Inputs Market Update: Commodity Softness Pressures Fertilizer Prices

January 19, 2016 03:29 PM

Gains tallied $0.01 to Declines' $17.12 in the regional averages.

PhosphateFertilizer continued to fall along with the rest of the commodity world. The strength of the U.S. dollar in the global markets has contributed to softness in global fertilizer trade, but as with crude oil, demand has placed just as much downward pressure on the fertilizer segment as have supplies. The trend is most evident the farther west one travels in our survey region. Dealer uncertainty to this point has kept buyers from advancing inventories beyond what they know they can sell. That has weighed on demand prospects for fertilizer producers looking to export to the U.S. Reports from Ohio are that growers applied fertilizer basically in-line with expectations but farther west, growers were less anxious to apply nutrient. Many opted to put down just a portion of what they know will be needed before planting, hoping prices would fall through the winter.

The demand softness we now see is seasonal and as spring nears, demand is going to pick up on the retail level. Some areas could see shortages if dealers wait too long before filling storehouses for spring. But since selling opportunities in the corn market have been a disappointment, a lack of corn sales used to purchase fertilizer have contributed to limiting fertilizer demand at the farm level.

UANIt is important that you speak to your preferred retailers about your intentions and their current supply. The better handle retailers have on true demand for spring, the better they will be equipped to fill orders when the time comes for wheels to turn. Improvements in the expected new-crop revenue, anhydrous ammonia spread look great on paper, but growers are not likely to sell at a corn price below the cost of production just to purchase fertilizer. That means we wait until corn rallies before anybody writes any checks for prebooked fertilizer. If we believe that the current fertilizer price softness is due in part to the general weakness impacting the entire commodity sector, it stands to reason that an improvement in commodity prices would include fertilizer price strength. I am hesitant to advise booking fertilizer at current prices as there is clearly some price softness yet to come, but as I said above, demand for spring fertilizer will have to heat up eventually. I expect that to light a fire under nutrient prices, but not until the first of March.

In this environment, growers have to focus on opportunities to make cash corn sales and use the proceeds to prebook fertilizer for spring -- the sooner, the better. Nitrogen prices are below expected new-crop revenue and that may be enough to bring buyers out of the woodwork, but even with that key spread working in our favor, it will all come down to the value of a bushel of U.S. corn to inspire a demand led fertilizer price rally.

dieselFuels are lower this week and lack of demand for crude oil and finished petroleum products is keeping a wet blanket on all crude oil related markets. Heating oil futures have been very reliant below $1.00 to start the week. That suggests farm diesel prices will continue to fall. Weather forecasters are looking ahead to the end of the week when a strong snowstorm may roll into the Northeastern U.S. Since that part of the country accounts for a huge portion of national heating oil demand, prices may surge in response. We have observed a lag between heating oil futures and retail farm diesel so if heating oil futures firm significantly, we will likely advise to book at least a portion of diesel for spring fieldwork.

For now, book farm diesel hand-to-mouth and take a good hard look at your cost of production and APH. It is unlikely that fertilizer will bottom at the same time corn tops, but making corn sales to finance fertilizer expenditures is a solid practice if one can time it right. Get in touch with your local preferred fertilizer retailer, keep an eye on your local corn basis, and expect fertilizer prices to firm slightly with spring demand.

Corn Futures -- December 2016 corn futures closed Friday, January 15 at $3.85 putting expected new-crop revenue (eNCR) at $605.16 per acre -- higher $47.07/acre on the week. With anhydrous priced at $587.69 this week, the eNCR/NH3 spread narrowed 51.18 points and now stands at -17.47. This means one acre of expected new-crop corn revenue is priced at a $17.47 premium to one ton of anhydrous ammonia.

-----------------------------------------------------------

Nutrient/Fuel
1/4/16
1/11/16
Week-over Change
Current Week
Nutrient/Fuel
Anhydrous
$602.76
$591.80
-$4.10
$587.69
Anhydrous
DAP
$507.46
$502.04
-$2.59
$499.45
DAP
MAP
$529.19
$523.85
-$3.30
$520.55
MAP
Potash
$391.37
$382.76
-$2.09
$380.67
Potash
UAN28
$280.72
$279.00
-$1.62
$277.38
UAN28
UAN32
$313.31
$312.92
1 cent
$312.93
UAN32
Urea
$387.94
$381.99
-$3.34
$378.65
Urea
Farm Diesel
$1.70
$1.67
-7 cents
$1.60
Farm Diesel
LP
$1.01
$1.02
-1 cent
$1.01
LP
Composite
620.93
607.90
-3.33
604.57
Composite