The NFiles: Nitrogen Availability to Limit Prices

November 18, 2015 10:18 AM

11182015Urea

  • Anhydrous $66.93 below year-ago pricing -- lower 4 cents/st this week at $648.39.
  • Urea $80.02 below the same time last year -- lower $1.03/st this week to $414.37.
  • UAN28% is $24.09 below year-ago -- lower $1.99/st this week to $296.10.
  • UAN32% is priced $25.76 below last year -- lower $3.37/st this week at $324.13.

Nitrogen prices fell this week although anhydrous was only down four cents by the short ton. UAN32% led declines falling $3.37 this week as 28% fell $1.99 and urea was down $1.03. The overall expectation is for urea prices to continue slightly lower along with UAN solutions near-term. As is the case with farmers and end users, importers are currently hesitant to book fresh tons from the global market in anticipation of lower prices ahead. Urea production in North Africa is at the top end of capacity. Market watchers report that increased LNG imports into Egypt have boosted natural gas availability and pressured urea prices there. Algeria is also reported to be producing at the top end of capacity, and supplies from Ukraine are expected to increase.

11182015UANUAN will also get a boost from increased profitability on urea production. Domestic production will soon begin to play a role in U.S. UAN prices as plants come online. Domestic production will really begin to weigh on prices farther down the road, and we expect the price impact to arrive about this time next year. UAN prices in general are expected to fall slightly near-term with demand for post emergence applications supporting prices in late spring. Prices will be a bit uncertain in the meantime, but we expect prices to dip slightly around midwinter.

Anhydrous looks like it wants to bottom here. The downtrend has slowed dramatically and demand for fall applications is now expected to be better than last year at this time. It is true, that anhydrous is priced well below last year and despite recent weakness in corn futures, growers have had decent weather in many parts of the Corn Belt. If winter weather cuts the application window short, prices will likely soften a bit more. Our expected new-crop revenue/NH3 spread fell out of bed this week thanks to corn price softness, but we expect at least a mild near-term recovery and an improved price spread. Since global corn supplies are very high and this year's harvest is expected to be very near record large, corn futures will have a tough time maintaining price strength, but a slow grind higher alongside sideways nitrogen pricing will go a long way to bring buyers to market for nitrogen.

11182015NH3_spreadOur general outlook on nitrogen is for sideways price action near term with NH3 exhibiting the greatest upside potential. Urea has the greatest downside potential with UAN fairly uncertain. Production fundamentals are set to keep a lid on prices through winter both from foreign and domestic sources. Even with a slight increase in corn acreage, nitrogen supplies are strong, and availability is good. If you can find an anhydrous bid for fall below $625 go ahead and book for immediate application. Michigan growers should look for a price below $700 as we expect prices in that state to be above the rest of the Corn Belt.

Give urea and UAN some time to come our way and expect to book spring and summer supplies during the winter when prices post a clear low.

December 2016 corn closed at $3.87 on Friday, November 18. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $612.86 with the eNCR15/NH3 spread at 35.53 with NH3 at a premium to December 2016 corn futures. The spread widened 18.78 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.82 per bushel.

Nitrogen pricing by pound of N 11/18/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.39 3/4
$0.46 1/2
$0.52 1/2
$0.50 1/2
Year-ago
$0.43 1/2
$0.54 3/4
$0.57
$0.54 1/4

 

The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 1 3/4 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 3/4 cent; UAN32% solution is also 3/4 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
39 3/4 cents
0
0
Urea
NH3 5 cents
46 1/2 cents
6 3/4 cents
1 3/4 cents
UAN28%
NH3 12 cents
52 1/2 cents
12 3/4 cents
3/4 cent
UAN32%
NH3 10 cents
50 1/2 cents
10 3/4 cents
3/4 cent

 

11182015IndexesN