Inputs Market Update: Fertilizer Continues Lower... But is it Low Enough?

November 23, 2015 04:04 PM


11232015AnhydrousGains tallied $10.54 to Declines' $20.30 in the regional averages.

Phosphate price action continues to be a wild ride. This week our two biggest movers are DAP and MAP. DAP is sharply higher on upside swings in Nebraska, Wisconsin and Ohio. MAP is sharply lower on price slides in Michigan, Indiana and Nebraska. Anhydrous and UAN solutions were lower as was potash. The state of Iowa got a solid shot of snow late last week and that will pull some demand from the market in areas where the snow sticks. Other areas are reporting decent nitrogen demand for fall applications. Downside price action in anhydrous ammonia was led by Nebraska while most states were within a dollar of unchanged.

Once again, corn is the one who will have to do the work in narrowing the revenue gap between fertilizer and expected new crop revenue and with the election of Argentine Presidential candidate Macri, export competition for U.S. corn has firmed, and prices are not likely to attract any fresh buying interest near-term. Fertilizer prices have been heading lower for several weeks, but just as our expected new-crop revenue/anhydrous spread narrowed to within 10 dollars, corn prices fell out of bed and re-widened the spread. Those who currently believe fertilizer is overpriced compared to corn returns are correct. But those who say fertilizer needs to fall to get more affordable are not necessarily correct.

11232015PhosphateDecember 2016 corn futures on the weekly chart have fallen just a dime or 2.68%. meanwhile, our Nutrient Composite Index has softened 9.33% or 67.82 points. If we do a little futures' hopping, corn has fallen even farther. December 2015 futures this week last year were at $4.24. December 2016 futures opened this week at $3.87. That is a significant price slide and accounts for fertilizer's perceived expense. The chart at right shows clearly that, while fertilizer has fallen, corn returns have fallen as well. Note the trend expressed on the chart for corn prices to fall away from fertilizer prices sharply after having posted a narrow spread. We believe part of that tendency has been due to wide price margins between our nitrogen products. History has shown us that when nitrogen products are priced within a narrow spread, they are more able to accurately reflect corn prices. When the spreads between nitrogen products are wide, nitrogen is less likely to follow corn prices.

I mentioned last week that a fertilizer dealer had explained that we should no more expect fertilizer prices to follow corn that for new car prices to follow gasoline or crude oil. Fair enough, but the relationship between corn and nitrogen is a circle. Corn needs nitrogen to yield; nitrogen needs corn to be worth a fair price in order to be affordable.

The whole point of this is to help you understand how important it is to know the per bushel corn price figured-in to the fertilizer you are buying so you can make cash sales appropriately or understand exactly what price to protect in order to maintain profitability. This week the average cash corn price figured into our Nutrient Composite Index is $3.85 Watch our weekly reports TheNFiles and P&KToday for more specifics on the cash corn bids fertilizer is priced for each week.

11232015DieselFuels were lower this week. Diesel softened sharply on downside action in Michigan, Indiana and Wisconsin. Gasoline prices fell through last week and into the weekend and lower diesel this week indicates seasonal refinery maintenance my be over the hump. LP fell 4 cents despite a pretty serious snow event in Iowa and in other parts of the Midwest. Huge U.S. propane supplies continue to weigh on propane prices and will limit the upside for the time being.

Corn Futures -- December 2016 corn futures closed Friday, November 20 at $3.91 putting expected new-crop revenue (eNCR) at $619.63 per acre -- higher $6.77/acre on the week. With anhydrous priced at $645.16 this week, the eNCR/NH3 spread narrowed 10.00 points and now stands at 25.53. This means one ton of anhydrous ammonia is priced at a $25.53 premium to expected new-crop revenue per acre.

Using USDA's January yield peg of 171 and steady basis, expected new-crop corn revenue based on December 2015 futures at Monday's open at $3.62 totals $619.02 per acre.


Week-over Change
Current Week
Farm Diesel
-7 cents
Farm Diesel
-4 cents