The NFiles: N Parity Suggests Closer Walk with Corn

October 22, 2015 12:19 PM

10222015Anhydrous

  • Anhydrous $74.88 below year-ago pricing -- lower $4.74/st this week at $652.76.
  • Urea $77.28 below the same time last year -- lower $3.27/st this week to $421.45.
  • UAN28% is $24.93 below year-ago -- lower $1.39/st this week to $299.99.
  • UAN32% is priced $30.87 below last year -- lower $6.01/st this week at $321.42.

After months of margin analysis, UAN32% is the first of our nitrogen products to arrive at parity with anhydrous ammonia. This builds the case for both products that they are each fairly valued within the nitrogen segment. Urea and UAN28% are not far behind with urea 2 cents above expected N margins and UAN28% just 1 cent above.

10222015UANThe implication is that UAN28% and urea prices will soften mildly as they work toward parity with NH3 and UAN32%. What does parity mean for prices? Since we have not yet seen perfect parity -- all outstanding spreads at zero -- the implications are unclear. In the past, when nitrogen margins have been thin, we note a better correlation to corn prices during those times. Nitrogen is more willing or able to follow the trend of corn prices when nitrogen margins -- the spread between the price of each per pound of N -- is narrow.

For those hoping for a post-harvest corn price rally, a closer walk with corn would mean higher fertilizer prices. Expected new-crop revenue based on Dec 2016 corn futures have chopped higher week-to-week since falling sharply in July. A case for base building to support a move higher in Dec 2016 futures can be easily made, and the truth is, is fertilizer prices are going to chop higher near-term, it is best if they do so along with new-crop revenue.

10222015UreaDealers have resupplied and fresh price points are set for fall and spring nutrient. As demand enters the market for pre-plant nitrogen, prices will begin to firm depending on your local supplies. If anhydrous, UAN and urea are al to arrive at parity, I suspect it will be because anhydrous and UAN32% firm to fill the gap, especially this late. Remember, we have expected fertilizer prices to bottom for a few weeks now and it does appear to be just a matter of time. Until then, continue to wait on prices to confirm the low, but it is a good time to begin collecting bids no matter if you intend to apply N ion the fall or the spring.

December 2016 corn closed at $4.04 on Friday, October 16. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $636.72 with the eNCR15/NH3 spread at 16.04 with NH3 at a premium to December 2016 corn futures. The spread widened 9.83 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.84 per bushel.

Nitrogen pricing by pound of N 10/22/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.40 1/4
$0.47 1/4
$0.53 1/2
$0.50 1/4
Year-ago
$0.44 3/4
$0.54 3/4
$0.57 1/2
$0.55 1/4

 

The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 2 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 1 1/2 cents; UAN32% solution is just 1/4 cent 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 1/4 cents
0
0
Urea
NH3 5 cents
47 1/4 cents
7 cents
2 cents
UAN28%
NH3 12 cents
53 1/4 cents
13 cents
1 cent
UAN32%
NH3 10 cents
50 1/4 cents
10 1/4 cents
0

 

10222015NiNDExes