The NFiles: Unchanged Outlook Inspires Fresh Analysis

Posted on 03/09/2017 10:12 AM

 

  • Anhydrous is $158.36 below year-ago pricing -- lower $10.46/st this week at $499.14.
  • Urea is $113.75 below the same time last year -- lower $3.44/st this week to $316.17.
  • UAN28% is $72.95 below year-ago -- lower $4.01/st this week to $230.33.
  • UAN32% is priced $79.92 below last year -- lower $1.25/st this week at $258.82.

nh3"Anhydrous ammonia took the lead in this week's nitrogen segment declines, falling $10.46 by the short ton regionally. Ohio led NH3's charge lower falling $71.91 as Iowa dropped $33.40 and North Dakota fell $11.18. Four states were unchanged and only Missouri posts a higher NH3 price, up 30 cents per short ton.

UAN28% was led lower by Ohio as well, which fell $21.37 as Michigan fell $13.23 and Wisconsin softened $11.07. Five states are unchanged and no state posts a higher price on UAN28% this week.

UAN32% was more mixed and fell just slightly this week, led by declines in Iowa to the tune of $18.70 along with Illinois, down $5.37. Six states were unchanged on the week as Missouri firmed $7.12 to lead gains as Nebraska firmed $2.12 and Kansas added 2 cents per short ton.

UreaUrea fell under pressure from a $37.50 decline in Iowa and a $3.37 drop in North Dakota. Four states were unchanged as Ohio and Missouri are each up about three bucks.

We ran a new kind of analysis earlier this week in an article titled "State-to-state Spreads and Predictability" in which we looked at the highest and lowest statewide price posted for a given nutrient, and the difference between the two by percentages. Logically, we would expect downside action to exhaust itself in the demand discovery process, which means all state prices will eventually stabilize in relation to each other. We will be digging deeper on this new analysis in the coming weeks, but a look at the nitrogen segment percentages suggests we are on to something here.

I noted in the spreads article that our firm foundation in the fundamentals of the markets gives us confidence that we will be able to discern the correctness of our assumption based on the spread percentages, and that is especially true within the nitrogen segment. That UANanalysis has anhydrous exhibiting a spread of 31.57% this week with UAN28% at 30.48% and UAN32% at 41.96%. Each of those seem to indicate at least another week of price pressure. Urea is a little different and as Chinese exporters have slowed the flow of urea out of that country from last year, we have expected the market to stabilize sooner than the rest of the N segment.

This week urea posts a 16.14% spread, roughly half of the rest of the segment. That may support our idea that urea will soon level-off since the narrow spread suggests downside action is exhausting.

We maintain our hand-to-mouth approach which is part of an overall outlook which has not changed much in several months. It is that lack of change in our outlook that inspired the fresh look at the numbers, and our pursuit of confirmation of our projections. Since we have only been working on this for a few days, we have much to learn, but click the link above to view that article and take a look at the percentages we posted in a handy table.

December 2017 corn closed at $3.76 on Friday, September 30. That places expected new-crop revenue (eNCR) per acre based on Dec '17 futures at $594.59 with the eNCR15/NH3 spread at -95.45 with anhydrous ammonia at a discount to expected new-crop revenue. The spread widened 16.71 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $2.98 per bushel.

Nitrogen pricing by pound of N 10/4/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.30
$0.35
$0.41
$0.40 1/2
Year-ago
$0.40 3/4
$0.48
$0.54 1/4
$0.52 3/4

The Margins -- UAN32% is overpriced by 1/2 cent compared to NH3. Urea is at parity with anhydrous ammonia; UAN28% solution is 1 cent below NH3 on price.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
30 cents
0
0
Urea
NH3 5 cents
35 cents
5 cents
0
UAN28%
NH3 12 cents
41 cents
11 cents
-1 cent
UAN32%
NH3 10 cents
40 1/2 cents
10 1/2 cents
1/2 cent

 

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