The NFiles: A Look at UAN's Upside Risk

May 19, 2016 01:02 PM

 

  • Anhydrous is $115.51 below year-ago pricing -- higher 30 cents/st this week at $606.04.
  • Urea is $83.49 below the same time last year -- higher $1.45cents/st this week to $378.90.
  • UAN28% is $59.94 below year-ago -- lower $1.30/st this week to $281.72.
  • UAN32% is priced $54.21 below last year -- lower $1.03/st this week at $310.89.

UANWith USDA pegging corn planting progress at 75 percent, fertilizer demand must surely be in decline. Yes, sidedress is yet to come and last week we suggested that since NH3 has firmed roughly 7 percent from the February price floor and UAN solutions have since firmed only half that much by percentage, there may be some room to the upside for nitrogen on the basis of sidedress demand.

Based on the analysis presented in last week's TheNFiles, we can forecast what it would look like if sidedress demand has the same impact by percentage on UAN prices as it did on NH3 for preplant applications. Since NH3 has firmed 7 percent from its low and UAN28% has firmed only 4.5 percent since the same time, filling the percentage gap would support UAN28% pricing upward to $288.76 per short ton. UAN32% has firmed 3.08 percent since placing the winter low. Filling the percentage of gain gap here would support 32% pricing at $323.07. On an indexed basis, those percentage increases would have both 28% and 32% priced for about $3.66 1/2 per bushel cash corn.

Unclear whether dealers will need to test the upside tolerances on UAN pricing. The farmers who have planned to sidedress have applied preplant nitrogen accordingly. That makes late season nitrogen demand a clear certainty for some. We advised farmers book UAN when the nitrogen market signaled upcoming strength, and those who did so at that time may have saved up to 7 percent on post emerge N. Market fundamentals currently favor a nitrogen price cut on the heels of bulging urea and ammonia supplies, but retailers are not likely to leave revenue on the table if growers are willing to pay slightly higher prices for late season N.

The near-term outlook is uncertain, but we cannot ignore the impacts of demand on nitrogen prices. It has been our stance that UAN will be the last to see demand come to its seasonal end among nitrogen products. Looking at the margins, nitrogen prices by the pound of N are very tight presently and urea and anhydrous are due to set back in the next few weeks. The amount of N for sidedress that has already been booked and UAN's willingness to follow the rest of the segment blindly will be tested in the coming weeks.

It is important to note that all four of the N products we survey are priced at a discount to an acre of expected new crop revenue and present a value at current prices.

December 2016 corn closed at $3.98 on Friday, May 13. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $627.01 with the eNCR15/NH3 spread at -20.97 with anhydrous ammonia at a discount to expected new-crop revenue. The spread widened 23.25 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.54 1/2 per bushel.

Nitrogen pricing by pound of N 5/19/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.37 1/2
$0.41 3/4
$0.50 1/4
$0.48
Year-ago
$0.44
$0.51 1/4
$0.61
$0.57

The Margins -- UAN28% is overpriced compared to anhydrous by 3/4 cent; UAN32% solution is 1/2 cent above NH3 on price. Urea is 3/4 cent below anhydrous by the pound of N this week.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
37 1/2 cents
0
0
Urea
NH3 5 cents
41 3/4 cents
4 1/4 cents
-3/4 cent
UAN28%
NH3 12 cents
50 1/4 cents
12 3/4 cents
3/4 cent
UAN32%
NH3 10 cents
48 cents
10 1/2 cents
1/2 cent

 

NSpreads