Inputs Market Update: Phosphate Skews Average Price & Distillate Production Falls

October 26, 2015 01:33 PM


Gains tallied $3.81 to Declines' $11.32 in the regional averages. Fuels were firmer again on the week.

10262015NCIFertilizer prices continued lower overall this week, but as we had expected, the rate of decline slowed. Our Nutrient Composite Index fell 2.34 points after having fallen 6.60 points last week. We have been expecting fertilizer prices to bottom seasonally and this week's price action is a strong indication the bottom is near. Upside action was led by UAN32% which had arrived at parity with NH3 just last week, and DAP which has done its best to pull MAP prices downward without much success.

Fertilizer prices in general have outrun our expectations to the downside, but given low crop returns per acre, we are certainly not complaining. Spread analysis between each individual fertilizer products we survey and expected new-crop revenue show that phosphate is priced the highest compared to expected new-crop revenue (eNCR) per acre with nitrogen priced at just a light premium to eNCR. Urea is our highest priced form of nitrogen currently, as has been the case for a good long time now.

10262015PhosphatePotash continues to skew the overall value of P&K since it is priced so far below the current phosphate price peg. This week the average cash corn bid built into P&K is $3.88 per bushel. But when broken down, we can see the wide disparity between phosphate and potash prices. Potash is priced for $3.55 cash corn while DAP is at $3.98 and MAP is at $4.11. Those phosphate prices are an improvement from summer prices which inched lower after placing a top in the $4.30's.

It seems counterintuitive that nitrogen, whose demand is a certainty from year to year, would be priced below phosphate by comparison, demand for which is a lingering question from one application season to the next. Since China is the major seller of phosphate to the U.S., we would expect imported phosphate prices to soften the way imported urea from China did. But China only exports excess supplies. Like urea, Chinese fertilizer producers manufacture phosphate for domestic demand first and sell the excess on the export market. Urea has enjoyed low anthracite coal prices in recent years while phosphate rock is not so easy or inexpensive to come by. Demand for phosphate in South America and India are on the rise, and U.S. production is in decline. That puts us in line behind India and South America and U.S. importers are forced to pay prices set by the global market rather than U.S. production fundamentals.

Phosphate may slide lower near-term and demand discovery has only just begun. But if U.S. importers are forced to compete with other parts of the globe for phosphate, price pressure will be limited in the spirit of competition.

10262015FarmdieselOn the fuels side, it comes as no surprise that propane is slightly higher this week. Temperatures across the Midwest have begun to creep lower. The onset of winter will add mild price support to propane although robust U.S. supplies will limit the upside.

EIA reports that roughly 13% of Midwestern atmospheric crude distillation units (ACDU) are expected to be offline in October. Demand for refining inputs has fallen in response, indicating the current farm diesel price is unsustainable. Once ACDU capacity is revived after planned and unplanned maintenance is completed, we expect farm diesel prices to retreat regionally into the first of the year. We have found opportunities to book diesel right around Christmas for the last few years and we expect the same to be true this year. Stay hand-to-mouth on diesel for the time being.

Corn Futures -- December 2016 corn futures closed Friday, October 23 at $4.03 putting expected new-crop revenue (eNCR) at $635.04 per acre -- lower $1.68/acre on the week. With anhydrous priced at $651.07 this week, the eNCR/NH3 spread narrowed 1 point and now stands at 16.03. This means one ton of anhydrous ammonia is priced at a $16.03 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 $3.80 totals $649.80 per acre.


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