The NFiles: Nitrogen Corrects Lower

December 23, 2015 12:54 PM

 

  • Anhydrous $95.74 below year-ago pricing -- lower $16.19/st this week at $625.53.
  • Urea $71.44 below the same time last year -- lower $17.58/st this week to $394.68.
  • UAN28% is $24.97 below year-ago -- higher $6.50/st this week to $295.17.
  • UAN32% is priced $45.74 below last year -- lower $1.79/st this week at $314.42.

12232015NH3SpreadLast week both UAN28 and 32% solutions were priced below anhydrous ammonia. This week, anhydrous softened sharply as 28% firmed and 32% fell slightly. It is urea that gets the parity award this week, at just a 1/2 cent premium to anhydrous by the pound of N. We pondered parity in last week's TheNFiles and suggested perfect parity from al four of the nitrogen products we survey may not be just unnecessary, but also impossible to achieve. Either way, our spread between expected new crop revenue and one ton of NH3 has thinned to just 20 cents. Despite looser spreads between nitrogen products, the nitrogen/corn returns spread is razor thin.

The price moves this week were driven by Eastern Belt states like Ohio, Indiana, Michigan and Wisconsin although most states were lower this week on the anhydrous side. The price slides come as welcome relief and look a lot like corrective action. Near-term, it seems unlikely we will see further significant declines in nitrogen. Prices have been declining at a much slower rate. If this week's sharp 12232015UANdeclines are corrections or the result of dealers refilling at lower prices, the downside is likely to exhaust itself quickly.

Given that, we believe now is a great time to cover some nitrogen for spring and summer 2016. We do not expect prices to change a whole lot over the next few weeks so you can book on either side of the first of the year and still take advantage of low nitrogen prices. Spring prices may come in slightly firmer but there is little to add support given strong U.S. supplies.

December 2016 corn closed at $3.97 on Friday, December 18. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $625.33 with the eNCR15/NH3 spread at 0.20 with NH3 at a premium to December 2016 corn futures. The spread narrowed 17.87 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.77 1/4 per bushel.

Nitrogen pricing by pound of N 12/18/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.38 1/4
$0.43 1/2
$0.53
$0.49
Year-ago
$0.44
$0.51 1/2
$0.57
$0.56

 

The Margins -- Anhydrous is once again 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 2 3/4 cents; UAN32% solution is 3/4 cent above NH3 on price.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
38 1/4 cents
0
0
Urea
NH3 5 cents
43 1/2 cents
5 1/2 cents
1/2 cent
UAN28%
NH3 12 cents
53 cents
14 3/4 cents
2 3/4 cents
UAN32%
NH3 10 cents
49 cents
10 3/4 cents
3/4 cent

 

12232015Indexes