Inputs Market Update: Oversupply Pressures Nitrogen, Potash

November 30, 2015 03:16 PM


Gains tallied 99 cents to Declines' $12.60 in the regional averages.

1130UreaNitrogen prices continued to fall although UAN28% firmed slightly. Phosphate prices were mixed with DAP correcting lower and MAP less than a dollar higher. Potash continued its downward trajectory, falling about a dollar and a half by the short ton. Our Nutrient Composite Index softened 2.21 points but the gap between expected new-crop revenue and one ton of anhydrous ammonia widened a bit on the week as a result of slightly softer corn prices.

Stories referencing a global nitrogen oversupply are beginning to surface. Lower energy prices worldwide and in particular, lower coal prices in China led producers to manufacture more product and expand existing production capacity. That works in our favor as it has with potash and crude oil. If manufacturers are producing nitrogen at such levels as to garner marketshare, availability will increase, pressuring prices.

1130UreaChina especially looked to capitalize on the low-cost production environment and dramatically expanded their urea production capacity and exports of Chinese urea exploded between 2011 and the present day. As U.S. production facilities come online in the coming months and years, low-cost natural gas will likely encourage breakneck production rates, especially if farmers are viewed as leaning toward corn acres and away from bean acreage.

The nitrogen oversupply will right itself one day, but if supplies ballooned by Chinese production are supported by a U.S. production boom, nitrogen should be better fit to reflect lower U.S. corn prices.

Not much change in either phosphate or potash. Potash is still gravely oversupplied and phosphate still can't get its head screwed on straight. DAP is down this week on a corrective move in Nebraska and a $20 price drop in Ohio. MAP basically held still this week with just mild gains posted in a few states. We look for potash to level-off eventually at or near current prices while phosphate will remain a wildcard thanks to variable feedstock prices.

Phosphate market activity has played its role in oversupplying nitrogen markets as U.S. producers have curtailed phosphate production, leaving ammonia that would have been used to make phosphate available for nitrogen production and non-fertilizer uses.

11302015RubyFuels were steady on the week with both farm diesel and propane unchanged. Our diesel spread analysis suggests sideways action ahead with a bearish bias.

Corn Futures -- December 2016 corn futures closed Friday, November 27 at $3.90 putting expected new-crop revenue (eNCR) at $617.94 per acre -- lower $1.69/acre on the week. With anhydrous priced at $645.01 this week, the eNCR/NH3 spread widened 1.54 points and now stands at 27.07. This means one ton of anhydrous ammonia is priced at a $27.07 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 $3.59 totals $613.89 per acre.


Week-over Change
Current Week
-15 cents
$645.01 Anhydrous
$538.56 DAP
82 cents
$565.42 MAP
$418.25 Potash
17 cents
$293.97 UAN28
-39 cents
$318.08 UAN32
-96 cents
$414.49 Urea
Farm Diesel
$2.00 Farm Diesel
$1.01 LP
656.25 Composite