitrogen price increases... domestic production. With new projects undoubtedly humming at the top end of production capacity, any supply/demand imbalance will be easily remedied by fresh supplies hitting the domestic market.UAN price chart

So while the retail fertilizer market seems to be functioning normally -- with the possible exception of mildly overpriced urea -- prices will likely continue higher for UAN for a few weeks, and then gradually begin to retreat. I do agree with the industry folks calling for higher prices, however, and I do not believe the offseason price break will cut as deeply as last summer's low.

The good news is Dec 2018 corn seems very comfortable around $4.20. Any increases in fertilizer prices have been outrun by a greater increase in expected new-crop corn revenue. Price protection is definitely something to consider and I can speak for all of us at Pro Farmer when I say managing risk in an uptrending market is ALWAYS a good idea. And if I may bring up crude oil for just a moment, we have not found a direct correlation between corn prices and crude oil. But crude oil is a decent barometer for the general strength or weakness of the rest of the commodity sector.

So even if nitrogen prices continue to rise in the next month or so, it will likely be accompanied by corn futures with stable footing above $4.00, a strengthening commodity sector as a whole and genuine opportunities to profit for those who pay attention and act decisively. We will be looking for signs of an offseason low and will book aggressively for fall and for spring at the same time as we do believe the rising tide in commodities will lift fertilizer's boat along with it.

December 2018 corn closed at $4.22 on Friday May 18. That places expected new-crop revenue (eNCR) per acre based on Dec '18 futures at $674.90 with the eNCR18/NH3 spread at -151.09 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread widened 17.83 points on the week.

Nitrogen pricing by pound of N 5/23/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.32 1/4
$0.41 1/4
$0.44 1/4
$0.32 1/4
$0.45 1/4

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

Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
32 1/4 cents
NH3 +5 cents
41 1/4 cents
+9 cents
+4 cents
NH3 +12 cents
44 1/4 cents
+12 cents
NH3 +10 cents
44 cents
+11 3/4 cents
+ 1 3/4 cent

nitrogen indices chart




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