March 9, 2016 -- Book Anhydrous Ammonia for Spring Applications

March 9, 2016 11:46 AM

Nh3Farmers will be looking to maximize returns this year as crop price forecasts call for a slow, steady grind higher at best. Maximizing yield is a good strategy as it will allow high production growers to make up for low grain returns in volume. One must also consider, the possibility for locking in a profit this year will have to include booking crop inputs at low prices. We have been waiting for a clear sign that anhydrous prices have bottomed -- a "V" bottom on the price chart, specifically. This week we are higher by 18 cents per short ton regionally. Since it has been so long since we have seen signs of strength, the market will view higher prices alongside seasonal demand increases as an opportunity to firm.

Book 100% of your spring anhydrous needs at today's price.

  • Retail prices on the rise as wholesale prices stabilize.

Sources report wholesale values suggest anhydrous should fall as much as another $20 per ton in certain areas, but demand will have greater pull in this market which has been starved for fresh demand news for the duration of the offseason. Prebookings were low as farmers waited for fertilizer prices to fall and corn prices to show some signs of life. That approach served farmers well, but as wholesale prices stabilize, downside potential dwindles.

  • Southern farmers have gotten a jump on spring fieldwork, adding demand-based price support. As northern soil temperatures warm, expect anhydrous applications to creep northward quickly.

AlsoNh3We have mentioned this in other writings, but it is worth noting how quickly spring fieldwork has begun. Growers in Texas report corn has already emerged, and 50 degree soil temperatures are opening the door to anhydrous applications as far north as southwestern Iowa. As the line of 50 degree soil temps travels northward, farmers will be as anxious to get out in the field as southerners have been thus far. That will bring price support as farmers finally book spring nitrogen.

  • NH3 prices are below new-crop returns on a per acre basis, signaling NH3 is a value.

Expected new-crop revenue is unchanged this week based on Friday's close in December 2016 corn futures at $3.78. That equates to expected new-crop revenue of $593.39 per acre. With anhydrous at $562.71, we have the benefit of slightly higher NH3 prices against steady corn prices. That in itself is enough to wear on our appetite for risk. This week, new-crop revenue is at a $30.68 premium to one ton of anhydrous ammonia, which is priced for $3.31 per bushel corn at a yield of 170 bu/acre.

We consider anhydrous prices a value at current levels, and it is time to take advantage. We do expect prices to fall once we get beyond spring demand, so book only what you will need for spring.