P&KToday: Will NPK Budget Leftovers Inspire Phosphate Demand?

January 14, 2016 03:47 PM

P&K was lower on the week.

  • DAP $76.69 below year-ago pricing -- lower $5.42/st on the week to $502.04/st.
  • MAP $71.38 below year-ago -- lower $5.34/st this week to $523.85/st.
  • Potash $99.56 below year-ago -- lower $8.61/st this week to $382.76/st.
  • The average cash corn price figured in to P&K this week is $3.66 3/4.
  • The national average corn basis firmed 1/4 cents from last week to 2 cents above March futures. The national average cash corn price firmed 5 cents from last week to $3.60. Basis is steady with the three-year average, which is 2 cents above futures for this week.

PhosphatePhosphate declines continue to be outshined by sharp declines in anhydrous ammonia pricing. As with the nitrogen segment, we begin to wonder how much pull anhydrous has in markets like these. The price of corn has been shown to have an indirect impact on phosphate prices as a result of demand. When prices are viewed as too high, demand tends to falter, fueling demand discovery as dealers look to price product to move. So far, reports are that phosphate demand for fall applications was very low, as was expected. But demand discovery does not change balances for retailers, and the wholesale price paid has more influence over pricing than demand features.

Imports account for the majority of phosphate currently in U.S. storehouses, locking in the global price at your local retailer. Here again, the wholesale price is where the dealer's margin analysis begins, and the low end threshold of profit and loss hinge on the international price of DAP and MAP and is the number one consideration where retail offering prices are concerned.

Since this week anhydrous is priced below $600/st regionally, phosphate has a long way to go before it falls in line with nitrogen. Growers will make sure they cover their nitrogen needs first and often base decisions for P&K on what is left over. In this way, low nitrogen prices may actually limit the downside for phosphate if low anhydrous leaves enough money in the budget for a decent phosphate application rate. There's that demand again -- price floors are often set when prices reach a level that, for whatever reason, buyers come to town and book nutrients. The price floor does not care if growers book product based on the idea phosphate is fairly valued, or on leftover cash in the production budget. The simplicity of buyers willing to book for spring gives the market the idea that prices have gone low enough. From there, prices often firm or at least run sideways.

In other words, inexpensive nitrogen may give the phosphate market false demand cues that indicate growers are willing to pay current prices when the reality is not that phosphate is viewed as a value, but rather, anhydrous -- UAN or urea as well -- are cheap enough that other nutrients become affordable from the buyer's side, not the seller's.

Phosphate prices are expected to continue lower near-term. We expect phosphate prices to remain well above the rest of the fertilizer segment due to high acid prices, which have improved but remain very volatile, and price strength in the global market. Typically, phosphate bottoms in the middle of winter and this year should pan out the same. We expect higher prices by spring as demand ramps up for preplant applications so we will be watching prices very carefully through the next few weeks in search of the price floor.

PotashPotash is still wildly oversupplied globally and despite lower prices, Belorussian producers report they have managed to turn a profit even though they have, in some cases, undercut global benchmark prices to garner marketshare. We expect the war of oversupply to continue between Belarus and Russia although other producers around the world will have to continue producing at strong levels to keep existing customers supplied.

With potash falling $8.61 per short ton regionally this week, there is no indication the downtrend will stop near-term. If nitrogen leaves room in the budget for phosphate, potash will also find demand based not only on nitrogen's financial leftovers, but also on its own inherent affordability.

By the Pound --

DAP is priced at 52 1/4 cents/lbP2O5; MAP at 50 cents/lbP2O5; Potash is at 33 cents/lbK2O.

The following is an updated table of P&K pricing by the pound as reported to your Inputs Monitor for the week ended January 8, 2016.

P&K pricing by the pound -- 1/14/2016

DAP $P/lb

MAP $P/lb
Potash $K/lb
$0.52 1/4
$0.49 1/4
$0.32 1/4
$0.60 3/4
$0.56 1/2
$0.40 3/4