The NFiles | Offseason Price Risk Looms

Posted on 08/03/2018 1:04 PM

 

  • Anhydrous is $39.15 above year-ago pricing -- off $3.62/st this week at $510.61.
  • Urea is $33.74 above the same time last year -- down $4.53/st this week at $359.25
  • UAN28% is $22.32 above year-ago -- higher $2.49/st this week at $257.78.
  • UAN32% is priced $16.51 above last year -- lower $5.65/st this week at $273.02.

UAN32% led declines in the nitrogen segment this week With Iowa off 38 cents and Kansas down 24 cents. anhydrous price chartMinnesota led gains, firming 90 cents. A few states posted "no bids" this week suggesting refill is beginning in Illinois, Indiana and Missouri.

Urea was softer on the week led by Michigan, off $18.80 as Iowa fell $8.79. Two states were unchanged as Kansas firmed 45 cents and Minnesota gained 27 cents per short ton.

Anhydrous ammonia was lower as well with Iowa off $29.66, North Dakota down $26.05 and Missouri off $5.19. Five states were unchanged as Illinois gained $20.49 and South Dakota firmed 20 cents.

UAN28% posted the only gain in the nitrogen segment this week with Illinois up $21.71 and Minnesota $17.35 higher. Six states were unchanged as Michigan fell $3.52 and Iowa and Indiana each dropped around $2.80 per short ton.uan28 price chart

Our outlook for a near-term price swoon followed by slightly higher prices following harvest still holds. Natural gas prices are trending higher which is generally supportive for nitrogen prices. News out of Nutrien this week was upbeat regarding overall fertilizer demand with a lean toward higher nitrogen and potash prices by the end of the year.

According to a Reuters article this week, Brazilian farmers are projected to see a 20% rise in fertilizer and chemical prices. The article expects the biggest impact to be seen on soybean plantings suggesting P&K will show the greatest price increase. Higher shipping costs are to blame for the price hike, and the extra expense may trim some soybean acreage in the upcoming growing season.

If Brazilian farmers trim applications to maintain margins, U.S. prices may fall as wholesalers seek out buyers for the surplus. That would add some much needed price relief to phosphates, but since the Reuters article was focused on soybean plantings, it is unclear if nitrogen would be impacted. That will likely be made more clear once farmers begin making decisions regarding the safrinha corn crop. That crop will be planted somewhere between January and March, depending on when the primary crops are harvested.urea price chart

The above supports our expectations for lower nitrogen prices between now and harvest, but leaves the winter forecast murky. As with Brazilian soybeans, if nitrogen for safrinha corn is viewed as too costly, Brazilian farmers may trim applications to save money, potentially leaving a surplus in search of a home. However, remember the whole reason for the higher fertilizer cost projection is shipping, and the higher rates will also impact U.S. imports.

This would likely be a bigger fertilizer price mover in the spring than in the fall. We have suspected this will be a year when prudent buyers book spring 2019 nitrogen needs at the harvest fertilizer price low, and, as I mentioned above, our outlook is thus far unchanged.

December 2019 corn closed at $4.02 on Friday July 27. That places expected new-crop revenue (eNCR) per acre based on Dec '19 futures at $650.48 with the eNCR18/NH3 spread at -139.87 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread widened 12.27 points on the week.


Nitrogen pricing by pound of N 8/3/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.31
$0.40
$0.45 3/4
$0.42 3/4
Year-ago
$0.29
$0.36 1/2
$0.42
$0.40 3/4

The Margins by lb/N -- UAN28% is at a 2 3/4 cents premium to anhydrous. UAN32% holds a 1 1/4 cent premium to anhydrous ammonia. Urea's premium to NH3 firmed 1/4 cents on the week to 4 cents per pound of N.


Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
31 cents
0
0
Urea
NH3 +5 cents
40 cents
+9 cents
+4 cents
UAN28%
NH3 +12 cents
45 3/4 cents
+14 3/4 cents
+2 3/4 cents
UAN32%
NH3 +10 cents
42 3/4 cents
+11 3/4 cents
+1 3/4 cents

nitrogen indices chart

 

 

 

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