Inputs Market Update: On the Fence on NH3

March 7, 2016 04:53 PM

Nh3Gains tallied $9.51 to Declines' $4.78 in the regional averages.

I'm on the fence on NH3 this week. I admit I have said at the sign of a "V" bottom, we would book anhydrous for spring. This week anhydrous is up 18 cents at $562.71. Not much of a pop, but it is the first time anhydrous has firmed since the second week of December 2015. It was a mild uptick and prices trended lower from then until today. A few states firmed enough this week to raise my eyebrows including South Dakota, Kansas and Indiana. I would book anhydrous in those three states at current prices.

South Dakota led gains on NH3, firming $21.59 on the week, but Nebraska offset that gain by falling $22.17. Those two moves comprise our largest price fluctuations. Without Nebraska and South Dakota in our equation, the regional average NH3 price would be up 27 cents by the short ton. That suggests prices are set to firm.

ureaIf we look to outside markets, crude oil and heating oil are both higher over the past several days. We have speculated over the course of the current crude oil price cascade that crude prices have weighed on commodities and on fertilizers. Crude has broken through resistance around $35 and held. If crude is a leader for fertilizers due to extreme market volatility, crude oil suggests NH3 prices are set to firm.

Analysis of wholesale prices suggests anhydrous is currently roughly $20 per short ton overpriced. That levers for lower prices ahead, but I believe the reasons for anhydrous prices to soften further are few and far between.

Since fertilizer markets have been starved for clear demand signals, I have long expected the introduction of farmer demand into these markets will be the impetus for a short period of demand-led price strength. The longer we go along here, the more bullish anhydrous appears. Keep an eye on your email and your for an ALERT to book anhydrous and perhaps phosphate as well.

PotashPhosphate has been overpriced compared to the rest of the fertilizer segment for months, but that is due to savvy manufacturing adjustments, and well managed supply-side economics. Also remember the phosphate segment is not exactly a competition-rich environment. The downside is starting to look exhausted and while phosphate is expensive by comparison, this week's prices may be the best we can get.

Potash is still burdened by global oversupply and we expect price strength to be extremely limited near-term.

Farm diesel popped another 2 cents higher this week, a trend we expect to continue through the end of spring fieldwork. We advised subscribers book 100% of spring/summer farm diesel needs two weeks ago. Click here for the rundown on that.

We also 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.

I have just about talked myself into booking anhydrous and phosphate, and I suggest you take advantage of my indecision by contacting your preferred retailer and find out about your local supplies, and where prices at your specific location are headed. I have no problem waiting on potash and booking K hand-to-mouth this spring. After sleeping on it, I will probably pull the trigger this week on NH3 and phosphate for spring and summer. Even if we book now and the market trails slightly lower, this week's prices are well below year-ago (that goes for phosphate as well) and priced at value levels from that perspective. Prepare to book anhydrous and phosphate this week if not next week, keep an eye on your and have a conversation with your preferred retailer about anhydrous and phosphate for spring.

Corn Futures -- December 2016 corn futures closed Friday, March 4 at $3.78 putting expected new-crop revenue (eNCR) at $593.39 per acre -- unchanged/acre on the week. With anhydrous priced at $562.71 this week, the eNCR/NH3 spread narrowed 0.18 points and now stands at -30.68. This means one acre of expected new-crop corn revenue is priced at a $30.68 premium to one ton of anhydrous ammonia.


Week-over Change
Current Week
18 cents
-89 cents
42 cents
Farm Diesel
2 cents
Farm Diesel
1 cents