The NFiles: Manage Your Risk and Save Your Coveralls

March 23, 2016 03:30 PM
  • Anhydrous $157.13 below year-ago pricing -- higher $2.71/st this week at $565.50.
  • Urea $98.61 below the same time last year -- higher $2.70/st this week to $367.25.
  • UAN28% is $53.51 below year-ago -- higher $6.63/st this week to $279.98.
  • UAN32% is priced $65.03 below last year -- higher $2.00/st this week at $305.60.

NH3Communication is a bit of a theme emerging in this week's analysis. I was in Wisconsin earlier this week addressing a great group of farmers. As I closed my prepared remarks and opened it up to Q&A, a farmer asked me about how many growers had prebooked fertilizer for spring. As farmers have watched fertilizer prices fall, their response has been about the same as it was last year when prices were flat -- wait as long as possible to see if the market will reward patience with lower prices. I agreed that farmers have been dragging their feet but warned that supply disruptions could turn and bite farmers in the coveralls.

Just as farmers have been dragging their feet to book ahead of spring applications, dealers have surely been struggling to gauge demand. Not wanting to book before wholesale prices bottom, some suppliers have dragged their feet as well. A cautious stance in a low margin environment on the farm, and a calculated response to weak demand and falling UANprices. While those dealers who have waited for prices to fall have made a smart decision, trouble could be lurking if supplies come late, or run out. Remember, your fertilizer dealer has to make a profit too and will look to capture the lowest possible wholesale price before pulling the trigger and building inventory.

I spoke to a co-op manager last week who noted his NH3 price had skyrocketed by $100 per short ton when demand outpaced supplies. Reports from other parts of the Midwest have suppliers rationing spring nitrogen and growers waiting in long lines for N. This week's cooler weather in the northern Belt will put a damper on demand, but the southland has gotten straight to work this spring with some corn fully emerged, even at this early date. That single fact may have Midwestern supplies playing catch-up. Nitrogen has already started higher on seasonal demand and while it has not exactly been a race to the top, we are definitely seeing a shift in the overall nitrogen price trend from sharply lower to tepidly higher.

If you have not yet booked nitrogen I urge you to do so at current prices. At least have a conversation with your preferred retailer about their supply situation and what they expect to happen once soils reach 49.99 degrees F in your neck of the woods. Help yourself out by helping your dealer gauge spring demand. If you are unsure what to do, book 50% of your expected spring/summer nitrogen needs and give the market another week or so to tell you what it plans to do.

As I said, we fully recommend booking 100% of your nitrogen needs at current prices, but I you have to tornCoverallsgamble, manage your risk by making a call to your supplier. Think long and hard about booking half of what you will need and be clear with your dealer regarding your intentions on application rates and acreage mixes. That way, you will have supplies on-hand, waiting for you when the time is right to apply and you just might save the hindquarters of your coveralls in the process.

Click here to view our advice to book anhydrous ammonia.

December 2016 corn closed at $3.85 on Friday, March 18. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $605.16 with the eNCR15/NH3 spread at -39.66 with NH3 at a premium to December 2016 corn futures. The spread narrowed 4.38 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.43 3/4 per bushel.

Nitrogen pricing by pound of N 3/23/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.34 3/4
$0.40 3/4
$0.50
$0.47 1/2
Year-ago
$0.44 1/4
$0.51 1/2
$0.54
$0.58

 

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

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
34 3/4 cents
0
0
Urea
NH3 5 cents
40 3/4 cents
6 cents
1 cent
UAN28%
NH3 12 cents
50 cents
16 1/4 cents
4 1/4 cents
UAN32%
NH3 10 cents
47 1/2 cents
12 3/4 cents
2 3/4 cents

 

Indexes

Torn coveralls photo credit www.pilotodyssey.com