Inputs Market Update: Key Markets Forge Price Floor

March 17, 2016 09:50 AM

Gains tallied $5.76 to Declines' 27 cents in the regional averages.

NH3SpreadThe downtrend in fertilizer and fuel prices appears to have come to an end as our Nutrient Composite Index firmed for the second consecutive week. Only UAN28% softened this week as LP was unchanged and farm diesel and all of our other fertilizer products firmed slightly. DAP led to the upside, adding $3.20 by the short ton. All other fertilizers were within one dollar of unchanged. The regional averages very accurately reflect this week's price action across the Midwest where no state firmed on any nutrient by double digits, and most were within a dollar of unchanged.

We have pulled the trigger on UAN and urea as wholesale markets and demand in the deep south have added support to prices. Click here to read more. We also booked anhydrous last week. Click here to read more. With that, our nitrogen needs for this crop are now covered and we can turn our attention to P&K. Potash firmed 24 cents per short ton regionally this week as manufacturers Phosphate_indexedscramble to maintain profitability amid weak demand for the nutrient and global oversupply. In that environment, it takes a little more than a 24 cent bump to scare us on potash, especially since prices are so low compared to the rest of the fertilizer segment. We still recommend a hand-to-mouth approach on vitamin K.

Phosphate is still tricky to figure. I would favor the upside more if I thought demand were set to surprise us, but so far, retail phosphate prices have not reflected sharp declines in wholesale prices through the winter. Those wholesale bids have begun to climb slightly, but looking ahead to April, offering prices have retreated a bit. That leaves the door open for at least sideways phosphate pricing over the next few weeks. We are optimistic that the upside will be limited.

dieselKeep your finger on the pulse at your preferred retailer on phosphate. In areas where supplies run short, prices will firm in a hurry. If our regional average price firms next week, we will cover at least a portion of spring P needs.

Fuels are headed higher and fund activity in crude oil futures suggest the February low at $28.74 is as low as prices will go in 2016. Hefty global supplies alongside weak demand for petroleum products and raw crude will be a wet blanket on the market and narrow upside potential in crude and fuels, but WTI prices are headed for $40 per barrel. At some point however, WTI prices will firm enough to bring stalled rigs back online, and we may cycle back through another test of a $20 handle. I believe the more likely scenario is that producers will proceed conservatively, and WTI will seek a range between $35 and $45 per barrel.

As we believe WTI crude has bottomed, we also believe farm diesel has posted its annual low. Diesel prices will soften through the summer, but it is unlikely prices will fall back to the Feb low at $1.43. According to our calculations, with WTI at $40, farm diesel would be fairly valued somewhere between $1.90 and $2.00 per gallon regionally. I favor the summer diesel low closer to $1.60, but that will depend on the pace of planting and summertime crude oil prices.

Corn Futures -- December 2016 corn futures closed Friday, March 11 at $3.86 putting expected new-crop revenue (eNCR) at $606.84 per acre -- higher $13.45/acre on the week. With anhydrous priced at $562.80 this week, the eNCR/NH3 spread widened 13.36 points and now stands at -44.04. This means one acre of expected new-crop corn revenue is priced at a $44.04 premium to one ton of anhydrous ammonia.

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Nutrient/Fuel
2/29/16
3/7/16
Week-over Change
Current Week
Nutrient/Fuel
Anhydrous
$562.53
$562.71
8 cents
$562.80
Anhydrous
DAP
$485.32
$481.43
$3.20
$484.63
DAP
MAP
$495.51
$499.01
88 cents
$499.90
MAP
Potash
$366.54
$365.66
24 cents
$365.90
Potash
UAN28
$270.92
$273.62
-27 cents
$273.35
UAN28
UAN32
$302.59
$303.02
58 cents
$303.60
UAN32
Urea
$361.10
$363.77
78 cents
$364.55
Urea
Farm Diesel
$1.45
$1.47
1 cent
$1.48
Farm Diesel
LP
$1.01
$1.02
Unchanged
$1.02
LP
Composite
583.34
584.66
1.06
585.72
Composite

 

Total