The NFiles: NH3 Insulates U.S. Nitrogen Prices

December 3, 2015 08:55 AM

 

  • Anhydrous $75.25 below year-ago pricing -- lower 15 cents/st this week at $645.01.
  • Urea $69.43 below the same time last year -- lower 96 cents/st this week to $414.49.
  • UAN28% is $28.54 below year-ago -- higher 17 cents/st this week to $293.97.
  • UAN32% is priced $32.34 below last year -- lower 39 cents/st this week at $318.08.

1232015NH3eNCRJust as we get our hands around a possible nitrogen oversupply, reports surface that China may cut urea production in order to remedy the condition. From the sell the rumor, buy the fact perspective, however, UAN32% this week dips below the benchmark set by anhydrous. This is the first time we have seen this happen, and, trust me, I did the math several times to confirm such news. Our margin analysis is significant because it appears to show that when margins are thin between N products, nitrogen has a greater tendency to trend along with corn.

Having said that, currently, global nitrogen prices are tied to the price of Chinese urea. This is driven as much by marketshare as anything. But if we look at total ammonia imports around the globe, the United States is head and shoulders above any other nation in raw ammonia imports. Now some of that is used in the manufacture of various commercial products, but when we are talking anhydrous ammonia for corn production, the U.S. is by far the largest user of NH3 in the world. If China cuts urea production to balance global nitrogen supplies, the impacts on U.S. nitrogen prices could be blunted by farmers' reliance on anhydrous ammonia.

1232015UANUAN prices will be subject in part to urea price variations as a feedstock, but ammonia from Trinidad and Tobago will be a greater influence on U.S. UAN prices. In the case of UAN, increased domestic production will help limit the impacts of global urea market volatility.

An increase in urea prices resulting from a global shortfall would impact U.S. nitrogen prices as a whole, but anhydrous ammonia use along with domestically produced urea and UAN will act as insulating factors.

Just one more quick thought... we have debated the relationship between corn prices and fertilizer prices since the birth of the Inputs Monitor and it is a discussion that remains open. It would be nice if the stuff we need to make something reflected the value of the resulting finished product, but that is rarely the case. I have, so far blamed the disparity between corn and fertilizer prices on our reliance on foreign sourced nitrogen. If nitrogen prices can follow corn, the next few years will prove it as domestic production is set to swell.

1232015UreaEven if corn acreage for the upcoming plant comes in a few million above last year, nitrogen is in good supply in the U.S., and price spikes will be limited. Next fall could be a different story, but for the upcoming crop, if we can get just a small rise in corn prices -- 15 or 20 cents would do -- nitrogen is set to better reflect corn returns in the coming year.

December 2016 corn closed at $3.90 on Friday, November 27. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $617.94 with the eNCR15/NH3 spread at 27.07 with NH3 at a premium to December 2016 corn futures. The spread widened 1.54 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.79 per bushel.

Nitrogen pricing by pound of N 12/3/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.39 1/2
$0.46 1/2
$0.52 1/4
$0.48 3/4
Year-ago
$0.44
$0.53 1/4
$0.57 1/4
$0.55

 

The Margins -- Anhydrous is still underpriced compared to UAN28% and urea but UAN32% has dipped below parity. NH3 shorts urea 2 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 3/4 cent; UAN32% solution is 3/4 cent below NH3 on price.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
39 1/2 cents
0
0
Urea
NH3 5 cents
46 1/2 cents
7 cents
2 cents
UAN28%
NH3 12 cents
52 1/4 cents
12 3/4 cents
3/4 cent
UAN32%
NH3 10 cents
48 3/4 cents
9 1/4 cents
-3/4 cent

 

1232015Indexes