Near-term Fertilizer Outlook | Advice Updated

Posted on 02/13/2020 11:16 AM

Near-term Fertilizer Outlook | Advice Updated

  • Nitrogen -- significant upside risk in urea and UAN, anhydrous still searching for a bottom.
  • Phosphate -- book spring phosphate needs at current prices.
  • Potash -- little near-term movement expected, but presents a buying opportunity at current prices.

Nitrogen –

The near-term outlook for nitrogen is a mixed bag. The wholesale markets indicate upside risk is building in urea and UAN. Meanwhile, anhydrous ammonia is having trouble confirming a price floor. Seasonally, nitrogen will firm ahead of spring and summer fieldwork. At this point, those looking for a lower anhydrous price are simply bottom picking.

The reality of the situation is urea, UAN and anhydrous are all priced in lock step roughly 14% below the same time last year. In other words, if your nitrogen program was affordable last year, as long as corn prices don’t fall off a cliff, your nitrogen will cut no deeper into your ROI than it did last year if you should choose to book today.

If you ask me right now if you should book urea, UAN or anhydrous, I can find no reason to discourage you. I am still waiting on anhydrous to demonstrate a clear bottom – but that’s my job. We have chosen to wait for another week before booking nitrogen, but we fully expect to pull the trigger in the next week or two.

Phosphates –

DAP and MAP have corrected dramatically over the past few months. Currently, those two phosphate products are well below year-ago with DAP off 21% and MAP down 24% year-on-year. This presents a clear buying opportunity.

Of note, MAP is currently priced at a discount to DAP. That is upside-down when compared to history and suggests a near-term price hike in MAP to correct the disparity. North American phosphate manufacturers have already said they will implement efforts to maintain margins, which translates to lower production volumes and higher prices.

Fall phosphate applications were lacking, suggesting solid preplant demand. Retail prices are beginning to rise and we feel the time is right to purchase spring phosphate. Our appetite for risk is exhausted for DAP and MAP and we advise you book all spring phosphate needs at current prices. A correction to the upside is pending. Book now to take advantage of the relatively low phosphate prices available now.

Potash –

Vitamin K is currently priced at a 5% discount to the same time last year. Potash has been found to be a decent indicator of movements within the fertilizer segment. This humble nutrient seems to understand “correct” pricing. Currently, when run through our indexing formula, retail potash prices are at a premium to anhydrous ammonia but are priced in-line with our overall Nutrient Composite Index. That injects roughly $20 per short ton of upside risk into retail anhydrous prices.

Retail potash prices have been very stable and do not seem to be poised to move higher or lower anytime soon. While we found imperative to book now in phosphate, even though potash is priced favorably right now, that imperative is much softer for potash. In other words, if you asked me directly if you should book potash right now, I would encourage you to deal with potential price volatility in phosphate and nitrogen first.

For the sake of simplicity, I would argue booking phosphate and potash at the same time is probably a good idea, and now is a fine time to cover spring needs. But as I said before, there is less concern for higher prices in potash than there is for phosphate and nitrogen.

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