The NFiles | Nitrogen and the Energy Markets

Posted on 10/04/2018 11:52 AM


  • Anhydrous is $79.03 above year-ago pricing -- higher $6.04/st this week at $500.14.
  • Urea is $62.42 above the same time last year -- up $10.70/st this week at $389.90.
  • UAN28% is $22.16 above year-ago -- higher $3.13/st this week at $243.36.
  • UAN32% is priced $19.38 above last year -- higher 34 cents/st this week at $262.42.

Urea led gains in the nitrogen segment this week. Illinois firmed $50.94 as Kansas firmed $17.57 per short ton. No states wereNH3 price chart unchanged as Wisconsin fell $6.30 and Ohio fell 19 cents by the short ton.

Anhydrous firmed on a $25 increase in Ohio and a $24.91 rise in North Dakota as Wisconsin added $15.20 on the week. Three states were unchanged as Iowa NH3 fell $5.03, our sole declines from state to state in anhydrous ammonia.

UAN28% was higher on strength in Minnesota to the tune of $16.48 as Nebraska firmed $10.66. Two states were unchanged as Ohio fell $11.79 and Illinois softened $6.54.

UAN32% firmed just slightly with Nebraska up $8.70 and Iowa gained $7.13. Five states were unchanged as Indiana posted the only decline in 32%, off $27.40.

Much of the current price strength in nitrogen could easily be called seasonal pressure and there is an element of that here at harvest WTI and nitrogentime. But energy markets have been on a tear and that is also supporting fertilizer prices, especially nitrogen. But if we overlay our indexed nitrogen prices onto a WTI futures chart, there appears to be little correlation between the two (see right). Note: we have not indexed the nitrogen prices depicted at right with WTI crude futures prices, but the trend through summer 2018 is useful in showing the lack of influence from energy markets over nitrogen prices.

Had the energy markets and nitrogen prices better correlated, I would have spent more time making the charts at right a little neater. But even a casual glance at the WTI/nitrogen chart shows there has not yet been a notable relationship between the two.

The same appears to be true of natural gas futures. We have charted the same time period encompassing summer 2018 to the present week and, as with WTI, natgas has taken off to the upside. While we have seen recent strength in nitrogen prices, the magnitude of that gain has been far less aggressive than that observed in natgas and WTI futures. This week, UAN solutions remain tied fairly closely to anhydrous ammonia as urea takes of to the upside. With anhydrous being most popular in the United States, it bodes well nitrogen and natgasthat UAN appears more willing to track NH3's price path than it is to follow urea.

I must warn, however, that a lack of a sharp upside move in nitrogen prices amid sharply higher WTI and natgas futures does not mean there is no risk. Fertilizer prices tend to move sluggishly compared to energy futures. A big part of that is the amount of headline chasing that goes along with any traded commodity in the futures market. WTI crude in particular is known to be subject to headline related volatility. Nitrogen prices are insulated from that to some degree by the fact that price discovery comes from the retail level with boots on the ground.

In other words, we have seen WTI crude futures spring higher unexpectedly on this political headline or that issue on far-flung foreign shores. Nitrogen is far less nimble on the price side since returns to retailers depend on direct purchases from end users. The farther removed a product is from actual end users, the more volatility that product or commodity will manifest. In other words, fertilizer prices are closely tied to price discovery and if nitrogen prices skyrocket quickly, buyers may well look on down the road for a better deal, or make other adjustments to their fertility program or purchasing methods.

If energy markets remain at their current, lofty levels, there is certainly risk that nitrogen prices will grind higher if feedstock prices trimuan price chart manufacturing margins.

So we are back where we started in this piece. Seasonal demand is playing a role in this fall's higher nitrogen prices. Even though there is only a mild, abstract price relationship between energy futures and fertilizer prices, there is risk higher WTI and natgas futures could limit off-season price pressure. We believe nitrogen prices have climbed to a level that is making farmers rethink fall applications, not wanting to risk winter N loss. That may mean post-harvest supplies will overhang, nudging retailers to lower prices. That will be the opportunity we are looking for around the first of the year, perhaps into mid-February.

But be advised, as prices firm into peak fall demand, they are likely to do the same into peak spring application demand, and if our analysis is correct, a supply overhang from muted fall purchases will quickly turn to heightened demand come spring.

December 2019 corn closed at $3.91 on Friday September 28. That places expected new-crop revenue (eNCR) per acre based on Dec '19 futures at $633.18 with the eNCR18/NH3 spread at -133.04 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread narrowed 9.50 points on the week.

Nitrogen pricing by pound of N 10/3/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.30 1/2
$0.43 3/4
$0.41 3/4
$0.36 3/4
$0.38 1/4

The Margins by lb/N -- UAN28% is at a 1 1/4 cent premium to NH3. UAN32% posts a 1 1/4 cent premium and urea is at a 7 1/2 cent premium to anhydrous ammonia when considered by the pound of N.

Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
30 1/2 cents
NH3 +5 cents
43 cents
+12 1/2 cents
+7 1/2 cents
NH3 +12 cents
43 3/4 cents
+13 1/4 cents
+1 1/4 cent
NH3 +10 cents
41 3/4 cents
+11 1/4 cents
+1 1/4 cent





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