The NFiles: N Prices on Borrowed Time

February 19, 2016 11:49 AM
  • NH3Anhydrous $133.54 below year-ago pricing -- lower $3.11/st this week at $580.85.
  • Urea $104.78 below the same time last year -- lower $5.88/st this week to $365.39.
  • UAN28% is $64.65 below year-ago -- lower $3.14/st this week to $273.55.
  • UAN32% is priced $60.13 below last year -- lower $5.88/st this week at $308.65.

The table below depicts a price comparison by percentage from last year's nitrogen prices to today's. The percentages confirm a few things we already new. First, urea has fallen the most of all of our nitrogen products surveyed. This has been led by production fundamentals, shifting export policy and declining anthracite coal prices in China. Chinese urea UANproducers rely on coal as a feedstock rather than natural gas. In that way, Chinese urea prices are driven by coal prices which have been in decline in recent months.

UAN28% most closely reflects our average rate of decline over the past year at 19.1% compared to the overall segment's decline of 19.075%. As expected, UAN32% was the most stubborn, posting the weakest year-on-year decline at 16.3%. Anhydrous proved it is the nitrogen form most likely to follow corn prices falling 18.7% compared to an 18.0% decline in expected new-crop revenue over the period.

Nitrogen year-over declines

Anhydrous

Urea
UAN28
UAN32
New-crop revenue
2/19/2015
$714.39
$470.17
$338.20
$368.78
$725.68
2/19/2016
$580.85
$365.39
$273.55
$308.65
$598.43
Percent of change
-18.7%
-22.2%
-19.1%
-16.3%
-18.0%

 

UreaThis week wholesalers report urea values increasing at NOLA which we expect to translate into higher retail urea prices. Since urea overdid it to the downside we are not surprised to see a little price strength here. In fact, we believe some strength in the nitrogen segment is right on time. Growers in Louisiana and Texas have reported they are already in the field. All these markets need is a little fresh demand news and while a price spike does not seem to be in the cards in the short-term, as buyers come to market for spring nutrient, prices will likely place a floor.

We have not yet issued official ADVICE to book N for spring. We are waiting until next week when we have already herd of a sharp decline in Ohio UAN pricing. I am a buyer this week on anhydrous or urea, but I do believe we can pick just a few more downside pennies in the week ahead. We are at the line but pausing before we step across the line and book whole hog for spring. Be prepared to book next week as spring demand is beginning to show up, and price declines are on borrowed time.

December 2016 corn closed at $3.81 on Friday, February 12. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $598.43 with the eNCR15/NH3 spread at -17.58 with NH3 at a premium to December 2016 corn futures. The spread narrowed 10.34 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.44 1/2 per bushel.

Nitrogen pricing by pound of N 2/19/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.35
$0.40 1/2
$0.48 1/2
$0.47 1/2
Year-ago
$0.43 1/2
$0.52
$0.60
$0.57

The Margins -- Anhydrous is underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 1/2 cent by the pound of N; UAN28% is overpriced compared to anhydrous by 1 1/2 cent; UAN32% solution is 2 1/2 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
35 cents
0
0
Urea
NH3 5 cents
40 1/2 cents
5 1/2 cents
1/2 cent
UAN28%
NH3 12 cents
48 1/2 cents
13 1/2 cents
1 1/2 cent
UAN32%
NH3 10 cents
47 1/2 cents
12 1/2 cents
2 1/2 cents

 

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