The NFiles: Harvest Progress and NH3 Price Risk

October 8, 2015 11:18 AM

 

  • Anhydrous $50.78 below year-ago pricing -- higher $1.30/st this week at $661.74.
  • Urea $74.62 below the same time last year -- lower $2.31/st this week to $429.92.
  • UAN28% is $25.82 below year-ago -- lower $5.99/st this week to $303.28.
  • UAN32% is priced $14.01 below last year -- lower $1.70/st this week at $337.04.

1082015NH3Anhydrous ammonia was our only gainer in the nitrogen segment this week. Nebraska led gains in anhydrous and were it not for that state's $37.45 gain by the short ton, NH3 would have been slightly lower on the week. Minnesota, Iowa, Indiana, Missouri and Kansas all posted mild declines although Minnesota fell $12.66 on the week to lead declines.

The higher price in Nebraska is likely due to brisk demand for anhydrous as farmers look to wrap up fall fieldwork ahead of winter. That was the case last year -- the farther west one traveled, the more fall NH3 had been applied by December 2104. According to USDA, however, Nebraska is not the leader in corn harvest progress. On Monday, Oct. 5, USDA reported corn harvest in Nebraska at just 15% complete. That compares to the nation's harvest leader, Illinois at 50% harvested as of Sunday, Oct 4. Illinois NH3 did firm 89 cents per short ton on the week.

1082015UANAt the low end of harvest progress we find Minnesota at 9% harvested with a corresponding NH3 price decline of $12.66. That supports the idea that anhydrous prices may reflect demand brought about by harvest progress, or the lack thereof. But if it were really that simple, Nebraska would not have enough harvest progress under their belts to bring about a demand led NH3 rally. Either growers are pre-booking a price supportive amount of NH3 in Nebraska during harvest or retail prices are responding other supporting factors such as seasonal trends, transport and supply disposition.

From Pro Farmer Today October 5, 2015 -- Harvest is the most advanced in the eastern Belt. Illinois has 50% harvested (47% on average), with Indiana at 29% (32%), Iowa at 13% (24%), Minnesota at 9% (19%), Nebraska at 15% (24%), Ohio at 18% (17%), and South Dakota at 12% (22%).

Even with the higher price tag, however, Nebraska is still priced very close to our regional average NH3 price indicating anhydrous in the husker state is fairly valued.

1082015UreaWeak seasonal demand and strong imports account for lower UAN and urea prices. Exporters by now are looking to finish booking imports from China, Egypt and North Africa before the Mississippi River shipping lanes close for the season. We have advised to book a portion of UAN, urea and NH3 for spring to limit price risk through the winter.

Harvest progress this week suggests that on the low end of progress, NH3 prices will soften. However, the relationship does not show a strong correlation between NH3 price risk and harvest progress at the high end of percent harvested. Increased harvest progress will bring more fall nutrient buyers to market as time goes on. We will continue to watch for signs of a correlation.

We have been expecting a low in nitrogen for a few weeks now but have not yet found confirmation on the basis of lower UAN and urea. Anhydrous' higher price this week may be our harbinger of higher prices.

We are currently 80% filled for fall fertilizer. If you have not yet booked, get current to guard against higher prices in the coming weeks.

December 2016 corn closed at $4.10 on Friday, October 2. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $644.87 with the eNCR15/NH3 spread at 15.19 with NH3 at a premium to December 2016 corn futures. The spread widened 1.30 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.93 3/4 per bushel.

Nitrogen pricing by pound of N 10/8/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.40
$0.47 3/4
$0.54 1/4
$0.52 3/4
Year-ago
$0.43 1/4
$0.56 1/2
$0.57 3/4
$0.55

 

The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 2 1/4 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 2 1/4 cents; UAN32% solution is also 2 3/4 cents ahead of NH3 on price.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
40 cents
0
0
Urea
NH3 5 cents
47 3/4 cents
7 3/4 cents
2 1/4 cents
UAN28%
NH3 12 cents
54 1/4 cents
14 1/4 cents
2 1/4 cents
UAN32%
NH3 10 cents
52 3/4 cents
12 3/4 cents
2 3/4 cents

 

1082015NIndex