The NFiles | Tightening Supplies to Support N into 2019

Posted on 11/02/2018 12:51 PM

 

  • Anhydrous is $104.96 above year-ago pricing -- higher $3.94/st this week at $513.18.
  • Urea is $76.39 above the same time last year -- up $15.11/st this week at $414.49.
  • UAN28% is $39.45 above year-ago -- higher $12.23/st this week at $259.28.
  • UAN32% is priced $43.12 above last year -- higher $30.90/st this week at $295.41.

UAN32% led gains this week with Ohio up $130 as Illinois added $118.50 and Iowa gained $40.21. Three states were unchanged as Missouri fell $40.40 and Nebraska softened $2.51.

Urea was higher on strength in Missouri to the tune of $56.97 as Iowa gained $44.12 and Ohio firmed $29.97. No state was unchanged as Minnesota posted the only decline in urea, off $3.84 on the week.

UAN28% was led higher by Illinois which added $62.78 as Wisconsin gained $32.68 and Iowa firmed $26.16. Two states were unchanged as, once again, Minnesota posted the only decline... off $10.70.nh3 price chart

Anhydrous ammonia was up slightly compared to gains in the rest of the nitrogen segment. Missouri firmed $17.91 and Iowa gained $10.01. Six states were unchanged as Kansas fell 90 cents by the short ton, our sole decliner in NH3 this week.

This week's higher prices continue to build on recent price strength, and while the market is at a seasonal demand peak currently, prices are not likely to soften sharply. There are a number of factors feeding the nitrogen bull right now.

The first is an expected increase in corn acreage for the 2019 growing season. Estimates are hovering around 93 million acres for corn as soybean acreage expectations fall below 83 million. Meanwhile, wheat acreage is also expected to increase in the coming year. Those acreage forecasts are based on ideas the trade conflict with China will continue to depress soybean prices. But a rebound in export demand for U.S. soybeans, either by resolution of the China trade conflict or as a result of improved demand elsewhere could reshuffle the acreage deck. If realized, the forecast for higher corn and wheat acres will mean very strong demand for nitrogen amid tightening world supplies.uan32 price chart

The drawdown in available nitrogen supplies is due largely to a sharp decline in Chinese urea exports. That decline is due to a tightening regulatory environment in China as well as a 22% year-on-year rise in anthracite coal prices. Meanwhile, in an effort to limit pollution from manufacturing, Chinese manufacturers are increasingly turning to natural gas as a feedstock for nitrogen production. That could present a problem if the winter is particularly cold in that country as import demand for natgas would surge, supporting higher natural gas prices worldwide.

According to an article on worldfertilizer.com, Chinese urea exports fell to less than 5 million tons in 2017 which compares to 13.8 million tons exported in 2015. In addition, due to environmental concerns, plant operating rates sagged below 60%.

Add to the above tension between the U.S. and Iran, whose customers are looking elsewhere for urea supplies. We reported last month that India is rumored to be among nations looking for urea from other exporters to fill the supply gap left by Iran. Tightening world supplies will keep the downside very limited for urea well into 2019.urea price chart

The factors listed above have supply constraints colliding with increasing demand potential which always equates to a seller's market. It may be that in a few years, China will have switched to natgas fired urea production, and can resume higher operating rates among fertilizer manufacturers. But that will require China to increase its natural gas consumption and if manufacturers are forced to rely too heavily on imported LNG, the higher-priced feedstock will lead directly to higher-priced finished fertilizers.

So while some of the current strength in nitrogen is certainly tied to post-harvest demand, there is no supply-side cushion to keep prices in check, and offseason price softness will be extremely muted this winter.

December 2019 corn closed at $4.02 on Friday, October 26. That places expected new-crop revenue (eNCR) per acre based on Dec '19 futures at $652.21 with the eNCR18/NH3 spread at -139.03 with anhydrous ammonia priced at a discount to expected new-crop revenue. The spread narrowed 0.49 points on the week.


Nitrogen pricing by pound of N 11/1/18

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.31 1/4
$0.46 1/2
$0.46
$0.46
Year-ago
$0.24 3/4
$0.37 3/4
$0.39
$0.37 3/4

The Margins by lb/N -- UAN28% is at a 2 3/4 cent premium to NH3. UAN32% posts a 4 3/4 cent premium and urea is at a 10 1/4 cent premium to anhydrous ammonia when considered by the pound of N.


Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
31 1/4 cents
0
0
Urea
NH3 +5 cents
46 1/2 cents
+15 1/4 cents
+10 1/4 cents
UAN28%
NH3 +12 cents
46 cents
+14 3/4 cents
+2 3/4 cents
UAN32%
NH3 +10 cents
46 cents
+14 3/4 cents
+4 3/4 cents

nitrogen indices chart

 

 

 

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