The NFiles | Nitrogen Mostly Lower to Unchanged

Posted on 01/10/2018 10:38 AM

 

  • Anhydrous is $24.81 below year-ago pricing -- higher $1.56/st this week at $446.55.
  • Urea is $10.79 above the same time last year -- unchanged this week at $350.00.
  • UAN28% is $2.03 above year-ago -- lower $2.96/st this week to $222.35.
  • UAN32% is priced $8.47 below last year -- lower 6 cents/st this week at $244.74.

nh3Anhydrous ammonia posted the only gains in the nitrogen segment this week. Illinois added $36.41 as Missouri gained $15.05 and Kansas firmed $12.38. Five states were unchanged as Nebraska fell $18.16 to lead declines, Minnesota fell $15.80 and Indiana softened $12.23.

Urea was unchanged on the week as Iowa gained $11.90 as Nebraska fell $14.40 and Illinois dropped $4.97. Five states were unchanged.

UAN28% led declinbes within the segment with Minnesota off $18.87 and Kansas down $3.16. Seven states were unchanged as Nebraska firmed $9.07 and Indiana gained 68 cents.

UAN32% fell just a few cents on the week led by Kansas, which posted our only decline in 32% on the week. Eight states were unchanged with Illinois up $4.64 and Minnesota $2.95 higher.

Nitrogen prices are on the rise for a few reasons. The first is a sharp decline in Chinese urea production andurea exports. The reason is increased demand for natural gas in China as an attempt to wean the nation's industrial production sector off coal. Those efforts came at the same time the mercury dropped in China and as citizens reached for the thermostat, demand for home heat derived from natural gas rose as well. It is thought that nearly 10 million metirc tons of urea production capacity has since been taken offline as natural gas supplies run thin, and consumption surges.

In response, the United States has increased urea exports to fill the supply shortfall. So as U.S. production has increased, Chinese production has slowed. That, in itself, would be enough to support higher urea prices, and since urea has been known to be a price dirver in the nitrogen segment, we would expect anhydrous ammonia to follow urea higher.

But anhydrous has its own reasons to firm. Most noteably, the high rate of applications after harvest. Retailers have struggled with thinning margins on in-season purchases, and as farmers decided to apply nitrogen during the post-harvest application window, price discovery allowed prices to creep higher. It is important to point out here UAN chartthat although NH3 prices are 8.5% higher than the first week of October 2017, anhydrous remians 5.3% below the same week last year and well below expected new-crop corn revenue. UAN solutions are priced in-line with year-ago and urea is slightly above.

As far as the influence of urea over the nitrogen segment, anhydrous seems to be winning the custody battle for UAN solutions. UAN28% and 32% are both priced below the midpoint of anhydrous and urea on an indexed basis, indicating UAN is following NH3 more closelsy than it is urea.

There is a glimmer of hope for softer nitrogen prices by spring, however. Since nitrogen prices are higher on robust fall demand, and Chinese natgas demand is seasonally high in response to cold weather, we can expect nitrogen supplies to increase through the winter and into spring. That will help at least limit the upside, and will likely apply at least some degree of pressure to the market.

We do not expect nitrogen prices to revisit the extreme lows we noted late last summer. But since we booked 70% of our spring/summer nitrogen needs at that time, we have some breathing room to wait and let the market come to us.

December 2018 corn closed at $3.84 on Friday, January 5. That places expected new-crop revenue (eNCR) per acre based on Dec '18 futures at $609.22 with the eNCR17/NH3 spread at -162.67 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread narrowed 1.57 points on the week.


Nitrogen pricing by pound of N 1/10/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.27 1/4
$0.39
$0.39 1/4
$0.38 1/2
Year-ago
$0.29
$0.38
$0.39
$0.39 1/4

The Margins by lb/N -- UAN32% is at a 1 1/4 cent premium to NH3. Urea is 6 3/4 cents above anhydrous ammonia; UAN28% solution is priced in-line with NH3.


Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
27 1/4 cents
0
0
Urea
NH3 +5 cents
39 cents
+11 3/4 cents
+6 3/4 cents
UAN28%
NH3 +12 cents
39 1/4 cents
+12 cents
0
UAN32%
NH3 +10 cents
38 1/2 cents
+11 1/4 cents
+1 1/4 cent

nitrogen indices

 

 

 

Add new comment